REG - Tortilla Mexcn.Grill - Annual Results and Publication of Annual Report
24/04/2024 07:00
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RNS Number : 7653L Tortilla Mexican Grill PLC 24 April 2024
24 April 2024
Tortilla Mexican Grill plc
("Tortilla", the "Group" or the "Company")
Unaudited Annual Results for the 52 weeks ended 31 December 2023
Publication of Annual Report & Accounts
Continued profitable sales growth achieved against a turbulent economic
backdrop with current trading in-line with expectations
New senior management team embedded and refined strategic priorities launched
for 2024 to capitalise on UK and international growth opportunity
Tortilla Mexican Grill ("Tortilla"), the largest and most successful
fast-casual Mexican restaurant group in the UK, is pleased to announce its
Annual Results for the 52 weeks ended 31 December 2023 (the "Period").
Commenting on the results, Andy Naylor, Chief Executive of Tortilla said: "I
am pleased to present my first set of results as Chief Executive Officer.
Recent years have seen Tortilla expand strategically through a multi-channel
approach, strengthening our operational model as a springboard for sustained,
profitable growth. Throughout 2023, we dedicated ourselves to building
resilience, especially enhancing profitability, as we recovered from macro
events in 2022. Our efforts included streamlining costs, bolstering franchise
partnerships, augmenting efficiency via technology investments, and enriching
our team with fresh talent, all while continuing site deployments. These
initiatives have solidified the foundation for our continued success."
"The appetite for Mexican cuisine is surging, and Tortilla, as the dominant
market leader in the UK, has an unparalleled set of advantages to capitalise
on this burgeoning opportunity across the UK and Europe. Today, I'm pleased to
unveil our reinvigorated strategic vision: 'Tortilla's Vital Five.' Building
upon our proven track record, this strategy will create sustainable profitable
growth in the years ahead, unlocking substantial value for our shareholders.
Tortilla continues to have immense potential and I am excited to lead the
business through the next chapter of the journey."
Financial Highlights
· Revenue increased by 14% to £65.7m, continuing to build on the momentum from
last year's record, and driven by new openings, the annualisation of the
previous year's openings and the full year impact of the 2022 Chilango
acquisition
· LFL revenue growth of 3.6%, equivalent to 4.9% growth when adjusted for the Q1
VAT benefit from 2022
· Adjusted EBITDA (pre-IFRS 16) saw a 16% YoY increase to £4.6m (2022: £4.0m)
· Gross profit margin of 77.3% (2022: 76.4%), with the increase attributable to
effective negotiations with the Group's main food suppliers, securing
favourable commercials across 76% of the food portfolio
· Cash generative with £3.8m of cash from operations and £1.6m free cash flow
· Loss before tax of £1.1m (2022: £0.9m)
Operational Highlights
· Continued profitable growth driven by the Group's multi-channel business
strategy. 2023 saw cost savings initiatives including negotiating new
contracts with key suppliers for more beneficial terms
· Progress made on UK new store openings, with six Group-operated sites and one
franchise site added, taking total to 87 sites - still in line with IPO growth
aspiration
· Accelerating growth via franchising through strengthened relationship with
partners SSP Group and Compass Group, as well as Eathos in the Middle East;
Franchise sales up 26% for 2023
· Over 1.5 million Tortilla meals served through delivery partners in 2023
· Focus on defined multi-channel marketing strategy used to drive brand
awareness, driving customer footfall through events and innovative promotions,
uplift of 116% active users in loyalty scheme and 400,000 customers at period
end
· Investment in food and menu development to drive continuous improvement and
maintain market leading position and improved customer satisfaction; new
Director of Food appointed post-period end to lead new innovative menu
development
· Further strengthening of Board and management with Keith Down appointed Senior
Independent Non-Executive Director and Chair of Audit Committee, and Andrew
Brook as Technology Director
Post-Period End Trading & Outlook
· New Management Team Embedded: CEO succession announced in February 2024 with
Richard Morris stepping down, replaced by Andy Naylor, previously CFO and UK
Managing Director and CFO Maria Denny also appointed to the Board in Q1'24
· Launch of 'Tortilla's Vital 5': New strategic approach launched to drive
disciplined profitable growth and expand Tortilla in the UK and overseas
