Tortilla Mexican Grill (LSE:MEX) — Half Year Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the TORTILLA MEXICAN GRILL PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all of the questions that are submitted today and publish responses where it is appropriate to do

0:31 so. These will be available via your investor meet company dashboard. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And then I'd like to hand you over to CEO, Richard Morris. Good afternoon, sir. Good afternoon. Good afternoon, everyone. Thank you for joining. Okay. Andy and I will take you through our presentation. We envisage it will be around twenty five, thirty minutes, and obviously, then you can do the questions as discussed, and we'll answer those and the ones that we can answer at the end. So I'm not sure how many people are fully aware of TORTILLA, so I will assume that maybe some of you are not fully up to speed with the business. So a little quick resume of where we're at and who we are. TORTILLA is a a fast casual Mexican business that's been trading since 2007, had some private equity investment around 2011.

1:29 And I took over from the founder, Brandon Stevens, in 2014 when the business had between think it was 10 or 11 sites at that stage. We're now up to 84 worldwide through a mixture of company owned sites and franchise franchises, and we IPO ed the business in October last year, and this is our first interim statement. So a little bit of background on myself. I'm Richard, the CEO. I've been with the business since 2014, as I said. My experience has been consistently in hospitality, having trained in The States with TGI Fridays back in the day, ran some of their businesses in The UK, opened Rainforest Cafe in Disneyland Paris, and then Shaftesbury Avenue in London, and then moved on to be one of the opening management part of the opening management team of Lotfi and Seafood Restaurants, which began in '99.

2:27 We sold in 2007 to Green King with 50 sites in in the business and very successful good business. That was great.

2:36 Did a few things after that, spent some time with Dalesford Organic, but ultimately, saw TORTILLA in 2014 and really believed that this fast casual sector was going to be the, the way forward in the hospitality sector. Casual dining was becoming very overheated. Lots of people doing much the same thing at much the same price. So, decision made to move into this sector. And if you'd asked me six months ago, I'd have said it was a brilliant decision, but things have been slightly more challenging. But even so, still very positive about the business and and where it's going.

3:13 And I'm Andy Naylor. I'm the CFO at TORTILLA. I started my career at, one of the big four accounting firms and did the classic chartered accountancy route. Then I went into working for the Russian gas giant Gazprom and various other I've got some exposure to oil and gas back then, but I fancy doing something more tangible. Got into the restaurant sector, took a head of finance role at Gaucho. We sold the business whilst I was there in a private equity transaction, and then I joined Richard at TORTILLA in 2017. So moving into the half year yes, next slide, Andy.

3:57 So in May, TORTILLA acquired another Mexican business called Chilango, which operated purely in Central London with one location in Manchester. This was a business that we had always admired. They were they only had eight sites. The food was very good. We quite like the brand, and we saw it as an opportunistic purchase. We got it at a very good price. We are big fans and supporters of Central London, even though there have been more headwinds around Central London with working from home and train strikes and all these sorts of things. We are big believers that Central London is still a great place to trade. We've taken those businesses over, and we'll report a little bit later on in the presentation as to how that's gone.

4:46 We've achieved our targets for opening sites in the first half year. We're adding five bricks and mortar locations to the estate and one delivery kitchen. Our franchise partnership with Compass Group added some university locations for us, which continue to trade well, and our SSP franchise has been phenomenal. With the, mass exodus of the Brits to go on holiday in, July and August, our sites in Gatwick Airport and Bristol Airport have broken all records over that period of time, doing sort of £70,000 a week in Gatwick and £35,000 a week in Bristol. Both extraordinary numbers and made SSP very happy and also ourselves. So great opportunities for us to push forward with our franchise relationship with those two big businesses.

5:37 We came away from our exclusive relationship with Deliveroo halfway through the year, and we have moved into a dual partnership with Uber Eats and Deliveroo. And, again, Andy will give you the background and detail as to how that's gone for us since then. If there are any benefits to the world that we live in right now in our sector, it is that the property market remains quite subdued. And for us, with a business that's in pretty good shape with a strong balance sheet, It gives us the opportunity to continue to put our foot down on sites and take advantage of the market, which is something that is pretty rare in this sector to find a commercial property in such good shape for us.

