APGN.L Regulatory News (APGN)

Applegreen plc

Preliminary Statement of Results for the year ended 31 December 2018

Dublin, London, 19 March 2019: Applegreen plc ('Applegreen' or 'the Group'), a major Roadside retailer with Service Areas and Petrol Filling Station operations in the Republic of Ireland, the United Kingdom and the United States announces its preliminary results for the year ended 31 December 2018.

Financial highlights:

· Group revenue increased by 41% on FY 2017 to €2.0bn (42% on a constant currency basis)

· Gross profit increased by 55% on FY 2017 to €282.3m (57% on a constant currency basis)

· Like for like constant currency growth in fuel revenue of 5.7% and fuel gross profit 6.8%

· Like for like constant currency growth in non-fuel (food and store) revenue of 3.3% and non-fuel gross profit of 3.1%, respectively

· Adjusted EBITDA increased by 46% to €58.1m in FY 2018 from €39.8m in FY 2017 (47% on a constant currency basis). Excluding the Welcome Break acquisition, Applegreen's adjusted EBITDA increased by 20% to €47.8m in 2018

· Continued investment in the network with capex for the year of €64.6m (excluding Welcome Break)

· Final dividend of 0.91 cent per share proposed. Total dividend for the year of 1.54 cent per share, an increase of 10% on 2017 (2017: full year dividend of 1.40 cent per share)

Operational highlights:

· In October 2018, acquired a majority stake in Welcome Break, the second largest Motorway Service Area operator in the UK, which was financed through debt and an equity fundraise. The Welcome Break portfolio comprises 34 Motorway Service Area sites, three Trunk Road Service Area sites and 29 hotels (23 co-located on Service Area sites and six stand-alone hotels) across the UK motorway network

· Integration of Welcome Break proceeding well and existing Applegreen UK services areas successfully transferred into the business

· Acquisition of 43 leasehold sites in Florida from CrossAmerica Partners LP ("CAP") completed in September 2018

· Acquisition of seven sites in South Carolina from Getty Realty completed in August 2018

· As a result of the above, we grew the estate by 130 sites to 472 sites as at 31 December 2018 (31 December 2017: 342).

· Opened 22 new food outlets in the year and added a further 200 through the acquisition of Welcome Break to bring our total to 482 food outlets in the Group

Key figures (€m):

*EBITDA adjusted for share based payments and non-recurring operating charges (see note 3)

** Profit before tax adjusted for share based payments, non-recurring operating charges, interest on shareholder loans, non-recurring interest charges and acquisition related intangible asset amortisation charges (see glossary)

*** Diluted EPS adjusted for share based payments, non-recurring operating charges, interest on shareholder loans, non-recurring interest charges, acquisition related intangible asset amortisation charges and the related minority interest and tax impact on these items (see glossary)

Commenting on the results, Bob Etchingham, CEO said:

"We are delighted to announce another strong set of results for Applegreen. The performance was driven by ongoing expansion of our estate, positive like for like growth despite weather related disruption and strong fuel margin performance, particularly in the fourth quarter of the year."

"The acquisition of the second largest UK Motorway Service Area operator, Welcome Break, is transformational for our business. It gives us an excellent platform to develop our Service Area business in the UK market."

"The Applegreen business continued to expand in each of our three markets as we increased our estate by 130 sites to a total of 472 locations. We opened 16 new sites in the Republic of Ireland, 61 in the UK (including 43 acquired Welcome Break sites) and 53 in the US in FY2018."

"Trading conditions remain generally good despite uncertainty caused by macro events. We anticipate another year of robust growth for the business. Our primary focus will be on the integration of Welcome Break and further reducing leverage but we will also continue to evaluate new opportunities to further expand the business in the future."

About Applegreen

Established in 1992, Applegreen is a convenience food and beverage retailer and operator of petrol forecourts and motorway service areas with a major presence in the Republic of Ireland, the United Kingdom and the USA. The Group is focused on acquiring and developing new Service Area and Petrol Filling Station sites in each of the three markets in which it operates. As at 31 December 2018, the business operated 472 forecourt sites and employed c10,700 people.

The Group offers a distinctive convenience retail offering with three key elements:

· A "low fuel prices, always" price promise to drive footfall to the stores;

· A "Better Value Always" tailored retail offer; and

· A strong food and beverage focus aiming to offer premium products and service to the customer.