· Double Down on Franchising: Plans in place to accelerate growth via
franchising, whilst continuing own store roll out in grade A locations, at
least five openings planned in 2024 with our partners
· Current Trading In Line With Management Expectations: Delivery strategy and
cost savings initiatives resulting in improved profit conversion; LFL sales
for Q1 in line with expectation with outlook for demand expected to improve as
consumer finances recover in H2'24. Minimum of three UK Tortilla operated
sites planned for 2024, with Manchester Arndale to open in May
ENQUIRIES
Tortilla Mexican Grill PLC Via Houston
Emma Woods, Non-Executive Chair
Andy Naylor, CEO
Maria Denny, CFO
Liberum Capital Limited (Nominated Adviser, Sole Broker) Tel: 020 3100 2222
Andrew Godber
Edward Thomas
Nikhil Varghese
Houston (Public Relations) Tel: 0204 529 0549
Tortilla@houston.co.uk (mailto:Tortilla@houston.co.uk)
Kate Hoare
Kelsey Traynor
Ben Robinson
Mackenzie Parry-Bull
About Tortilla Mexican Grill plc
Founded in October 2007 by Brandon and Jen Stephens, Tortilla is the UK's
largest fast-casual Mexican restaurant brand with a fully customisable and
authentic California-style Mexican menu.
Tortilla operates 87 restaurants globally, including through franchise
partnerships in the UK with SSP Group plc and Compass UK & Ireland, and in
the Middle East with Eathos.
The brand serves more than 6 million customers every year.
Food provenance and quality is a critical component of our proposition. All
fillings for Tortilla's burritos, salads and tacos are prepared fresh daily,
free from artificial flavours or preservatives. Every dish is fully
customisable with thousands of flavour combinations available to try.
Tortilla is headquartered in London and employs more than 1100 people.
More details at tortillagroup.co.uk (http://www.tortillagroup.co.uk/)
CHAIR'S STATEMENT
The Tortilla Board considers 2023 as a year of recovery. We have made
significant strategic progress against the long-term plan to drive disciplined
profit growth. This was underpinned by a rigorous focus on careful cost
management and operational efficiency improvements which will yield full year
margin benefit in 2024 and beyond.
Whilst consumer spending on 'eating out' remained under pressure in 2023 from
the wider macro-economic uncertainty and high inflation, our customer research
continues to endorse long term interest in a high-quality Mexican-inspired
burrito proposition. We offer customers fresh, healthy, convenient, and
customisable food and drink in a fun and vibrant atmosphere at a competitive
price. We were delighted to see demand for the brand remaining very robust
across the Group's high performing sites in our London portfolio, busy city
centre locations, key shopping centres and travel hubs, where we enjoy
stronger levels of awareness. The Board has identified that trading in newer,
lower footfall regional towns and cities, where Tortilla is less well known,
has been more challenging. However, we see significant opportunities to
address this through our brand and marketing initiatives, with several plans
already underway to drive increased footfall in 2024.
Delivery continued to be an important sales channel for Tortilla. Whilst the
multi-partner approach supported strong growth in sales volume and awareness,
the move to a triple aggregator model challenged margin performance over the
course of 2023. Since the period end, we have been pleased to complete the
launch of a new delivery structure, strengthening our relationships between
fewer partners which will improve our margins from the delivery channel in
2024. Early signs of this refined delivery strategy have been encouraging and
will continue to be reinforced with exciting, joint funded marketing plans and
investment in increased brand awareness.
The Board firmly believes in the significant opportunity for the business as
the largest and most successful fast-casual Mexican restaurant group, in what
is still an under-represented segment of the fast casual dining space, both in
the UK and internationally. In 2023 we opened seven new stores in the UK,
alongside the ongoing successful rebranding of the Chilango portfolio which
was acquired in 2022. Our flexible business model, with a centralised
production unit, lends itself well to a range of site formats and we are
particularly excited about the potential to accelerate the speed of growth in
the UK and internationally through franchising. Our successful collaboration
with both SSP and Compass Group in the UK, and Eathos in the Middle East bears
early testament to the longer-term potential to grow through franchising
partnerships.