6:23 And just one thing in terms of our from our from our customer focus, we've launched a loyalty scheme, which has been hugely successful. And in the six months since we've had the reboot of it, we've moved it from a 130,000 to nearly 220,000 people now who are loyalty members of TORTILLA. It's not a discount thing. It's very much a eating for and on your tenth visit, we'll buy you a burrito. We also let people know about various events that are going on within TORTILLA. So it's very much more about making them feel part of the family without discounting, which is something we're very keen not to do. On the financials, our revenue increased for the half year from 20,800,000 to 26,900,000 and our adjusted EBITDA fell from 4,900,000 to 2,500,000 predominantly all around the VAT scenario at that time.

7:16 And as I mentioned earlier, we have a strong balance sheet with a net cash of 3,200,000 And of course, this business is extremely cash generative, which is helpful for us to allow us to move forward as quickly as we'd like.

7:32 Okay. So now onto some numbers, some headlines only on this slide, then I'll get into the detail on some of the next pages around bridges and stuff. But overall, the headline figure is the revenue was up 30% this half year versus last half year, and that was driven by less lost trading weeks, bit of a tongue twister. Due to the pandemic, we had a huge number of weeks lost last year due to the national lockdown that was enforced, whereas this year, we had a slight lockdown or quasi lockdown, if you like, in January with the Omicron variant. But sales increased also due to the addition of new sites and the underlying sales growth of the business. Gross profit margin was 77%, 3.6% less than it was last year.

8:21 The most of that was due to the drop in VAT rate from what was a 5.5% rate last year for the whole half year. This year, we had 12.5 for just one quarter. And then EBITDA otherwise was $2,500,000 expected decrease on the prior year. As Richard said, we had 1,800,000 less VAT benefit, less government support from restart plans and business rates relief. And that flows through to a profit before tax about $300,000 slightly higher exceptional costs in the period due to the acquisition of Chilango as well. Moving on to a bit more detail around the sales. You can see here, I've bridged the prior year revenue with the current year.

9:09 All the bars are green going upwards except the one which is the VAT benefit, which I talked about on the last slide, 1,800,000 Otherwise, everything goes upwards, 2,300,000 more revenue from new sites that we've opened, 3,700,000 from lapping the prior year period where we were closed. We lost nearly three hundred trading weeks in the first half of last year, whereas we lost a minimal amount this year. 100,000 from the addition of Cholango, we bought that in late May, and that will obviously contribute more revenues in the second half of the year. And then the rest was due to underlying growth and franchising growth. Some really healthy like for likes as well. You can see here that we were nearly 19% in like for like growth versus 2019.

9:56 We report 2019 so that we're comparable with the industry benchmark of 6%, the CGAPH report. So we're really shuffled a 13% differential versus the industry. It goes to show how well our brand is positioned in The UK still. One of the things I'd like to highlight as well from this slide is the volume growth when you exclude Zone 1 Central London of 1.6%. Obviously, when you're looking at three year like for likes, like the restaurants are all reporting, you've got to bear in mind the amount of pricing that goes on between three years. So we're really delighted to have that volume growth, and we're going to talk a bit more about Central London and the dynamics of that later in the presentation. Moving on to a bit of a look at the different sales channels.

10:41 Delivery is roughly 30% of sales now, and it came down from sort of highs of, like, average 48% last year. That is still roughly double what it was pre COVID, so delivery is still a much more material part of our than it was a few years ago. What we have seen with the cost of living prices is delivery people are coming back in store. Obviously, delivery is priced at a premium with all the delivery fees and that type of stuff. And so, obviously, consumers are making the choice to come in and pick their order up, which is great for us. And we've tried to bolster that by the addition of a new loyalty scheme called TORTILLA. And we've increased our membership of the loyalty program to over 200,000 members in the last twelve months. And what we've seen with that is roughly a 30% increase in visitation frequency from a loyal customer versus a non loyal customer. And I think that's something which we can really grow over the next next few years and something that we can push as a key tool to driving our like for likes.

