Final Results

27 March 2020

Applegreen plc

Preliminary Results (unaudited)

Applegreen plc, ("Applegreen" or the "Group"), the roadside convenience retailer, reports its preliminary results for the year ended 31 December 2019.

The Group is delighted to report another very strong performance for the 2019 financial year. We expanded our portfolio of world class brand partnerships, generated very good levels of organic like-for-like growth, built an increased presence in strategic service areas and successfully completed a large-scale back office systems transformation.

Highlights

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Financial highlights

· Group Revenue of €3.1bn, +53% growth on 2018

· Group adjusted EBITDA (pre-IFRS 16) of €140.4m, 141% growth YOY, and adjusted EBITDA excluding the Welcome Break acquired assets (pre-IFRS 16) of €57.7m, representing +21% growth YOY

· Like-for-like (LFL) growth in fuel revenue of 10.8% and fuel gross profit 7.4% (constant currency)

· LFL growth in non-fuel (food and store) revenue of 4.9% and non-fuel gross profit of 5.7% (constant currency)

· Adjusted diluted EPS increased 26% to 33.8 cent

· Consolidated net external debt of €525.5m (€505.3m in constant currency) representing leverage of 3.7x. Group adjusted EBITDA (pre-IFRS 16). Applegreen plc stand-alone leverage is 1.9x adjusted EBITDA (pre-IFRS 16)

· Capital expenditure of €114.1m including maintenance capital expenditure of €13.1m and ERP transformation costs of €11.3m

· Strong fixed asset base - carrying value of land and buildings at 31 December 2019 is €414.4m

Operational highlights

· Estate expansion continued with 556 sites trading at the end of December 2019

· Significant additional synergies from the Welcome Break acquisition delivered. £2.5m delivered in 2019 with a plan to deliver at least £13m p.a. (assuming normalised market conditions) by end of 2021

· Addition in US Mid-West of 46 sites completed in September 2019

· 40% interest in Connecticut Service Plazas acquired in October 2019 - 23 service areas located in Connecticut, USA

· Successful Enterprise Resource Planning transformation project went live on 1 July 2019

Current Trading, Outlook and COVID-19

As noted in the Group's trading update on 24 March 2020, Applegreen has traded strongly and in line with management expectations for the first 10 weeks of 2020. However, footfall and volumes have been impacted in the last two weeks as governments and customers take increasing measures to contain the spread of the COVID-19 virus.

Applegreen has a resilient business model, providing an essential service and our stores remain open, albeit some with significantly reduced food franchise offerings. We are working hard to protect the health and safety of our employees and customers. As a result, we have implemented an extensive range of measures to safeguard both our people and our customers in each of the three countries in which we operate.

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, whilst 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.

Short term actions to conserve cash 

In response to this unprecedented and uncertain environment, the Group is taking a number of actions to protect profitability and 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;

· We have secured a deferral of payroll taxes and VAT from HMRC for a minimum of three months in the UK and are working with Irish Revenue to secure a similar arrangement;

· Benefiting from the UK government property rates moratorium for twelve months representing a very significant cost mitigation in the UK estate. Irish Revenue have 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;

· We have advanced negotiations with landlords across our estate to secure rent reductions for the period of the disruption and to seek more favourable payment terms; and

· We have tailored our convenience store product range to meet customers' current demands.

In addition to the above, in order to preserve liquidity, the Board has decided not to recommend a final dividend in relation to 2019 at its forthcoming AGM.

Financial position 

At 31 December 2019, the Group had consolidated net external debt (pre-IFRS 16) of €525.5m comprised of total external debt of €664.2m and total cash of €138.7m.

At 31 December 2019, we had headroom of approximately 59% on the Applegreen plc banking group leverage covenant, (actual leverage of 1.9x compared to the covenant requirement of 3.0x) and approximately 45% headroom on the Welcome Break banking group leverage covenant (actual leverage of 4.5x compared to the covenant requirement of 6.5x).

