Tortilla Mexican Grill (LSE:MEX) — Investor Presentation

0:00 Good afternoon, and welcome to the TORTILLA MEXICAN GRILL PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Richard Morris, CEO. Good afternoon to you, sir.

0:34 Good afternoon. Good afternoon, everyone, and welcome to our presentation. For those of you that, are not familiar with myself and Andy, a little bit of a background on us, or myself to start with. My name is Richard Morris. I've been with TORTILLA since 2014, having been in the hospitality sector pretty much my entire career. Having worked with brands such as TGI Fridays, Rainforest Cafe, and, part of the original management team of Lock Fine, seafood restaurants.

1:05 So that's that's me. Pass over to Andy. Hi. I'm Andy Nader. I'm CFO at TORTILLA. Been been in the business for nearly six years now. Obviously, I'm a numbers guy, so numbers is my background. I started my career at Deloitte and worked to gas for a while before deciding I want to do something much more fun and work in the eating out industry.

1:31 Just a little note around the agenda. I would anticipate this will take forty to forty five minutes, and I know there's an opportunity for you for you to submit some questions, which we will try and answer within the time that that we have, which I think is one hour. So I'll go through the intro and highlights. Andy will then go through the finances. I'll talk about some strategic and operational projects that we have going on this year and from last year, and then obviously the q and a will come at the end. So for our highlights for the full year of 2022, well, despite all the various challenges around 2022, we, we did have a a record growth year for TORTILLA, adding a net of 18 sites to our portfolio, of which 10 were bricks and mortar sites for TORTILLA five Chilango MEXICAN conversions, which I'll get on to later, and three cloud kitchens, which we added to our estate.

2:40 Fantastic achievement for the business, especially bearing in mind the challenges that the year was giving us all the way through in terms of costs, but a great effort to all the teams to go from, our most amount of sites we'd ever owned before was us, I think, seven sites. So to convert to 18 sites was fantastic achievement.

3:03 Other successes of the year, we had a strategic acquisition of Chilango in May 2022. Chilango is a brand that we were always excited about purchasing. We we thought it was a a good competitor of ours. We were we were fans of their product and their environments. So we were very pleased to add that to our portfolio halfway through the year. And I can give you an update on that business as we go through the presentation. Something very key for us as well, knowing that we were keen to continue on our growth strategy, we needed to add some strength and experience to both our board team and our exec team. So first of all, from an exec perspective, we added a people director to the business, an area where we've been a little bit short going in in the past.

3:53 So we brought a lady called Holly Foote in from TGI Fridays, also had experience at Merlin, and she's been in the business five or six months now and has has has been a real help in terms of getting us a more a more considered approach to managing our people, making sure that our retention plans were in place and career pathways in place for our employees and our managers. So she's been a great asset to the business. We very recently brought in a gentleman by the name of Andrew Brooks who's has joined us as our head of IT. Now this is an area we've been a bit short on as well over the years with with Andy sort of doubling up as, CFO and head of IT. So with no disrespect to Andy, we we felt we needed some some support in that area.

4:40 Andrew brings with him a raft of experience from Whole Foods, Itsu, and Pod. So we're very excited to have him on board. He's only just been with business three weeks now, I think, so he's rushing about familiarizing himself with us. And also we've added on to our main board a lady by the name of Francesca Tiratelli who, joins us having had experience as the CFO, of young brands in Europe. So she specifically joined our business because we were very keen to pursue our plans around Europe, which we have talked about in the past. And Francesca brings with a a wealth of experience in the franchise world, numerous contacts in and around Europe, and she has so far been helping open doors for us to meet various people in the world and get on to the franchising opportunities for us as we get further down the deck.

5:37 As far as the financials are concerned, oh, I'm sorry. One other area, we we relaunched our multi platform delivery offer. We were at the time, that that we last spoke exclusively delivery. We felt we'd be better served going to multi platform, and that's proved to have been a wise move for us. And, again, as we go through the deck, you'll you'll understand why that's the case. So revenue growth for us for for for was 20% up versus 2021, which was fantastic. Obviously, hugely helped by the amount of openings that we had. But our like for like revenue was 16.4% versus the full year of 2019. Hopefully, probably the last time we'll be like for likes against 2019, but the market continues to like for like against that year. So, again, a really good result for us.

6:29 Obviously, our EBITDA was slightly down on expectations. Clearly, we realized that was all down to cost implications that that we had around protein costs, utility costs, staffing costs. And our net debt figure is at 600,000,000. Obviously, we had quite a lot of cash burn last year in terms of opening the amount of sites that we had. But, again, Andy will go into more detail on that through his finance deck. This is a slide we wanted to put together to try and show potential and existing investors how the, how the business looks now in terms of the amount of sites that we have in our total portfolio, which is now up to 82 locations, which is hugely exciting.