11:46 What you'll see on the right hand side is a graph which shows our delivery like for like versus 2019. It's I mean, it's slowed down the growth, but it is still growth, and it's very big growth versus 2019. And what we were able to do is arrest the declining trend in that growth by commencing a partnership with Uber Eats as well. One of the great things about this business model is because the food is assembled to order rather than being cooked to order, we do have the ability to switch on additional delivery channels and not have a material impact on our operational abilities. So it's been a big lever for us to pull, and it's worked out very well for the business. And I think it will continue to put holders in good stead. Talking about some less positive things. It's been a difficult year as widely reported in the press.

12:37 Interestingly, most of the noise in the press is about utilities, which for us has been a relatively okay position. We did choose to not hedge in November last year because the hedge rates were an all time high, and we just thought they were priced at the crazy level. Obviously, what's happened since with the invasion of Ukraine and all of the fallout from that is they've gotten they've become even higher. Having said that, we continue to not hedge because buying spot has been a better strategy for us because the prices of hedges are far too high. And actually, now with the government support protecting the winter months, we've benefited from the low prices in the summer. And now into the winter, we operate with a capped price. So actually, that has impacted us, but only to the tune of about GBP $05,000,000 or about 0.8 of sales.

13:26 What I would say is gross margin is a much bigger cost for us as a bridge there versus prior year. You can see all the sort of ins and outs around

13:34 that and things like that. But if you can compare the bar, the gray bar, which is the expectation for the first half of the year, 79% with what was the reality, which is 77%, That is all driven by the protein prices. Protein costs went up circa 40% in mid April, and that has really hurt our P and L because a significant portion of our purchasing is in terms of proteins. So that has been difficult for us. The wholesale price of meat in Europe is significantly higher than it was a year ago. We expect that to flush through a 3% gross margin gap for the full year, so an increase compared to H1. That's because, obviously, the first quarter of the year was unimpacted by this situation. So that will result in just under a GBP 2,000,000 EBITDA hit compared to expectation.

14:29 We haven't just gone in and priced that out with our menus. We have priced about 6% so far this year. We believe as a board that it's very important to resist the temptation just to price your way through these problems and to potentially undermine the offer in the longer term. Something much more positive, the new site openings. It's been a really good year for openings for us. You can see in the left hand side the what we do when we set our investment case for a new site opening, we set ourselves our ROCE hurdle. And then what we determine is a sales number that we believe we need to hit in order to reach that return on investment. We are already in excess of that sales hurdle on average across those sites that we've opened this year and last year, which is fantastic.

15:17 That's driven by the fact that our sites open more strongly than they used to because Mexican cuisine is better understood. But it's also helped by the quality of the deals that we're securing with landlords, capital contributions, lower rents. So it means that the threshold to make your return is lower, we're hitting it quicker. And obviously, these sites are still very much maturing as time goes by. Interestingly as well, another dynamic in the property market is if you look at the more recent cohorts of openings on the right hand side, I've expressed the rent charge as a percentage of sales, and you can see that the most recent openings, the FY 'twenty two openings, growth rate with a sub 9% rent percentage, which is fantastic. I mean, if we were sat here in 2019, we'd have been talking about 10.5%, 11% rent.

16:06 So that's been a really favorable change. The property market is relatively stagnant against the high inflation background. So that's a fantastic opportunity. And we talked to the IPO about the planning legislation and the ability for us to take retail units without applying for change in use. You'll note from the bottom, I've noted that over half our openings this year will have been former retail units where we've not needed to put extraction in and all those other expensive things. So a really strong confidence that this gives us in our U. K. White space opportunity going forward. Finally, on the balance sheet, not too much to talk about here really other than the introduction of a significant goodwill balance of GBP 2,600,000 following the acquisition of Chelango.