At 20 March 2020, the Group had consolidated net external debt (pre-IFRS 16) of €545.5m comprised of total external debt of €665.0m and total cash of €119.5m:

· €94.8m cash and €272.6m external debt within the Applegreen plc banking group. Debt matures in October 2023; and

· €24.7m cash and €392.4m external debt within Welcome Break. Recently refinanced - now 50% in 10-year institutional term loans (2029 maturity) and 50% in 7-year term loan (2026 maturity)

In addition to the Group's current cash position, it currently has undrawn committed facilities totalling €22m, capital expenditure facilities of €28m and accordion facilities of €130m.

The Group considers that it is in a robust financial position to navigate the current COVID-19 crisis and is in compliance with its existing banking covenants. The Group is in close dialogue with its finance providers to ensure it will have sufficient covenant flexibility as may be required throughout this period.

Bob Etchingham, Chief Executive Officer, commented:

"Our absolute focus at present is navigating the various issues associated with COVID-19 and to ensure we are looking after our people whilst 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 whilst 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.

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."

Conference call details

Applegreen plc will host a conference call for analysts and institutional investors today, 27 March 2020 at 8.30am (BST). The investor presentation will be available on the Group's website at www.applegreenstores.com .

Dial in details are as follows:

Ireland: +353 (0)1 431 1252

UK: +44 (0) 333 300 0804

Passcode: 32189087#

Contact Information

Our Business Model

Applegreen plc is a high growth roadside convenience retail business operating in Ireland, the United Kingdom and North America. The growth pillars of the business are based on growing food to become the dominant profit stream and therefore reducing the dependency on fuel, partnering with premium food-to-go brands and focusing on value accretive acquisitions.

The Applegreen brand is based on competitive fuel pricing that drives in-store footfall with an innovative food and beverage offer focussed on our customers' needs. Improving the customer journey to inspire loyalty is central to what we do, ensuring we provide a smooth and enjoyable experience.

We are committed to driving shareholder value by deploying the best operational practices, a cost optimisation focus, coupled with disciplined capital allocation.

Combined with organic growth from existing sites, our growth strategy is focused on establishing a presence in new markets by developing traditional fuel forecourts with a branded food offer and, when significant scale has been achieved, entering the larger service areas on strategic road networks and enhancing the more resilient non-fuel contribution. The final stage involves vertical integration of the supply chain or fuel distribution. Applegreen is at different stages of this lifecycle in its three markets.

Applegreen is the number one Motorway Service Area Operator (MSA) in the Republic of Ireland and the number two Motorway Service Area Operator in the United Kingdom. MSA sites are strategic infrastructure assets that have high barriers to entry due to long development lead times and government legislation. There will be increased focus on MSA growth in these regions.

We have now established a large Petrol Filling Station (PFS) footprint in the US and our aim is to expand our presence as a recognised operator of large Service Area sites on strategic road networks in that market.

The management team has a strong track record of delivery and the talent pipeline will underpin our expansion in the three markets.

As at December 2019, the business operated 556 forecourt sites and employed c.11,798 people.

Group 2019 Performance Overview

Group Performance

Key figures (€m):

Group adjusted EBITDA (pre-IFRS 16) increased by 141% for FY 2019 to €140.4m (FY 2018: €58.1m). This performance was aided by strong underlying growth in the core Applegreen business (i.e. excluding Welcome Break acquired assets) delivering €57.7m of EBITDA (pre-IFRS 16), up 21% on 2018.

Estate expansion continued with 556 sites at the end of December 2019:

· ROI & UK - 14 sites were added to the estate in 2019 (4 PFS, 2 MSA, 7 Dealer and 1 Hotel)

· US - 70 sites were added which comprised 46 sites in the US Mid-West in September 2019; the acquisition of a 40% minority stake in 23 Service Areas in Connecticut in October and a further three new openings in the North-East. We also exited from two stores in the US which we had leased under flexible terms from CrossAmerica Partners LP ("CAP")

Significant additional synergies have been identified in Welcome Break following the acquisition in 2018, which delivered £2.5m of savings in 2019, with a plan to deliver £13m p.a. (assuming normalised market conditions) by the end of 2021. This is twice the Board's original expectation.