7:19 And that is split out through own stores of TORTILLA and Chilango, our delivery kitchens, our franchise stores in The UK, and our franchise stores, in The Middle East. So last year, as as stated, 10 UK TORTIL sites opened with three delivery kitchens and six franchise stores, five through Compass and one through SSP. We closed five delivery kitchens, as we came out of exclusivity with them, and two planned closures were in Chessington World of Adventures on Chessington simply because it was only ever a short term relationship we had with Chessington. And back side, the lease ended. We had another site in Suffolk not far away, then we didn't feel there was any necessity in taking on a new lease there.

8:12 We, acquired Chilango, as I've said as I've said, in May 2022. We've so far converted five of those sites to TORTIA, and we have retained three as Chilango predominantly because they traded very close to existing TORTIA businesses. What's very exciting about this is it it shows clearly that TORTILLA MEXICANTOS now very much a multichannel business. We have company sites. We have franchise sites. We have delivery kitchens, and we have another brand in Chilango. So opportunities are great and varied for us moving forward. One of the really big areas for for us, going forward is we now realize that we have a very successful, franchise model.

9:00 We work very well with SSP and Compass. We've opened sites with them last year, and they continue to trade very well. We've opened in Gatwick Airport, in Bristol Airport. Both of those sites have outperformed the previous incumbents in those locations. So that's proved to be a huge success for us and for SSP. We've also opened

9:27 five university locations with Compass. So we operate on their university campuses and again very successfully taking between 5 and £8,000 a week in these universities. And we continue to look at opening more sites with Compass through the universities in this coming year. We're also keen to continue conversations with them around other potential locations in the health care sector. And we've also started conversations around the motorway service areas as an opportunity with lock and break. So we do see franchising as a really good opportunity of us growing the brand. We have a central production kitchen that allows us to control the quality of the food that goes into our franchise partners' businesses.

10:14 They have to get the food. They have to buy the food from us, and that's part of the agreement. So with 75% of the product coming from us into their businesses, it derisks a lot of the food challenges that some businesses have when they franchise out to to to other companies. I returned last week from our international business in The Middle East in Dubai and Abu Dhabi. And whilst they had some challenges as we all did over COVID, closed a couple of their cloud kitchens in one site, it was incredibly encouraging to see the success of the existing business that we have out there now with all of our sites over there in profit.

10:59 And Ethos are now very keen to grow the brand across Dubai and Abu Dhabi. And, hopefully, hopefully, we'll have a couple of sites open this year from there. Obviously, the opportunities in that part of the world are potentially very, very big. Saudi Arabia is undergoing huge change at the moment, and I I envisage TORTILLA looking into that market at some stage.

11:28 Okay. Alright. Moving on to some numbers then. So on slide nine, you'll see the headlines for the p and l. So we'll just touch on these briefly before going into some more detailed information shortly. But the headline, Peter, which Richard mentioned, was the 20% revenue increase for 2022 compared to 2021. So that took us to record sales of just under 58,000,000, driven by the addition of 10 sites, the Chilanco acquisition and also the lack of a Q1 lockdown like we had in 2021. Gross profit margin was down 3.2 percentage points on 2021 and largely driven by the falling away of the VAT support the government provided in 2021.

12:14 Admin expenses grew in line with revenue, and then the key metric for us as a business is our adjusted EBITDA, which was 4,000,000 in 2022, which is in on on target with our expectations, which we communicated in October. So we're pleased with that. It was a big drop year on year, though, but that was the fall away again of the ATM and the government support packages that's resulted in that. So just moving on to Slide 10, where there's a detailed revenue bridge, which tells the story really of how the year panned out. So 2021 of I the question exited those delivery of addition sites.

13:04 Everything else is on on the up, which is great. So we have 3,200,000 more revenue in from our new store openings, 3,700,000 from the absence of the q one lockdown that we had in 2021, 3,300,000 from the addition of Chelanga, 1,200,000 from the full year impact of the 2021 openings, which obviously opened at different stages of 2021,200,000 from franchising, and the remainder was underlying like for like growth, which we mentioned before. So coming on to Slide 11, which gives you a bit more information around the like for likes and the sales channels.

13:44 Our like for like growth last year was very healthy, 16.4% versus, as Richard said, 2019, which is the most cited comparative period I think ever because of COVID and COVID distortions, VAT, and all of that. We use that benchmark because CJPeach, which is the industry benchmark tool, is still was was using that last year as well. They reported a 5% like for like for 2019, so sort of more than tripled the number that they recorded. And, actually, one one thing to highlight about 2022 was that the the growth was strong during all of the year, the like for like performance. Even in Q4, which was quite bad, the impact of our trade strikes and various other challenges around the kind of chaos that was at the government at the time, our like for like growth was still 16% in Q4. So we're really proud of sort of holding our position within the sector during that tough time.

