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Edited Transcript of APGN.I earnings conference call or presentation 27-Mar-20 7:30am GMT

DUBLIN Apr 9, 2020 (Thomson StreetEvents) — Edited Transcript of Applegreen PLC earnings conference call or presentation Friday, March 27, 2020 at 7:30:00am GMT

Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst

Hello, and welcome to the Applegreen plc final results call. (Operator Instructions) Just to remind you, this conference call is being recorded.

Today, I am pleased to present CEO, Bob Etchingham; CFO, Niall Dolan; and COO, Joe Barrett. Please go ahead with your meeting.

Thank you, and good morning, everybody, and welcome to our 2019 results call. And obviously, we’re taking the opportunity to speak to you about COVID-19 and the impact of that on the business also.

I’m joined on this call by CFO, Niall Dolan; and Joe Barrett, our COO. We’re not in the same location, however, so apologies in advance if things maybe are a little bit disjointed in places. But with that, I’ll hand you over now to Joe to talk about our experience of trading through the COVID-19 crisis. Joe?

Good morning, Bob. And if we turn to Slide 4, what I would say is Applegreen had a very strong performance in the first 10 weeks of 2020. We’re very pleased with how we’re doing with good footfall and volumes. However, in the last 2 weeks, following the ongoing onset of the crisis, there has been a substantial fall in customers coming into our stores. However, we’re very much a resilient business. We’re defined as an essential service. And all our stores remain open. And some of our food offers have been significantly reduced and we have taken swift action to close a lot of locations in terms of food locations.

However, just even only yesterday, we received a letter from the U.K. Secretary of State, The Right Honorable Grant Shapps stating that we are key worker status in providing essential service and requesting us to reopen some of our food offers, which shows you the fluidity of what is happening in the market.

Right upfront, we’d like to call out the fact that we’ve modeled our expectations on the impact of this crisis on the business. And it’s happening at a different time across all 3 of our markets. And we see the business being significantly impacted during April and May and then gradually easing out in June, and our cash flow will be normalizing into Q4. We feel we have sufficient cash and credit facilities to get through this cycle, and we’re very happy with the modeling that we have done.

In terms of some of the actions that we’ve taken to immediately look at conserving our cash, we’ve reduced our headcount and in the process we reduced our headcount by 4,800 people between the U.K. and Ireland predominantly on the food service side of our business. We’ve implemented recruitment freeze. We’ve reduced our capital expenditure to minimum levels. And last year, our maintenance CapEx was around EUR 13 million out of total of EUR 140 million.

We deferred our payroll taxes and VAT payments in the U.K. and we’ve got a moratorium on our rates for 12 months. We’re reducing all the repairs and maintenance to only essential repairs, and we’ve got a constant focus on the working capital side of our business. We’ve deferred our executive director bonuses, and we’ve commenced negotiations with all our landlords seeking rent holidays. And we’ve also focused on the convenience side of our business. What we have seen is that our local petrol filling stations have benefited greatly on the store side of our business from being local in the community, and sales have increased in a lot of locations by providing good food and alcohol and cigarettes to local customers. In addition to this, we’ve decided not to pay a final dividend and with a preference of preferring embedded cash in the business.

I’ll now hand over to Niall, who’ll take you through the detail of our cash position.

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [4]

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Thanks very much, Joe. So I just want to discuss the liquidity of the business a little bit to give some color on where we are just now and how we see the situation developing.

So first of all, to start with covenants and covenant headroom. At the 31st of December 2019, in our Applegreen plc bank group, we had a 59% headroom against a covenant limit. So in that bank group — we have 2 separate bank groups in the group. We have the Welcome Break bank group and we have the Applegreen plc bank group. So Applegreen plc had a leverage of 1.9x against a covenant limit of 3x at that point in time. For the Welcome Break bank group, they had a covenant calculation of 4.5x leverage against a covenant limit of 6.5x. So that was headroom of 45% at that particular time. So obviously, we were in a very comfortable position with respect to covenants at the end of the year when we were trading on the normal conditions.

We’ve then given an updated position with respect to our liquidity as of the 20th of March. So as you can see, the net debt for the group on a pre-IFRS 16 basis was EUR 545.5 million which comprised of drawn debt of EUR 665 million and EUR 119.5 million in available cash.

That split-up between both bank groups as follows: We had almost EUR 95 million in the Applegreen plc group and EUR 272.6 million of drawn debt. That debt facility matures in October 2023. So it obviously still requires a long way out. In the Welcome Break bank group, we had almost EUR 25 million of available cash and EUR 392.4 million of drawn debt.

