Tortilla Mexican Grill (LSE:MEX) — Investor Presentation

0:00 Good afternoon, ladies and gentlemen, and welcome to the TORTILLA MEXICAN GRILL PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They 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 questions submitted today and publish responses where it's

0:30 appropriate to do so, and these will be available via your investor meet company dashboard. Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from TORTILLA MEXICAN GRILL, Richard, Andy. Good afternoon.

0:46 Hi. Good afternoon, Jake. Good afternoon, everyone. Good afternoon. Okay, thanks for joining us. We'll take you through our presentation we think probably half an hour forty minutes something like that. First of all a quick intro to ourselves. My name is Richard Morris. I am I'm led to believe a hospitality veteran. I've been in this sector all my working life actually from flipping burgers at McDonald's as a kid through TGI Fridays,

1:19 lot five restaurants and then I joined TORTILLA MEXICAN just about ten years ago actually, nearly ten years ago. So it's been an interesting career and a very exciting last ten years with this business. Hi everyone, I'm Andy, I'm the CFO at TORTILLA. I've been here about six years having worked in another restaurant business, GOURCHO, before. Started my career in oil and gas, it's a very different industry, an accountant by background and moved into a more of a commercial role in recent years and we have a great management team here. Okay, so flipping on to the first slide, and we thought we'd talk you through the highlights of the half year and where we're at and what we were up to. So strategic and operational highlights for the business.

2:15 Well, we made some good progress on our UK new store openings. So far, actually year to date, we've opened five, including our first site in Northern Ireland, which has been hugely successful and very exciting, we'll talk about that a little bit later on. Suffice to say that site openings have gone well. We also have a slide on our Chilango acquisition, which we made in May last year, some updates on that business. Franchise network with SSP Compass and our franchise partner in The Middle East with Ethos, some little updates on those. Most encouragingly it looks as though cost pressures are starting to ease. We say that quietly because we never know, but as we sit here today we are sensing that things are moving in the right direction for a change. So very excited about that.

3:08 We've also launched a couple of major tech projects for the business. Our first kiosk only site in London Mall, which again we can talk about in a bit more detail later on, and a nationwide rollout of a delivery order aggregation software because we are a multi platform business with what was before lots of different screens, of different printers. We've now managed to sort of consolidate it all through a business called Deliverect, which is making life a lot easier for us and far better from a customer and an employee standpoint. So that's good news. You'll hear me talk a lot in this presentation about TORTILLA MEXICANTING PROMOTIONS we've ever done and we have just launched it. So we will give you a little bit more detail about what that is later on.

4:01 We've talked in the past, for those of you that have joined this before, around European opportunities for us. Just a few comments that we'll talk about that as we go through the presentation, still something we're very keen on, something that we are keen to pursue. And from a personnel perspective, we've strengthened our board with a a gentleman by the name of Keith Down, who's joined us as our a non exec director. He comes with a wrath of experience. He was ex CFO of, Selfridges and and also Weatherspoons. He's currently the chair of Tops Tiles. So he's been with us about a month now and will be a fantastic addition to the business and is already proving to be very helpful.

4:50 And a small round of applause or a large round of applause for Andy sitting on my right who we recently promoted up to the role of MD, fully deserved in his six years in the business. He's obviously moved from FD to CFO and has also been heavily involved in a lot of commercial work that we've been doing over the last few years, so delighted to say that he's been into that role. The financials, I'll kind of leave those for Adley to talk through on his pages as he's got quite a he's got quite a lot lot of of dates on the on all the financials so we'll flip over to those now. So on to the exciting bit the numbers, some headlines here which we dive into all these points into the more detail but some of the headlines hit those. We had a significant year on year increase in revenue of just over 20%.

5:46 Most of that was new store driven but there's some good like for like growth in there as well And obviously the addition of the Chilean business last year. Gross profit margin was remained at 77%, which is the same as the prior year number, although actually on an underlying basis it was 0.7% better because the prior year number benefited from some VAT support. Admin expenses increased in line with revenue growth and the EBITDA of £1,800,000 is pretty much bang on where we expect to to be at the end of the half year. The reduction in number versus the prior was entirely driven by billion of government support in the prior year number. So I'll come on to the bridge around that just now.

6:34 Revenue wise lots to say on this, so 22% increase which equates to £5,800,000 You'll see that all of the bars go upwards except the VAT benefit difference and that was just as a reminder in Q1 last year there was a 12.5% VAT rate that was applied to hot food. Obviously wasn't in the current year so lapping that was something that moves the number down but then it's all up from there and the new store openings and obviously all the tremendous growth that business has been through has been adding a lot to the top line. There's a breakdown in the bottom right hand corner of the slide around where the 4,900,000 comes from. So 2,500,000 of that comes from sites that were opened post H1 in the prior year.