14:44 And actually, you know, if you look at the another great business within the sector, Wagamama, which recently reported its full year numbers, we were more than double their performance, so that's fantastic to see. In terms of channel mix, just to explain some dynamics of how the industry has changed a bit. Delivery was definitely the area which we saw drop away last year. Obviously, as people were feeling the pinch in the wallet, they moved to coming in store. So you'll see from the graph that in 2021, it was about forty eight percent of sales during COVID, dropped down to thirty seven percent just before the war started in q one last year, and then it started to drop more towards sort of of thirty percent. We then went multi platform by adding Uber Eats to our business model, and that that's really been able to help us with our delivery sales, which are the businesses who aren't just assembling food to order like we are, where you can just take extra delivery volume.

15:39 I think that's a big strategic advantage that business has for this year and beyond being able to kind of deal with multiple sales channels on

15:47 delivery. We expect it to be 31% to 33% for this year, so we expect to kind of regrow as the year develops. Then on to Slide 12. So I guess we're probably one of the things we're most proud of last year was our growth. This is a growth investment story and was a year of record growth. Twenty twenty one openings, collectively, there was three sites that collectively returned 56% ROCE based on 2022 EBITDA, which is fantastic and represents the strength of the deals we did there and the strength of those locations. 10 site openings in 2022. And on average, so far, those sites are already at around 83% of the sales hurdle they needed to achieve in order to reach that 30% ROCE target.

16:39 So we're really chuffed with that because although we had a lot of sites outside of London before last year, it's fair to say that some of the sites we opened last year were in smaller cities and towns, places like Lincoln, Coventry, Leicester, Durham, Canterbury. So smaller places where there are strong student populations, and we're really feeling really positive about our UK wide space opportunity, really, as a result of being able to open in in some of these locations and and performing really well. It will take a bit longer to mature in some of these locations because Mexican food's new, but to already be kind of an early stage, so close to your investment target, we're really chuffed with that. And I think a point to make around CapEx, obviously, with all the rising costs, we anticipated this with the capital expenditure, and we worked really hard with landlords to get capital contributions in.

17:32 And so as a result of that, the average CapEx that we spent on new site openings between '21 and '22 was only $350. So we kept that number nice and low, which means that the sales targets you're chasing are quite modest, which puts us in a really good position. Last point to note on that really is we've talked about at the IPO that our strategic advantage is that we can take sites that form retail units because of the whole change of use thing that happened on High Street. More than half our openings last year were a former retail unit. So we're seeing that there's a lot of white space opportunity with both retail and food units that we can take.

18:12 I just wanted to add this slide in, because I think it's interesting to see from an investor perspective, and also for us to give us huge amounts of confidence how the brand is now able to trade in in very, very, very different locations, very different demographics. If we start with Greenwich here on the right hand side, Greenwich is a location that we've been looking at for quite some time. And for those of you that know London can come out of the, tube stations, it's almost directly opposite you. It's an old subway site that we'd, had our eye on for a while. The rent was too high pre COVID. Anyway, as time has progressed, the site became available at a much more competitive rent, which we were made aware of off market because we have a great relationship with a lot of landlords and agents in and around the London area.

19:04 So we managed to pick this site up. The CapEx was more than we would really wish to spend. However, the the site was in a little bit of a state, but we were so convinced that we knew that this was a great site for us because it ticks a lot of boxes for for the sort of people that use TORTIA. Large chunks of the year, there's an awful lot of students around that part of the around that part of town as has been shown since it's opened. As you can see in the presentation, that we've been doing over £16,000 a week since we've opened. And we're now very excited because we believe the next four, five, or six months are going to be crazy busy here with the influx of US tourists and European tourists as London is clearly one of the places to come to this summer because the pound is so weak versus every other currency in the world pretty much.

19:56 So that's a real tip for us. A site we've been looking at, we managed to get it at a lower rent. We turned it into a beautiful looking restaurant with about 60 sites with about 60 seats, and we're anticipating some some good numbers there coming up over the next few months. But it's already virtually at its maturity sales number that was required from this investment. So conversely to that, we have a site in Derby. Now Derby is a city that, is, from my, limited experience of Derby having gone up there to decide whether we should open the site. There's absolutely no Mexican representation up there whatsoever. All roads lead to the Derby And Shopping Center, which is where we have opened. The food offering within that shopping center is fairly basic and fairly unhealthy, which is one of the reasons why we felt like we should go here because we know that our product is very customizable and can be very healthy.

20:57 Obviously, negotiated quite hard with landlords around a capital contribution, which meant we got a 70,075 thousand per capital contribution on this site. So we were able to build this after the contribution just over $300, which is fantastic. It's a great looking site. It's an ex year sushi unit. And absolutely thrilled to bits to say that we've opened almost exactly the same sales as Greenwich. If I'd had a bet on that, I would have lost. So I'm delighted that that has proved to be such a successful business for us. Very early days, of course. And already, it's it's well above its investments investment case, which was just over 13,500 a week. So I thought it was, good to show that this brand now is able to operate in demographics that perhaps two or three years ago we'd have been slightly nervous about taking.