As we would have tried when we talked previously, Welcome Break has successfully refinanced its debt package in Q4 of last year. So now that debt is roughly split 50% between 10-year institutional term loans, which mature in 2029, and the balance in 7-year term debt, which matures in 2026.

Combined with that available cash in the group of almost EUR 120 million, we do have access to further facilities. So at this point in time, we have EUR 22 million of committed overdraft facilities in our bank groups. And Welcome Break has a capital expenditure facility line of approximately EUR 28 million. And on a combined basis, we have accordion facilities documented in our facility agreement of EUR 130 million. And just to point out that, that obviously requires the consent and the agreement of our banking groups, our respective banking groups, to convert that — those accordion lines into drawable facilities. But nonetheless, they are documented there in a predefined procedure for accessing that capital documented in our debt facilities.

So to follow on that point, and in discussions we’ve been having with our bank groups so far, I would have to say they have been very supportive particularly around the flexibility in covenants that we may need in the future. They’re expressing a high degree of confidence and have been able to give us any necessary flexibility that we will require in the future.

One other point to finish off on, we do have a strong asset base in the Applegreen Group. The carrying value of our land and buildings at the 31st of December was EUR 414 million. So we do have a very high value of freehold property within the estate, which also helps to give us some confidence.

So just to reiterate the point that Joe has made earlier on. Based on reasonable expectations, we have made some assumptions around modeling the impact of this in our business and feel confident that we will be able to work through a scenario where we’re severely restricted. We’re moving to severely restricted through April and May with a gradual recovery in Q3 and then normalizing in Q4. The immediate impact we have from a cash perspective is the unwind of our negative working capital position in a situation where trade is at a lower level. That is expected to happen over the course of April and May. And then we start to level off and normalize or level off somewhat thereafter.

I think Joe has made a very important point that all our sites continue to trade. So we are continuing to receive cash in and generate cash on a daily basis. So we strongly feel that operating cash outflows in the longer term won’t be that material and will be manageable in the context of the facility we have in place.

So with that, I’m not sure if the moderator is still online. It would be good probably to break at this juncture and take a Q&A on COVID-19 specifically before we then proceed on to the normal slide deck outlining our financial performance or our performance for 2019. So if the moderator is available, would you get it to open up at this point for Q&A?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Jason Molins from Goodbody.

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Jason Molins, Goodbody Stockbrokers, Research Division – Analyst [2]

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A few questions, if you don’t mind. Firstly, on the liquidity, the accordion facility, you mentioned that it’s in place, but there are certain things that may be documented that would allow you to get full access to that. Can you maybe just give us a sense of what they are, I guess, what you need to do to allow yourself to access that facility?

And then in terms of working capital, the unwind, you expect to see in April and May. Can you just talk about that in a bit more detail, maybe referencing your assumptions on volumes that you still expect to see in your business?

And then just sort of a final question, if you don’t mind. You highlight the strong fixed asset base of just over EUR 400 million. Do you see that as something that maybe you’ll look to free up from a sale and leaseback position? Or is that something, I guess, you might consider using as collateral for any funding requirements?

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [3]

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Okay. Well, maybe I’ll take the first one — first part of that question around the COVID-19 disease, Jason, yes. So the — we will have to go through a process with the bank, the bank groups, respectively, to negotiate the conversion of the placing of those accordions into drawable debt. So I think there’s a clear procedure documented in the bank groups around that procedure. So that is definitely helpful. And certainly, in the event that we were to need additional liquidity, it leaves us in a much better position to trigger those facilities rather than a case where no accordion facilities were in place.

So I probably don’t wish to say too much more than that, except there is a significant level of accordion documented in the existing packages. Would you take the second one?

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Joseph James Barrett, Applegreen plc – COO & Executive Director [4]

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Yes. Just in terms of modeling creation, we have taken some sort of downside severe-case examples, which is much worse than what we’re currently seeing in all the markets that we operate. We’re rolling that severe case out during April, May and June with the improvements coming out and stepping up in July, August and September. And we feel that we’ve plenty of headroom in the back out there. So our downside case is significantly worse than what we’re actually seeing in all the markets in which we operate in. That is [important] that they are — each of the markets are different. And it’s interesting to see the stability on — especially on the store side of our petrol filling station side of the business.

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [5]

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And just to take the point on fixed assets, I think it’s — fixed assets, it’s not something we’d look to do. It will be very last resort if we would look to do some — look to do something around fixed assets by way of accessing further liquidity through use load and some sort of sale or leaseback arrangements. And obviously, we’ve got the required bank consent, Jason. But I think it’s important that this — it’s an important part of the financial constitution of the business that we have such a large valuation around the billings within the business. So it gives us some optionality in the future, if ever we would need to follow up levers.