7:28 We also bought the Chelanga business in May last year. So there was only five weeks of trading in the comparative. So obviously lapping that with a full twenty six weeks in the current year means a significant increase. Obviously, to that the revenue from the prior year openings obviously last year openings happened at various stages during the half, so the full year number was the full period. So there's an extra £1,200,000 from that. And then the only thing going downwards on that was we shut some cloud kitchens, which was a consequence of the Chelango acquisition they had some loss making cloud kitchens that we decided to shut down as part of the acquisition and then also we shut some of our own because the delivery market significantly contracted over the last twelve-eighteen months and they were marginally profitable so we decided to close those.

8:22 On to a bit around the like for likes, so we continue to outperform the industry benchmark with CGA copper weekly data. So we posted a 5% like for like growth and the peach reported a 4.6%, CGA peach 4.6%. And I guess what we also wanted to point out on this really is that this good growth coming from both the in store and delivery revenue streams which at the moment considering the contraction of the delivery market it's a fantastic result that we managed to generate some growth and that's largely because we moved to being a multi platform operator across all three delivery platforms. And actually you can see from the bar graph on the right deliveries stabilized at around 30% of sales.

9:09 So we're feeling pretty shocked that the growth is coming from lots of different angles as a business. Moving on to some very positive things, last year we were sat here feeling a little bit glum, if you like around cost pressures, it's a lot better now. Really pleased to report that food inflation is much improved. You can see from this graph here that in the first couple of months of this year when you just to remind people that Ukraine war was the thing that really spikes inflation in Europe. So that kicked off in late February. So in the first couple of months of this year, were lapping pre war prices. So there was high inflation, but it's come right down and very pleasingly it's gone below 0% and into deflation.

10:00 We locked in some very good contract rates on proteins and that's hedged until the end of the year and also on our fresh produce and dairy and that's all protected until April next year. So there's some big savings coming through on gross margin because our buying power has improved because we're a bigger business than we were twelve months ago adding 18 sites last year. And we've worked tirelessly with our suppliers to find different ways of buying and changing what we do. So fantastic result and similarly with utilities on the next page we've been working with an energy broker to hedge our board prices and that's resulted in a positive trend in terms of our utility prices. So we're feeling a lot not only is it going in the right direction in terms of prices but the world of utilities and food is a lot more stable than it was a year ago, which is fantastic in terms of obviously managing this business.

11:00 Then coming on to an EBITDA bridge, which is important because the headline number obviously makes it look like the profit dropped a lot year on year but it didn't really in absolute terms. So last year we generated £2,500,000 but you can see the first two bars of that 0.8 from the VAT benefit and there was some government support coming from business rates. So the total of those is £1,100,000 This Q1 basket inflation so that downwards bar £200,000 is because obviously some of Q1 last year was running at a favorable cost rate on proteins and food. Obviously this year, a lot of the efforts that we've talked about in terms of margin improvement, they came later in the first half of the year, so sort of towards the end of May, early June.

11:49 So then there's not much impact of those in the H1 numbers, but there is a bit and you can see there's some margin improvement and underlying growth going up to generate our CHF1.8 million. So to that effect in terms of the timing of a lot of these upsides, there's a normal sort of forty-sixty weighting of EBITDA generation for this business, taking back a look at the last few years back to 2018. On top of that, there's a 1.3 percentage point further improvement in the adjusted EBITDA margin from the utilities, the food costs and some savings that we've made in terms of our processes in the stores, which we'll come on to later in the presentation. So we're feeling really good about those because they will obviously go a long way to improving our EBITDA generation in the rest of the year and beyond.

12:45 Then just quickly on to the balance sheet before I hand back over to Richard. Balance sheet remains strong, bear in mind a net debt position of GBP1.6 million and I think with the EBITDA generation improvements we talked about, we'll be able to get back to our original principal IPO of a self funded store rollout story next year and beyond. So that's been a key principle for us as a business. We don't want to get into a heavy debt position given that debt markets are expensive now and so to be in a nice position like that puts us in a great position for next year as well.

13:27 Okay, moving on to openings and sort of sites and the amounts of. We've put a little box in the top corner here because it's quite confusing sometimes with a business like this. We've got a couple of brands, we've got some delivery kitchens, franchise sites in The UK and overseas. So we've got a box here that basically tells you where we're at by the second of July of this year. I put 85 sites worldwide and franchise and company owned. We've opened so far this year, we've opened a site in Derby, in the Derbian Centre, which is a shopping centre in Derby. One thing we've definitely noticed since post COVID is that shopping centres, good shopping centres have been performing exceptionally well and this one is no exception. So we're delighted to be able perform for Derby.

14:17 Greenwich, a London site, a cracking London site, student population, very heavy tourist area, offices, very busy, and great site. We're we're delighted to get that one, and that has opened already at sort of, mature sales. So, that's been that's a great performer for us. And we opened a SSP franchise business at Manchester Piccadilly on the on the ticket line. Great site, very small site, but doing some good numbers out of there. So another successful SSP franchise business for us there. And as I mentioned earlier on we've opened a couple since then, one in Belfast which has been a fantastic success and one in Bracknell which is again in a very good shopping centre area and after four to six weeks of trading is performing in line with expectations.