16:52 We paid GBP 2,750,000 for that business, had a minimal amount of net assets, and so that results in a large goodwill balance. Richard will talk a bit more about Chilango shortly. But I would highlight that in uncertain times like this, we're in a great net cash position at the moment. We've got a gross cash position of $6,200,000 and a net cash position of 3,200,000 We have got further facility to access with some good favorable conditions attached to it. We don't want to increase our level of debt in the business. We want to continue rolling out our estate, new site openings from own cash. You'll see from the reconciliation there that the cash flow from operations in the first half of the year was 3,200,000.

17:38 The CapEx for new stores was GBP 2,000,000, and the maintenance CapEx was GBP 800,000. The other items in there are one off things to do with Cholango and rents from prior year. So actually, what that says is we can generate enough cash in our current rollout rates to cover our new site expansion CapEx. Clearly, our priority going forward will be to mitigate some of the margin challenges to make sure we can try and preserve best preserve that kind of key principle that underpins our business.

18:15 Moving on to our acquisition of Chilango in May. It was an opportunistic time for us to take one of our competitors out. We like Chilango. We thought it was a good business, good offer, good product. Unfortunately, unprofitable, not particularly well run, but we're big fans of Central London. We do think Central London, despite the work from home scenario, is still a great place to trade, and we got this for what we felt was a very good very good deal, and we we still do. We acquired eight of their eight of their businesses, and we've converted five of them already to TORTILLA's. The picture you'll see is Spitalfields, which was a Chilango. And the really good news is that the majority of the conversions are already doing sales of above the pre conversion levels.

19:05 We we're also commencing a trial of the Chilango brand in one of our cloud kitchens. Chilango is more premium, slightly more expensive than we are, and they had items on their menu that we don't do such as keto boxes and protein boxes and a couple of other menu items that we've put into our cloud kitchen under the Chilango brand. So we're trading TORTIA and Chilango out of the same kitchen. It's very early days. We've only been doing it for three or four weeks, so we don't really have any evidence yet. But we want to see whether there is a differentiation and whether the market appreciates the difference between the two businesses. We've kept three of the existing Chilango sites as Chilangos, two of them because they trade very closely to existing TORTILLA sites.

19:51 So we'll continue to trade them as Chilangos and use those businesses as a means of trialing new items and a place for us to test some products. The third site is in Central London, which the lease ends at the end of this year, and the reality is we'll probably just hand the property back. We don't we don't consider it to be one that we we need to keep hold of. One of the other big strengths of this business, and we've talked about it a lot and we did it we did when we were originally doing our IPO presentations, is the strength that the business has outside of the M25 in London. Many businesses hold grand ambitions of becoming national and trading outside of of those hotbed areas, which London and and the Southeast is, but they fail.

20:39 Now we actually are in a sort of scenario where as of now, our sites outside of London are almost outperforming our our London sites. Now clearly, are reasons why London has been a little bit more volatile with, the work from home thing and various other issues. But predominantly, we've proved that we can roll this brand out and extend this brand across all aspects of The UK. We've got sites in Birmingham, Leeds, Bristol, Brighton, Edinburgh, Bath, Exeter, all doing all doing well over a million pounds worth of revenue a year, and it gives us huge confidence to be able to to grow the business in those in those type of locations as well as back in London and the Southeast.

21:23 We recently under underwent another property, white space document for The UK. We did one about two years ago sorry, three years ago pre COVID. We wanted to update that document now with all that's happened since. And because we now know we're able to trade in sort of secondary locations and slightly off pitch sites due to the success of our delivery and and takeaway model, it's now come back to us that we're in a position to be able to open upwards of 200 sites now in The UK, which is really, really encouraging. We've also just opened some sites, so we're opening a couple of sites in not specifically typical TORTILLA locations, which generally trade in white collar, of middle class locations, fairly affluent areas.

22:11 We've recently opened a site in Leicester, which is a hugely high populated city, but not necessarily our typical demographic.