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Jason Molins, Goodbody Stockbrokers, Research Division – Analyst [6]

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I’m sorry. Just back to working capital, can you give us a sense of magnitude? And when are you launching stuff, in April, May of something like control sharing?

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [7]

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We haven’t disclosed the impact. You can obviously — you can see the level of working capital at the end of — at the end of 31st of December, I think there’s something like EUR 198 million negative. So as Joe has spoken about the assumptions we’ve used, given that all our sites are open and trading and at the type of downside now as we look at it, we feel we can handle that, the unwind of working capital, within the context of the facility we have.

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Joseph James Barrett, Applegreen plc – COO & Executive Director [8]

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And I think, Jason, our cash flow is linked with our fuel sale. And we see our fuel sales beginning to lift back up again during May, June and July, which will sort of restore that cash flow.

Is there are any other questions before we go back to the normal presentation?

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Operator [9]

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There is one further question from Ned Hammond from Berenberg.

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Ned Peter Hammond, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [10]

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I just want to sort of follow up on that just without sort of giving any figures obviously. You’ve made a scenario about severe impact in April and May and then beginning of a normalization in June. How long would a sort of April, May scenario have to last for them to become more of a tricky situation?

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [11]

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Look, I think as I said, Ned, the real draw on cash is really the unwind of a working capital situation. Joe has outlined all of the initiatives we’re taking to really downsize the cost base of the business. I think we find it very difficult to envisage a scenario where we will have to show up in a large number of places. And we feel most of our facilities or all of our facilities will stay trading. Again, just to reiterate the point I made earlier, we feel once the working capital unwind happens, we will be able to rightsize the business to meet the [maximum] of trade we’re experiencing. So I don’t expect a very material cash outflow from ongoing operational expenses, if you like, in that type of environment. So I think certainly, it’s something we will be able to manage through or trade through in the context of the facilities we have available to us.

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Joseph James Barrett, Applegreen plc – COO & Executive Director [12]

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In terms of — trading will continue for another 3 months. We’d still be in a good position to continue trading without any [disruption].

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Presentation

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Joseph James Barrett, Applegreen plc – COO & Executive Director [1]

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Okay. If there’s no further questions, then we’ll turn to Page 6 at the start of our 2019 highlights. So we’re delighted to reach the EUR 3.1 billion revenue turnover for 2019. This was a significant milestone for us with adjusted EBITDA of EUR 140.4 million, which is 141% increase. And even in our traditional Applegreen business, we — in excess of 20% growth in EBITDA up EUR 57.7 million. So very, very pleased with the performance out there, total group across all 3 markets.

You can see our capital expenditure and acquisitions rose to EUR 114 million. That includes the EUR 35.8 million in relation to Connecticut Service Plaza business, which I’ll comment on in a few minutes. And just to highlight that EUR 13 million of that figure is our ongoing maintenance CapEx and EUR 11 billion was our ERP project, which is now successfully in operation. So we don’t have an ongoing significant maintenance that needs to be put into the business. And our debt level absolutely, which was 3.7x, and the Applegreen banking group is 1.9x as Niall outlined.

If we move over then to our trading and development review on Page 9, we just wanted to reiterate that our aim is to be a leading roadside retailer serving the needs of the consumers in the transit markets in each of which we operate. And how we do this is that we start off by establishing the position of the petrol filling station side of the business. We build our local management teams and develop relationships with suppliers and agents within each market. We expand our footprint then up into the service area sector, and we grow our EBITDA from our nonfuel activities. And that has been very successful in Ireland and the U.K., and we’re right in the middle of that platform now in the U.S.

We see Applegreen as being very well positioned to capitalize on the growth trend in food-to-go, convenience retailing and especially in electric vehicle adoption. Currently, 70% of Applegreen’s EBITDA is derived from our larger service area locations, which only account to 20% in number, and 75% of our gross profit is derived from nonfuel activities.

So turning over, you can see that product and geographic mix on Page 11 (sic) [Page 10]. You can see our fuel has dropped in proportion of our business from 35% in 2018 down to 25% by the growth in our food and store side of our business. And in terms of our geographic spread, Ireland has dropped in importance from 48% down to 25% of our business. And again, the growth outside of Ireland predominantly in the U.K. And the U.S. is beginning to make more and more contribution to our business.