15:11 All good with the openings this year. We have a couple more that we will open this year, a couple more company owned sites. So we be at eight openings this year. Now we discussed last year about doing between 10 to 12 sites, but we also stated in this presentation that we're going to take a bit of a view in the first quarter just to see, just get a sense of the market and see how things were and how the inflation was going. And I think the first quarter was quite challenging. So whilst we didn't make a considered effort not to open 10 sites, we probably didn't push quite as hard. And the reality is we do have a couple of sites that we could have probably opened this year, but we pushed them back to quarter one and quarter two for next year.

16:04 We also wanted to make sure that we got Chilangos right and we'd embedded that into the business and we were getting the profit and that business had been transported over to Tortilla well. But the reality is opening only eight as opposed to 10 or 12 still keeps us well ahead of our expected target which we stated at IPO. And on the next slide that kind of highlights that, but we stated at our IPO we'd open 45 sites in five years. So even allowing for the slight shortfall last year based on the 18 that we opened the previous year, we're still ahead of target and assumed to be looking at over 100 sites by the full year end of 2026. Next year is looking very good and we're keen to find great sites. The property market whilst perhaps not being as soft as it was immediately post COVID is still more favorable than pre COVID. So there are still some great sites for us to go for.

17:06 Slight tweaks and changes in some of the areas and focuses of where we're looking for sites. Obviously you'll all be aware that the high streets have found life quite challenging post COVID. We've seen huge upturns in shopping center sales and travel locations and office places. So we will continue to focus on those, still giving us a lot of white space in The UK and a lot more university towns for us to continue to go to. So to that end, we've got four pretty much locked and loaded already for next year. So I'm out and about with the property director, making sure that we find the rest of them for the rest of next year. One, sorry just one other thing. And we've talked a lot about how costs are starting to ease.

17:54 One area that we have been pretty relentless about is build costs that have been spiraling out of control. I know in a lot of businesses and in a lot of areas that there's not been very much we can do about it. We've been quite creative in the way that we're doing our new sites, looking at different materials and whilst it's been quite challenging we've managed to maintain our CapEx costs on our new sites and anticipate them certainly not going up next year. Well, let's assume that's the case. So we've managed to stabilise those prices.

18:34 Always interesting to share competition, see what's going on both in The UK and in Europe, because obviously Europe does become a higher focus for us as move the business forward. And the truth is nothing really changes. We are still noticeably somewhere ahead of our competitors in The UK. There are a couple of those businesses beneath us that have been recently being bought by larger businesses, larger organizations that will have a will no doubt have a strategy to be growing those brands. Otherwise, I can't imagine why they report them. Barber Retail has a plan to open sites up in the North Of England. As yet, that's not happened.

19:19 Chipotle continue to open a few sites around The UK. Some strange decisions around locations from them in our opinion, but they are obviously the one that if they do decide to put the hammer down then they can do their very very wealthy business. But as it currently stands they're still operating in locations where that primarily we probably wouldn't choose to take so there's still some way behind us. Boujem are a very successful Irish Mexican, Irish Mexican, a Mexican business from Ireland, that have been doing unbelievably well over there, which was one of the main reasons we went to Belfast to compete directly with them.

20:05 They have also been brought they'll be coming over into The UK at some stage this year as well. So we'll keep an eye out for them. And then the other two are more, I would say, Taco Bell star operators, not of the same sort of slightly more premium offer that the other ones are. So generally, still in a position of strength. We don't want to lose that. We want to keep our foot down in The UK. And that's why I'm keen to get very involved around the property for the next year. Continental Europe, much the same. We have talked about it as strategy for us, and I think even more so, we want to be able to get involved in Europe. We think there's a massive opportunity there. We always have. It feels similarly similar to The UK ten or fifteen years ago or maybe longer ago when Brandon started this business.

20:55 There were quite a few runners and riders at the beginning and with the obvious exception of TORTILLA MEXICAN most of them were not really particularly great. And I'd probably say that's much the same in Europe. There's a lot of small businesses with upwards, maybe up to ten, twelve company owned sites. So there's a massive consolidation opportunity in Europe, and we really feel like we are now in a position to take full advantage of that opportunity, and we are continuing to pursue that.

21:31 So just talk a little bit around the new stores and just give you an update on those that we opened last year and those that we've opened this year. So I guess one of the key things to flag is that there's a much improved picture to present around fixed costs part of the Tortilla business. So from a rent perspective as a percentage of sales, the openings of this year and last year and the Chilango acquisition, the rent as a percentage of sales is lower than the pre FY22 opening. So that's saying is we're still able to get deals on new sites that are favourable to the sites that we had pre COVID and I think that's a trend that's very much here at the moment and there are lots of additional opportunities like Richard said to keep acquiring sites at favourable rent levels.