After some Brexit related softness in Q1 2019 in Welcome Break, we have seen good progress through the year driven by its catering power brands. This momentum continued as we exited the year and into the first two months of 2020. However, given the ongoing uncertainty in light of COVID-19, we expect a material reduction to our expectations of profitability for the current financial year.

A key element of the Group's strategy is to reduce leverage. As such, Applegreen plc, reduced pro forma adjusted leverage to 1.9x at 31 December 2019 from 2.2x at 31 December 2018. Group consolidated pro forma adjusted leverage was reduced to 3.7x from 3.9x at 31 December 2018.

Post IFRS 16, the Group's consolidated pro forma adjusted leverage at 31 December 2019 was 5.8x. All banking group covenants will continue to be calculated on a pre-IFRS 16 basis.

In response to the unprecedented COVID-19 environment, as described more fully above, the Group is taking a number of actions to protect profitability and conserve cash, including deferring development capital expenditure with the exception of two projects which are near completion. Maintenance capital expenditure has also been cut to minimal levels.

Network Development

Single site acquisitions

During 2019 we acquired 17 sites - nine sites in Republic of Ireland, five sites in the UK and three sites in the US. As we partner with established brands in the US, we continue to invest in the US estate and establish our presence in the service area sector. As part of our continuous review of the estate in the US, we have elected to exit from two PFS sites.

Multiple site acquisitions

In September, we agreed to acquire 46 PFS leasehold sites located in Minnesota, Wisconsin and Michigan, centred in the large metropolitan area of Minneapolis-St. Paul (US Mid-West). The sites are operated under the BP, Holiday, Freedom and Speedway fuel brands, with an opportunity to bring our experience in food and convenience retailing to complement the existing fuel offer. The agreement is a lease with CrossAmerica Partners LP ("CAP"), with an initial lease term of 10 years and 4 5-year tenant-only renewal options. The sites were taken over and commenced trading in Q3. They have been integrated into the US business unit structure.

We also acquired a 40% interest in Connecticut Service Plazas, 23 service areas located in Connecticut, USA, which is on a strategic road network between New York City and Boston. The concession agreement with the Connecticut Department of Transport has 25 years remaining with the potential for a further 10-year extension. The concession structure offers a stable and growing income stream generated mainly from long-term contracted, multinational branded anchor tenants. This relationship offers an additional 91 branded food outlets including McDonalds (10 outlets), Dunkin Donuts (23 outlets), Subway (20 outlets) and Taco Bell (2 outlets). There is an option to acquire a further 20% interest after five years.

Redevelopments

In the Republic of Ireland, Midway on the M7 has been upgraded to a Motor Service Area (MSA) with a forecourt convenience store and four food offers, and Santry which is strategically located beside Dublin airport has been upgraded to a trunk road service area (TRSA) with three food offers.

In the UK, one PFS site at Whitley has been upgraded to a TRSA with two food offers.

Within the US estate we have converted six convenience stores to the 7 Eleven brand with four in South Carolina and two in the North East, further strengthening our relationship and bringing our total 7 Eleven stores to 15 at the year end.

Business Performance Review

· Revenue +8.4% driven by LFL growth in Fuel +17.8%, Food +4.5% and Store +3.5%

· Gross Profit +6.6% - LFL Fuel gross profit +2.2%, Food +5.4% and Store +8.9%

· Network - the network has increased by nine sites which included one Service Area site, one Petrol Filling Station site and seven dealer sites.

Applegreen's premium fuel initiative, 'Fuelgood', contributed to strong fuel LFL growth as the take-up of this product continues to rise. Total fuel volume pumped in 2019 increased by 1.1%, slightly ahead of the overall market, and the pricing environment stabilised in the year.

A solid food performance was enhanced by investment in the estate with self-service kiosks installed, home delivery options provided and continued product innovation, such as the successful vegan range, which includes vegan sausage rolls, readymade meals, sandwiches and croissants.