21:52 So really, really good success in both of our first two openings this year. So just moving then on to profitability. Obviously, something in the press that's a favorite topic of the media, but there has been unprecedented levels of cost inflation, no doubt. Here, we've bridged the 2021 EBITDA of $8,700,000 to the $4,000,000 we generated last year. And when you look at it from the year on year lens, the big things that have impacted us was the VAT benefits dropping away, which we talked about, and also the loss of the business rates and restart grants in those types of government support. The rest, obviously, then growing factors as we grew the business last year. So then I guess the more interesting thing to compare is the 4,000,000 we generated with with the 7,000,000 that was our sort of expectation for the year.

22:46 And I say expectation, our prewar expectation, which was a game changer really for the restaurant industry. Gross profit was enormously impacted by cost inflation, but we managed to do a good job of containing that to the 2.8% GP loss in gross profit margin. So it's still a significant impact for the business, but we work tirelessly with our operations team and our procurement guys to really keep our costs as low as possible without reducing our portion sizes or or taking on a lower quality product because we wanted to make sure that we absolutely kept that good for our customer. We obviously priced a bit last year. We'll come on to value for money in later slide.

23:35 The other thing which impacted us was a $1,100,000 loss in EBITDA from utility costs, packaging. Packaging is another area that went up and utility costs as well. We were unhedged going into last year. And actually, because the market was so crazy, we physically couldn't hedge last year. And recently, the forward rates have started to come back to normal levels. So yes, some really quite exceptional situation last year. And I think, I guess, looking at where we are as a business, you know, it is a growth story. Yes. We did generate the EBITDA last year that we kind of hoped we could, but we think that this thing's changing now and more optimistic future for 2023 and beyond. So just moving on to then the balance sheet.

24:21 Not much to talk. Balance sheets aren't the most interesting discussion point anyway, but I guess the main things that changed was the introduction of 2,600,000 goodwill number from our acquisition of Chelanga, which have very little net assets on acquisition. And then I've done a reconciliation of the cash going into the year and coming out of the year, which is on this slide, and obviously, we'll have a look through.

24:46 We obviously used a lot of cash last year for the growth that we've talked about. But importantly, we want to make sure we don't grow a big debt position, obviously, with the capital markets as they are and sort debt markets as they are with higher interest rates. So I I guess the key challenge for us, the key benefit of this industry is the great working capital benefit you get from opening new sites and growing your business. So we're quite we you know, we've we've always had this philosophy trying to self fund our rollout, which is obviously our aim this year as well. So other than that, there's there's not too much more. The debt position didn't change at the beginning of the year, still 3,000,000 and cashmere sort of covered off. Nothing else to come back on balance sheet.

25:37 And one of the big benefits that we talked about in our last presentation was how the profitability of TORTILLA very much split between London, the Southeast, the rest of The UK, commonly known as the North. And actually, that's that's still a very strong story for us because we're we're delighted to have a business that's almost fifty fifty. In fact, all of our site openings last year were outside of London. So we're very we're very pleased and excited, and we know that our business works incredibly well in Edinburgh, Glasgow, and Nottingham, Newcastle, Liverpool, Leeds, Birmingham. So that's great for us to continue. However, I think it's really important that we share this slide around Central London.

26:24 There was a lot of people who were very anti I wouldn't say very anti, but nervous around the Chilango purchase. It was a it was a business that was very much Central London based at a time when there was a lot of talk around working from home. And we were always of the opinion that London is such a fantastic city to work in and to socialize in. The working from home world would would would definitely have an impact, but perhaps not quite the extent that it was being talked about. And I think we're starting to see, certainly over the last, I would say, or five months, we're starting to see outside of the dreaded train strikes that that Central London is almost back to where it was pre COVID.

27:12 Mondays and Fridays are undoubtedly a little bit quieter. They're not as quiet as they were at the start of the start of the process. And Tuesday, Wednesday, Thursdays are extremely busy. And if you walk past any Tortillas or or any of the Geelongo sites at any lunchtime, any given lunchtime during the week, you will see massive queues, which is really, really exciting and really pleasing for us because we we were absolutely convinced that the Chilango purchase was the right thing to do for many different GRILL reasons. But predominantly, we love the property portfolio that they had in Central London, and converting those sites into

27:56 And I'll get on to the Chilean go slide later on. And I also think we we're very excited about the next few months. I talked a little bit about Greenwich and how busy Greenwich is going to be over the next few months. In London, I think will be generally very, very busy. Obviously, there'll be a lot of UK people who will be going on holiday, but I would imagine that the tourist market in London this year would be absolutely huge. So we're ready for it and we're very excited to continue to maintain the success that we've seen in London over the last over the last few months. So moving on to Chilango. Well, as you as we've talked about, we bought this in May last year. It's a business that we admired. We thought it was probably the best of the rest.

28:46 A little bit more independent than us. You could argue maybe slightly slightly cooler, maybe, a different type of market, more of a stupid type vibe. We thought the food was great. It was a little bit more premium than us, a little bit more expensive. We'd spent some money in the three sites that we've kept as Chilango, and they all look absolutely fantastic. And as you can see from the percentage sales uplift from the first few weeks of us actually buying this business to where we're at now, it's only substantiates what I was saying around London absolutely going. Clearly, we have one outlier here, which is Islington, but we did have to close that site for few a weeks while we refurbished it. We're still kind of working out the best new management team to bring into that business. But overall, the numbers are incredibly encouraging in terms of the percentages and and the increases.

