25 September 2024

Tortilla Mexican Grill plc

("Tortilla", the "Group" or the "Company")

Unaudited Interim Results for the 26 weeks ended 30 June 2024

 

Tortilla expands into France, revamps UK business and strengthens leadership for growth

Tortilla Mexican Grill plc, the largest and most successful fast-casual Mexican restaurant business in the UK and Europe, today announces its unaudited interim results for the 26 weeks ended 30 June 2024 ("H1 FY24", "the Period"). All numbers are shown on an IFRS basis unless otherwise stated.

 

Commenting on the results, Andy Naylor, Chief Executive Officer of Tortilla said: "We are very proud of the positive momentum we have driven throughout the business over the last six months. The UK business had lost momentum at the start of the year, and we had to make some big decisions to overhaul the trend. We have driven the UK business forward by revitalising our food offering and investing in people, brand awareness and technology. It is encouraging to see the benefits of these investments, with our in-store like-for-like sales steadily improving, from -6% in March to +4% in September month to date.

 

We took our first steps into Europe, announcing a strategic acquisition of Fresh Burritos, which provides us with an important foothold in France and a platform from which we can expand our franchise portfolio across Europe.  Our franchise network in the UK is stronger than ever with FY24 being a record year for growth and we've just extended our SSP partnership for a further five years which will see the estate more than double in size.

As we approach Q4 we continue to see positive signs of the hard work conducted by the team in the first half of the year, with current trading in line with management expectations. The Board remains confident and excited about Tortilla's long-term and sizeable growth opportunities both in the UK and internationally."

 

 

Operational and strategic highlights

 

·	New management team embedded: CEO succession saw Richard Morris step down in March, replaced by Andy Naylor, previously CFO and UK Managing Director and CFO Maria Denny also appointed to the Board in Q1 FY24.
·	New strategic approach 'Tortilla's Vital 5,' launched in Q1 with key initiatives on track:
	o Improve UK profitability: Strategic decision to revise delivery partner strategy in H1 is driving EBITDA enhancements (+£0.5m) despite LFL decline in delivery of -10.3%. The leverage of previous year's supplier contract negotiations is also driving improved profit conversions year-on-year.
	o  Invest in brand to drive growth: With our new Food Director, James Garland, joining in H1, we have revitalised our core menu with new recipes for our proteins and salsas, invested in new equipment to launch an entry-offer product, and introduced limited time offers. Additionally, we have focused on driving brand awareness through collaborations, and monthly influencer burrito specials, resulting in our brand awareness rising to 23% (up 4ppts since a year ago). August also saw the launch of the new Tortilla app, which was ranked number two in most popular UK food apps in the launch week and has seen a rapid growing data base with 30,000 new members since launch, now totalling 164,000 active members.   We opened a new 'Grade A' company owned site in Manchester's Arndale centre in May, and two new franchise sites in H1, one in Leeds train station (SSP), and one in Leicester (Compass). The Tortilla portfolio in the UK and Middle East at the end of H1 consists of 89 stores including franchise sites.
	o Invest in team and tech: Seven new kiosk store conversions completed year to date, which are driving efficiency and spend (+12% average order value), as well as improving the overall customer experience. With a short payback period of less than six months, the Group is planning to install more kiosks during Q4. We have also continued to invest in our people and culture and have strengthened our team further with the appointment of key new roles including a Managing Director for the French business, a Food Director, a Supply Chain Director and a Head of Learning and Development. We have also launched a new training and development framework and held our first leadership away days to promote a culture of internal growth and career development.
	o Doubling down on franchise: Strong performance across UK franchise stores driving sales growth of more than 10% with two further openings during the period including Leeds Train Station (SSP) and Leicester (Compass). We expect our franchise partners to open at least three more stores in H2 and so are on track to achieve the expected five for the full year. We are also delighted to announce a 5-year extension of our development agreement with SSP which will see us more than double our number of SSP sites.
	o Develop brand internationally: Successful entry into Continental Europe with the strategic acquisition of Fresh Burritos, including the acquisition of 13 company-owned leasehold sites in high quality locations across Paris and other major French cities, and the franchise rights to the Fresh Burritos brand and the network of 19 franchised locations. The acquisition provides a springboard for franchise growth across Europe with a strategically located Central Production Kitchen (CPK) located in Lille.   The Group has post period end created a European sub-board committee to oversee European operations, chaired by Group Non-Executive Director and former YUM! European Franchise Division CFO, Francesca Tiritiello. Also appointed to the sub-board as a Non-Executive Director was Gilles Boehringer, former VP of Development & Franchise for KFC France. In September, we also appointed a new Managing Director for Tortilla France, Eric Wauthier-Wurmser, who comes with over 25 years of restaurant and franchise experience.