Reflecting on the ongoing market challenges, progress and tremendous
opportunities for Tortilla, the Board and the Executive team have spent time
in the latter part of 2023 developing our growth strategy. This has seen us
refine our approach around five strategic pillars, 'Tortilla's Vital 5,'
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.
Our Vital 5 are:
1. Improve UK profitability
2. Invest in brand to drive growth
3. Invest in team and tech
4. Double down on franchise
5. Develop brand internationally
Details of these strategic pillars are further outlined in the CEO update.
Board Changes
An important focus for the Board over the course of 2023 has been succession
planning, paving the way for Richard Morris, our long serving CEO, to step
down in Q1 2024. Richard has had a distinguished 35 year career in hospitality
and played a transformational leadership role for Tortilla, taking it from 13
sites to 87 over the last 10 years. He leaves with our heartfelt thanks for
his contribution to the business.
The Board had previously identified and developed Andy Naylor as Richard's
successor and was pleased to announce his appointment to the role of CEO. Andy
has worked alongside Richard for the last seven years, initially as Chief
Financial Officer, then with added Business Development leadership
responsibilities and more recently as UK Managing Director. A
dynamic leader, Andy's commercial expertise and growth mindset have seen
him play a critical role in shaping Tortilla's multi-channel and franchise
business strategy and his appointment marks the start of an important new
chapter for Tortilla as we leverage the business's increasing scale and
momentum to drive further UK and international expansion.
Following an extensive search, we were also very pleased to confirm Maria
Denny's appointment to the Board as Chief Financial Officer in February 2024.
Maria brings a wealth of experience in the food and retail sector having held
senior finance positions at Müller, Dairy Crest Limited and most recently
as CFO UK and Ireland at Signify. I look forward to working closely with
both her and Andy as we double down on operational excellence under the new
management, to drive disciplined profitable growth.
Finally, we were pleased to appoint Keith Down in August 2023 as Senior
Independent Non-Executive Director, and Chair of the Audit Committee. Keith
strengthens the Board and brings with him a great deal of leadership
experience gained across a broad range of successful consumer-facing
businesses having held CFO roles at JD Weatherspoon Plc, Go-Ahead Plc, Dunelm
Plc, and most recently as Finance Director of Selfridges Group. I have no
doubt that the Board will benefit from his skills and insights.
2024 - Focussing on Tortilla's Vital 5
Whilst we appreciate that the trading environment will remain challenging
throughout 2024 as consumer spending on eating out remains under pressure, we
are confident that our great value proposition, ambitious and invigorated
team, and revised strategy focusing on the Vital 5, positions us well for an
exciting and successful year ahead.
Finally, I would like to take this opportunity to thank every member of the
Tortilla team along with our franchise partners for their continued support
and commitment and look forward to announcing further progress in 2024.
Emma Woods
CHAIR
24 April 2024
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am delighted to be writing to shareholders in what marks my inaugural set of
results as Chief Executive Officer. Having been with the business for seven
years, I am confident that the Tortilla brand continues to have immense
potential in the UK and international markets. Recent years have seen the
business take significant strides to expand our presence through our
multi-channel business strategy and strengthen our operating model to set the
foundation for continued profitable growth. I am looking forward to working
with our newly appointed CFO Maria Denny, the Board and wider team to
accelerate this journey throughout 2024 and beyond. Under the new management,
we will be focusing on the following strategic pillars, 'Tortilla's Vital 5':
1. Improve UK profitability
2. Invest in brand to drive growth
3. Invest in team and tech
4. Double down on franchise
5. Develop brand internationally
Improve UK profitability
One of the key pillars of Tortilla's success has been our strong relationships
with our suppliers. In 2022 we encountered unprecedented levels of food
inflation, however during 2023 we started to see the cost pressure ease. As we
gain scale, we have been able to renegotiate contracts with our key suppliers
for more beneficial terms, which is testament to the ongoing strength of these
relationships. In 2023, we also moved energy providers to ensure we maintained
the best possible rates across Tortilla's sites, given the significant
increase in energy costs across the UK. Our utility cost expenditure was also
further reduced by the introduction of our new chicken pibil product as it
enabled us to remove grills from numerous sites helping the business to not
just reduce costs but also lower its carbon footprint. As 2024 progresses we
are well positioned to realise the full year benefit of these cost saving
initiatives whilst we continue to strive for operational excellence to lower
our cost base and enhance our profitability further.