29:37 And, you know, we we we love the brand. Now in terms of what we do with Chilango, at this particular moment, we have put their menu into our cloud kitchens in three in three cloud kitchens alongside TORTIA offering their menu and the TORTIL menu. And early signs are very positive. We've only been doing it for about a month or six weeks, but we're we're doing some very good numbers out of these cloud kitchens now, which makes them very profitable for us. So that's good to know that we can run it alongside TORTILLA a delivery basis. But it gives us some optionality. It's another brand. We could look at different ways of operating Chelanga, or we can carry on trading it as it is. There's no urgency in changing anything. They're good businesses, but it does give us the opportunity of doing some menu testing in in Chilangos, and it's nice for us to have another brand. We could look at deciding how best we move forward with it, over the coming months and years.

30:45 And as we talked about, we are in a very invinious position of having businesses that are maxed out at lunchtimes. They're so busy that we need to find ways of getting people through our lines quicker. And and through the recruitment of Andrew, he's really been targeted in the first few weeks of his time with us to look at varying options around kiosks, delivery tech aggregation, and other ways in which he believes he can help us with our throughput challenge. As I say, it's a nice challenge to have. When you only operate a single line, there's only so many people you can serve at such a time. So we're looking at kiosks and and potentially other ways of operating, and he's going to be a very key player for us in helping us work out the best the best way of doing that.

31:38 From a positive tech side of things, you'll you'll notice in the in the in the part that we talk about our loyalty program, We now have just under 300,000 people who are part of this loyalty program, which is outstanding. It's not a loyalty program where we discount. We give away a load of stuff. We've never been a discount brand. We don't want to be a discount brand. We would rather try as hard as possible to keep our pricing as competitive as we can do, and then we'd like to add value for people who enjoy this loyalty as opposed to just generally giving stuff away. So it's great that we've got so many people, and they were a part of our loyalty program. Operationally, going back to the lunchtimes, we have, brought in a fast 15 program, which is specifically for the London locations where we have huge queues between 12:00 and 02:00, and there's incentives for the employees and the management teams to see who can do the most amount of revenue in an hour. And we've already seen three records broken in the last few weeks in our London Bridge site, and it's really there to make sure that we have enough people in the businesses businesses when we really need them to be.

32:48 And you will see that we are we are launching a trial around a labor deployment tool to make sure exactly that, that, you know, we absolutely have the right people at the right time in the right place in these businesses. So that's another area that we're focusing on.

33:07 And as an example of trying to find a way of better dealing with our delivery and in house sales. Brighton is an interesting example of a site that's now doing almost fifty fifty delivery and in house, and it's nearly it's a sort of circa $30 a week site. So you can imagine with a single line doing 50% of that on delivery, they the challenge is for the people for the team on the line to serve people in front of them and with the delivery tickets around. So we've we've managed to open a second line in Brighton, a separate second line, which literally facilitates delivery click and collect. And, again, we've only been doing this for the last probably six weeks, but the feedback from the employees has been, oh my god. Thank you so much. It's made our lives so much easier. You know, we can focus more on the customers stood in front of us now, and the second line can just take all the heat away from all the delivery that goes on.

34:07 If there are other opportunities in other businesses, then that's another thing we will look at trying to do as as we move forward. Okay. So just just onto a couple of slides on value for money, which which is something we always talk about and is is, I guess, a really core part of what TORTILLA is about. It's more important than ever at the moment with the challenges people have around cost of living and inflation, and so we we want to always make sure that we're really strong in this regard. I think the first graph on the left of the chart shows some customer research we did some time ago, which confirms the fact that the value for money side of what we do is a really key part of why they come to TORTILLA.

34:53 It's really important to our customers. The middle bar chart shows that we are very competitively priced. I've put on here both the NOW pricing and the April pricing when we put through our price increase. So we'll be pricing by twenty feet five p nationwide on a large and regular burrito

35:14 inside London. We'll be pricing by 50 p because the work and trialing that we've done and the assessment of the market shows that there is more of an opportunity there. So put put in higher price prices. The cost base is very different, so it feels only right to have a regional type of pricing. But even with that two brand landings, we're in a very strong position from a pricing point of view compared to our direct competitors, and our product is bigger. So with the calorie legislation, you can you can use that as a proxy for portion size. You can see that our portion sizes for our different products here is is is very strong. Moving on to more of the indirect competition, the wider peer group as well.

35:59 You will see, really, other than QSR operators like Taco Bell and the other fast food businesses and sandwich businesses like Pret and those sorts of organizations, we're really unrivaled at the price point that we're at. And and, really, I think that burrito is a lot more filling than a than a sandwich and some of these other products. So we're in a really sweet spot from a proposition point of view where it it's putting us in a very, very favorable market position. And interestingly, there was a piece of work done by property consultancy, CACI, recently, which shows that customers have moved to TORTILLA from other brands in recent months as a on that. I guess, that demonstrates the point that we're raising here, which is we haven't played around with our portions like some of our competition have.