So moving on then to Slide 11. You can see we grew our sites to 202 sites, which is 5%. And I think that’s really highlighting the fact that we’re focusing on quality side rather than quantity. And we won’t see ourselves growing a huge number of sites but a smaller number of larger facilities. Our gross profit as a percentage grew by 7%. We opened 9 new sites, 2 of them were company-owned and 7 were dealers. One of the larger sites we opened in Midway has been upgraded to a motorway service area when we added fuel last year. And Santry beside Dublin airport has been significantly invested in to become a trunk road service area with 3 food offers in a very strategic area.

We’re focusing on vegan and healthy foods in combination with our brand partners, and that has helped contribute to good like-for-like growth in foods. We’ve extended our franchise agreements with Costa Coffee. So we’ve extended all 11 agreements with Costa. And we’ve invested in our premium fuel initiative called Fuelgood and this is showing strong like-for-like growth especially in margin, and it now accounts for approximately 15% of our fuel sales in Ireland.

We installed our first 2 branded EV charging bays in Birdhill and here at Limerick last September. We went live with our ERP project in July. And what is a huge benefit out of the ERP project has been our data analytics capability, which has enabled us to enhance our sales and our margins in our store side of our business.

Moving on to Slide 12 in the United Kingdom. We’ve grown our business to 163 sites. We’ve had a very strong performance by our power brands. Starbucks, Burger King, KFC, Greggs and Waitrose in particular have all performed extremely well. Rothwell, which was our first sort of trunk road service area site that we’ve developed, which was part of the Applegreen pipeline that was transferred into Welcome Break, is doing extremely well. And we’re now got to selling 300,000 liters a week there which puts this as being one of our largest pumping stations in our space.

We’ve added 3 petrol filling stations to our group and 1 stand-alone hotel. That standalone hotel was at a contracted agreement prior to us buying into Welcome Break. And otherwise, we wouldn’t see hotels as being a growth sector for us.

Whitley, which is (inaudible) road service areas, was knocked down and rebuilt with 2 food outlets, Greggs and Costa, and this is performing ahead of our expectations. And we were delighted to get planning permission for a large motorway site in Rotherham in the U.K., and it is again from one of our pipeline of assets that we transferred from Applegreen into Welcome Break. There was a positive regulatory change in gaming legislation, which Welcome Break business benefited from as well.

If we move over then to Slide 13 which is specifically on Welcome Break, what we found was that Q1 was very much impacted by Brexit and the customer confidence was at a low of minus 14% at the time. And as each quarter went… (technical difficulty)

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Operator [2]

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Okay. It seems like we have lost the speakers. Bob, would you like to take over while we reconnect?

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Robert Etchingham, Applegreen plc – CEO & Executive Director [3]

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Yes. Okay. Apologies for that, folks. Just looking at slide — Welcome Break Update slide. As Joe was saying, we’ve had a good year and around 2019 in Welcome Break. Started weakly in Q1 but picked up as the year went on. We have identified a significant number of synergies in Welcome Break. From the areas that we expected to get the synergies, the back office area, the forecourt labor and fuel. And that number now has grown to at least GBP 13 million of synergies that we expect to achieve by the end of 2021.

We — as Niall said earlier, we’ve refinanced senior debt, and that was completed in Q4. We’re in the process now of rebranding our forecourt from the Shell brand to a Welcome Break brand that we have developed, and that is being rolled out now as we speak. And we’re starting to see the benefits of the additional working capital coming through, or at least we would have were it not for the COVID-19 fuel volume downturn, but that will emerge in due course once things normalize again.

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Joseph James Barrett, Applegreen plc – COO & Executive Director [4]

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Bob, we’re back again. Sorry that we…

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Robert Etchingham, Applegreen plc – CEO & Executive Director [5]

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Okay. I pretty much finished the slide — on Slide 13. So…

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Joseph James Barrett, Applegreen plc – COO & Executive Director [6]

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Okay. Sorry about that. There seems to be a lot of [grumblings] because so many people are working from home and different locations, so something happened as I — so I move on then to Slide 14 then in the United States. You can see from this slide here, we’ve had upped the number of locations to 191 sites. We’re spending a lot of time over in that market now. We’re finding it to be very good. We have invested in our 7-Eleven brand on our store side of the business. In the Northeast, we have 30 locations trading. We opened our first Burger King in Barrington and it has a mobile forecourt, an Applegreen shop and a Burger King drive-thru restaurant and truck fueling facilities. And we’re very pleased with how that has turned out.

We’re due to open our first trunk road service area in a site called Sturbridge in Massachusetts. That is due to open in April but it may now move to May depending on the crisis in the States.

Down in the Southeast, that is performing extremely well with 92 locations trading now, which includes 20 Burger King restaurants. We converted 4 of those sites to 7-Eleven convenience stores during the year. And it’s worth noting that EUR 35.8 million of our CapEx spend last year was related to the acquisition of the Connecticut Service Plaza.