22:27 Something to flag which is often overlooked obviously business rates is almost 50% of the bill that you pay in rents each year and actually business rates moved favorably earlier in the year as the valuation office redid the business rates regime in April and that's all 14% reduction for us in our rates bill versus the year before. So from a fixed cost point of view things are looking very very good And similarly in terms of our new store openings, things are looking very good. The sites we opened last year are largely on track. There's some smaller towns that we opened last year and we did want to flag that. They do continue to grow. It takes a bit longer for the sites to hit maturation in some of these smaller cities.

23:16 There's a graph at the bottom there that just shows you the growth of some of these older sites over the years. The good thing about the TORTILLA is it continues to grow for many years after opening as people understand more about Mexican food. This is a new concept, burritos as a concept in a lot of these smaller cities. As people try their food word-of-mouth spreads, sales grow and that's what we're seeing that exact same trend that we've seen over the years over the last ten, fifteen years is exactly what we're seeing in these new stores. And so we're really encouraged by how well we started in those already. And actually the Chilango state which Rich is going to come on to in terms of new store openings is performing very well as well. So we're feeling very positive about The UK wide space opportunity overall.

24:08 Just to flag, it's nice to put a picture against some of our new store openings. We updated at the year end, opened a couple of sites since Belfast and Bracknell, there's pictures here. The CapEx costs, as Richard said, have remained relatively low and this probably quite stable at the level they're at. But encouragingly, Belfast having only been open for a couple of months is already ahead of its investment case maturity sales level. Investment case maturity sales level just to remind you is the sales level that you need to hit a 30% return on capital employed, which is the company's key financial hurdle that we make investment decisions against. And Bracknell similarly has started very strongly.

24:57 It's close to its maturity sales level and it's again it's only been open a couple of months and we've been really encouraged by how well burritos have been received by that local markets and the great shopping center in. We think it's a strong site as well. So we're really encouraged with the openings from this year and although the numbers are not up here, obviously Darby and Grensh we opened in the year, it's a similar story with those sites as well. This is a very exciting slide for me to present because there were quite a few eyebrows raised when we looked at buying this business at a time when there were genuine concerns about working from home and should you be investing in a Central London business at this stage.

25:44 I think we as a team, as a board have always been very pro London. We were always of the opinion that it would come back to 80%, 85%, 90% of its previous sales. It's a very buoyant city and always has been. We always believed that Chilango was quite a good competitor of ours, one of the best, so it gave us an opportunity to take them out of the game or certainly control that business. We got it for a very good price we felt. What's been really encouraging is there was some concern around rebranding them to Tortilla, would that work, would people feel very disappointed about Chilango, etc. Well, the actual truth is that our sales since we converted these five sites to TORTILLA are circa 30% up versus the back end of their time as Jainder.

26:43 So hugely successful acquisition for us and we're incredibly proud of what we've managed to achieve there. And so subsequently the return on capital on that business has been fantastic and we would anticipate hopefully that we'd be almost circa £800,000,000 worth of EBITDA out of these Chilean sites. So real tick in the box for us for many reasons, not just that we've managed to do this and it shows the strength of

27:10 the TORTILLA brand, but it shows that as a business we're able to do an acquisition and we're able to do it well. So if other opportunities presented themselves whether they be here or even perhaps abroad that really gives us the confidence of knowing that TORTILLA can go into these spaces and perform substantially better than the previous tenants.

27:34 What we've also done is because we still have three locations trading as Chilango's because they were so close to existing Tortilla sites. So we've kept those businesses going, they continue to perform well and we've actually put Chilango back into the delivery network at our Croydon Box Park location, which we did convert back to Tortilla.

27:57 But we wanted to see whether brand recognition in a certain area would work and we have a facility there to have to put Chilango back in and that's been a real success. Our delivery sales out of that business have grown substantially and a lot of people are ordering Chilango off there. So we're about to do the same in Manchester, which was an ex Chilango site. So we're keeping the brand alive through delivery and that we're able to do it out of our Tortilla Kitchen. So it's a win win there.

28:29 Franchising, another successful time for us with franchising. Obviously, all the doom and gloom around travel has completely cleared away now. Everybody is traveling it seems that way anyway. Certainly by looking at our numbers that we have in our Tortilla locations in travel hubs and airports, our Euston Tortilla which is a franchise is just breaking sales records all the time, as is Gatwick Airport Tortilla and Bristol Airport Tortilla. So again really good news for us with our relationship with SSP. They're very keen to continue to grow with us. There are a few more locations that we're doing. We're doing one more with them this year and then we've got a couple more early next year that we're doing.

29:19 Very good relationship with SSP and we would like them to do things quicker. We'd like them to open more. As is the case sometimes with these enormous businesses, they are quite slow to get things done, but they'd love TORTILLA. It's a very profitable business for them. We are anticipating continued strong relationships with them. Ethos over in The Middle East continues to operate eight TORTIL sites, operating them very well. We sent one of our operations guys out to oversee and run that business on their behalf about a year ago. He's done a phenomenal job and it's now their most successful like for like business within their portfolio, within our franchise companies portfolio. So we're now pushing them hard to continue to grow the brand The Middle East, Dubai and Abu Dhabi.