36:56 We've kept our quality. We've not changed any of the ingredients, and we've tried to keep the price as as keen as possible. Yeah. I mean, just it's just it's an interesting debate, this one. I mean, Andy and I and and the board have always been very, very keen to make sure we are competitive price wise. We are also cognizant. We are a company that used to make profitability as much as we can. But I think our view has always been that we are a growth story. We're a business that, you know, there's a long term plan for this business. And at the end of these constant headwinds that we do believe will end at some stage, we wanna be left with a brand that is still considered to be very, very good value for money.

37:42 Whilst we haven't taken price as aggressively as perhaps some of our competitors, I think it's important to see that, you know, quite a few of them have fallen by the wayside over the years. It it it is very key for us that if we can just ride out the storm for a period of time, we want we feel we'll be in a very strong position as we come out the other side. So just moving on then to your short piece on current trading on slide 22. We we've started the year very well. Our like for like sales growth versus 2022, hooray, for not comparing to 2019, is 4%. And it's really important to mention that that's against a very strong set of comparatives. We traded really well in January and February last year pre Ukraine war because, obviously, we were still in kind of Omicron type pandemic situation, and, you know, we were doing really well last year. So we're we're really chuffed to have started the year well. Put a couple of benchmarks down there. January was very high for the industry because a lot of businesses were shut in January last year because of Omnichrom. So obviously coming out of that and lapping those numbers. They performed well. But you can see February is more of a normalization.

39:01 The restaurant group recently released their numbers, and we saw the wag of mine was plus 2%. So we're feeling very chuffed that we're holding our ground very well against those businesses. And, you know, if you take the VAT out, it's plus 11%. So great start to the year. From a cost perspective, obviously, it's still a challenging environment. But finally, utilities hedges got to a sensible level when we were able to lock in a forward rate on that, which was just not commercially viable for beforehand. So that protects us until the end of September. And then we made a switch to our packages supply that will save us about $300 a year, which is point 2% of sales. And food cost inflation feels feels like it's it's easing. It's still a challenge. It's probably the one area that we're battling mostly on a daily basis, particularly protein costs. I think veg supply feels a little bit more stable. The meat market is still is is still challenging, but we've navigated our way through it well so far this year, and we're feeling more optimistic about the rest of the year in that regard.

40:06 And, actually, the pricing that we talked about on the previous slide should be enough to give us a bit of headroom to navigate through those any sort of challenges. And as well with the cost inflation with cost inflation on employees, 9.7% national minimum wage increase in early April. It's obviously factored into our forecasting as well. So we're feeling like from a cost point of view, it's more manageable, slightly more certainty appearing in the market and feeling better placed and well placed for the rest of the year. So just in summary. Yes. Okay. So really final slide in summary. Oh, owns a house of normalized trade. That would be our wish.

40:53 But despite everything that's going on, you know, we've had a we've had a fantastic full year 22 record site for us. It's encouraging is the two sites that we've already opened this year are performing expectations, and we've got a very strong pipeline of sites for the rest of this year. We've certainly had to have five of them open by by the end of June this year. So we're on track to open three second wood, which is which is great news. And so TORTILLA continues to become continues to be a very exciting growth business. And the white space opportunity for us in The UK continues to be very strong. We, we anticipate at least sort of between one fifty, one seventy five sites in The UK, so we've got plenty of growth and plenty of opportunity to to do that.

41:40 Andy and I really are very, very close to all of our supply chain. We don't we don't delegate that role to anybody in the organization. We we absolutely know that that's singularly the the area that will help us get back to profitability as quickly as possible. We have a very good relationship with all our supply chain, and we're very close to all the costs, and we're looking at many different ways of trying to mitigate this this fluctuation around costs. So we are we're very close to making sure that whatever benefits there are, we get we're going to be the first to get them. Probably a bigger push this year in our presentation than there's been in the past is around franchising. We've got a business now that is incredibly well set for franchising success both in both in The UK and around Continental Europe.

42:31 We have a strong business over in The Middle East, which has performed very well over the last few months and some really good opportunities for them going forward. It was very encouraging to go over there and see the success of those businesses. SSP and Compass were whilst being very big, enormous businesses, sometimes a little frustrating at the speed in which they they act on things. But fundamentally, in all the sites that we operate with these guys, we're performing very well, and they love the brand. And there will be more opportunities this year for us to continue with that relationship with both of those partners. Franchising remains, and in fact, has been pushed slightly more forward in terms of our mind as a really good opportunity and a way of us growing the brand quickly.