So we’ll go into some detail on that on Slide 15. This is an extremely well-invested estate of 23 locations. They have brands of McDonald’s, Subway, Dunkin’ Donuts and Taco Bell, and there’s a couple of other small restaurants but they are the main 4 and has a mobile forecourt. We’ve taken a 40% interest in that business. We’re predominantly in as property managers of that business, but our aim to enhance our margin is going to be by improving the tenant mix, putting in some advertising initiatives and improving sort of the maintenance and repair and what we call the [CAM] of the business, which we’re going to take in-house and facilities because (inaudible) we’re going take in-house rather than being externally — contract award and outside. And we’re working with the authority to look to see can we add any more facilities such as drive-thru restaurants. So we feel there’s a lot of opportunities in this business to take over some direct operations at some of the food offers into the future. And we’re working with a number of brands in seeking out those opportunities.

In the Midwest, we acquired a group of 46 sites at the end of Q3. This, again, is in partnership across American partners, so it is on favorable lease terms to us with a sort of a 10-year lease with 5-year breaks with an opportunity to hand back sites as well should we wish to do that in the short term.

So that’s in terms of the operation side of the business, which as I said, we’re very, very pleased with how we performed in 2019. And with that, I’ll hand over to Niall who is going to take you through the financial review.

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [7]

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Thanks a lot, Joe. And so just turning to Slide 17, we’ll start with the profit and loss account, which is a consolidated profit and loss account. You can see that our total revenue for the year 2019 was just shy of EUR 3.1 billion. And our adjusted EBITDAR increased to EUR 209.5 million and the rental charge increased to EUR 69.1 million. Year-on-year, on growth, that is related to the annualization and acquisitions in Welcome Break and in Florida in the U.S.

So adjusted EBITDA, as we would have said earlier, was EUR 140.4 million for the year, up from EUR 58.2 million last year, a significant growth year-on-year. And that all set down into a profit attributable to the group of EUR 41.2 million or an adjusted diluted EPS of EUR 0.338 per share, which is almost a 26% growth. And we would have committed at the time of the Welcome Break acquisition to at least a 20% accretion in EPS. So I think — I know there’s a lot going on in the marketplace, but that fact shouldn’t be lost. We’re delighted with almost a 26% growth in adjusted EPS for the year.

Turning to Slide 18. It shows our profit and loss excluding Welcome Break for the legacy business essentially. You’ll see revenue of just over EUR 2.2 billion, generating a gross profit of EUR 292.6 million, which is a 21.4% growth in gross profit. Selling and administration — selling and distribution and administration expenses grew in line with that level of growth, and that translated into an adjusted EBITDAR growth of 21.7% to EUR 90.8 million. Rent in the Applegreen estate is EUR 33.1 million.

So adjusted EBITDAR grew by almost 21%, as we said, which is another excellent year of growth for the — all of the Welcome Break business for lack of a better term.

Turning to Slide 19, I think the important point to focus on here is the quality of like-for-like growth we’ve experienced for the year. So our total revenue grew by 9.6% on a like-for-like basis, which is a really healthy growth in top line revenue and I think underlying success of the strategy we’re deploying in the business. Fuel gross profit grew by 7.4%, so really a very strong year for fuel margins across each of the 3 markets we operate in really.

Food revenue grew by 3% on a like-for-like basis, and that translated into a gross profit growth of 3.2%. And I think the Republic of Ireland was probably the standout feature of like-for-like growth in that revenue stream.

Store, the healthy year for store. 6% growth from a revenue perspective, translating into an 8.6% growth at a gross margin level. And both the Republic of Ireland and the U.K. performed very strongly at a store level. In the U.S., the conversion of some of our sites to 7-Eleven, as Joe would have referenced earlier in the conversation, has really enhanced our margins quite materially in the U.S.A. So combined, a very strong performance of gross profit growth of 5.7% like-for-like on a same-site basis. So I’m delighted to report another strong year of like-for-like organic growth.

Cash flow then on Slide 20. You’ll see that cash flow generated from operating activities was EUR 139.5 million, and that’s available to be utilized for debt repayment and reinvestment in the business. The reinvestment in the business amounted to just over EUR 110 million. Again, we have clarified an overdraft maintenance CapEx in the business was EUR 13.1 million in 2019. That’s one area we called out as a significant area of focus in the COVID-19 reaction initiatives.

We spent EUR 11.3 million on an ERP project that went live mid-year last year and, again, has provided a significant platform from which we can now look to scale up the business from in the future. So that was a big milestone for our business in 2019.