In addition to its own proprietary Bakewell brand, the Group enjoys established partnerships with a portfolio of high quality international brands. Following the Welcome Break acquisition, new brand partners include Starbucks, Waitrose, WH Smith, KFC, Pizza Express, Harry Ramsden and the Ramada and Days Inn hotel brands. These are in addition to existing brands including Burger King, Subway, Costa Coffee, Greggs, Lavazza, Chopstix, Freshii and 7-Eleven, some of which also have an existing presence on the Welcome Break network.

Applegreen is the number one Motorway Service Area operator in the Republic of Ireland and the number two Motorway Service Area operator in the United Kingdom.

Conference call details - analysts and institutional investors

Applegreen plc will host a conference call for analysts and institutional investors today, 19 March, 2019 at 08.30 GMT. the investor presentation will be available on the Group's website at www.applegreenstores.com. Dial in details are as follows:

Ireland Telephone Number: +353 (0)1 2465621

UK Telephone Number: +44(0) 330 336 9411

Passcode: 8906281

For further enquiries, please contact:

Applegreen

Bob Etchingham (CEO) +353 (0) 1 512 4800

Niall Dolan (CFO)

Drury Porter Novelli

Paddy Hughes +353 (0) 1 260 5000

Shore Capital

Stephane Auton +44 (0) 20 7408 4090

Patrick Castle

Daniel Bush

Goodbody

Joe Gill +353 (0) 1 667 0420

Siobhan Wall

Richard Tunney

Applegreen FY 2018 Performance Overview and Outlook

2018 was another strong year of growth for the business which was driven by positive contribution from our continued expansion with both current year and prior year acquisitions delivering solid performance. This was supplemented by good levels of like for like growth in both revenue and gross profit.

Notwithstanding disruption from extreme weather events during the year and a more challenging economic backdrop in the UK, the business recorded good like for like growth in fuel revenues (+5.9% at constant currency) and fuel margins (+6.8% at constant currency) and in non-fuel revenues (+3.3% at constant currency) and non-fuel gross margin (+3.1% at constant currency). This performance was achieved despite a prolonged snow event in our home markets in Q1 that heavily impacted trading in that period and an extremely warm summer which also impacted on product mix as consumers shifted more towards impulse categories (cold drinks and ices) from higher margin hot beverages and food categories.

Fuel margin performance recovered strongly in H2 in each of our three markets because of more favourable market conditions. Our non-fuel performance was underpinned by a continued focus on the Service Area segment and the enhancement of our food offering across the estate. The contribution to overall gross profit coming from fuel continues to reduce with 66% of gross profit now coming from non-fuel revenue streams which is up from 63% in the prior year. The reduction of dependency on fuel margins has been a key strategic priority of the business.

Our Service Area focus has been given significant momentum in 2018 with the acquisition of a majority stake in Welcome Break which completed on 31 October 2018. Welcome Break is the second largest Motorway Service Area provider on the UK strategic road network. This is a transformational acquisition that gives us a substantial footprint from which to drive further growth in our business. The Welcome Break estate is comprised of 34 Motorway Service Areas, three Trunk Road Service Areas and incorporates 29 hotels, six of which are stand-alone hotels.

Republic of Ireland

In the year ended 31 December 2018, revenue in the Republic of Ireland increased by 11.6% and gross profit increased by 12.9%.

Total fuel gross profit increased by 17.1% compared to 2017 and increased by 9.7% on a like for like basis. This reflected the impact of an additional contribution from the Joint Fuel Terminal acquisition in Dublin which was acquired in mid-2017.

Like for like food and store sales and gross profit increased year on year by 3.3% and 2.0%, respectively, despite the adverse winter weather impact in March and the summer heatwave conditions.

Our dealer and fuel card volumes have continued to grow and now account for 32% of ROI fuel volumes on a combined basis.

During the year, we expanded our Republic of Ireland estate by 16 sites which included three Service Area sites, four Petrol Filling Station sites and nine dealer sites. 89% of the ROI estate is branded Applegreen (2017: 88%). There were a total of 193 sites trading at the end of the year.

United Kingdom

These financial statements include Welcome Break results for both November and December which are two of the quieter months in the calendar. Therefore, we have seen significant growth in reported revenue which increased by 55.1% and gross profit by 115.9%. Revenue and gross profit growth on a constant currency basis was 56.6% and 117.7%, respectively.