22:21 Huge agent Asian population there, and and we've managed to get a site in Leicester at a very good rent. And early signs are the numbers are very strong, which is really encouraging for us. And in a couple of weeks, we're about to open another site in Coventry. Again, a very similar demographic, a very good rent, both university towns, both with big populations. So that really does then open up other opportunities for us to expand the business into areas similar to that.

22:56 So yes, I've talked about that slide. We can move on from that one. The following slide is an area that has been a crucial part of the success of this business. We've always been guided very much by the importance of value for money. We've worked incredibly hard over the years with supply chain to mitigate any increases in cost, which is somewhat ironic as we sit here today. And we've always managed to deliver a phenomenally good, healthy, freshly made, customizable product at an exceptionally good price. And this if you look at the graph here, it shows you that we are still very much in the lower quartile of pricing against our competitors. Now we're big believers that a very big part of our success is that we've been able to do this at a very good price.

23:45 Now the reality is that we're getting hit with some very, very big, costs to us, especially in the protein world. Andy's talked about it and with the chicken and beef and pork prices, specifically chicken, going up by 40%. It's unreasonable for us to not price.

24:03 I think the consumer expects it. We have priced a little bit more than we would normally do, but there is an opportunity and a potential opportunity for us to price again. It's something that we push against. We're very keen to continue to be as keen on pricing as possible, and we will always try and work hard with supply chain to find different ways of getting product to our businesses at a lower price and look at different ways of making the model work without pricing. But I do think we have to be realistic that it is something that we will continue to look at. And if prices don't move, then we will probably end up looking at pricing again, specifically maybe down in the London region because we do feel that within London, we are probably slightly underpriced for the for what we offer.

24:50 So the current trading, well, I think Andy mentioned it. Some the summertime was tough for us, but I think it was tough for everybody. The the Brits like to travel, and this was the first time in two years that without various COVID restrictions, we've been allowed to travel. So it was very, very quiet in a lot of our locations in July and August of this year. A lot of people were away. We did anticipate it. We knew it was gonna be tough. But I think, again, what's always so so good for us and makes us feel so confident is if you look at our our benchmarking against the rest of the sector in July, August, and September, we're way above what other people in our sector are doing. So, again, that fills us with a lot of confidence that like for likewise, we are continuing to deliver above the CGA benchmark.

25:41 We've always done that, but actually the gaps here are are even greater than they normally have been. So, again, that just gives us that sense of confidence that however tough things are, this business is very resilient, and people still want to come and find us and eat with us.

25:58 In terms of the cost headwinds and profitability outlook, I've quantified them previously, but just to reiterate versus previous expectation and where we would have been this year had this not happened. Utilities will cost us about GBP $05,000,000 of EBITDA. And then in terms of the gross margin, that's just under GBP 2,000,000.

26:21 So without these headwinds, we would have been aiming for a store EBITDA percentage of sales of around 19%. We'll be closer to sort of 15%. Some of that will also be because of the acquisition of Chilango, slightly dilutive at EBITDA percentage level because, obviously, there's a lot of initiatives that we have underway to regrow the profitability of that business. And clearly, some of that stuff takes time. And as the business stands, as we inherited it, it wasn't generating a profit at the same level as a TORTILLA. So all things kind of around forecasting, that's they're all relevant points. The key thing now really for us as a business is to not sit on our hands and accept the cost headwinds that we face, whilst also not assuming that the market world gets any better anytime soon.

27:15 It's about us as a management team now generating initiatives and ideas to work around the cost problems and the areas that we see the opportunity around that. Richard talked about some further pricing, which we think we've got space to do. We'll try and minimize that. But also, we would like to be able to direct buy more of our produce directly from the actual producer. That's difficult to do when you're a smaller restaurant group and you tend to use an aggregating delivery partner that source products from lots of different suppliers and deliver them in. As you get bigger, it becomes easier to buy products direct, and that's something we are very actively

27:54 pursuing as well. And also on top of the sort of restructuring of the supply chain around implementation of more technology, there are lots of tech leaders that we have yet to pull that some of the more mature established restaurant groups have successfully deployed around productivity, so labor, making sure that you've got the right number of people on at the right time of the day so that you don't necessarily reduce the number of hours being worked, but people are on when you most need them and you can drive sales better. But also back of house, making sure that you've got refined tools to predict when your sales will come, how much food you need to prep, how to minimize wastage. We already do a lot of this stuff as a business. Clearly, that's why we've been successful.