The ROI store performance was strong, driven by improved buying, return on investment in car wash upgrades and redevelopments of key sites.

We continue to improve our operating model and cost efficiency with the deployment of a new ERP project which went live on 1 July 2019.

We are actively monitoring the growth and adoption of Electric Vehicles in the market and in September 2019 started operating branded Electric Vehicle charging bays.

· Revenue +91% - principally driven by the Welcome Break acquisition in Q4 2018; LFL growth (at constant currency) in Fuel +4.9%, Food +1.7% and Store +0.3% (all excluding the acquired Welcome Break assets)

· Gross Profit +242% - LFL gross profit growth (at constant currency) in Fuel +18.9% and Stores +3.2%, with Food LFL gross profit down 1.2% (all excluding the acquired Welcome Break assets)

· Network - The network has increased by 5 sites: one TRSA, one standalone hotel and three PFS sites

The results for 2019 incorporate the Welcome Break acquisition which has driven significant growth on 2018. Integration is proceeding as planned, with in-year synergy delivery of £2.5m in 2019, with synergies of at least £13m p.a. to be delivered by the end of 2021 (assuming normalised market conditions).

In the UK business, favourable fuel operating contracts have been negotiated for the PFS estate and Welcome Break that will be effective in Q1 2020. These will provide enhanced margins as well as working capital benefits of approx. £34m (under normalised trading conditions). The forecourts will be rebranded from the fuel providers to 'Welcome Break' as part of these new operating contracts. The UK PFS estate like-for-like performance was strong, driven by improved fuel margins.

A strong food performance in Welcome Break was driven by speed of service initiatives with self-service Burger King and KFC kiosks introduced and the opening of two additional Starbucks drive thru facilities. There was also a positive year on year trading benefit in KFC due to supply disruption issues in 2018.

Welcome Break delivered a robust performance in the Store category and the UK PFS estate increased the average transaction value in store through upselling and increasing the average basket size.

Parking and Gaming revenue, which are included in the 'Other' category were ahead of expectations with strong underlying growth.

The Hotel business, (which is also included in the 'Other' category) appointed a new management team which is making good progress. A margin optimisation programme has been established to drive top line growth by increasing food and beverage penetration, coupled with structured room rate management.

There are currently 283 Electric Vehicle charging bays in the UK with plans to provide a further 65 'open access' charges within the existing network.

· Revenue +70% - driven by acquisitions, alongside LFL Revenue growth (at constant currency) in Fuel +8.7%, Food (1.2%) and Store +26.7%

· Gross Profit +76% - LFL Gross Profit growth (at constant currency) in Fuel +2.3%, Food (0.6%) and Store +16.7%

· Network - Acquisition in US Mid-West of 46 sites completed in September 2019; 23 service areas in Connecticut, three new site openings and two closures as per lease term options.

As noted above, growth in the US business has been driven by the addition of 46 PFS leasehold sites in September 2019 and the acquisition of a 40% interest in 23 service areas located in Connecticut, USA in October 2019, as well the full year impact of the acquisitions in Florida and South Carolina during 2018.

The North American market has strong fuel margins compared to Europe, particularly in the North East.

The scale of the US business has now grown to a sufficient level such that Applegreen has established a new national management structure with a centralised shared service centre.

The year also saw the continued expansion of the relationship with 7-Eleven convenience stores, through rebranding and new openings on our sites. This has driven the non-fuel gross profit increase of 83.9% on 2018.

Applegreen is developing its first TRSA in Sturbridge Massachusetts which will include food offers such as Burger King and Dunkin Donuts. In December 2019 we opened our flagship store in Barrington with an Applegreen store and our first newly developed Burger King in the US estate.

The US business is performing well and is benefitting from the strong local management team as the business continues to scale.