So just a couple of other lines to call out on the cash flow. Equity proceeds related to refresh injection of capital from our minority partners in Welcome Break. It was effectively the last leg of the Welcome Break transaction. That injection was utilized to repay a tranche of junior debt that progressed in Welcome Break and that was repaid at the earlier part of the year. So all in all, we saw a net growth in cash of EUR 12.3 million in 2019.

Cash conversion was a little bit lower in the year at 107.2%. You can see the working capital movement wasn’t quite as material as last year. In 2018, we had a very strong year from cash conversion perspective as we negotiated quite favorable terms from some of our fuel suppliers. We have noted elsewhere in the document that we have just concluded a favorable fuel supply agreement in the U.K. that should see material growth in working capital in 2020 in the event of normal working — normal trading conditions returning.

Turning to the balance sheet on Slide 21. I pointed out earlier the scale of noncurrent assets. So noncurrent assets stand at just shy of EUR 1.2 billion, of which EUR 414 million is land and buildings. And I also referenced working capital being a negative EUR 198.4 million at the 31st of December. That leaves us cash with EUR 138.7 million and the drawn debt is EUR 664 million, net debt of EUR 525 million or a leverage of — combined leverage of 3.7x as we noted earlier.

Last point really to make on capital employed. Return on capital employed has increased quite materially with the annualization of Welcome Break. So we’re back up to 10.6% ROCE at the end of 2029 (sic) [2019].

Then I will finish off with the impact of IFRS 16. You can see the impact on our profit and loss account on Slide 23. For those of you who aren’t familiar with the IFRS 16, it effectively involves the removal of rental cost from our P&L and replacing that with an amortization cost and an interest cost on the capitalization of rental obligations. So effectively, our pre-IFRS 16 EBITDAR of EUR 209.5 million becomes our new adjusted EBITDA. You’ll see an increase in depreciation and amortization of EUR 33 million and interest cost of EUR 49 million, which is the interest on — the imputed interest on the theoretical rental obligation. So that all serves to reduce the adjusted diluted EPS by EUR 0.098 and to leave a full IFRS 16 adjusted diluted EPS of EUR 0.24 per share.

The balance sheet impact of IFRS 16 on Slide 24 seems to take on — seems to be taking on EUR 474 million of our theoretical asset or right-of-use assets and the corresponding liability of EUR 685 million being the present value of future lease obligations. And so group leverage on a post-IFRS 16 basis increases to 5.8x.

So with that, I’ll hand you back to Joe, who’s going to finish off with the discussion on growth and opportunities and an outlook for the business.

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Joseph James Barrett, Applegreen plc – COO & Executive Director [8]

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Thank you, Niall. So please turn to Page 26. We feel the group is very well placed to maximizing the growth opportunities across all our markets. If I start on the food-to-go and convenience retailing, we feel we’re well-placed with the kind of customers that are looking for — who have time constraints that are looking for an expanded food choice. And our transit locations are very well-placed to tap into those growth markets.

We’ve significantly enhanced our relationships with our international food brands. We’re working closely with the likes of Starbucks and KFC and Burger King, just to name 3. We’re looking now in enhancing those relationships in other markets outside of the U.K. and Ireland.

We’ve got a very strong development pipeline in both the U.K. and the U.S. We’ve invested heavily in self-service kiosks, which are going well for us, and we expect to do more of that, which improved our operational efficiency and upped average spend that customers pay for products.

We’ve added additional drive-thrus this year, and we expect to do more of that into the future. We’ve tried our own delivery platform, Just Eat, which has gone well, and we expect to see more of that in the coming years. And so the new product development is an ongoing basis with the likes of the vegan sausage rolls, healthy eating trend, and we’re spending a lot of time and effort in that space.

The other thing I would say is that we found that there’s very little competition for operators like ourselves in the U.S. market that can operate both fuel, food and store. Most of the operators in the market in the U.S. we find are single-product operations that is either food brand or a store brand or fuel but not all 3 together.

Moving on then to electric vehicles. We feel we’re extremely well placed to take on the increased adoption of electric vehicles. We’ve spent a lot of time on this. Our network in the U.K. in Welcome Break accounts for 60% of the total fast-charging capacity in the U.K. MSA network. And we now charge over 1,300 cars a day across our network in Ireland and the U.K. The average kilowatt charge per session and the number of sessions charging is on a continuous improving upward trend, and we see we’re ready to capitalize on that in the coming years.