28:41 But we think there is more headroom there for sort of further improvement on this through the use of more technology. So quite exciting for us to be able to kind of deploy some of these tools too. I've always been led to believe that in the restaurant business, there are three key things that you need to be able to do to prove your business is successful and has the opportunity to grow. The first one is that your existing estate continues to be successful, so your base estate, your like for like estate is still growing and that still is for us. Despite the difficulties, our like for likes are still strong. The other thing that's really important is that when you're opening new sites that they're all delivering on what they're expected to deliver. There's nothing worse than opening sites that struggle and fail, and you end up spending a disproportionate amount of management time trying to fix those sites as well as potentially any other sites you have in your estate that are not performed.

29:35 And we don't have any of those. Our our our new our new openings have been very successful, and we've taken advantage of the property market coming out of COVID, and it's proved to have been, you know, a very wise move for us. And the other thing you wanna be able to look at is to see a good runway and a good pipeline of potentially new sites. And that's something that is fairly unusual in this business, and we do definitely have a huge pipeline. Whether we're gonna be able to take full advantage of all of that through the cash scenario, we'll have to wait and see. We'll have to see how things trade over the next five or six months, what the market looks like, what the world looks like. Every day is a different day right now. Our ambition is to continue to grow this business quickly. This business requires scale. And to get that scale, we now have an opportunity to get there slightly quicker than we originally thought, but we will not do that by putting a load of debt into the business. We understand that that's been the downfall of many a good restaurant business. So we are, you know, very aware of the potential challenges of of of growing the business whilst in a world of uncertainty.

30:43 So it's very clear for Andy and I and the rest of the board that we want to do it responsibly, but wherever possible, we want to continue to grow. We also want to always know that we're going to come out of this with a brand. If we continue to price and just keep pricing and keep pricing, we'll end up pricing ourselves out of the market. We don't want to do that. We think there's opportunity in price, but it will always be something we will do very carefully. We've got to where we've got to because we're so well priced, but there's no doubt with, all the challenges around there is a realistic possibility that we will have to price again. So we remain highly confident in achieving our group's exciting long term growth potential. There's no doubt that this has been a bump in the road, and there's nobody more disappointed than we are that had we been sat here now coming out of our IPO with the world having been in a normal place, we would have delivered what we said we were going to deliver. Unfortunately, external events have knocked us a little bit and possibly put us back a while. But fundamentally, this is a cracking business and remains a good business.

31:52 And we still have you know, we're still very excited to take it to the next stage. That's all from us. Thank you. Richard, Andy, that's great. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Andy, Richard, we did receive a number of presubmitted questions ahead of today's event as well as as you can see in the q and a tab, a number of questions that have been submitted throughout today's presentation itself. So firstly, thank you to all investors for submitting their questions. Andy, Richard, if I could just hand back to you to run through the Q and A tab and respond to those questions where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

32:48 Yes. Absolutely. Okay. I'll take the first one regarding Belfast in Northern Ireland. Yes. How does the central kitchen model work with the store on the other side of the ROC? Well, actually, not a problem at the moment. It's what we're being advised by our supply chain. They already deliver at to Belfast. So we'll be able to take our product from our existing CPU over Belfast. All the products that we produce essentially have a very good long shelf life period, so there's no issue around that. So in terms of delivery, we we've we've not been made aware of any challenges getting to that. You've also asked if the new central kitchen is being built and how many stores does it need to support making economic sense. Well, obviously, that's not the intention to do that in Ireland.