Costs

Selling and Distribution Expenses

Selling and distribution costs (excluding rent, depreciation and net impairments charges) for the Group grew by 93.2%. When excluding Welcome Break, these costs grew by 22.6% due to expansion. Group selling and distribution costs as a percentage of gross profit decreased to 53.0% in 2019 (2018: 55.5%).

Administration Expenses

Administration expenses (excluding share-based payment expense, non-recurring costs and depreciation) grew by 78.4%. When excluding Welcome Break, the increase was 21.6%. This increase is due to business expansion and investment in management resources to support the Group's expected growth trajectory. Group administration expenses as a percentage of gross profit decreased to 12.5% in 2019 (2018: 14.1%).

Net Debt

Net external debt (excluding shareholder loans and IFRS 16 lease liabilities) was €525.5m at 31 December 2019 (2018: €506.9m). On a constant currency basis, net external debt was €505.3m. Both Group leverage and Applegreen plc standalone leverage were impacted by the significant strengthening of Sterling in late 2019 as almost 80% of Group external debt is denominated in Sterling.

The Group had total external debt of €664.2m (pre-IFRS 16) and total cash of €138.7m at the balance sheet date.

Net external debt including IFRS 16 lease liabilities was €1.2bn at 31 December 2019.

The pro forma adjusted leverage for the Group at 31 December 2019 was 3.7 times and the pro forma adjusted basis for Applegreen plc on a standalone basis and excluding Welcome Break was 1.9 times.

We have commenced a detailed review of assets in our estate that are considered non-core.

Dividend

The board has not proposed a final dividend payment for 2019 due to the unprecedented environment in light of COVID-19.

COVID-19, Current Trading and Outlook

Applegreen continues to adapt to the rapidly changing marketplace, investing in and further developing the Applegreen business model to consistently outperform in our markets and respond to evolving local consumer trends and customer requirements.

The Group has made a strong start to the year, particularly in Welcome Break's catering and retail brands. However, footfall and volumes have been impacted in the last two weeks as governments and customers take increasing measures to contain the spread of the COVID-19 virus. We are highly conscious of the considerable uncertainty created by the current COVID-19 crisis and its impact on the business, and we are closely monitoring the situation but are confident in the defensiveness of our business model and the strength of our balance sheet and liquidity. Therefore, we remain positive on the long-term prospects for the business.

UNAUDITED CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 DECEMBER 2019

Earnings per share from continuing operations attributable to the owners of the parent company during the year

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2019

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2019

UNAUDITED Consolidated statement of changes in equity

AS AT 31 DECEMBER 2019

UNAUDITED Consolidated statement of changes in equity

AS AT 31 DECEMBER 2018

UNAUDITED Consolidated statement of cash flows

YEAR ENDED 31 DECEMBER 2019

Notes to the unaudited consolidated financial information

1. General information and basis of preparation

Applegreen plc ('the Company') is a company incorporated in the Republic of Ireland. The Unaudited Consolidated Financial Information of the Company for the year ended 31 December 2019 (the 'Financial Information') includes the Company and its subsidiaries (together referred to as the 'Group'). The Company is incorporated and tax resident in Ireland. The address of its registered office is Block 17, Joyce Way, Parkwest, Dublin 12.

The Consolidated Financial Statements of the Group are prepared in accordance with Irish law and International Financial Reporting Standards ('IFRS') and their interpretations issued by the International Accounting Standards Board ('IASB') and adopted by the European Union ('EU'). The Group continues to adopt the going concern basis of accounting in preparing its financial statements. The financial information in this report has been prepared in accordance with the Group's accounting policies. Full details of the accounting policies adopted by the Group are contained in the Consolidated Financial Statements included in the Group's annual report for the year ended 31 December 2018 which is available on the Group's website: http://applegreenstores.com.

The accounting policies and methods of computation and presentation adopted in the preparation of the Financial Information are consistent with those described and applied in the annual report for the year ended 31 December 2018 with the exception of the investment in associates, treatment of foreign exchange on investments in foreign operations, hedge accounting and the adoption of IFRS 16 'Leases', which are described below. A number of other changes to IFRS became effective in 2019; however, they did not have a material effect on the financial information included in this report.