30:10 We're hoping that they'll have a couple of sites signed by the end of this year ready for a mid to late next year openings. But certainly the confidence around the brand has grown dramatically in the last twelve months Our like for likes have double digit over there which is fantastic. Compass continue to operate our businesses in university halls which are performing very, very well. In fact I was looking last week, I think it's only the second week all the students are back and that was really really encouraging. And again we've been a bit of a slow mover campus, we're hoping to open more sites for them and we'll continue to work with them and hopefully that will happen.

30:57 Moving on to areas where we've been trying to drive the top line. I mean Anne has been talking a lot. It's almost been a game of two halves for us this year. First quarter we were all about right, what do we need to do to be more profitable? What do we need to do to sharpen up our cost lines? What do we need to do on our P and L utilize our size and work with our suppliers to get the benefits of pricing? We've done a pretty phenomenal job on that. And as Andy has already said, we're going to see some we are already seeing some pretty good movement on our margin for the last half, certainly the next quarter of this year and going forward. So that's great news. But clearly, any business needs to be driving the top line because the top line is really where it all comes from. So we've put in some tech, which we were keen to do, we've been keen to do for a while, in some of these Central London sites where we have enormous queues for two, two and a half hours every single lunchtime.

31:57 And the challenge with a single line concept like ours is just simply getting people through. And as quick as we can be on a single line, realistically, it's still relatively slow process. If you join the queue at the back, you're probably fifteen, twenty minutes by the time you're done. Most people are pretty happy to do that, but we think we can improve. We thought we can improve our throughput by adding kiosks and adding two more lines, which we've done in London Wall. So we have, in effect, got three Tortilla lines in there now and eight kiosks. So we've got six people producing food on three lines, we've got eight customers being able to order at exactly the same time. It does take away the kind of customer interaction, and you're not walking along a line and picking and choosing what you want. You are doing that via a kiosk.

32:46 The reality is this has been unbelievably successful now. Our hourly sales records have increased by nearly 40%. Almost every day we're breaking sales records simply because the consumer is getting more comfortable at using our kiosks, they're getting quicker at them and we're getting food out of the kitchen within a minute and a half from somebody pressing send. So it's a pretty awesome setup actually. And this is generating real extra revenue for us in this store. And there are a couple of other sites in Central London where we will almost certainly be putting kiosks in. So very exciting for us and you know the way forward in very, very high volume locations. We continue to push our loyalty. Over 350,000 people are on our loyalty app now, so that's fantastic.

33:40 So we're able to talk to them, communicate with them, let them know of all the things that we're doing. We have had this new product that Andy, I think, mentioned when he was talking about things we've done to improve profitability. We've put a chicken pibble offer into our restaurants now, taken away our char grilled chicken, saving us a lot of money in utility costs, cleaning costs, and labor costs. This is a fantastic product. Consumers love it. But it's a win for the consumer, and it's also a win for us as a business in terms of costs. So really pleased that that's gone in. And the really big thing that I've been excited to talk about over the last few weeks to everybody and anybody who's prepared to listen is about TORTILLA MEXICAN We are really getting right behind this promotion.

34:32 This is very exciting for us. I think it's a genius idea. We have a business that performs tremendously well at lunch times, but we are relatively quiet in the evenings other than delivery. So based on the fact that we have employees on our business looking after some guests and a lot of delivery, we really want to reverse that a little bit by looking after a lot of guests in our businesses because we have lovely restaurants, and we've put together an offer that we think is sensational. It is sensational. We're selling margaritas and beers for £2.50. I can't remember the last time I had a beer for £2.50. So there's no way in London and the rest of the country you can get these quality drinks for that sort of price.

35:18 That's the hook. That gets people into the business. And then we're selling them our new menu items, which fantastic. We've got some sweet corn ribs. We've got sharing quesadillas. We've got some nachos. We've got a cheese and chorizo dip. So there's a fantastic menu now. We're serving our food in plates and crockery, real crockery, not just sort of in bowls that we do at lunchtime. So we're really trying to create a restaurant feel with really good value food. Everybody who eats out now, everyone knows how expensive it is to eat out. All our competitors in all aspects of this sector have had to put their prices up, which is understandable. If you go out to a relatively mid range casual dining restaurant and you have a bottle of wine and a couple of courses, you're almost at £40 £50 ahead now.

36:11 That's a lot of money, And we're able to offer this £10 menu with a beer or a margarita, and it's quality food. All our food is made fresh, etcetera, etcetera. So it's all about getting the message out there. I'm shouting and screaming. We've even sent megaphones to all the restaurants. So at 05:00, we're encouraging the managers to be shouting out, come and get your beers and your bottle of beers for £2.50 So early signs are very strong for us. First couple of weeks, we've seen some increase in numbers and of course majority of that in student locations, but it's over to everybody and anybody so, please with those of you that haven't been yet please give it a go because it's a fabulous offer. Spread the word. Yes indeed.