 

Financial highlights 

 

·	Revenue for H1 FY24 £31.5m (H1 FY23: £32.7m).
·	Overall LFL[1] revenue down 5.5% driven mainly by the planned strategic decision in Q1 FY24 to condense to a dual delivery partnership. This has seen an expected delivery revenue decline of 10.3% LFL, albeit with improved delivery profitability, up £0.5m in H1.
·	Adjusted EBITDA (pre-IFRS 16)[2] of £1.8m is in line with prior year despite the revenue drop, highlighting our improved profit conversion.
·	Reduced loss before tax to £0.2m (H1 FY23: loss before tax £0.6m).
·	Our adjusted net debt[3] of £3.3m at period end (H1 FY23: £1.6m adjusted net debt) is in line with expectations and at that point £2.8m of the Group's existing debt facilities was undrawn.

Current trading and full year outlook

 

·	Current Trading is in line with management expectations for the full year 2024, with in-store sales continuing to improve on the back of our investment in food, brand awareness and technology (+4% LFL in September month to date, up from -6% in March). We also continue to see our revised delivery strategy and cost savings initiatives improving profit conversion.
·	Integration of Fresh Burritos progressing well and in-line with plans: Site secured for a fully-fitted-out 1400 sqm Central Production Kitchen in France, enabling Tortilla to produce consistent food at scale for the European market, on track to open in Q4. Store conversion started with the first site, Strasbourg, converted to Tortilla in Q3 with the next two sites scheduled for conversion in Q4.

 

 

 

ENQUIRIES

Tortilla Mexican Grill PLC	Via Houston
Emma Woods, Non-Executive Chair Andy Naylor, CEO
Maria Denny, CFO
Panmure Liberum Limited (Nominated Adviser, Sole Broker)	Tel: 020 3100 2222
Andrew Godber
Edward Thomas
Nikhil Varghese
Houston (Public Relations) Kate Hoare Kelsey Traynor Ben Robinson	Tel: 0204 529 0549 [email protected]

About Tortilla Mexican Grill plc

Founded in 2007 by a San Francisco duo, Tortilla is the Europe's largest fast-casual Mexican restaurant brand. With 81 UK locations (of which 13 are franchise stores), 32 in France (of which 19 are franchise stores) and 8 franchise stores in the Middle East, Tortilla serves 7 million+ meals annually, offering authentic California-style burritos, tacos and salads.

Through the acquisition of Chilango in the UK in 2022 and Fresh Burritos in France in 2024, as well as franchise partnerships with SSP Group plc, Compass UK & Ireland and Eathos, the brand continues to expand globally.

Tortilla breaks the mold of typical takeaways, combining quick service with quality ingredients to serve affordable, made-to-order meals in under 90 seconds, in cosy environments fitting for lunch or dinner and a beer with friends. The menu is fully customisable - there are thousands of flavour combinations to try - with produce that's fresh, never frozen, 70% plant-based and vegan-friendly, higher welfare meats and free from artificial flavours or preservatives.

Emphasising sustainability, Tortilla only uses recycled and recyclable packaging, 100% renewable electricity and sends zero waste to landfill.

Headquartered in London, Tortilla employs over 1,300 people.

More details at tortillagroup.co.uk 

 

 

BUSINESS REVIEW

Overview

We are very proud of the positive momentum we have driven throughout the business over the last six months. The UK business had lost momentum at the start of the year, and we had to make some big decisions to overhaul the trend. We have driven the UK business forward by revitalising our food offering and investing in people, brand awareness and technology. It is encouraging to see the benefits of these investments, with our in-store like-for-like sales steadily improving, from -6% in March to +4% in September month to date.

 

In March we launched our reinvigorated strategic vision 'Tortilla's Vital Five' clearly defining the initiatives through which we will drive profitable growth in the years ahead as we continue to expand the Tortilla brand, both in the UK and overseas. Early milestones achieved against these plans have included; the successful review of our delivery strategy which has driven improved profitability on delivery sales following the switch to a dual platform; significant investment in our food offering with a number of improvements rolled out across our stores year to date, now driving encouraging results with improved LFL sales; and, of course, the announcement of the landmark strategic acquisition Fresh Burritos, which provides us with a foothold in Europe through the acquisition of 13 company owned stores across key French cities, the franchise rights to the Fresh Burritos brand and the network of 19 franchised locations, and a platform from which we can expand our franchise portfolio across Europe.