The financial information presented in this report does not represent full statutory accounts. The preliminary release was approved by the Board of Directors. The annual report and accounts will be approved by the Board of Directors and reported on by the auditors in due course. The statutory financial statements for the year ended 31 December 2018, extracts of which are included in these Financial Statements, were prepared under IFRS as adopted by the EU and have been filed with the Companies Registration Office. The auditors' report on those financial statements was unqualified and did not contain an emphasis of matter paragraph.

The Consolidated Statement of Financial Position at 31 December 2018 has been restated in accordance with IFRS 3, Business Combinations, for final adjustments to the provisional fair value of the Welcome Break acquisition on 31 October 2018. See note 16 for details.

The Financial Information is presented in Euro, rounded to the nearest thousand, which is the functional currency of the parent company and also the presentation currency of the Group.

The preparation of the Financial Information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results could differ materially from these estimates. In preparing the Financial Information, the critical judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2018 as set out on page 119 in those financial statements, with the addition of the following:

Lease terms

The Group adopted IFRS 16 from 01 January 2019. IFRS 16 eliminates the classification of leases as either operating leases or finance leases under IAS 17 and introduces a single lessee accounting model with some exceptions. See note 2 for further details.

Many of the Group's leases have options to renew or terminate. The Group applies judgement in evaluating the length of the lease. Management consider all relevant factors and, in particular, if an economic incentive exists to renew or terminate. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. The Group periodically assesses this, or more frequently if circumstances change.

Calculation of incremental borrowing rate

Under IFRS 16 'Leases', discount rates are used to determine the present value of the lease payments to value the lease liability and applicable right of use asset. This discount rate can be either the interest rate implicit in the lease or the lessee's incremental borrowing rate (IBR). As the interest rate implicit in the lease was not readily determined, the Group used the IBR approach.

The incremental borrowing rate is derived from country specific risk-free interest rates over the relevant lease term, adjusted for the finance margin attainable by each lessee and asset specific adjustments designed to reflect the underlying asset's location and condition. To determine the IBR, the Group engaged external valuers to assess this on a lease by lease basis. Management then reviewed the work and assessed the appropriateness of the results.

2. Significant accounting policies

The accounting policies applied in the Financial Information are consistent with those applied in the consolidated financial statements as at and for the year ended 31 December 2018, and are described in those financial statements on pages 108 to 118, except for the impact of the matters described below.

Investment in associate

Interests in associates are accounted for using the equity method, after initially being recognised at cost in the consolidated balance sheet.

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment.

When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Hedge of net investment in foreign operation

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in Other Comprehensive Income to the extent that the hedge is effective and are presented within Equity in the foreign exchange translation reserve. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed of, the associated cumulative amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal. The retranslation of designated financial liabilities for the period ended 31 December 2019 is €5.6 million, which has been included in the Consolidated Statement of Comprehensive Income.

New standards adopted by the Group

The Group adopted amendments to IFRS 9 and IFRS 7 'Interest Rate Benchmark Reform' and IFRS 16, Leases, with effect from 01 January 2019.

Hedge accounting

The Group has elected to early adopt the 'Amendments to IFRS 9 and IFRS 7 Interest Rate Benchmark Reform' issued in September 2019. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting period or were designated thereafter, and to the amount accumulated in the cash flow hedge reserve at that date.

The amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness continues to be recorded in the income statement. Furthermore, the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform no longer being present.

In summary, the reliefs provided by the amendments that apply to the Group are:

· When considering the 'highly probable' requirement, the Group has assumed that the GBP LIBOR interest rate on which hedged debts are based does not change as a result of IBOR reform.

· In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Group has assumed that the GBP LIBOR interest rate on which the cash flows of the hedged debt and the interest rate swap that hedges it are based is not altered by IBOR reform.

IFRS 16 Leases

IFRS 16 'Leases' issued in January 2016 by the IASB replaces IAS 17 'Leases', and related interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. For lessees, IFRS 16 eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model with some exemptions for short-term and low-value leases. The lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.

