It was always going to be a risk. After growing his petrol forecourts business from a single filling station on the outskirts of Dublin in 1992, Bob Etchingham had his eye on a bigger prize. In August 2018, his listed company, Applegreen, spent €321m (£301.8m) on a 50.1% stake in rival Welcome Break, giving him control of a motorway services empire stretching across Ireland, the UK and North America.
The acquisition pushed Applegreen into almost half a billion pounds of debt, but with petrol takings rising and an increasing focus on higher-margin convenience and food sales, Etchingham was confident of paying it down.
However, Applegreen, which has 556 sites and partnerships with brands including Burger King, KFC and Starbucks, has been hammered by the Covid-19 outbreak. Motorway traffic is still about 40% below normal levels as commuters and holidaymakers have been confined to home, robbing Applegreen of crucial sales needed to pay down the debt.
Shares in the company, which is listed on AIM, have plunged 40.5% since the start of the year and closed last week at 278p, valuing it at £333.1m. Etchingham and his family retain a 41.3% stake, so the falling share price will have hit him hard.
While Applegreen has taken steps to preserve cash, the crisis has left it on a shaky financial footing. Outlets remain open but it expects a big hit to profits and has withdrawn guidance to the market. The company has also hinted at the need for flexibility in its banking covenants; net debt rose 4% to €545m (£482m) between the December year-end and March. Applegreen made pre-tax profits of €37.2m on sales of €3.1bn last year.
It is using the government furlough scheme to pay 4,800 of its 11,500 workers in Ireland and the UK, and said in March that it had started talks with landlords to try to secure rent holidays and reductions. It has cancelled its final dividend, cut capital spending and made use of government schemes to defer taxes. Executive bonuses have also been deferred.
Applegreen’s rent move has ruffled landlords. One, LondonMetric, served it with a winding-up petition over unpaid quarterly rent, before the government moved to block landlords taking action. The moratorium on the use of statutory demands runs out on June 30, and landlords will come knocking.
The company must navigate a way between demanding debt holders, thirsty landlords and cautious motorists. The question is how long will the money it has last before Applegreen is forced to go to shareholders, cap in hand. Avoid.