As previously guided, the full impacts of these initiatives are not expected to start to be realised in our numbers until later in the year, however it is encouraging to see early signs of progress in several areas as we continue to position the Group to drive more profitable growth in the years ahead. 

Strategic Progress Against The 'Tortilla Vital 5'

Improve UK Profitability

A key area of focus for the Group is the improvement of UK profitability. The excellent work done across the Group in the prior year to improve efficiencies, enhance purchasing power and supplier relationships have underpinned stronger year on year profit conversion. Gross margin improved by 70bps during H1 and we are well positioned to realise the full year benefit of these cost saving initiatives in FY24 as planned. We have continued to strongly manage fixed costs during the period and in the longer run we expect to see potential to leverage efficiencies and purchasing power even further as the business grows.

We are also pleased with the early results of our strategic review of our delivery strategy, which saw Tortilla condense to a dual delivery platform. Whilst as anticipated, this transition was expected to have an impact on sales volumes, it is pleasing to see the positive impact on margins which ultimately underpinned the adjusted EBITDA (pre-IFRS) result of £1.8m for H1. This was in line with the prior year despite the expected £1.2m revenue decline following the delivery change.

As outlined at the time of our Annual Results for FY23, whilst we remain focused on delivering growth through new store openings, we are focused on targeting Grade A, higher traffic locations in major cities moving forward and therefore expect the pace of own openings to reflect these stringent investment criteria. During the first half of the year, we were pleased to open Manchester Arndale in May along with two further franchise sites. We also completed on the planned closure of one delivery kitchen in H1. Following the period end we have also closed our Nottingham Clumber site as part of our estate rationalisation management.

Invest in brand to drive growth

The first six months of the year have seen further investment in food and menu development to drive continuous improvement to maintain our market leading position, improve customer satisfaction and drive sales. We were delighted with the success of a series of food improvements to revitalise our core menu. These included the introduction of the asado chicken, which has gained positive customer sentiment online. We also made recipe adjustments to beans and slow-cooked proteins to deliver better quality, flavour and eating experience. These improvements were successfully rolled out across our menus in Q2 and are already wielding encouraging results. We have also invested in a new cooking method to introduce a lower entry price product through the revamp of our quesadillas and have been very encouraged by the early success with plans to roll this out further in H2.

In June, we were also pleased to welcome our new Director of Food, James Garland. James joins the business from Honest Burgers, a business highly respected for food quality, and brings a wealth of experience with him which will undoubtably have a transformational impact on our food quality, brand collaborations and innovation.

We see huge opportunity to drive growth through increased investment in brand awareness.  Since the start of the new financial year, Tortilla brand awareness increased to 23% in H1 FY24 (+4ppts over the last year) following a sustained focus on targeted marketing initiatives. These have included investment in a number of partnerships and collaborations including a collaboration with Bleecker to celebrate National Burger Day, celebrations for National Burrito Day (which saw us reach an audience of over 14 million and drive over 27,000 people into our stores), stunts, influencer collaborations, sports partnerships and more.  In August, we were also excited to launch The Burrito Society, the new Tortilla loyalty app. The app enables customers to collect stamps, unlock rewards, order ahead and find their nearest Tortilla, as well as having exclusive perks. The Tortilla app was ranked number two in most popular UK food apps in the launch weekend and has seen rapid database growth with +30,000 members since launch, now totalling 164,000 active members. We look forward to driving further exclusive promotions over the course of the year to continue to drive membership signups and purchase frequency.

Invest in team and tech

In the first half of the year, we have continued to strengthen our senior management team in support of our future growth plans. Alongside the previously mentioned appointment of our new Food Director, James Garland we were delighted to have also confirmed several key appointments to our Tortilla France management team, the details of which are outlined below.

We place immense importance on the development of our teams and are very proud of the career journeys we are able to offer our colleagues. In H1 we launched our new management development program across the business. We have been really pleased with the uptake and look forward to supporting our next generation of Tortilla store managers as they continue to progress within the business.

From a technology perspective, following the success of our first kiosk trial in London Wall last year, we have continued with the roll out of self-order kiosks. Seven additional sites have been fitted out with kiosks year to date and early results have been very encouraging with average order value increasing by +12% and significant improvements to operational flow at these sites supporting an improved customer experience.