36:57 So on to value for money, which is something we talk about each time, but it's important just to reiterate, particularly with the cost of living crisis and the carefulness with which people are looking after their cash. We have priced once this year in late March coinciding with the increase in the minimum wage.

37:22 It blends at 5% but we did more in London, Central London seven percent and three percent outside of London because we felt that the cost of living crisis from the data that we saw was being more acutely felt outside of London so strategically that felt like the right thing to do and in our products for a regular burrito outside of London is a £7.20 so a lot of pubs now a pint of £7.20 so it's a very good price product. We know that price is important to our customers and we've redone some research and surveys with our customers that we did previously and good value remains really important to them and we know we're well priced compared to our peers as this graph shows against our direct Mexican California Mexican competition but also against businesses like Itzy, Wasabi, Leon and some of the burger businesses. We sit in a really nice sweet spot where we're not as cheap and clearly the product is very different to the QSR segment, Taco Bell, Lambda, McDonald's, KFC type businesses, but we sit cheaper than sushi, healthy bowls and some of the burger businesses.

38:40 So it's a nice spot to sit and obviously although it's not mentioned on here the food is healthy and customization with food is very much on trend and those remain important principles for us. To just give a few points before Richard wraps up around current trading and outlook, so since the end of the first half here we as I mentioned we have opened in Belfast and Bracknell. Trading remains good over the summer. August was a slightly quieter month because the weather was not very good and lots of people did leave the country for overseas holidays but actually over July, August and September there's been some positive like for likes And a favorable cost environment is probably the most significant point as I mentioned earlier in the presentation that will yield a 1.3 percentage point improvement in our adjusted EBITDA margin in the second half of the year On top of, as I said, the normal seasonality that you get with EBITDA generation, and that's coming mainly from supply chain utility costs, from locked in contracts, there's no risk to that.

39:49 And then also the launch of the new product as Richard mentioned, it's reduced our manual labor and some other costs within our stores. We're launching these exciting initiatives which are already yielding some positive progress and we obviously want to continue progressing our technology initiatives and we've got some other ideas as to things we can do on that front as well having appointed an experienced head of IT earlier in the year. So we've got lots of exciting ideas there. And lastly we're continuing to assess our European opportunities through franchising and strategic acquisitions as we've referred to earlier in the deck and you know there's a tremendous opportunity in Europe to create a consolidated Mexican burrito business.

40:40 There's plenty of pizza and burrito businesses in Europe and you know the customization of what we do and the healthiness of it. Burritos are, burrito businesses are growing across all countries on the continent. So coming to the end really this is just a you know slide I think a really a little bit of sort of strategic levers that we believe this business has for next year and kind of ongoing really. We're keen to do the eight to 12 openings per annum. We feel like the world is turning slightly more favorably, so we do want to keep pushing hard on that. The UK is still our core business and we still see lots of opportunities, so we want to carry on doing that. We do genuinely believe there's a unique opportunity to consolidate in Europe. Enough said, we've talked a lot about that.

41:30 Franchising, we now have a very, very good franchising business. We spent a while making sure we were nailing our central production processes. We have a cracking CPU now that's very well oiled and well run and a great product. We have franchise procedures in place for this business now so we're ready to really press the button on franchising more presumably around Europe, but who's to say that won't happen more in The UK. But for the moment that's more of a European idea. Something Andy and I have talked a lot about that I think for us as a business and where we sit now and the size of the business that we're at, I think it's really important that we are striving to get back to our adjusted EBITDA, corporate EBITDA of sort of 10% that we were running at pre COVID.

42:18 I mean clearly we've been battered with all sorts of headwinds and this business perhaps more effective than most because it's such a heavy protein led business. We've worked incredibly hard to get ourselves back to a place of parity but I think next year we want to really push on with that and see if we can get back to sort of 17% store EBITDA and 10% corporate EBITDA. So that's something we're striving to achieve. Technology, we talked about kiosks early days, but very successful, will really drive sales and efficiencies for us. And I think we're also businesses of a size where we really need to be punching a bit harder on our marketing budgets, spending a little bit more money on that, maybe some national marketing next year. We're not a small business anymore. We're the largest Mexican business, and we've got seventy, eighty sites in The UK pretty soon.

43:13 So it's pretty important that we're shouting and screaming about how good we are. In some cases, I feel like we're under marketing ourselves so it's something we want to plan for next year. So in summary, I feel like I've written a sentence about four times over the last couple years despite all the continued headwinds and we're delighted to be broadly in line with our full year numbers. We will continue to drive forward with our sales through kiosks and improved delivery software and as the pied piper of the Sunsets initiative we will continue to push very hard on that over the coming months. Yes, there is a little bit of an air of slight concern. Mean obviously these train strikes are very disruptive in many different ways.

