The chief executive of Applegreen has said he is confident the business can achieve long-term growth, despite any uncertainty caused by the coronavirus pandemic, and revealed how it is affecting the company in the short term.
Unveiling the group’s results for 2019, Bob Etchingham said: “We are highly conscious of the considerable uncertainty created by the current COVID-19 crisis, but are confident in the defensiveness of our business model and the strength of our balance sheet and liquidity. Therefore, we are positive about navigating the company through this crisis and building our business for the long term.”
In the statement with its results the company said it had traded strongly for the first 10 weeks of 2020, but footfall and volumes had been impacted in the last two weeks. Its stores remain open, but some with significantly reduced food franchise offerings.
It added: “We expect a material reduction in profitability for the current financial year. The scale of this will be dependent on how the situation develops and over what timeframe, together with the impact of any further measures taken by national governments to mitigate the disruption. Accordingly, while the Group has not issued financial guidance for current and future years, previously published market expectations should be disregarded.
“We have modelled our expectations of the impact on our business taking account of current levels of trading across the three markets where movement is severely restricted until the end of May, with the expectation that restrictions will then ease gradually before normalising in Q4. That scenario sees a significant impact on working capital during April and May with a levelling off in June and improving thereafter. We have sufficient cash and credit facilities to get us through this cycle.”
Applegreen is taking a number of short-term action actions to conserve cash including:
• Deferring development capital expenditure and reducing maintenance capital expenditure to its absolute minimum level;
• The Group has temporarily reduced headcount by more than 4,800 employees in both Ireland and UK, from a current total of approximately 11,500 Group employees, under the respective government job retention schemes;
• It has secured a deferral of payroll taxes and VAT from HMRC for a minimum of three months in the UK and is working with Irish Revenue to secure a similar arrangement;
• Benefiting from the UK government property rates moratorium for 12 months representing a very significant cost mitigation in the UK estate. Irish Revenue has also announced a two-month deferral of property rates;
• Reducing repairs and maintenance costs, a large component of the cost base, to minimal levels;
• Very tight management of working capital with a focus on reducing inventory levels and working with suppliers on payables;
• Implementation of a recruitment freeze;
• Deferred executive director bonuses;
• Advanced negotiations with landlords across its estate to secure rent reductions for the period of the disruption and to seek more favourable payment terms; and
• It has tailored its convenience store product range to meet customers’ current demands.
In addition, in order to preserve liquidity, the Board has decided not to recommend a final dividend in relation to 2019 at its forthcoming AGM.
The group’s results showed group revenue for 2019 had increased to €3.1bn, 53% up on the previous year and group adjusted EBITDA was €140.4m, with the estate expanding to 556 sites trading at the end of December 2019.
Etchingham commented: “Our absolute focus at present is navigating the various issues associated with COVID-19 and to ensure we are looking after our people while continuing to deliver the essential service we provide to our customers. The ultimate impact of the pandemic is unclear at this stage but we are taking definitive steps to follow the relevant guidance from the authorities while ensuring we are also taking the right actions to ensure the Group remains as resilient as possible to the challenges, and is well positioned for when normal conditions resume.
“We are very pleased with our trading performance and the strategic development of the Group in 2019 where we successfully integrated a number of important acquisitions, expanded our footprint in the US and significantly reduced our reliance on fuel by continuing a shift in focus to convenience retail and food on the go.
“The divisional business units recorded strong volume growth, which was accompanied by margin improvements, leading to enhanced profits and earnings per share. In particular, the core Applegreen estate (excluding the Welcome Break acquired assets) achieved strong EBITDA growth of 21% year on year, benefiting from a positive like-for-like performance and prior year acquisitions.
“Following the acquisition in 2018, Welcome Break has demonstrated good growth, particularly through its core catering brands, driven by the roll-out of self-service kiosks and new drive thru services that improve the customer journey.”