We put in our first 2 stand-alone Applegreen charters in Birdhill motorway service area and that has gone well. And we anticipate doing more of that, and that effectively is cutting out the middle man in the supply of electric charging facilities to the ultimate consumer. We want to further expand our open access charging platform in all our markets. And we’re also trialing other products like natural gas fueling and hydrogen fueling. We have the first hydrogen fuel facility in our Hempstead petrol filling station in New York, and we intend to have another one in the U.K. during this year.

So moving on then to the outlook on Page 27. So in our core Applegreen business, our fuel margins are performing very strongly in all the markets which we operate. We’ve established a national management structure within our U.S. team that had been previously split between the Northeast and the Southeast. We’ve now brought that in under 1 management team, and we’re investing in our structures, in our systems there to give us a good platform for growth into the future. We have spent a lot of work on areas like our core values and things like our environmental, social and governmental, and we’ve done a lot of work on that during the year.

During — in Welcome Break, we’ve had a very strong performance in January and February. And as I said earlier, we had — that was on the back of a very strong Christmas and strong like-for-like growth, and both of those prior to the COVID-19 crisis.

We see we’re in a sort of very resilient business in Welcome Break and it should bounce back very strongly. We’ve made significant progress on delivery of our synergy benefits, and we’ve outlined that we’ll achieve GBP 13 million this year. We’ve started our Welcome Break rebranding project away from Shell and then to a Welcome Break brand, which will be similar to the Applegreen brand that a lot of you know in Ireland. We have 6 sites converted. And if this rollout is currently on hold during the crisis, we’ll turn back it on as soon as that is over.

In terms of other sides of our business, we’re continuing to review all our noncore assets. We have stated before that we will review those. And we’re moving our business away from a fuel-dominated business and much more towards a food-to-go and store business.

We will — sort of our current focus is on adapting our business to facilitate the operation through the challenging times. And what I would say and a complement to all of our staff in all of our regions is that we’ve been able to act swiftly and — in the downturn to be able to turn off things like wage costs and facilities management costs and current expenses to rightsize the business to operate in the downturn.

So finally, I would say the group is prepared in these unprecedented time with the health and safety of our colleagues is utmost of importance to us. We have separated our teams into green and red so that we approximately have 50% of our staff in the business at alternate days. While the performance outlook for 2020 is uncertain, we still feel we are confident that in the long run, we will be — have sufficient liquidity to run the business well and to expand our business in 2020.

And that’s the finish, and I hand it back now to the moderator for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Jason Molins from Goodbody.

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Jason Molins, Goodbody Stockbrokers, Research Division – Analyst [2]

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Yes. Back to working capital, just in terms of performance in the year just gone, given where, I guess, that would have been a good strength in how you generated cash in previous years, a bit behind there in terms of the performance you’ve done. Maybe just a bit more color on that and how we should think even not just this year because obviously this year had a little bit of a one-off. But is there a change in the dynamics of the business, albeit you should be getting that one-off benefit into Welcome Break?

Second question, if you don’t mind. On operating cash cost — sorry, I know you answered that question before, but I couldn’t really hear the answer. And in terms of the scenario that you’re modeling on the various mitigations, can you just clarify what you meant and what you expect from a cash cost earn perspective?

And then finally, I guess now we’ve seen some companies already tap the equity markets. We’re likely to maybe see that be increased in the coming months. So just maybe a thought from yourselves and your thoughts about that as a mechanism to source (inaudible)?

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [3]

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Okay. So yes, from a cash conversion basis, first of all — or to answer the cash conversion part of your question, Jason. Yes, look, 2019 definitely wasn’t as strong as in previous years, but we’re coming off the back of 2017 and 2018, where we had extremely strong cash conversion figures. So I think it was over 200% in 2017 and 150% lost in 2018. And that’s down to just continually improving our terms from our fuel suppliers, mainly.

We took a bit of a pause in that in 2019 and we did invest in higher levels of inventory to sustain the business in the U.S. As we grow the business in the U.S., it doesn’t benefit from the same level of negative working capital because fuel credit terms are typically much, much shorter in the industry over there. Is that something we can change in the future? Hopefully so as we grow in scale. So then I think working capital is a different dynamic in the U.S.

So I think we’re taking steps every year. We’ve called out the type — the new fuel agreement in the U.K. That will be a very material effort in a normal year. So I think there are continually areas to optimize cash conversion, and that one is the latest that we’re taking in, in getting results in that regard.

With respect to OpEx cost, we’re not disclosing particulars of OpEx cost. But what I want — the message we want to give you, we’re really downplaying the business and rightsizing the business for the levels of trade we’re seeing in the business currently and that we’re expecting to happen over the course of the coming months, Jason. So I think from a cash perspective, the comment I made was that we don’t expect a material cash burn as a result of — from ongoing activities once we get through the initial period of managing our working capital.