On a like for like basis (excluding Welcome Break), total revenue grew by 7.0% (at constant currency) and gross profit grew by 4.9% (at constant currency). Total fuel gross profit in the UK increased by 2.3% on a like for like basis (at constant currency) which reflects a very strong performance for the second half of 2018 offsetting the impact of competitive pricing pressures, weather disruption and rising oil commodity prices in H1 2018. Total non-fuel sales were 3.7% ahead of 2017 on a like for like basis (at constant currency) while related gross profit grew by 7.2% (at constant currency) reflecting an increased focus on food in the Applegreen estate.

Welcome Break has traded in line with management's expectations during 2018 and the integration of that business is progressing as planned. We have made a number of management changes and we are confident in delivering significant synergies from this acquisition. The hotel operations are a particular area of focus for Applegreen and there is a strategic review of this business underway currently. We have successfully transferred several Applegreen UK service areas to Welcome Break and there is a strong pipeline of MSA and TRSA opportunities to deliver further expansion.

In total, 61 new sites were added in the year including 43 through the Welcome Break acquisition (34 Motorway Service Areas, three Trunk Road Service Areas and six stand-alone hotels) as well as 18 new Petrol Filling Stations. At 31 December 2018 there were 158 sites trading in the UK with 59% trading under the Applegreen or Welcome Break brand.

USA

Revenue in the US increased by 224.6% and gross profit by 217.1%, primarily due to the full year impact of the 2017 acquisition in South Carolina as well as the sites added in 2018.

During the year, the Group added 53 new sites in the USA. Of these sites, 50 were added through group acquisitions in the South East (43 in Florida and 7 in South Carolina) and the remaining three were single site acquisitions in the North East. The Group had 121 sites trading in the USA at the end of the year.

We have expanded our relationship with 7-Eleven in the North East and commenced a roll out of 7-Eleven redevelopments in the South East during the year. At 31 December 2018, we had nine 7-Eleven sites trading.

Costs

Including Welcome Break, selling and distribution expenses (excluding rent, depreciation and net impairments charges) rose by 56.6% while administrative expenses (excluding share-based payment expense, non-recurring costs and depreciation) grew by 54.7%.

Excluding Welcome Break, selling and distribution expenses (excluding rent, depreciation and net impairments charges) increased by 37.9% which is driven by the 25% increase in site numbers, particularly the site additions in the US which included a number of food offerings with associated payroll and utility costs. Administrative expenses (excluding share-based payment expense, non-recurring costs and depreciation) increased by 20.2% as a result of the growth in the business in the period, targeted marketing campaigns and continued investment in management capacity. Also excluding Welcome Break, the rent cost increased by €8.6m to €26.8m which is mostly driven by the Brandi leasehold acquisition of 42 leasehold sites in October 2017 and the Florida leasehold acquisition of 43 sites in September 2018

Non-recurring charges are primarily related to the Welcome Break transaction costs.

Interest costs have increased due to the higher debt levels utilised to finance the acquisition of Welcome Break.

Net Debt

Net debt (excluding shareholder loans) was €506.9m at 31 December 2018 (2017: €10.2m). The group has total borrowings of €628.9m and total cash of €122.0m at the balance sheet date.

The pro forma adjusted leverage for the Group at 31st December 2018 is 3.9 times and the pro forma adjusted basis for Applegreen excluding Welcome Break is 2.2 times.

 Further Network Expansion Activities

We continue to develop our network in 2018 adding two new stand-alone sites since 31 December 2018 and opening one new Pizza Express food offer.

We have a good pipeline of further developments of both Service Area sites and Petrol Filling Stations across our markets.

Dividend

The Board has proposed a final dividend of 0.91 cent per share (2017: 0.80 cent per share) which will be paid on 28 June 2019 to shareholders on the register as at 7 June 2019.

Outlook

Trading conditions remain generally good despite uncertainty caused by macro events. We anticipate another year of robust growth for the business. Our primary focus will be on the integration of Welcome Break and further reducing leverage but we will also continue to evaluate new opportunities to further expand the business in the future.

UNAUDITED CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 DECEMBER 2018

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 2018

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2018

UNAUDITED Consolidated statement of changes in equity

AS AT 31 DECEMBER 2018

UNAUDITED Consolidated statement of changes in equity

AS AT 31 DECEMBER 2018

UNAUDITED Consolidated statement of cash flows

YEAR ENDED 31 DECEMBER 2018

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 2018 (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 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 2017 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 2017 with the exception of the adoption of IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers which are described below. A number of other changes to IFRS became effective in 2018; however, they did not have a material effect on the financial information included in this report. The Group also acquired the Welcome Break group and therefore has added a number of accounting policies which are described below.