33:36 Would we accelerate and reach the Republic Of Ireland soon? We'd like to. We think the we think Republic Of Ireland is a good opportunity. We've done some white space work on Europe, which we didn't actually talk about in the presentation. We are keen to look at Europe. We've recently brought somebody onto the board called Francesca, who's an ex CFO of Yum Brands in Europe. So she brings with her a lot of experience of franchising and of of brands in Europe. So it is something that we're looking at. And when we did our white space document some time ago, The Republic Of Ireland was a very good option for us. So yes, it is definitely within our plans to look there. So just moving on to the next question around property costs. The question was, can you give us an understanding of the changes in property costs versus 2019 and before the specifically the impact on the cost of opening new restaurants or ongoing rentals thereafter?

34:35 So my present the slide on the presentation did cover off the rent changes in the dynamics. So we have seen our rent percentage come down on our new store openings because we've been able to get some very favorable deals from landlords. I think our view is over the next few years, most rent reviews you have on existing leases at the moment are being concluded at nearly increased because the property market is subdued. Therefore, obviously, as pricing is going up and inflation, clearly, rents stay still, it is a percentage of sales will continue to decrease. So that's our sort of ongoing thesis as to what we expect to happen in terms of the property market. I think the challenge will be we've got some good capital contributions from landlords in over the last year or so.

35:23 Clearly, as landlords are more cash constrained themselves because some of them themselves are very highly leveraged, they may be less willing to part with capital contributions. But what we're seeing is healthy rent free periods being offered instead and things like that as kind of like lease incentives for our business. On to the next question around HR director. Yes, we're very excited. We brought in a new people director into the business, a girl called Holly Foote, who we've been speaking to for a while. Her background is she was she worked in Merlin for quite some time, and she's been with HostMore or TGI Fridays for the last couple of years. She's been involved in recruitment and a lot of employee initiatives within that business. My experience of TGI Fridays back in the day was they were a very people focused business, And I know a lot of the work that she's been doing with them is work that we would like to be replicated and brought across to us as well. So I'm very excited to have her on board. There is no doubt that without having a people director in the business for the last six months, it's been more of a challenge and more pressure is being put on our operations team.

36:33 So we're delighted to have her on board. We've got an LMD girl coming in as well who starts next week. So there's a big focus from us on the world of people going forward. She will be reporting directly into me and her and I will be working very closely on her plans for the next six to twelve months. There's a lot to do outside of all the varying headwinds of utilities and food. People is the other challenge. The market is more difficult now than it's been before. We feel we offer good rates of pay. We've got some great perks and some great benefits for our employees. We're a growing business. There's some great career opportunities. We operate in easy to access places. We don't work in to the middle of the night. So for our employees, it's it's it's a nice business to be able to work in so that they can get home at ten, 11:00 at night, not two or 03:00 in the morning. So there's a lot of good things about working for TORTILLA, and I'm really glad to have Holly on board. He can spend some time focusing on those things and and getting some of the culture in our business that certainly when I remember back in the day at Fridays how important that was.

37:43 So, yeah, really looking forward to having her on board and working closely with her. Okay. Next up is a question, which is you are reluctant to increase your prices despite being below your competitors. You say this is helping shorten the maturity period of new stores. However, is there a better balance to be had? How are you going to sustain this? Well, clearly, a business, we aren't a charity. We're here to make profit. And there is clearly room in our pricing structure to apply further pricing. I think the art of it for us will be finding a way to minimize the amount of pricing we take and instead find opportunity by being more efficient with the use of tech and the restructuring of the supply chain as we were kind of referring to.

38:33 So there's no doubt about it. We will have to price more, and we will try to do that in the best possible way because clearly, we can't accept gross margin being 3% off where it needs to be. I think the shape of the P and L will change more permanently. I'm not sure we'll get back to an 80% gross margin as we were previously, but I think we can close the gap a little bit. And then with the favorable movements in the P and L around the rent, property costs and some other elements of the P and L as well, I think we can kind of get close to a store EBITDA of 19%, 20% like our original business plan. There's a quick question here around preopening costs that they've gone up substantially, but I think we'd have to be realistic and say in 2021 because we were opening sites sort of in the middle of COVID that we were really not doing very much with them. We were just getting the doors open.