And I think the last piece then, just following on from that is the question around the prospect of fresh injection of equity. That’s definitely not something we’re contemplating at this present point in time. And I think we’re just reiterating our confidence in our ability to get through this by taking all of the wide-ranging initiatives to really cut costs of this business and manage cash flow. So…

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Joseph James Barrett, Applegreen plc – COO & Executive Director [4]

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And I would have to add, Jason, as well that we’ve seen this during the financial crisis in 2008, 2010. We’ve had the same sort of management team in place, and we’ve had the experience of being able to manage through that crisis. And we know what to do and we’re acting quickly and swiftly on all that’s required.

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Operator [5]

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(Operator Instructions) And our next question is from Aaron Shirley (sic) [Darren Shirley] from Shore Capital.

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Darren Shirley, Shore Capital Group Ltd., Research Division – Research Analyst [6]

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Amongst the COVID events over the last couple of weeks, we’ve obviously seen a significant reduction in the oil price. Can you just give us some comments about how that’s sort of feeding into the trade environment across your markets?

And secondly, you also, within the statement, highlights you’re reviewing sort of noncore assets. Could you also talk around that a little bit more, please?

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Joseph James Barrett, Applegreen plc – COO & Executive Director [7]

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Okay, Darren. Bob, do you want to take…

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Robert Etchingham, Applegreen plc – CEO & Executive Director [8]

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Yes. Let me take the first part of the question, at least. Oil prices, definitely yes, we’ve seen a big drop in oil prices over the last couple of months. And that has fed through into our business. It’s — it has squeezed our working capital slightly whilst it’s also meant that we’ve got the benefit of very significant fuel margins in each of our 3 markets in Q1 of this year. So that’s been very positive. And in fact, those margins have held up and at quite significant levels now as we speak. So much so that I would say that if you look at our cash margin, which is the volume multiplied by the centiliter, it’s not too far off what we would normally expect it to be because the lower fuel volume is compensated by the higher centiliter margin that we’re enjoying at the moment. So that’s a positive for the business in these uncertain times. Hard to say how long it’s going to survive for us. We’re glad to see it’s there at the moment during the month of February and March.

And the second part of the question, maybe, Joe, do you want to take that?

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Joseph James Barrett, Applegreen plc – COO & Executive Director [9]

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Just in terms of — we’re highly conscious in terms of the direction the business is around growing our smaller number of larger sites. We’re conscious that, in time, the smaller petrol filling stations will become less core. So we’re doing a lot of analysis and work on that. At the moment, we haven’t taken the final decision as to exactly what we’ll do there, Darren. But it would be worth noting that sort of in the current trading environment, they’re trading extremely, extremely well. They’re very much part of the local community. Store sales have grown and increased. And the fuel is, as Bob said, a very strong performer, given the volumes and the margins that are taking place.

So it is — it’s something we have told our investors about and looking at what we have, sort of noncore assets and getting the capital from those and putting it back into the business, but we’re not ready just to pull the trigger on that just yet.

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Darren Shirley, Shore Capital Group Ltd., Research Division – Research Analyst [10]

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And how would you characterize the market for those smaller — or the PFSs? I mean it has been described in the past by Bob as being sort of a very hot market, which led you to sort of step back? Is that still the case?

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Joseph James Barrett, Applegreen plc – COO & Executive Director [11]

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Yes. It’s still very buoyant, Darren. To be sure, there’s half a dozen recent transactions in the last year or so which are very strong. There’s a lot of people still wanting to grow and expand their network. And we will be seeing a very sizable price given the size of our network of locations. So it will be well sought after.

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Operator [12]

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And as there are no further questions, I will hand it right back to the speakers for any final comments.

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [13]

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So Bob, would you like to wrap up?

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Robert Etchingham, Applegreen plc – CEO & Executive Director [14]

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Yes. I’d just like to thank everybody for joining us on this call this morning. Obviously, it’s a very difficult time for the business. It’s a very difficult time for the country. And we assure that we’re doing everything we can to try and ensure that, first and foremost, our staff and our customers are kept safe; and secondly, that we protect the business and position ourselves to respond to the needs of our consumers once the current lockdown has run its course.

So thanks, everybody, for joining us. And look forward to talking to you again in the future.

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Niall Gearoid Dolan, Applegreen plc – CFO, Company Secretary & Director [15]

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Thank you.

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Joseph James Barrett, Applegreen plc – COO & Executive Director [16]

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Thank you.

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Robert Etchingham, Applegreen plc – CEO & Executive Director [17]

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Thank you.

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