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. Accordingly, the financial information is unaudited. Full statutory accounts for the year ended 31 December 2017 have been filed with the Irish Registrar of Companies. The audit report on those statutory accounts was unqualified.

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 2017 as set out on pages 89 to 90 in those financial statements, with the exception of the recoverability of Superstop receivable matter, and with the addition of the following:

Assessment of control in the acquisition of Welcome Break:

The Group acquired a controlling interest of 50.01% in Appia Group Limited (Welcome Break group) on 31 October 2018. IFRS 10 explains that an investor controls an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has ability to direct those returns through its power over the investee. The Group has the power to direct the relevant activities that most significantly impact the amount of returns and appoint key management

Notes to the unaudited consolidated financial information

1. General information and basis of preparation (continued)

personnel. On the basis of the above, the Group has concluded that it controls Welcome Break under IFRS 10.

Impairment of financial assets:

The Group adopted IFRS 9 from 01 January 2018. IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. See below for further details. The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

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 2017, and are described in those financial statements on pages 79 to 88, except for the impact of the matters described below. These are split between changes in accounting standards and policies adopted due to acquisitions from business combinations.

New standards adopted by the Group

The Group adopted IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers, with effect from 01 January 2018.

IFRS 9 Financial Instruments

IFRS 9 replaces the provisions of IAS 39 Financial Instruments: Recognition and Measurement that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The adoption of IFRS 9 from 01 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out in this note. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.

The total impact on the Group's retained earnings as at 01 January 2018 is as follows:

(1) The Group refinanced its borrowings during 2015. In accordance with IAS 39, the modification of the loan terms was not considered to result in an extinguishment of the initial borrowings. At the date of the modification no gain was recognised in the Consolidated Income Statement. Instead, the Group discounted the cash flows of the modified borrowings at a revised effective interest rate which meant that the impact of the changes in cash flows was recognised over the remaining modified term of the borrowings.

Notes to the unaudited consolidated financial information

2. Significant accounting policies (continued)

Under IFRS 9, the cash flows of the modified borrowings must be discounted at the original effective interest rate. This would have resulted in the recognition of an immediate gain in the Consolidated Income Statement at the date of the modification. As the Group has chosen not to restate comparatives in adopting IFRS 9, it has recognised an adjustment of €0.9 million to reduce non-current borrowings for the gain on 01 January 2018 with a corresponding impact on retained earnings. During the year, these borrowings were repaid and this loss was recorded in the Consolidated Income Statement.

(2) The adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach. Under IFRS 9, credit losses are recognised earlier than they would be in IAS 39. IFRS 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at fair value through the profit and loss account.

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. For trade and other receivables, the Group has applied the standard's simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The Group considers a financial asset in default when contractual payment are 180 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. The adoption of the ECL requirements of IFRS 9 resulted in increases in impairment allowances for the Group's financial assets measured at amortised cost. The increase in allowances resulted in a €2.8 million impairment provision along with a corresponding increase to the deferred tax asset of €0.4m and a net adjustment to retained earnings of €2.4m at 01 January 2018.

IFRS 15 Revenue from Contracts with Customers

IFRS 15, Revenue from Contracts with Customers, replaces IAS 18, Revenue and IAS 11, Construction Contracts and related interpretations. IFRS 15 establishes a five-step model for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 requires an entity to recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to in exchange for transferring those goods or services to the customer. Revenue is recognised when an identified performance obligation has been met and the customer can direct the use of and obtain substantially all the remaining benefits from a good or service. The Group has adopted IFRS 15 from 01 January 2018, using the modified retrospective approach and has not restated comparatives for 2017.

Notes to the unaudited consolidated financial information

2. Significant accounting policies (continued)

The Group used the five-step model to develop an impact assessment framework to assess the impact of IFRS 15 on the Group's revenue transactions. The results of our IFRS 15 assessment indicated that the impact of applying IFRS 15 on our consolidated financial statements was not material for the Group and there was no adjustment to retained earnings on application of the new rules at 01 January 2018. The adoption of IFRS 15 has had no material impact on the principles applied by the Group for reporting the nature, amount and timing of revenue recognition. Contracts with customers can be readily identified throughout the Group and include a single performance obligation to sell fuel, food, shop products and other as described below. Revenue is recognised when control of the goods are transferred to the customer, which for the Group is at a point in time when the Group sells a product to the customer.