The Group leases a range of assets including property and motor vehicles. As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease. Under IFRS 16, the Group applies a single recognition and measurement approach for all leases, except for short-term and low-value assets and recognises right-of use assets and lease liabilities.

The Group has adopted IFRS 16 using the modified retrospective approach, with the date of initial application of 01 January 2019. Under this method, the impact of the standard is calculated retrospectively, however, the cumulative effect arising from the new leasing rules is recognised in the opening balance sheet at the date of initial application. Accordingly, the comparative information presented for 2018 has not been restated.

Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, restoration costs and lease payments made at or before the commencement date less any lease incentives received. The right-of-use asset is depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Where the lease contains a purchase option, the asset is written off over the useful life of the asset when it is reasonably certain that the purchase option will be exercised. Right-of-use assets are subject to impairment testing.

The lease liability is initially measured at the present value of certain lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs. The Group has elected to avail of the practical expedient not to separate lease components from any associated non-lease components.

The lease payments are discounted using the lessee's incremental borrowing rate as the interest rate implicit in the lease is generally not readily determinable.

After the commencement date, the lease liability is subsequently increased by the interest cost on the lease liability and decreased by the lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Group has elected to apply the recognition exemptions for short-term and low-value leases and recognises the lease payments associated with these leases as an expense in profit or loss on a straight-line basis over the lease term. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise certain items of IT equipment and small items of office furniture.

Transition

For leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the lessee's incremental borrowing rate as at 01 January 2019.

For leases previously classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at 01 January 2019 were determined as the carrying amount of lease asset and lease liability under IAS 17 immediately before that date.

Right-of-use assets were measured at either:

· their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the lessee's incremental borrowing rate at the date of initial application - the Group applied this approach for certain property leases; or

· an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments - the Group applied this approach to all other leases.

The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

· Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.

· Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

· Relied on its assessment of whether leases are onerous under IAS 37 immediately before the date of initial application to meet the impairment requirement.

On transition to IFRS 16, the Group has elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed.

Impacts on transition

The impact on the Group's Consolidated Statement of Financial Position as at 01 January 2019 is as follows:

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using the lessee's incremental borrowing rate at 01 January 2019. The weighted average rate applied was 8%.

Impacts for the period

The impact on the Group's Consolidated Income Statement for the period to 31 December 2019 is as follows:

3. Segmental analysis

Applegreen plc is a forecourt retail business headquartered in Dublin, Ireland. Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM has been identified as the Board of Executive Directors.

The board considers the business from both a geographic and product perspective. Geographically, management considers the performance in Ireland, the UK and the USA. From a product perspective, management separately considers retail activities in respect of the sale of fuel, food, store and other within Ireland, the UK and the USA. Other primarily relates to income arising from the operation of hotels and gaming machines in the UK sites.

The Group is organised into the following operating segments:

Retail Ireland - Involves the sale of fuel, food and store within the Republic of Ireland.

Retail UK - Involves the sale of fuel, food and store along with hotel related revenue, gaming machines and other retail revenues within the United Kingdom.

Retail USA - Involves the sale of fuel, food and store within the United States of America.

The CODM monitors Revenue and Gross Profit of segments separately in order to allocate resources between segments and to assess performance.

Information regarding the results of each reportable segment is included within this note. Segment performance measures are revenue and gross profit as included in the internal management reports that are reviewed by the executive directors. These measures are used to monitor performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. The CODM also reviews adjusted EBITDA on a consolidated basis. Assets and liabilities are reviewed by the CODM for the Group in its entirety and as such segment information is not provided for these items.

Reconciliation of profit before income tax to earnings before interest, tax, depreciation and amortisation (EBITDA), share based payments and other non-recurring charges (Adjusted EBITDA):

4. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares which comprise share options issued under the share incentive plans.

5. Expenses

Profit before tax is stated after charging/(crediting):

(1) Non recurring charges primarily relate to the restructuring of recent business acquisitions, business combination acquisition costs and costs incurred in relation to the upgrade of the ERP system.