43:19 Our bricks and mortar sites in The UK will always continue to be a very, very, very important part of the business. It's nice to know that there are other opportunities that we have outside of that. I think it's also important to just reiterate the strengthening of the board and the exec team. One of the successes of any restaurant business, having worked in a few myself, is this is the level of and the quality of the team of people that are strategically directing it and those that are operating it. And I'd say unquestionably, this is the strongest board and and certainly the strongest exec team that I have around me now. We've got some fantastic skills and great experience, and I think that will stand us in really good stead going forward to take advantage of all the the opportunities that lie ahead.

44:10 Thank you very much. I think we move into q and a. Richard, Andy, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while Richard and Andy take a few moments to review those questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we received a number of questions presubmitted and throughout today's presentation. And Richard and Andy, if I could just ask you to read out those questions and give responses where it's appropriate to do so, I'll pick up from you both at the end. Okay. So the first one addressed to me about hedging and reluctance around doing it and whether or not given the environment is less volatile, is this reversion more around a return to normal or we look to potentially unhedged post 2024, should it be deemed suitable?

45:09 I think there's a little bit more to the question just under No. Okay. Or is that the next one? The next one. Yeah. I mean, I I've never been against hedging. I think the issue that we had last year in terms of utilities is we we couldn't hedge a commercially viable rate. I think the market was so crazy that it wasn't possible to lock in a rate with with a lock in a forward contract with a rate that was remotely sensible. Certainly, with the rates becoming more normal the last few months, we've been able to lock something that in, and we wanted to do that to create a bit more stability and reassurance market around our our numbers. And we are working with our energy broker to come up with a strategy beyond September, which may be to be unhedged or more likely, we will start forward buying utilities, well, six months ahead right now to cover ourselves to that period. So that's still very much work in progress. When we need a wedges to the idea of hedging or or or not.

46:13 One from Alessandro Hague, what is the update on The Middle East and franchises? Noticed they have been declining, and we've yet to hear an explanation as to why. Well, so I've just been waxing lyrical about the Middle East franchise to probably explain that whilst it's true, pre COVID things were fairly okay over there, and they weren't particularly knocking the lights out, but they were performing okay. Ethos is our franchise partner over there, and they have multi brands. What we decided to do to help kind of reboot the TORTILLA brand within their portfolio was to send over one of my operations guys who has been involved in with me in in TORTILLA the last five or six years, a guy called Eric Sedat, who's a fantastic operator.

47:02 And he went out there to work for Ethos specifically with TORTILLA. And in that twelve months he's been out there, he has literally because he's been a flag wave for TORTILLA and has given it very specific focus as opposed to it being part of a bigger organization. Unsurprisingly, the businesses and the operations have performed much better. They're all profitable at all the sites, and there's a lot of love around TORTILLA now within the ethos franchise business. It's highlighted to them that you have to have somebody owning the brand. So we were out there, and Emma Woodside, our chair, was also out there with me last week, really showing saying to the, listen, guys, you know, you've got a massive opportunity here. We're here to support you, but you do need to start pushing forward.

47:49 It's very noticeable that things are very buoyant over there at the moment. I know The Middle East and Dubai especially is is very volatile in terms of ups and downs, but right now they're in a very, very good place and probably will be for some time. So I think it was a great move I've asked to go out there. I think we've got them back on the the site acquisition program, and I'm very hopeful that they'll open a couple of sites this year. So I would imagine that our Middle Eastern story will be will be getting better every time we speak. Okay. So the next question was around, have you been able to increase the prices at the same rate as your costs have increased?

48:36 I guess the answer to that in respect of 2022 was no. So our EBITDA percentage of sales was lower last year than we would have liked it to have been, but we took the longer term view that we didn't want to have a knee jerk reaction to price increases by hiking our prices up. I mean, our some of our protein costs at times were 40% up what they were at the start of the year, and, clearly, it wasn't viable for us to offset that pricing. As we've said, this is a growth story, and we want to make sure that we're building a strong growth story for the long term, making sure that we're careful around our price increases and doing that in a tactical way that doesn't put our customer off our product. And I think that's exactly the approach that we've succeeded in taking.

49:28 Are there any strategic acquisitions on the horizon? Well, we couldn't tell you if there were or if there weren't. So unfortunately, we can't answer that. Are we on target with our expansion plans? Yes. I think so. We we we are very much target with everything that we said, so, that's all in good shape. Chipotle has accelerated its expansion program in London. Do you see that as a threat going forward? How would you maintain your dominant position in The UK? Well, we've been hearing for years that Chipotle has accelerated its expansion program, and it and and it actually never has. They've they've opened one or two sites. I don't know how many sites Chipotle have now in The UK, but it's only in London, and they probably have, I don't know, maybe eight or nine sites because they're close two or three.

50:16 This question is often asked of of us about Chipotle. You know, the mobster that is Chipotle, nearly 3,000 sites in The US. For some reason, they just haven't performed well in The UK. We have our own opinions on that. I think they're probably a bit too expensive. We feel that their environments are a little bit sanitized and a little bit cold. The model works very well in The States, but I'm not sure it's translated as well over here. They also generally take very expensive sites, very expensive rents. So is that a long way to continue? But I don't mind. I think there's definitely plenty of room for another another business like ours. But as long as Chipotle don't open as many as as us, then we will continue to be the the market leader or the dominant position. We're we're somewhere ahead of any other Mexican fast casual business in The UK.