Policies adopted due to business combinations:

During the year, the Group acquired a 50.01% stake in the Welcome Break Group which resulted in the following additional accounting policies being adopted:

Revenue

In addition to the existing revenue policies, the Group added the following:

Hotel sales

Revenue is derived from hotel operations and includes the rental of rooms and food and beverage sales. Revenue is recognised when the rooms are occupied and food and beverages are sold.

Gaming income

The Group recognises takings due from playing gaming machines less any payouts as revenue at the point the machine is played.

Employee benefits

Defined benefit pension plans

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. An asset is required in the balance sheet where fair value of plan assets exceeds the present value of the defined benefit obligation.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yields on high-quality corporate bonds that are denominated in the currency in which the benefits will be paid (sterling), and that have terms approximating to the terms of the related obligation.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the consolidated income statement. 

Notes to the unaudited consolidated financial information

2. Significant accounting policies (continued)

Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in retained earnings in the statement of changes in equity and in the statement of financial position.

Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in consolidated income statement as past service costs.

Derivative financial instruments and hedging activities

The Group uses derivative financial instruments to manage certain interest rate exposures. All derivatives are recognised at fair value. The treatment of changes in fair value depends on whether the derivative is designated as a hedging instrument, the nature of the item being hedged and the effectiveness of the hedge. The Group designates certain derivatives as follows:

· hedges of a particular risk associated with a recognised floating rate asset or liability or a highly probable forecast transaction (cash flow hedges);

· hedges of changes in the fair value of a recognised asset or liability (fair value hedges); and

· hedges of net investments in foreign operations (net investment hedges).

At inception the Group documents the relationship between the hedging instrument and hedged items, its risk management objectives and the strategy for undertaking the transaction. The Group also documents its assessment of whether the derivative is highly effective in offsetting changes in fair value or cash flows of hedged items, both at inception and in future periods.

Movements on the cash flow hedging reserve in shareholders' equity are shown in the Consolidated Statement of Changes in Equity. The full fair value of a hedging derivative is classified as a non-current asset or liability when its remaining maturity is more than one year; it is classified as a current asset or liability when its remaining maturity is less than one year. Non-hedging derivative assets and liabilities are classified as current or non-current based on expected realisation or settlement dates.

Cash flow hedges

Changes in the fair value of derivative hedging instruments designated as cash flow hedges are recognised in other comprehensive income to the extent that the hedge is effective. Amounts accumulated in other comprehensive income are reclassified to the Consolidated Income Statement in the same periods that the hedged items affect profit or loss. The reclassified gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the Consolidated Income Statement within finance income or costs respectively. The gain or loss relating to the ineffective portion is recognised immediately in the Consolidated Income Statement within finance income or costs respectively. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in other comprehensive income is transferred to the Consolidated Income Statement in the same period that the hedged item affects profit or loss.

Notes to the unaudited consolidated financial information

2. Significant accounting policies (continued)

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income remains there until the forecast transaction occurs, unless the hedged transaction is no longer expected to occur, in which case the cumulative gain or loss that was previously recognised in other comprehensive income is transferred to the Consolidated Income Statement.

Fair value hierarchy

The Group reports using the fair value hierarchy in relation to its assets and liabilities which are measured at fair value except for those which are exempt as defined under IFRS 13, Fair Value Measurement. The fair value hierarchy categorises into three levels the inputs to valuation techniques used to measure fair value, which are described as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

· Level 2: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices); and

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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 groceries and other within Ireland, the UK and in 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.

Notes to the unaudited consolidated financial information

3. Segmental analysis (continued)

At 01 January 2018, the Group updated its cost allocation model in relation to its Irish distribution centre. Therefore, in order to show a true comparison, the 2017 figures have been reclassified in line with the updated methodology. This has not affected revenue but has reclassed the gross profit by €1.8 million from Store into Food within Ireland and UK.

Notes to the unaudited consolidated financial information

3. Segmental analysis (continued)

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 plan.