39:25 So we didn't do a lot on preopening. And now we are focusing a lot more on preopening. We are cementing $50,000 a site is unreasonable for preopening costs. We do a lot of local marketing. We do a free burrito, which we've done in all of our sites. There's just a lot more of a push around an opening for us. And if you look at this site if you look at the sales of the sites that we're opening, we're almost at maturity of sales within months of opening as opposed to years in the past. So we do feel it's really important that you know, we shout about ourselves when we go into some of these locations where frankly no one's heard of TORTILLA. In London, we don't spend as much because we don't need to because most people know who we are. We're going out into some of these locations like Lincoln and Leicester and Coventry where our brand is unknown. It's very important for us to to make a lot of noise.

40:21 So the next question is, are we paying too much tax for so small a profit? Interesting. Well, obviously, what we're accruing in the P and L is an estimate. We are still working through. So obviously, our accrual for year to date tax is something that we're still looking at. I would say as well, it's complicated somewhat by the question over deductibility of costs and tax charges in relation to the acquisition of Chilango. So I think the full year number for that still needs to be trued up. We'll probably have to take this one as the last one. Your share price relocated very badly to this announcement. Do you need to do more to manage investor expectations and to avoid such extreme reaction? Well, that's a good question. And Andy and I, we are fairly new to this. We are CEO and CFO of the PLC. We only IPO ed in October. These are our first interims.

41:22 We are as disappointed as investors are that we were unable to deliver what we said we were going to deliver. We do feel a sense of wasn't really a lot we could do about it. So we're learning along the way here. We feel confident and comfortable that we've done what we said we were going to do and more. We've we've opened we will have opened 18 locations this year, which is no mean feat for a business that's only ever really done five or six in the past and no mean feat in a very challenging, difficult market. So could we have managed expectations better? I think it was fairly obvious that with the numbers that we were putting out that some people would get spooked by it. And unfortunately, our sector is being battered on the markets. So I guess we weren't wholly surprised.

42:15 We've spent the last four days speaking to all of our investors who, I have to say, have generally been very supportive. This is a growth investment. This was always a five year plan, and this hasn't derailed us. It's possibly put us back a while, but rest assured, we're doing everything we can to get the to keep the to keep us on track and to continue to take advantage of the opportunities that are out there for us. I I think, unfortunately, that's our time up as we we have to head off onto another call. So Richard. And if I may just jump in there. Thank you very much indeed for taking the time to address all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended for you to review and then add any additional responses where it's appropriate to do so.

43:05 Richard, perhaps before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great. Well, at the risk of repeating myself, which I will repeat myself, know, Andy and I sit here still very confident in the future of this business. We've been dealt some tough cards over the last six months, and we don't envisage those situations changing for probably the next twelve to potentially eighteen months. I've run businesses during downturns before, and the things that I know will continue to be exactly the same as they will be today. People will continue to go out. People love eating out. It a part of the culture of this nation and these people, and we love eating out. And what we do tend to do is we take less risk. We don't tend to go out and eat in places we don't know, we certainly don't want to be going out and spending some and spending money that we don't feel is good value for money. We think we tick the consistency box in terms of our products, and we think we're very well priced. So we feel that we're in a good place to deal with the downturn and the potential bullets that will continue to be fired.

44:14 The benefit around property is great, and we want to take the benefit of that as much as we possibly can without putting the business at risk in any way. So it's business as usual for us with some creative thoughts going on around how we could mitigate some of these challenges going forward, but we're still very confident. Richard, that's great. And Andy, once again, thank you for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? It's gonna take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of TORTILLA MEXICAN GRILL PLC, we would like to thank you for attending today's presentation.

44:59 That now concludes today's session. So good afternoon to you all.