44:03 We are anticipating and hoping that there will be some kind of resolution to this. I can't believe that they'll continue in December as they did last year, but there is an element of risk around that. We certainly hope that's not the case. There is good progress being made on our site openings. We're still on track to hit our target of 45 sites over five years. I think strengthening the board is always a great thing. We have a fantastic board, a very strong operational board, a strong marketing team, finance team. We also have Francesca sitting on our board who's CFO and KFCE over in Europe, so a real help to us with our European strategy. Now with Andy moving up to MD as well, that's a great move for us. And I think, again, as I say at the end of all these presentations, we really continue to be very, very excited. We feel like we keep getting stunted by various events, macroeconomics that sort of slightly hold us back.

45:01 But we've got the foundations in place in this business now to really let it rip and that's the intention both in The UK and in Europe over the coming years. That's it, thank you very much. Perfect Richard, Andy if I may just jump back in there 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 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 as you can see we have received a number of questions throughout your presentation this afternoon and given the significant number of questions received you may not be able to get through them all now but of course immediately after the presentation we'll give you back all of the questions and then you don't manage to get through we can add additional responses to post the meeting and we'll publish all of those on the platform. But for now Rich and Ann if I could just ask you just to make your way through that Q and A tab and give your responses where it's appropriate to do so and then I'll pick up from you at the end. Thank you.

46:12 Okay. Right. Well, Paul S, thank you very much for that. And we do own Chilango, so that's good. I'm sorry that you consider that to be better, but actually, maybe I'm not because we we love Chilango as well. We think that it's fantastic. So fair comment. Are we considering raising more equity to finance growth acquisitions? At this stage probably can't really answer that. I think it's probably unlikely the stage we're at with the business in its current state with regards to the share price. I think our preferences would be if we were to do anything though is promote money. Obviously we've still got 7,000,000 undrawn on our debt facility So if we need to access that, that's clearly the preferable route than raising money in current environment. Exactly.

47:02 Do you want to take the So there's a question here around can you share some details about how you calculate the ROCE? So we calculate simply we just take the capital costs that we incurred. So you were recollect we were saying we were spending around £400,000 to £425,000 on a new site. We take the EBITDA at maturity whatever that EBITDA as a percentage of the growth of the CapEx needs to be more than 30%. So yeah, it's a mature, mature EBITDA which for businesses in London happens within twelve months. Outside of London, it's more like twenty four months depending on the location. Okay. What's that? Point of clarification, is the intention going forward to fund expansion internally?

47:55 Yes. Yeah, I would say so. Yeah. And then do you have something you can share regarding the return on investment on the kiosks? We needed to generate an extra £800 a week from the kiosks in order to return the capital expenditure We're generating £1,200 a week extra and we're already five weeks in. So that was the kind of main hurdle we were working on towards that You keep referring to yourself as a prop Oh, yes. Yeah. Yeah. I mean, obviously, a rollout story in my cars, you have got the depreciation on your stores, and that is always something to consider.

48:47 But we believe that the right strategy for the business is to continue growing and continue to pursue growth and you know the profitability challenges we've had over the twelve months obviously a lot of them are being alleviated so we can see that coming back nicely in sort of future periods. I wanted to ask about the new openings in full year '23 in March, the announcement target was 10 to 12 and it seems you will end the year at eight to six. Can you speak to the challenges over your new sites that prevented the earlier target? Well I think I sort of highlighted that, but yes that's correct, that was the target. I think we also stated that we wanted to be very sure that we wanted to check the sort of sentiments of the market at that particular time.

49:32 We didn't want to draw down too much debt to do that. We wanted to make sure that we were in a place to open that many sites whilst we were still in the process of dealing with Chilango. As it turns out, we'll end up opening eight, which is a little less than we'd hoped, but it is still keeping us on track with our 45 sites over five years. So we don't consider that to be a massive shortfall. I think as I stated earlier, did have a couple of sites that we could have pushed into this year, but we felt like we were happy to move them out to next year. So there's nothing suspicious about it. It was just something we felt was probably the right thing to do last year. There's a question from Connor around our intention to franchise in Europe and how we're set up for that. So you're right, we obviously do not have any stores at present within Continental Europe, but obviously we've proven the concept outside of Europe with our presence in The Middle East. The franchise model there's some very exciting synergies to be had from franchising in Europe, not least because most of our supply chain the food comes from Europe already, so through Europe into The UK.

50:40 So there would be some interesting synergies to access in terms of potentially having a CPU presence in Europe and supplying our food to franchise partners in different European countries that way. Although they're relatively small businesses, there has been some moderately successful growth stories in different European countries selling similar burritos and tacos like we do and having tasted the competition's products we think what we do is better and so actually there's some structural advantages as well with European countries where the rents can be lower and actually the VAT rate on hot food is as low as sort of sub 10%. So with a 20% rate in The UK we do have a bit of a disadvantage here. So we're quite excited by the opportunity to make it work in different countries.

51:37 At what store level do you need to open another central operated kitchen? It's a good question, the changes that we made with our chicken pibble process has brought us more time in terms of our current unit. As we just talked about with Europe, any central operated kitchen we wouldn't supply that from The UK, we would open something overseas and do it that way. So the key there is getting enough critical mass of presence to justify the capital expenditure required to build that kitchen. Really not selling tacos on delivery? Yes, I would have to say the reason we don't is from a quality issue. You're warming some flour illas and suddenly you know when they're not wrapped up like burritos or wrapped in silver foil that can can get very sticky.

52:29 They're not the easiest things in the world to eat and certainly after a journey on a bike tend not to look particularly wonderful on arrival. That's not to say that we're not trying to find ways of doing that, we know they're very popular and we're always looking at better ways of packaging our food from a delivery and a takeaway perspective And that is one of the areas that we're looking at for those products. Okay. Right. Which one next? In terms of a rewards membership, are there any plans to build an app? Obviously, there are obvious bigger businesses like Starbucks and Greggs.

53:15 I think the Sure. The view on apps is quite mixed. I think there is a view that people are a bit fed up of apps and there's too many of them. App fatigue. App fatigue. It's something we're looking at. Mean obviously we as I said in the presentation, we do have a new head of IT and we are reviewing lots of different sort of tech options for us. Definitely there's more opportunity with kiosks and obviously the thing that we did in terms of putting in some delivery application software that's those things that were the obvious low lying fruit for us. But of course things like apps and other ways that we can get consumers not just via apps but to click and collect you know can we try and push more of the orders to come in people just come in and pick them up rather than queuing. There's lots of opportunity on that type of things people get used to the idea of ordering in advance.

54:13 So just looking at some duplication in terms of questions here. When you calculate the return on capital, do you calculate the same what would be your profitability? Obviously, there's a there's a view here that adjusted EBITDA isn't a not isn't a a real number. I mean I guess the reality is adjusted EBITDA for us is the most equivalent way of looking at the underlying results, know removing the noise. Clearly obviously you would always look at your depreciation and amortization but as long as you're keeping your depreciation policy unchanged and you're keeping your capital costs down that's the best way to sort of performance assess things that happen below the line.

55:00 We include all our capital costs in our ROCE calculations. So we believe we're looking at a proper sort of returns exercise when we're reviewing on our new site expenditure. And then the question around how we fund in your CapEx, we will fund our CapEx from our own cash as we mentioned there. We've only got a very minor net debt position, although we do have further debt facility for us to draw on when our profitability comes back as we've explained the reasons why it will, we will return to the position where we can fund from our own cash. Okay. We can't really talk about acquisitions at all. Connor's noted that eight three burritos from TORTILLA week, the pivot is 10 out of 10. That's that's good to hear.

55:53 Thanks, Connor. I'll give you the I'll give you the £10 next time I see you. MEXICANT:] That's great. We're We're TORTILLA MEXICANT:] We obviously can't really talk about that. I mean, clearly, with our share prices depressed as it is, we're significantly undervalued in our opinion in terms of a multiple of EBITDA. How confident is the management team in the future of business? Is the management adding shares to their personal portfolio? Would be great shareholder alignment. There's a very good chunk of shares still held by the management team and obviously we have an exec team with an LTIP and everyone is incentivized to drive the business and you know we've got very young excited driven people in the organization and we feel very confident about their alignment with the shareholders.

56:53 I think that's it. Richard, Andy, absolutely and thank you very much indeed for addressing all of those questions that came in from investors this afternoon And, of course, if any further questions do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so. But, Richard, perhaps before really just looking to redirect 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 just to wrap up with, that'd be great. Well, I I think, you know, when I read when I go through this this this presentation, and as you can imagine, we've been through quite a lot. We we spent some time putting it together.

57:39 The overriding view is this is a this is this is a great business that's been, you know, hit by external scenarios that were really outside of our control. We've worked incredibly hard to get ourselves back to a place of profitability. We're really excited about certainly the next few months and we think we've got a couple of great things going on to drive the top line in the business. We've got a very stable senior management team in this business who absolutely love it. Mean, we were all out and about last night. Again, all the senior guys, lot of office people out in their stores talking about sunsets, giving feedback. There's a genuine determination in the company to do absolutely the very best we can. And it's wonderful to be around such a committed bunch because you have to be in this industry at the moment. It's challenging.

58:29 Yes, it's a little frustrating that the markets are a little against us, but it is what it is. We just carry on doing and taking responsibility for what we can do. And I'm very comfortable that that's exactly what we are doing. And we believe that as things start to ease that all the hard work we've done in the last six to twelve months will really reap some rewards for us. So yeah that's it just thanks very much for your time today and hopefully as you reflect on the presentation you'll think actually do you know what this is good business because we really think it is. That's great. Richard, Andy, thank you once again for updating investors this afternoon. 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.

59:20 This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of TORTILLA MEXICAN GRILL PLC, would like to thank you for attending today's presentation. That now concludes today's session, so good afternoon to you all.