Applegreen expects acquisition to withstand any UK recesssion

Forecourt retailer Applegreen has raised €175 million in a share placing as it moves towards completing the acquisition of a majority stake in UK counterpart Welcome Break for €361.8 million.

The transaction was to be backed by a new €300 million debt facility and proposed equity fundraising of €100 million. However, following high demand from new investors, as well as some “blue chip, tier-one institutions”, it has raised €175 million in the placing. The lead adviser in the share placing was Goodbody Stockbrokers.

"It's given us a lot more flexibility and a lot more firepower now to look at continuing to grow the business as we have been doing," chief executive Bob Etchingham told The Irish Times on Friday.

“We won’t be constrained in terms of financing, but we will focus on deleveraging the business and getting back to more comfortable levels of leverage. We have a significant war chest available to the business if something attractive came along during 2019.”

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The Welcome Break deal will add 24 motorway service areas, two trunk road service areas, and 29 hotels under the Days Inn and Ramada brands to Applegreen’s portfolio of assets.

Brexit

In terms of the risks associated with the deal, Mr Etchingham pointed to Brexit and the risk of the UK crashing out of the EU without a deal in March. “It’s very difficult to call that one at the moment,” he said.

“All we can say is that we haven’t seen any impact whatsoever on our current UK business. We have in excess of 100 stations in the UK at the moment, and if we look at like-for-like sales in our stores, they are up on last year.

“These are long term infrastructure assets. They’ve proven to be very stable, resilient cash generators. We expect that even if there was a recession in the UK, the effect [on them] would be very modest.

“I’m sure there will be some short-term dislocation, but I don’t see the UK being isolated to any extent. You could even envisage a scenario where exchange rates deteriorate; it becomes much cheaper to visit the UK; and tourism enjoys a boom year.”

Mr Etchingham acknowledged the hotel sector was “a new area” for the company.

“Once we’ve completed the transaction we’ll be taking some time to get up to the speed on that particular business unit within Welcome Break, and understand its capabilities and potential for improvement,” he said.

Fossil fuels

Welcome Break is also pioneering the installation of electric vehicle superchargers, and has half of the Tesla chargers in the UK. Mr Etchingham said the move to electric would take a decade, but that the company was reducing its reliance on fossil fuels.

“We have charging facilities now on all of our larger service area facilities on the main highways,” he said. “We have both Tesla and non-Tesla charging points on most of those outfits. As adoption of electric increases, those service areas will benefit from that.

“People will need to wait 20 or 30 minutes to charge their cars, and while they’re there, they’ll buy something within the amenity, we expect.

“Fuel has been declining as a contributor to our business for a number of years now. It was about 37 per cent last year of our gross margin. That will fall to below 30 per cent with the Welcome Break transaction.

“That decline will continue over the next ten years. Mass adoption of electric vehicles is a long way off, but there is slow erosion of fuel volumes as a result of engine efficiency improvements and increased penetration of hybrid cars in the fleet.”