Double down on franchise

We see significant strategic merit to accelerate our growth through expanding our franchise network, both through existing and new partnerships. We are proud of the high calibre portfolio of existing partners in the UK, including SSP Group ("SSP") where we are focussed on expansion across travel hub locations and Compass Group ("Compass") where we are focused on higher education UK campuses.

UK franchise stores continued to excel in the first half of the year with multiple sales records achieved across the Group's partnerships resulting in sales in the first half of the year increasing by over 10% with new franchised sites opened in the financial year to date including Leeds Train Station (SSP) and Leicester (Compass). We expect our franchise partners to open a further three stores in H2, so on track to achieve the expected five for the full year. We are also delighted to announce a 5-year extension of our development agreement with SSP which will see us more than double our number of SSP sites.

Looking ahead, we see significant strategic merit to accelerate our growth through expanding our franchise network, both through existing and new partnerships and therefore we will evolve the mix of new openings to focus more heavily on franchising whilst we take a more targeted approach on the rollout of own stores, adding in primary locations where the brand has high awareness.

 

Develop the brand internationally

On the 25 June 2024 the Group was delighted to announce the strategic acquisition of Fresh Burritos, the second largest fast-casual Mexican restaurant group in Europe, and largest in France, for a total consideration of €3.95 million.

 

Whilst the UK will always remain at the core of Tortilla, we recognise there is a huge opportunity to expand in other markets overseas. This acquisition not only provides the Group with an important footprint in France through a portfolio of 13 company-owned leasehold sites in high quality locations in Paris and other major French cities, and the franchise rights to the Fresh Burritos brand and the network of 19 franchised locations, but also offers a springboard for franchise growth across Europe.

 

Since the completion of the acquisition on the 5 July we have been focussed on pushing ahead with our integration plans and are pleased with the progress to date. Alongside the acquisition we were pleased to announce plans to open a fully-fitted-out 1400 sqm Central Production Kitchen ("CPK") in Lille France, enabling Tortilla to produce consistent food at scale for the European market, mirroring its operations in the UK and support any future expansion locations in nearby countries. The Lille CPK is expected to be fully operational towards the end of this calendar year.

 

As we continue to invest in our French management team we were delighted to announce the appointment of Eric Wauthier-Wurmser as Managing Director of Tortilla France. Eric draws on a wealth of hospitality expertise across Europe, including his most recent role as the Vice President Operations & Franchise, at Groupe Le Duff, leading the Brioche Doree brand and overseeing 350 restaurants. Further hires across our French team include Enrique Esquivel who joins the team as Supply Chain Director, bringing a wealth of experience in the purchasing and supply chain management and drawing on over 25 years in the sector.

 

The Group has post period end created a European sub-board committee to oversee European operations, chaired by Group Non-Executive Director and former YUM! European Franchise Division CFO, Francesca Tiritiello. Also appointed to the sub-board as a Non-Executive Director was Gilles Boehringer, former VP of Development & Franchise for KFC France. Our newly appointed Managing Director for France, Eric Wauthier-Wurmser, and our Group CEO Andy Naylor have also been appointed to the European sub-board committee.

 

Finally, we are pleased to update that the roll out of the rebrand of the Fresh Burritos stores under the Tortilla brand is already underway with our first French site in Strasbourg now officially converted to Tortilla, with two further sites scheduled for Q4.

 

Environmental, Social and Governance ("ESG")

ESG remains a key consideration for the Group and we are delighted to update that the period has also seen the roll out of the largest energy project ever undertaken by Tortilla with the installation of a state-of-the-art 60.68kWP solar PV system at our UK CPK. This will lead to a reduction of 11 tonnes of carbon a year.

Tortilla has also implemented an AI powered solution to manage plugged-in devices, significantly reducing unnecessary energy consumption. Initially rolled out as a trial across ten sites, this innovative approach achieved an impressive 32% reduction in energy usage across the trial sites. Following the successful trial, the Group plans to expand the implementation across all sites over the next six months, aiming for even greater energy efficiency and sustainability.

 

Finally, the Board would like to take this opportunity to thank the entire team at Tortilla for their continued hard work, creativity and dedication. The spirit across the business is fantastic and has been instrumental to the Group's continued success over the last six months.

 

FINANCIAL REVIEW

Revenue

In H1 FY24 revenue decreased by 3.7% to £31.5m (H1 FY23 £32.7m). This was attributable to the following factors:

 

·      In February 2024, Tortilla made a strategic move from a multiple to a dual delivery platform to improve the profitability of the delivery channel. Whilst this has caused the LFL delivery sales to drop by 10.2% in H1, the profit conversion has improved and has generated an enhancement in EBITDA derived from delivery sales in H1 of £0.5m vs H1 FY23.

·      The closure of three delivery kitchens Balham, Peckham and Wood Green (H1 FY23 £0.8m revenue) due to the contraction of the delivery market following the end of the Covid-19 pandemic.

·      In-store LFL sales -3.6% due to a challenging trading environment in H1 with low footfall in shopping centres, retail parks and high streets, and the impact of the Group's revised strategy only starting to drive improved LFL sales towards the end of H1.

 

Gross profit margin

Gross profit margin increased by 0.7% to 77.7% in H1 FY24 (H1 FY23 77.0%).

The improved margin was driven by competitive tenders on our supply contracts negotiated last year, which were secured for fixed periods of time at favourable prices compared to H1 FY23.

Administrative expenses

Administrative expenses decreased by 5% to £23.8m (H1 FY23: £25.0m). As a percentage of revenue, administrative expenses were 75.5% in H1 FY24, improved versus 76.3% in H1 FY23. This was driven by a reduction in the cost of share-based payments as well as more favourable delivery commission rates secured.

Adjusted EBITDA (pre-IFRS 16)

 

Adjusted EBITDA (pre-IFRS 16) is the key performance metric that the Group utilises to assess the underlying trading performance. A reconciliation of this measure compared to profit from operations is as follows:

 

	H1 FY24	H1 FY23
	£m	£m
Adjusted EBITDA (pre-IFRS 16)	1.8	1.8
Pre-opening costs	(0.1)	(0.3)
Share-based payments	0.3	(0.2)
Depreciation and amortisation	(2.0)	(1.9)
Exceptional items	(0.1)	(0.1)
IFRS 16 adjustment	0.8	0.9
Profit from operations	0.7	0.2

                               

Adjusted EBITDA (pre-IFRS 16) of £1.8m was generated in H1 FY24, in line with that generated in H1 FY23. Given the decrease in sales, this reflects improved underlying profitability achieved both through margin improvements and strategically moving to a dual delivery platform.

 

These improvements to profit conversion are expected to continue through H2 FY24.

 

 

Finance expense

 

Finance expense of £1.0m is comprised of £0.8m of interest charged in relation to Right of Use assets (a consequence of the accounting treatment of leases under IFRS 16) and £0.2m of interest for the debt facility that the Group has in place.

 

Cash flow and net cash

 

The Group closed the Period with an adjusted net debt position of £3.3m, excluding the lease liabilities arising from application of IFRS 16. In H1 FY24, a further £4.2m was drawn down from the existing debt facility to fund the Fresh Burritos acquisition, with the majority to be paid out in H2 FY24. At period end, a total of £7.2m was drawn from our £10m credit facility with Santander, agreed to September FY26 A reconciliation of the movement in adjusted net debt between the start and end of the period is as follows:

 

Opening balance	(£1.3m)
Adjusted EBITDA (pre-IFRS 16)	£1.8m
Capital expenditure for new stores	(£0.5m)
Investment in product, technology and CPK	(£0.4m)
Maintenance capex	(£1.2m)
Cash outflow due to Fresh Burritos acquisition	(£0.8m)
Net interest paid	(£0.1m)
Pre-opening and exceptional costs	(£0.2m)
Working capital movement	(£0.6m)
Closing balance	(£3.3m)

 

Dividend

 

The Board did not recommend an interim dividend for FY24. In line with the previously stated policy, the Group's capital will be focused on growth over the coming years with the dividend policy subject to re-assessment going forward.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 30 June 2024

 

		Unaudited	Unaudited
		26 weeks ended	26 weeks ended
		30 June 2024	2 July 2023
	Note	£	£
Revenue		31,546,043	32,745,623
Cost of sales		(7,028,772)	(7,534,184)
Gross profit		24,517,271	25,211,439
Administrative expenses		(23,819,554)	(24,970,307)
Profit from operations	3	697,717	241,132
Finance income	4	23,863	12,914
Finance expense	4	(956,625)	(869,153)
Loss before tax		(235,045)	(615,107)
Tax charge		-	(3,402)
Loss for the period and comprehensive income attributable to equity holders of the parent company		(235,045)	(618,509)
Earnings per share for profit attributable to the owners of the parent during the period
Basic and diluted (pence)	5	(0.6)	(1.6)