6. Finance costs and income

7. Taxation

The total tax expense can be reconciled to accounting profit as follows:

8. Intangible assets

During the year, the first phase of the Group's upgrade of its ERP system was complete. The costs associated with this were transferred out of assets under construction and into software. The remaining balance in assets under construction as at 31 December 2019 relate to the continuing development works in relation to this project.

9. Property, plant and equipment

Assets under construction as at 31 December 2019 includes the following significant projects; nine service stations in the Republic of Ireland (€13 million), four motorway service areas in the UK (€6 million) and ten service stations in the US (€6 million). The remaining amounts relate to several other developments across all regions.

10. Investments in associate

During the year, the Group acquired a 40% holding in JLIF Holdings (Project Service) US, Inc. The Group entered into a consortium shareholder agreement with IST3 Investment Foundation and TD Greystone Asset Management. The principal activity of the associate is the operation of 23 service plazas along the I-95, I-395 and Route 15 highways in the State of Connecticut.

The share of loss in associate includes non recurring acquisition related costs of €614,000.

11. Inventories

The cost of inventories recognised as an expense and included in 'cost of sales' amounted to €2.5 billion (2018: €1.7 billion).

12. Trade and other receivables

Current trade and other receivables are non-interest bearing and are generally less than 30 day credit terms. Non-current debtors relates to loans advanced to our dealer network. The fair values of non-current trade and other receivables is equivalent to their carrying value. The fair value has been determined on the basis of discounted cash flows.

13. Cash and cash equivalents

Cash and cash equivalents included in the Unaudited Consolidated Statement of Financial Position and Unaudited Consolidated Statement of Cash Flows are analysed as follows:

Cash and cash equivalents include the following for the purposes of the statement of cash flows:

14. Borrowings

Following the adoption of IFRS 16 as of 01 January 2019, the Group recognised an increase of €640 million in Leases. See note 2 for details.

In November 2019, the Group completed a refinance of loans in its UK business. The Group obtained new long-term borrowings comprising of a £165 million 7 year senior bank loan and a £165 million 10 year institutional term loan. The new senior bank loan includes a £30 million capital facility and a £10 million revolving credit facility, both of which were undrawn at 31 December 2019. The previous senior bank loan of £300 million and £24 million capital facility were repaid on the same date.

15. Trade and other payables

Following the adoption of IFRS 16 as of 01 January 2019, the Group recognised a decrease in deferred income of €6 million. See note 2 for information on the adoption of IFRS 16.

16. Restatement of prior periods

IFRS 3, Business Combinations

On 31 October 2018, the Group acquired 50.01% of the Welcome Break group. The provisional fair values of the identifiable assets and liabilities were reassessed in 2019, to reflect information which became available concerning conditions that existed at the date of acquisition, in accordance with IFRS 3 business combinations. Adjustments made to fair values previously reported have been retrospectively restated. The fair value of the identifiable asset and liabilities acquired, as previously reported and subsequently adjusted is summarised in the table below:

There was no impact of the consolidated income statement or the consolidated statement of cash flows.

17. Share capital

18. Post year end events

The Group continues to adapt to the rapidly changing marketplace, investing in and further developing the Applegreen business model to consistently outperform in our markets and respond to evolving local consumer trends and customer requirements. 

The Group has made a strong start to the year, particularly in Welcome Break's catering and retail brands. However, footfall and volumes have been impacted in the last two weeks as governments and customers take increasing measures to contain the spread of the COVID-19 virus. The Group are highly conscious of the considerable uncertainty created by the current COVID-19 crisis, its impact on the business, and are closely monitoring the situation. The Group are confident in the defensiveness of our business model and the strength of our balance sheet and liquidity and therefore, remain positive on the long-term prospects for the business.

Given the above, the Directors are not proposing a final dividend in respect of the 2019 financial year.

Glossary of financial terms

The key financial terms used by the Group in this report are as follows: