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

0:01 Good morning, ladies and gentlemen, and welcome to the TORTILLA MEXICAN GRILL 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 can review all questions submitted today and will publish those responses where it is appropriate to do so. Before

0:31 we begin, as usual, I would just like to submit the following poll and if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from TORTILLA MEXICAN GRILL PLC. Andy, good morning sir. Good morning, thank you very much and welcome everyone to our investor presentation for the interims on a rather wet rainy day in September. We're really excited to talk to you about some of the progress we've been making. So we'll start with some introductions first. For those that don't know us, I'm Andy. I'm the CEO. I took over from Richard in March as CEO. I've been with the business for seven years, so I've eaten a lot of burritos in that time and I welcomed Maria to the business back in February. Yeah thank you and good morning everyone.

1:19 So Maria, as Sandy said, joined in February so I've been here for about seven months now and really excited about the work we've done so far that we'll talk you through now in the future that lies ahead.

1:31 So we just look at the agenda for the day. So we're going to start with some key highlights which I'll talk you through, Then we'll walk through how our momentum is building within the business and some of the exciting initiatives that we've been working on, which we're really excited to share. Maria will then take you through a financial review and we'll leave time for some q and a at the end. So please do submit questions for us.

1:54 So just to kick things off with some highlights, we've been busy I guess is the word to describe the last six months. We've been busy on a lot of exciting projects. As most of you already know the business has been going through a period of bit of a recovery where we've been transforming various elements of the business from our product and our promotion so I'll talk to you about those but the good news is it's so far so good it's paying off. We had a tough first quarter of the year which Maria will walk you through later which at its lowest point was really in March we were minus six and the in store like for likes have since recovered to a nice place of being plus four so far in September. So we'll walk you through that journey but it's fantastic to see that the results are paying off.

2:49 We will talk you through our strategic acquisition of Fresh Burritos, which you'll remember we executed in July. We've been busy revitalizing our food, working on new recipes and products so the product is is better than it's ever been before. We've been busy with the profit conversion improvements and some of this will be more heavily impacting the second half of the year, so we'll talk you through that too. Progress with some new store openings as well as the acquisition And we also have made some progression on our technology. We implemented seven sites with self ordering kiosks so far this year. And we also launched a loyalty app. So there's been a lot of work going on in the team here. So I'm really proud of the team. We've we've worked incredibly hard and looking forward to talking you through more of that now.

3:39 So just to recap on our vital five pillars. We communicated these when I took over and when Maria joined the business. These were the things that we would really wanted to focus on as a team. So just to quickly cover those, they were to improve the profitability of our the engine room at the business, The UK. We wanted to invest in the brand, the product and really in the promotion aspects of things that drive sales growth. We wanted to invest in the team and tech. We committed to doubling down on franchising, and we wanted to develop the brand internationally. So moving on to the first of those pillars, the profitability.

4:25 We have much stronger purchasing power than we had a while back, and that's going to improve further with the acquisition of Fresh Burritos. We will link up the supply chains and ultimately it means more buying path for our business. The hedging strategy that we already adopted for utilities with our partner there, and also the buying strategy that we're adopting for proteins has meant that we're able to hedge our costs nicely out into the future. So Marie will walk through more of this later. So actually the big thing that's affected the profitability very heavily as well, in a very good way, is the change we made on the delivery channel. You'll recollect that back in the early part of the year, I was keen to change our trading relationship with delivery partners to work with two partners, not three, to secure better commercial terms and to really drive those two channels. The good news is that's paid off. So we're looking forward to talk about that some more.

5:26 Operational efficiencies, we've been working very hard with our operators to look at labor deployment, you know, making sure we put more people on when we're busy to drive sales even more. The kiosks as well and the fixed costs have been well managed during the period too. So on to something which is probably the main slide really if anything of the presentation, which is the graph on the left, which we've been looking forward to sharing with everyone. So this highlights the progress that we made. So we had a tough period from the second half of last year. You'll see on the graph that the in store like for like sales declined quite drastically during that period and that coincided with the wider macroeconomic environment being tough but also some changes that we made on our food that the quality we felt we could improve really and that's been the focus really since Q1 and you can see that the sales the light for light went negative it peaked out at minus 6% in March and it was obviously similar in January and February.

6:40 We worked really hard on our food, was our top priority particularly our proteins which I'll come on to in a minute and it's had a good impact quickly and you'll see from the graph that the like for likes are back positive, the in store like for likes back positive and also the performance importantly versus the tracker shows that that trend isn't replicated by the wider industry. The wider industry has got worse during the period. So Maria will talk a bit more about that later. So what have we done to drive sales? I guess that's the big the big question. I wanted to really focus the team's energy on getting in store volume up. That's the priority. That's what we've got a graph in the office that we talk about all the time. We're assessing about in store volumes, getting more people eating burritos.

7:33 And so what we've done to do that is to drive a loyalty application into the business much better than the old loyalty scheme that we had. We can target lapsed customers, geo locate we can use geo location technology as well, provide notifications. And so it gives us a lot more functionality to increase the frequency of our loyal customers. It costs a lot to acquire new customers, so it's a sensible strategy to get those the big fans to come and eat more regularly. And that's what we'll be doing with the application. The awareness has improved so far this year but we wanted to focus predominantly when I took over my mission was to get the food right rather than necessarily going hard on promotion. We felt that the priority was to get the product right and then get people through the door. And so we'll be pivoting more towards that now in q four and and more recently as well. So we've made some good inroads into our awareness. We did a stunt with Bleeker Burger, which was good fun.

8:36 We did a naked burrito stunt with Uber Eats as well, and we've been partnership partnering with some runner groups. We've got an energized marketing team that are really pushing lots of different channels, and and there'll be more a lot more about in the future too. So moving on to the products, there's some pictures here. I guess the key thing, there's a lot of words on this page, but the key takeaway is we we looked forensically at everything that we served on our existing menu. So rather than looking at doing new things, just what is it we sell and is it as good as it can be? And the answer on our proteins in particular we felt was it could absolutely be better, know there was opportunity. So we're now we've got a much more succulent and grill on the chicken is much much much better so it's got a nice char to it it's got a much better flavour.

9:30 The beef is we remove some of the liquid from the cooking process by slightly higher quality cut of beef slightly tweak the recipe as well and with the pork we did something similar and honestly it's been transformed I mean the

9:45 last quarterly meeting we had with our team members they said they said to me Andy we've changed more in the last three or four months we've changed in many years and we really have we've looked at everything on the food and we've worked hard on it and actually the last of those changes in the short term will be our vegan chilli which changes next week. So we've been very busy on that. We've also been investing in some new equipment to provide quesadillas. It didn't feel right to me that we could not sell one of our best products during lunch. The product took too long to make at lunch, it slowed the queue down, it took five minutes roughly. So we looked at technology that can cook it more quickly and we can cook it in forty five to fifty seconds now with our with this new piece of machinery. We've been trialing that in 10 restaurants.

10:33 We're very happy with the results and we'll be rolling that out nationwide in November. So it allows us to be able to serve a quality product all day, which will be really important to drive sales. And That was part of our Ditch the Sandwich campaign. We also brought in a lower price point for it too, which is something that a lot of businesses in the industry have done to draw a footfall through your doors. We've also been working hard on limited time offers. We're delighted to have joined, had James Garland join our business, who was previously Honest Burgers. We'll be doing collaborations, you're going to see more of that kind of thing from us in the future, Partnerships with different businesses, trying trying different recipes. This will the core menu will always be as it is, and so we'll just have a rotation of a of a something each month. Don't want to create complexity in the stores, so the core stuff will just stay the same, obviously, with the continuous improvement that we'll be trying to load into over time.

11:30 So moving on to team and tech, I felt coming in as the CEO and looking afresh at the business, I felt there was a big opportunity to build the culture. So there's some appointments there that we've we've raised around French business, but we'll come on to those later. But we're going to celebrate the success of rolling a burrito actually it's very difficult to roll a burrito it's quite quite a tricky skill and we felt that it was important to celebrate the skill and so we're going be holding a burrito Olympics in October with the best burrito rollers from The UK business, from our franchise partners, SSP and Compass, from The Middle East in our franchise partner there and also the business we've bought in France. Get everyone together and just celebrate the sort of skill involved in it. So that'll be a lot of fun. We've been doing many more face to face meetings with our our management teams. We now meet quarterly.

12:26 We're building out a really strong management development framework to develop talent internally. And we've also been doing now with bound leadership courses. The people are so important to this business in multi site operations. Your experience as a customer is hugely impacted by your experience of the team there and I think it's really important that we have people that feel energized and they feel energized with the food improvements and the stuff that we're doing and it's important to keep that going. We're partnering with Calm as well which mentioned up on the slide We're also minimizing our food waste with Too Good to Go. So we're doing a lot of stuff on this front and we will be doing more of this as well in the future too. So we've been busy on the technology front as well. So last year, if you recall, we launched a kiosk site in our London Wall business to really sort of test that and see what this was doing to our customer journey and to our sales and so on. It was very successful.

13:22 So this year, since about May time, we rolled it out in a further seven of our stores. So we now have kiosks across those sites as well, and it's the promising early results of seeing a 12% average order value uplift and a payback period of less than six months. But not only from a financial point of view has proven successful, also the feedback we get from the customers is that it's really improving the overall customer journey and take a bit of less stress away from the lines of the lots of questions they're getting there and speeding up serving the customers. So this is something we're looking to do more of, and we've got plans to roll out in another 10 stores in the

14:04 fourth quarter of this year. Andy already mentioned that we launched a loyalty app. It's very early days, we don't have much data to share, but a key point to that is as well that we will now be able to capture a lot of data of how our customers are behaving, how frequently they come in, they're spending their money on, and so on, and can analyse that and drive more decisions from the insights we get from the loyalty app, which also brings into the third point there that we internally have worked on building out the BI platform to be able to really drive the business in the future from insights we can gain. We've not just been busy on the team and tech, but it also comes into energy efficiency. So we had the largest energy efficiency project we have undertaken as a group launched in July this year, where we put solar panels on our central production kitchen in Tottenham Hale.

14:59 And it's a good result that we're actually seeing 11 tonnes of carbon reduction a year and a payback of over 30%. On top of that, we also implemented an AI powered solution to manage our plug in devices. And whilst we only tried within 10 sites so far, already across those sites seen over 30 energy usage that's been reduced and 5.5 tonnes of carbon saving annually. So that's across 10 sites, so that's very promising. And we're now planning over the next

15:30 six months to roll this out across the fullest day, looking at a payback of less than eleven months, but maybe even more importantly also 65 tonnes of carbon saved annually. And to talk you through a bit of our sort of growth that's gone on so far this year and the plans for the near future, when we closed our first half of the year, we were at 89 sites in total. That included having opened up a really grade A owned site in a very busy shopping center Arndale in Manchester. We'd also seen choice partners, one in Leeds for SSP and one in Leicester through Compass. And we had also taken the decision to close down our last delivery site, which was based in Peckham, as following out of the sort of COVID period when we really benefited from those sites, whilst we're losing some revenue on it, they're not making any money on the bottom line, so it made sense to close that one down.

16:28 And since the end of the first half, we have continued our sort of rollout with our franchise partners. SSP opened up a site in Glasgow Airport only a few weeks ago, and we've also started taking more of our overall estate review and decided to, as part of that, close down a loss making site in Nottingham, Plumber. That's an older site that's been loss making for a few years, and it sort of makes sense to close that down as part of a sort of in stage review. And as you know, and Andy will talk to you more about in a minute, we acquired Fresh Baritas in France and with about 32 sites in total, 13 owned and 19 franchised. That means that as we stand here today, have 121 sites in total, 113 of those are based in Europe as eight are our franchisees in The Middle East.

17:18 So in the near very near future now, we're really going to sort of focus our growth effort. In The UK, we're working with our current franchise partners. We just agreed a new development partnership with SSP that will see their sites sort of more than doubling over that period of time. And internationally, now we've got the Springboard into Europe, one with having a set of sites in France, but also with our central production kitchen that's based in Lille, really strategic location with access into Germany, Netherlands, Belgium, even up towards the Nordics. And that site will be fully operational towards the end of this year. And then we're going to also obviously focusing on converting our fresh burrito stores. The next sort of tortilla store that you will see open is when the fresh burritos turns into tortillas and that's we wanted to convert at one of those sites and we've got plans to do another couple this year and then continue that rollout throughout next year.

18:18 And otherwise obviously as Andy said, it's a lot of effort we're doing here with the food development. We will continue with that. We'll continue with rolling out more kiosks that I've just mentioned, putting more effort into marketing to really drive that brand awareness, which is crucial for the future. And also looking at our stores in The UK, what we can do to refurbish and refresh those stores. So if we just remind ourselves a little bit about franchising for us, we just to recap, we have a very good franchising model and we've and a proven operating model that we've had running with SSP since 2019 and obviously with Ethos for many years before that as well in The Middle East. So so we know it works really well and and I guess the main reasons it works well is cause we have a central kitchen, we're harder to produce menu items to the franchise partners which is great because it creates consistency which helps us be confident that our brand is being protected and gives the simplicity for the franchise partners to train staff up easily and run those stores.

19:28 They also need very basic kitchens as a result as well. So it works really well and I see that as being a big part of our strategy going forward, particularly when you start looking at the European white space opportunity. So if we just look, we've got the SSP arrangement which as Ria said we're delighted to continue partnering with them. They look at our business very favorably, it works really well in the travel space so to get to 18 sites with them over the next five years is fantastic and Compass has been working very well with them We've and been trying some different things. We just opened in Leicester as Maria said earlier. And then with Ethos as well, the Middle East business is booming. Like for like sales growth of 15%. There's a lot of volume growth in there. They're doing very well and they're looking at additional sites for us in the future too. So those partnerships are going very well, so we will continue to expand with our existing partnerships.

20:24 And then in terms of the fresh burritos business, the main reason that we wanted to enter the French market and have some reasonable scale is we wanted to construct a central kitchen. It's pivotal to our European strategy.

20:40 The kitchen is three times as large as our UK kitchen, so it has the capacity to produce food for hundreds of restaurants. And this is ultimately the reason why we did the acquisition because we wanted to springboard for our European growth, not just in France, but other countries as well, where we see a real opportunity for burritos.

21:03 So looking at the Fresh Burritos acquisition in a bit more detail on what we've done since July. Coming back to being busy, we've definitely been busy on this. We've been busy building the team, which is the most important thing. And we wanted to do it in a way that I was very keen that The UK Team stays very focused on The UK because as you saw from the earlier bit of the presentation we're working through a lot of positive transformation and we've got a lot of momentum that we must maintain. We can't lose that so we've got a team we built there with some people obviously seconded from The UK business to work on it, but we've got managing director with a lot of experience, a guy called Eric, and he he he's gonna be a a phenomenal leader for that organization.

21:50 On the board as well, I I'm on the board as well as our main board director Francesca, who has tons of experience as the c former CFO at Beyond Brands in Europe. And, obviously, this is a business that was heavily franchised. It's great to have that franchising experience on the board, as well as a former colleague of hers, Gilles, who is also on our board as a non exec director and he's also a former young brands guy with experience of franchising. On top of that we've hired a very high caliber supply chain director, a Mexican guy called Enrique, who formerly worked for Amrest and other big multi country franchise operators in Europe. And so ultimately, one of the big synergies from this transaction was to get some supply chain efficiency, given a lot of our food is coming from Europe anyway. So there's a lot of maths to work out how to move products around and supply negotiations to do, but this should have some very positive effect in the future for The UK business as well.

22:53 On top of this, we've just converted our first site in Strasbourg to a TORTIA, and we'll do another two before the end of the year. If you go to Strasbourg it does still say fresh burritos above the door. What we wanted to do there was to get the food in first and get the operation right because there's big upgrades we could make on those two fronts. And then once we got it running nice and smoothly we'll change it to a TORTIER and that's the plan with the all of the company owned sites is to convert them to TORTIER and the franchisees of fresh burritos have reacted very favorably to the news

23:27 They love the look of the food, the taste of it and they like the idea of the operating platform that we have, the changes that entails as part of their business and so we're working on an action plan with them to help turn their businesses around and get them back to being strong again.

23:48 Then just to quickly look at the competition, so in Europe as Maria said we have 113 restaurants now and we obviously have some extra in The Middle East as well. So as you can see, we're a long way ahead of the competition selling burritos and actually this underpins our longer term aspiration

24:12 to win the race, to roll quality burritos out across Europe. We we are firmly unanimous, I guess, our belief that there's a big opportunity for burritos in Europe. The product offers something different to fast food like fried chicken and burgers and pizzas. Can be healthy, it can be indulgent. People love to customize it. And I think it ticks a lot of the food trends and we've seen it's not just The US where burritos are hugely popular. I mean look at Australia, they've got more than 500 restaurants over there. So we believe the same will happen in Europe and we want to be the ones that win that race. Thank you Andy. I'm now going to take you through a bit more of the details of the financials. As you heard a lot of momentum going on, obviously some of this will be backward looking at half one, so maybe the number is not really shining through and as positive as what's going on in the underlying business, but the momentum is definitely there and you will see that when I talk you through these slides as well. So first of all, our like for like in store sale for the first half was negative at 1.6%.

25:19 This is coming off the very challenging half

25:22 quarter one that Andy talked about, and the momentum since then have changed, and we're now in September to date on a 4% growth and so that trend is really turning. Revenue is at 31.5%, which is a decline year on year, driven by the change in our delivery strategy, but that delivers much more profitability, which I will talk you through in a minute. Adjusted EBITDA at £1,800,000 is level year on year, but offer learner turnover rates, so that shows again that our profitability conversion has improved. As I said, we opened three new sites to franchise wine owned, leaving us at 89 at the end of the half year. Our leverage position is still fairly low at 0.7, and we are generated cash from operations of just over 1,000,000.

26:12 Looking at the full income statement, as I said, the revenue was down 1,200,000. You'll see it on a more of the slide graph very soon, but it's really mainly driven by the change in our delivery strategy, which drove a 10% decline in top line, but converted more profitability. We also had a challenging start, as we said, in our in store volumes, further contributing to our downside in revenue. But all of this was partly offset by our annualized impact of our new store openings that took place in 2023.

26:46 On the gross profit margin line, we improved our 70 basis points, and that really by benefiting from better purchase prices with our suppliers, and in particular, avoiding that really high inflation we had at the start of 2023 coming out of the Ukraine war.

27:04 And as you see here, the adjusted EBITDA at 1.8 is actually an improvement in as a percentage of 20 basis points. It doesn't sound that much, but you'll see on this waterfall later that includes further investments into marketing. And the bottom line with a loss making of 200 ks, an improvement of 400 ks from the year before.

27:29 So this builds on a little bit from what Andy looked at in the like for like at the very start. And I think here it's crucial that we normally we talk like for like for the whole business. It doesn't make so much sense to us at the moment because of the change in delivery strategy. So whilst our total for the first half was down 5.5%, it makes much more sense when you look at in store and delivery separately. And for delivery, yes, we were on a decline of over 10%, but when you look at the profitability of that, we have improved our profitability from the delivery channel with 500,000

28:02 in yesterday's first half this year compared with the year before. So it's proven to be the right choice despite the drop in revenue. When I look at the in store, and you can see that quarter on quarter, it was the highest in Q1, we were down as low as minus six at the end of March, meaning that half one was a negative 3.6%, but that has since improved and quarter to date for Q3, we're in a slight growth of 0.3 and as I said, September is up at

28:32 plus four. But importantly there, once you could say, okay, but the economy is turning, consumer confidence is better and all of that, which yes, is true. But we have if you can see where we have improved in quarter three compared with half one and improving quarter on quarter, we are up 4%. Whilst our industry tracker, when we compare with the overall restaurant index, they have actually gone backwards with 0.8 proving I think that we are that all of the initiatives we worked for and everything that Andy talked through and that we've done on the food and the marketing and the technology side is starting to pay off.

29:10 So this then shows you the revenue bridge. You can see that our new store openings contribute with 0.4 enhanced revenue. It's mainly coming from the six, twenty twenty three new store openings, so you get the full year impact from now.

29:27 You can also see on there that we lost 800 ks due to the closure of delivery kitchens. As I said, one of those was in the first half this year. The other ones were last year, but we're now seeing the full impact of those. But you should be concerned about that because that has no profitability attached to it. It's just the revenue dropping away.

29:48 And then you see again the decline in revenue from the delivery strategy, but you will see on the EBITDA bridge that enhances our profitability, as I just said. And the in store decline is obviously hurting us as well, 800 ks down for the first half, hence so crucial that we have now turned that around and are on the right track to keep improving that. When we look a bit more on the inflation then, as I hinted on before, you see on the left hand graph there is that in the start of 2023, inflation went through the roof. We had really high protein prices and input costs to our business. We then coming out of that, the prices went down and we managed to negotiate better deals with our suppliers as well as we start gaining more purchasing power as we're bigger. And we also changed the strategy in trying to buy

30:42 in advance. So we secured our chicken prices for the whole of this year very early on, and we now also got the rest of the protein prices to November, then they changed, but I don't anticipate any big increases there. So with that our protein prices have now remained low and you will see the impact that has on our gross margin. You saw that in our gross margin percentage being up 70 basis points compared with the previous year before. We have decided to purchase slightly better quality meat, so our prices are a little bit higher than they otherwise would, but that's a purpose decision. Similar on the utility cost, also see how they were really high at the start of 2023. We then actually decided to change our energy provider and start hedging much more in advance as well. And we now protected our and hedged until the end of March twenty twenty five.

31:34 And you can see from the orange line there, that's actually even better prices than we were in 2024, protecting us from sort of increases going into the winter period. That leads us on to our adjusted EBITDA bridge. So once it's 1.8 this year in line with where we were at the half of 2023, you can see that from the green ones, there's a lot of positive upsides going on. Firstly, the delivery strategy is generating another 500,000, as I just mentioned. We put some pricing through to combat labour inflation in particular, 0.4 upside. And then what I just talked you through on the other side of the electricity and the improved protein prices generating another 500,000 of positive EBITDA in the first half.

32:22 An in store decline has hurt us with about 500,000, again so crucial to that now turning. Labour inflation with the change in minimum wages, another 500,000. Hence, again, we put price increases up, but we also worked on improving our productivity in store to combat that. And the last point, we invested more in marketing 400 ks more than the previous year. So yes, we level year on year, but that does include a 400 ks more marketing investment as well. So a bit of our cash flow and our leverage position. We generated 1,100,000 from our operations in the first half. We then taken the decision to invest in our sort of product development technology and our central production kitchen to support all of the product and food news that we have had. We opened the one new site in Manchester Arndale and we've also taken the decision to refresh and maintain our current estate. So in total, invest in 2,100,000 in CapEx, leading us to a free cash flow of 1,000,000 negative.

33:29 And on top of that, we've also drawn down more of our debt facility where our bank's Santander. We took down a further £4,200,000 to fund the Fresh Burrito acquisition. In the first half of the year, only 800 ks of that's actually gone out of our bank. Most of that will flow out as we pay for the full consideration and start converting the stores in the second half of the year and maybe even a bit into 2025. So at the end of the first half, we generated 2,200,000 in cash inflow, leaving us in a net debt position of £3,300,000 and a 700,000 level of leverage. So in total now, have drawn down £7,200,000 from our credit facility of £10,000,000 because we already had 3,000,000 before we took the extra 4,200,000 and that facility is agreed for another couple of years to September 2026.

34:32 So looking ahead and our current trading outlook, we are trading in line with the management expectations. The in store volume recovery and sales recovery is there and the momentum will keep continuing into half two. Our delivery strategy you've seen is working from a bottom line and we are converting more profitability from that channel. France trading is very early days, but it's in line with expectations so far and more crucially our central production kitchen is on track to open this year and the store conversion is also progressing as planned with the first store already converted. We expect the margins to continue to improve throughout the second half of the year as we keep leveraging all the initiatives we implemented so far and even launch new ones.

35:21 As I talked to you before, we're not planning any new own store openings in The UK. Instead, we're focusing our effort on converting our fresh burrito stores into tortillas, as well as rolling out more kiosk stores and really driving new food developments. Our franchise partners are expected to open three new stores in the second half of the year, so on track to achieve the expected five for the full year. So overall our board remains very confident and excited about TORTILLA's growth opportunities both in The UK and abroad now when we got the springboard into Europe. Okay. Well, to summarize, I guess, what are the takeaways from this presentation? I guess the takeaways are that we I use the word busy and it's true. The team are busy working on a lot of different things, but importantly we're working efficiently on things that make a difference and I think you can see that from the progress we've made so far this year. So we'll continue our drive to make the UK engine room profitable to a level that we're happy with We're not at that level yet, and we'll continue driving that forward. A key part of that will be driving the sales because in this industry, the sales flow through really quickly to the bottom line when you can drive them. And so that will be a key part of the profitability piece, which is why we are investing in the brand, why we're investing in food, and why we will continue to invest in technology. Because if we think there's significant upside

36:51 to drive, as I said earlier, this obsession we have around in store volumes. We want more people eating burritos in store at TORTILLA. We will continue pushing a delivery channel with our partners, and we're working very hard with them to to maximize that as well. We'll be continuing with franchising. We know it works well. We've got our exciting partners that open sites with us. And as Maria said, we do not plan to open any more corporate sites this year. We think we've got enough on our plate with these other initiatives. How fantastic is it that we can we can be afford to do that and still grow? Our franchise partners will be growing for with us. And then next year, we can reassess as well our position. And then we'll be developing the brands internationally.

37:36 As we said, we're very excited about the burrito opportunity. There are lots of small players in Europe selling burritos, and we think that our food is better, and think we've got a business model that can help us to win in that as well. So that brings us to the end of the presentation, and we'll we'll move on to some to some q and a now. So we're just gonna quickly pull some of the questions up. I think the first question we had, I remember before we started the call, was one around our site in Portsmouth, which is a good question. So we have a site in the Gunwharf Quays development in Portsmouth. It's a tricky location actually, you're right. It isn't the best location in the scheme.

38:22 It isn't as prominent visibility wise as we'd like and it is a more challenging one. So that is certainly a site that we're looking hard at. As Maria said earlier, we did close the site in Nottingham, Columbus Street, which we we felt, you know, as an older unit, we we tried hard to grow that business, but actually as we have a second site in Nottingham, the maths made sense to shut Columbus Street, is why we did that. Gumwort Quays falls into the cohort of sites in 2022, I think the challenge we have in some of those locations is the burritos are not necessarily as well understood by the customer there. And also if we're honest, our food wasn't as strong as it is now when we opened in those locations. So there is an element of we want to get customers back in to try the new product and get them excited again. That's essentially the focus for us as a business now that we have the food in a good place and we're gonna be doing the food news around the collaborations.

39:22 Know, it's important that you keep relevant to your customers. You know, if you're generating food news and you've got posts on Instagram and TikTok, this is the sort of thing that will drive interest in the brand. So we think with some of these locations that we'll keep going, but if there are locations that we feel aren't workable, then as we've shown with Columbus Street, we will we won't hesitate to make some of those difficult decisions as well. So the second question on there is why our in store like for like growth underperformed versus the industry between January and July? I think to that state, comes back a bit to what Andy talked us through before that our food was probably, yes, not as good as it needed to be. And with the improvements we have done, I think that's where we now start seeing that it's turned off and we're catching up with industry and are starting to perform better.

40:12 And also, we've not really invested in marketing either before. So our awareness has been really low. And again, that's something that we now started to do. And I think immediately of those collaborations that we talked about and being more active on our social media again starting to help our like for like. So in those are the sort of crucial things that we've done to really start turning things around. So there's a question here about question around the companies leaning towards franchising as a way to speed up growth and have a capital light business model. In this light, don't you think despite the positive comments that unit growth your franchise partners are offering is totally underwhelming and is there any levers we've got to go harder? I think it's a good question. If we look at our existing franchise partners, I think SSP's commitment in The UK and that's, you know, we've yet to get into the topic of Europe with them.

41:07 In The UK you know there aren't there aren't hundreds and hundreds of travel locations you know there's obviously some key airports and train stations we want to be in So I think A Team is a very good commitment and actually we would be one of their biggest brands with that number of sites. I think that's a fantastic commitment from SSP and I'm really proud of that. With Compass and Ethos, Ethos, I mean, is a is a great business. We'd love them to grow harder and we're working with them to work out a plan. But I think ultimately what it comes down to is we would look for future partners to supplement the existing ones, particularly, you know, when you're looking in Europe, you want to, you know, you want to take whole regions or countries and have development agreements. But to be honest, the focus of the management team at the moment is not chasing new growth.

41:56 We have to make what we have work. We need to make The UK get back profitable where it was before the Ukraine war, and we think we can do that. The customers were there before, and I think we can fight hard for them with our new improved food offer. And it's important we make France a success. So I do agree with you. We want to go hard on franchising, but we want to get the central kitchen set up in Lille, and we want to get a proven model in France. They're the priorities. Then we can start looking at growth with other partners as well. So next question is, could you please elaborate on the unit economics of delivery orders assuming they were profitable, albeit lower margin, does it make sense to turn down those incremental profit dollars? Many corporate customers can only order through delivery rather than the other two platforms.

42:46 So without going into the details of commercial on the specific delivery versus Uber Eats and Just Eat, the point is that when you operate across all the three platforms, you will never get as good deals as when you go more inclusive with one or two providers. That as you've seen from our bridge before, once the revenue, yes, it's down, our profitability is up 500,000 in our delivery channel in, yes, six months time and we only switched over end of February as well. So from us it's really proven profitable. What you also get when you're working more closely with partners is further investment into the brand. So our partners now are really supporting and is in driving awareness and promotions. As we're fairly small and don't have a massive marketing pot ourselves, it's really useful to have those collaborations with our delivery partners to drive the brand further as well.

43:42 And the next question is, could you please walk us through the bridge of a net loss of fresh breeders of 500,000 to a positive EBITDA in 2025 of 500,000 and then 2026 of 2.5. How much of that is dependent on uncontrollable factors such as like for like growth in volume versus controllable factors such as cost savings and energies? I won't go through every single detail, I can start and maybe Andy can fill in if there's anything more from the French side. From a margin and cost control point of view, we will straight away when we start supplying it with our food through our central production kitchen in Lille and reduce the cost and get better margins straight away.

44:29 So that's nearly sort of immediate coming in sort of towards the end of this year. And the other side is obviously from being big enough to negotiate back the prices. Again, that's something that will impact we will see, you know, coming through end of this year into next year, both for The UK and the French business. A lot of the rest will, yes, it will be like for like, but it's also we're getting back to a business that's really not looked after very well at all over the last couple of years. So the decline in sales has been significant over the last few years there. And as we start to put our food in, the flavor in the food, making operations better, the instant journey for the customers improving, that we'll start seeing it turning around. And then on top of that, we will also convert the stores to tortillas and put marketing investment into the brand which has not been down for a few years either.

45:26 Yeah, I think just to add to that the most fundamental thing with that business is the food isn't good enough. I mean the food is is frozen. There isn't any there aren't any fridges in the business. Everything's frozen. The quality is very poor for those who've tried it. It's not good enough. But actually, even with that poor quality food, the business did perform relatively strongly in 2022 from a sales perspective. So even though the food wasn't there, there were customers for it. So we believe there's a big opportunity to get back at least to where it was, but a lot higher. And I think when the people we've shown our food to and the operating model as well, the way they produce their food, it's slow, they can't drive speed very quickly.

46:14 I could talk for a long time about all the differences. There are a lot of differences in the food office. We feel very confident that the sales like for like is, of course, there's an element that's always uncontrollable, but we believe we're very confident that we can drive the sales significantly. But as Maria said, a lot of the upside comes from the cost percentages that we will be able to get better prices and don't forget as well in France the VAT rates significantly lower on hot food so all of the percentages look very very different as a result of that too. Okay, the next question. Can you please comment on the level of sustainable maintenance CapEx for the sites? Is maintenance CapEx of 1,200,000 of an EBITDA or 1.8 normalized level on an ongoing basis?

47:02 I would say that first of all, think the EBITDA level is obviously fairly low because we have had a very challenging first half of the year and we obviously, as said, invested in marketing and that we will be keep doing that going forward. Maintenance is slightly on the higher side for the first half, where we had some sites that caused a little bit more maintenance costs than normal. I think last year we had around 2,000,000 for the full year, so that's probably more on the sort of region that you would, we should be looking at. Going forward, we might actually actively choose as well-to-do some more refurbishment for the look and feel of the stores, that would obviously be different to the normal ongoing maintenance costs. There's a question here from Tim around despite these strong initiatives, the share price is down 30% in the past twelve months. What are your thoughts on this?

47:52 Well, obviously the share price has declined significantly since the IPO. I mean, you recollect we listed at £1.80. Yes, disappointing, but I think it reflects the fact that the business isn't where we want it to be. I mean, that's the elephant in the room. Know, we're about these great initiatives we're doing and I strongly believe they will pay off and get us back but if you look at the history the last six months the first half of the year it wasn't strong 1,800,000 of EBITDA is nowhere near where we want to be and nowhere near where we will be because of these initiatives. So it is disappointing but I think it reflects a challenging stock market as well where the multiples are not what they were two or three years ago. But it also reflects the fact that I think the market believes we've got a lot of hard work to do and we're in the middle of that at the moment. So I'm very confident we can drive it from this point onwards.

48:49 The next question says: Can you confirm whether most of The UK sites operating profit EBITDA position is positive at store level? So the majority of our sites are you know, making money and some of them very significant, so at store level. We do have probably around 10 sites or so that are not profitable at store level. Majority of those are because they're still on the journey of maturity, so they are the sites that we sort of open up in 2022, 2023 and some of those '22 ones outside of London is taking a bit longer to mature than maybe when you open one up in London or any other major cities where the brand and burritos generally is very well known. So they're on the journey, so we're not so concerned about those sites. We might have a couple in there that are a bit older sites and those would be the ones that we would look at and think about what we would do with those next as part of our overall estate review.

49:48 So question here around is the aim still to open 45 new owned, not franchised stores by 2026 as per the IPO prospectus? Well, I mean, we've actually we're ahead of that. We opened 18, so 45 sites at a five years, nine a year. We opened 18 sites with the acquisition of Chilango in 2022. We didn't open nine sites last year, but we we we continued on that progress. And we bought 13 this year through Fresh Burrito. So I don't see any needs to keep driving corporate stores at the moment. The priorities and management team is to focus on what we've got rather than chasing a commitment we made a few years ago, but actually nonetheless we're ahead of that commitment and as I said we do see growth for opportunity opportunity for growth in Europe as we talked about but yeah we're kind of we've made good progress against our growth target that's something we certainly haven't failed on. What we haven't achieved is the profitability we envisaged at IPO and obviously the Ukraine war and the inflation.

51:01 There are reasons for that, but as I said, our products needed to be improved as well, which is obviously what we've done. So we feel like we're coming out the other side of those challenges now. Don't you think growing in France is more risky than growing in The UK, thinking about the threat of Chipotle and the first move advantage you have here? So I think obviously, yes, we know The UK market much better than we know the French market. We're UK business. So from that perspective, yes, I fully understand your question of being more risky. But the workspace, I guess, to get into Europe and get some significant scale before any other players do is such a huge opportunity. And for us as well to be able to operate and go into Europe, franchising as well, we needed enough scale to be able to open up a central production kitchen.

51:55 So you need to have at least five to 15 restaurants or so there to make that worthwhile. And only when we have that central production kitchen can we roll out our franchise model and control the whole supply chain. So that was crucial to us. So yes, it's risky. I guess the risk we're taking away, but by hiring a French team, really senior experienced managing director to run the French business who's got all the experience from France hospitality industry, as well as creating a sub board with Francesca, who's got very strong experience from operating both business development in Europe and franchising agreements across Europe, and Jules and Eric all sitting on that sub board to de risk it and ensure we have that expertise, but then with Andy also on the board to bridge over to The UK and how we operate here.

52:50 I think the last thing you want to do when you enter a new market is send a load of people British people over to run a business in France. I think it's important there are differences in each country and I think many businesses have made a failure of expansion overseas when they've not adopted very well. So we've worked and thought very hard about what's the right mix of UK and French experience on this and we think we've struck a great balance. So next question is around of a central production kitchen in France and how that would be financed and what the expected return on capital employed is and the utilization rate and like for like volume growth rates that that sort of assumes. The key thing here, so the cost of that unit is around $7.50 ks. It will be financed out of part of the debt drawdown we've done with our bank in Santander. The money currently obviously sits in The UK, but we'll go out in there in the second half to fund that building that site and making that operational.

53:53 The key with that site is that it's nearly three times as big as our UK site. So it's obviously not just there for France and the 32 sites we have across France that would not be viable. So we very much got in for a site in a very strategic location to be able to grow and that, you know, supply across the whole of Europe. Is there any Okay. Opportunity for management to buy more shares? Well, there's always opportunity. It depends on how much money you've got. I'd love to buy more shares. Yeah. Obviously, there's you know, we we believe that the business is undervalued, of course. We we all bought shares after the FreshBreezes acquisition because, obviously, we were unable to do so before that. And then we quickly entered the close period for our insurance. But, yeah. I mean, of course, we as a team we believe in the future and we you know we're there's a significant amount of shares held by the management team already so we're very much got a lot of skin in the game here so to speak.

55:07 Another question there is what's our current cash position and cash requirement in the next twelve months? So you saw from what I talked you through earlier that we were half year in a net debt position of 3,300,000. That's not too dissimilar where we're sitting now because we still not had that much of the French money sort of gone out of our business yet. We do expect the new you would have seen sort of from Nodman Companies House Research notes that we expect that to go out throughout the second half and that could be around 8,000,000 net debt at the end of the year. We're not concerned of the cash position because we're obviously rolling out in France and converting those stores in a plan that sort of suits our cash flow.

55:57 And we're not at the moment planning to open any new stores either in The UK and rolling up our franchise model. Obviously, it doesn't cost us anything and the other plans we got for you know new kiosks rollouts, the dealer machines and so are already factored in into those numbers. So just in conscious of time we're approaching 10:00 so I'd like to hand back to Jake so we can wrap things up and and bring the presentation to a close. Perfect. Andy, Maria, that's great. And thank you for your presentation and for addressing all of those questions that came in for investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform.

56:43 But, Andy, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Yeah. Thank you. Of course. I mean, we're delighted to be sat here talking to you all six months after sort of taking over running the business and telling you that our initiatives are showing some really positive signs. I think it's great that we have achieved such a big like for like swing in such a short period of time, but there is a lot more hard work to be done and you know by the end of the year we'll have progressed some more of those and we'll have done some more collaborations so it'd be exciting to talk you through some more of the food changes that we'll have made in the next quarter as Maria said about the kiosks. So there's a lot going on, but we remain very energized and excited about it and there's an energy in the business.

57:38 There's an energy in the business that we didn't have before people people see that momentum and they feel very positive about it. So I look forward to telling you more when we next meet. Perfect. Andy, that's great. And thank you once again for updating investors this morning. 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 the management team can really better understand your views and expectations? This will only 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, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.