51:14 Okay. So the next question is from Ben, which is, can you talk us through your franchising ideas in Europe and which countries you are keen to explore initially? Well, Europe is something that's been on our agenda for a number of years. We think there is a clear opportunity for a great burrito business across Europe and the addition to our board of somebody like Francesca who's got tons of experience of operating in Europe and of contacts in the franchising world is obviously hugely exciting for us and opens lots of doors. I guess without going into the specifics of countries where we've identified opportunities, it's not rocket science to identify that the most obvious initial opportunity would be in West Europe, like France, Germany, Spain, Netherlands, those sorts of countries. So that would be the obvious initial target. There are burrito businesses that trade in those countries.

52:14 We believe our product is is stronger, and so we believe there is a real opportunity to take on some European countries in the near future. But, obviously, we haven't got anything to announce at this stage, but it's a definite subjective of ours. Do you wanna take this one, Andy, or not? Okay. It looks quite a complicated one. Regarding TORTILLA's interim results, I'm struggling to reconcile admin expenses in the consolidated p and l to the notes in the information. The difference is 6.9. Well, 6,900,000. I mean, off the top of my head with those bits of paper, I I don't I don't know the exact answers to that. I can come back on that, but you within the financial statements, you never disclose everything that goes into admin expenses.

53:09 It the note just says admin expenses is stated after certain costs, so you can't obviously just add them up and get back to admin expenses. But the main thing in admin expenses are staff costs, rent expense, depreciation, and thing like business rates and all those other bits and bobs. So there's a disclosure of certain lines in there, but that's not supposed to cast to the front of the p and l. Can you add some color on cost of sales? Well, I think we've been through that really. I mean, the real cost challenges to us last year and continue this year is, obviously, protein costs were the big big challenge for us and and remains so, although it's not as volatile as it was.

53:57 And and hopefully, we've seen a bit of a plateauing of of costs in that in that area. Certainly, that's the kind of conversations we've been having with our supply chain on that. Utilities is less of a challenge for us. And as Andy's already said, we've hedged now for the next six months. So we're in a good shape on utilities and labor costs. We we budgeted the the increase in the minimum wage from the April 1. So, you know, whilst it's quite a big hit, we have we have made allowances for that in our in our budgeting. So the next one is from Tim. How quickly do you expect to pay back the Cholango acquisition? Is the performance in line with your expectations? Great question. We paid just 2,750,000 for that business, and the foundation of that was an assumption that Central London sales would be 20% down on pre COVID levels in 2019.

54:51 So when we looked at the calendar numbers, took 2019 sales of that business, dropped it by 20% and then played around with the costs. As you saw from the presentation, for our own business sites that we have that we traded in 2019, the sales are actually 15% higher in q one this year than they were in 2019. So there is a considerable sales upside that we had in that Cholango business. The rents were all regeared during the COVID by the previous owner, so they're very regular rent deals. And so we're really optimistic about the amount of money that can be made within that business. How quickly you can pay it back? Obviously, that takes a bit of time because we've got to regrow those businesses. We had to work with them. You know, a lot of the people who were in that business left as as part of us taking it over.

55:41 But I think we'll we'll find we'll make a a very good EBITDA contribution from the Chilango sites this year. So you won't be take taking many years to pay back that Chilango acquisition at all. I think we're out of time, unfortunately, now. So I don't know how we want to carry on with these if they want to get sent over, and we can answer them afterwards. Yes. Richard, Andy, what we'll do for the questions that remain is we'll we'll send them over to you, and then you can write written responses to those, and then we'll publish those on the investor me company platform along with those that you've answered during the session. Perhaps before redirecting investors to provide you with their with their feedback, which is important to the company, Richard, could I just ask you for a few closing comments? Yes.

56:27 I mean, listen. Thank you very much for for joining us. I hope you found it interesting. You know, obviously, this has been another sort of quite a challenging period of time in terms of all the various headwinds that seem to consistently be hitting this sector. But I think it's a very, very good news story. We, you know, we do continue to perform well. We have a business that we're very proud of. We've got so much opportunity to continue to grow this business. And even during these difficult times, our numbers are very strong. Yes. Of course, we'd like to see some cost benefit around our food costs. We're working tirelessly to to to manage that. The rest of the business is in very good shape.

57:12 We are benefiting from the continued property market, decreasing rents. That gives us a great opportunity to continue to find sites such as Greenwich and RVs that we've talked about today, and we're on track to open the amount of sites that we want whilst focusing on some really good opportunities in our franchising here and in world. So stick with us. This is a great business, and we are very excited about the coming months and years. Thank you very much for your time. Thank you, everyone. Richard, Andy, thanks once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but some should be greatly valued by the company.

57:59 On behalf of the management team of TORTILLA MEXICAN GRILL PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.