Notes to the unaudited consolidated financial information

5. Expenses

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

(1) Included in the charge of €1 million (2017: €1.6 million) for share based payments is a charge of €0.2 million (2017: €0.3 million) in respect of share options granted during the year under a new share option scheme.

(2) Non recurring charges primarily relate to business combination acquisition costs and costs incurred in relation to the upgrade of our financial ERP system.

6. Finance costs and income

(1) Included in bank loans and overdrafts is €0.9 million relating to early repayment of borrowings. See note 13 for details.

Notes to the unaudited consolidated financial information

7. Taxation

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

In the current year, non-taxable income and income taxed at higher rates have been merged to enhance the presentation. The 2017 figures have been reclassified in line with the updated presentation.

Notes to the unaudited consolidated financial information

8. Intangible assets

Assets under construction as at 31 December 2018 relate to development costs incurred in the upgrade of the Group's financial ERP system. Favourable contracts relate to the fair value uplift of leases acquired as part of the Welcome Break business combination. See note 16 for details of this transaction.

Notes to the unaudited consolidated financial information

9. Property, plant and equipment

Assets under construction as at 31 December 2018 includes the following significant projects; eight service stations in the Republic of Ireland (€8.9 million), one motorway services area in Northern Ireland (€0.7 million) and one service station in the US (€0.9 million). The remaining amounts relate to several other developments across all regions.

Notes to the unaudited consolidated financial information

10. Inventories

The cost of inventories recognised as an expense and included in 'cost of sales' amounted to €1.7 billion (2017: €1.2 billion).

11. 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.

Following the adoption of IFRS 9 as of 01 January 2018, the Group recognised an additional expected credit loss of €2.8 million. See note 2 for details.

Notes to the unaudited consolidated financial information

12. 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:

13. Borrowings

Following the adoption of IFRS 9 as of 01 January 2018, the Group recognised a gain of €0.9 million in opening reserves at that date arising from the refinancing of a borrowing performed during 2015. See note 2 for details. During the year, these borrowings were repaid and therefore, this gain was expensed to the Consolidated Income Statement.

Notes to the unaudited consolidated financial information

14. Trade and other payables

15. Share capital

During 2018, the Company issued 28,782,895 ordinary shares of €0.01 at an issue price of €6.08/£5.43 per share, resulting in gross proceeds of €176 million. Share premium of €175.4 million was recorded on these shares. Directly attributable issue costs of €6.2 million have been deducted from retained earnings.

275,000 share options were exercised during 2018. Share premium of €0.4 million was recorded on these shares.

Notes to the unaudited consolidated financial information

16. Business combinations

On 31 October 2018, Applegreen acquired a 55.02% majority stake in Welcome Break from NIBC Infrastructure Fund. As part of the deal, Applegreen sold an 8.6% shareholding in Welcome Break to AIP, the sole other current shareholder of Welcome Break. Applegreen also transferred its UK MSA and TRSA assets, as well as development pipeline assets to Welcome Break. The net impact of transactions resulted in Applegreen ultimately holding a 50.01% shareholding in Welcome Break and management control.

As part of the transaction, Applegreen not only acquired the shares in Appia Group Limited (ultimate parent of Welcome Break) but also unsecured subordinated Eurobonds fixed rate notes. Eurobonds are unsecured loans that are required to be held by the shareholders in Welcome Break in the same proportion to their respective shareholdings in the Welcome Break Group.

The provisional fair values of the acquired assets and liabilities at the acquisition date are set out below:

Notes to the unaudited consolidated financial information

16. Business combinations (continued)

The initial assignment of fair values to identifiable net liabilities acquired has been formed on a provisional basis given the proximity to year-end. Any amendments to these fair values within the twelve month timeframe from the date of acquisition will be disclosable in the 2019 Annual Report, as stipulated by IFRS 3.

No contingent liabilities were recognised on the acquisitions completed during the year.

17. Post period end events

Since the year end, the Group has added one new petrol filling station in the Republic of Ireland and one new petrol filling station in the UK. The Group will continue to pursue new developments to enhance shareholder value, through a combination of organic growth, acquisitions and development opportunities.

The Directors have proposed a final dividend in respect of the 2018 financial year of 0.91 cent per ordinary share, €1.1 million in total. This dividend has not been provided for in the Group balance sheet as there was no present obligation to pay the dividend at the year end. The final dividend is subject to approval by the Company's shareholders at the Annual General Meeting.

Glossary of financial terms

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

Glossary of financial terms (continued)