The Group delivered more than 1.5 million Tortilla main meals across Uber
Eats, Just Eat and Deliveroo in 2023, whilst maintaining an average of a
4.6-star customer app rating. Delivery is an important sales channel for
Tortilla as the food offering is well-suited to being consumed off-premises,
with sales made via third-party delivery platforms accounting for 30% of our
own store sales. Whilst the Group's multi-partner approach to delivery has
supported strong growth in sales volumes and awareness, delivery commission
charges have challenged margin performance. To mitigate this, we sought for a
new delivery structure and to strengthen the relationship between fewer
partners. In December 2023, Tortilla announced a review of the brand's
delivery strategy to establish a new delivery structure and I'm pleased to
report that in February 2024, we concluded this review, announcing Uber Eats
and Just Eat as our chosen delivery strategy partners. The dual delivery
partner approach has resulted in more favourable contractual terms, which will
lead to improved margins in the year ahead. The refined strategy will also see
Tortilla collaborating on some exciting jointly funded marketing efforts,
including the launch of exclusive products and offers, and heavy investment
into brand awareness to attract new customers through a growing UK customer
base.
Invest in brand to drive growth
With macro-economic headwinds impacting the wider market, the Group inevitably
faced a challenging year in 2023 as cost-of-living pressures weighed on the UK
customer appetite for eating out. Whilst central London and higher footfall
locations remained more resilient, trading across regional town centres, where
the Tortilla brand is less established, was more challenging.
Independent market research 1 (#_ftn1) shows lower brand awareness for
Tortilla than for similar sized restaurant groups, but with a higher
conversion rate. We know that we are a much-loved brand for customers that
know us and therefore there is a compelling case to invest more heavily in
driving awareness through an exciting series of Tortilla marketing strategies.
In 2023, through our revitalised marketing strategy, the Group has built and
maintained a loyal and diverse customer base and our team worked hard over the
course of the year to drive customer footfall across our sites through
targeted events and innovative promotions. Our loyalty scheme also now enables
a more generous promotional offer through which our customers can receive a
free burrito after five purchases at a Tortilla site. The scheme continues to
grow and drive customer spend, retention, and frequency generating an uplift
of 116% in active users since the previous year to more than 400,000 customers
at period end, with a further 50,000 sign-ups in Q1 2024. Frequency is also up
+16% year on year and spend is 5% higher than the Group average. In 2024 we
will invest further in marketing via promotions, sampling events, social media
campaigns, and collaboration with local partners. We also intend to drive
visitor frequency and retention by enhancing our loyalty program even further
by the launch of a new industry leading loyalty platform in 2024, which will
enable us to fully engage with our customers and offer them new incentives and
rewards.
Another important area of focus has been to invest in food and menu
development to drive continuous improvement to maintain our market leading
position and improve customer satisfaction. During the year we launched a new
chicken pibil along with new rice and salsa recipes. The 'Chicken Pibil
Burrito' became our most ordered dish in 2023. With the appointment of a
Director of Food, James Garland, due to join in June 2024, the investment into
food and menu development will see exciting new authentic flavours and menu
items appearing in the year ahead. James is currently serving as Director of
Food Operations, Supply Chain and Compliance at Honest Burgers, a business
highly respected for food quality. James brings a wealth of experience with
him and will undoubtably have a transformational impact on our food quality,
brand collaborations and innovation. It is our firm believe that this will
create additional opportunities for consumers to engage with our brand and
consequently leverage a significant purchase frequency opportunity.
Invest in team and tech
Alongside the Board appointments mentioned by Emma in the Chair's statement,
we have continued to strengthen our wider management team during 2023 with the
appointment of Andrew Brook who joined the Group as Head of IT in March 2023,
and was subsequently promoted to Technology Director in December 2023,
highlighting our ambition to upscale our application of technology within the
business. Andrew Brook, and our upcoming appointment of James Garland as
Director of Food, represent key appointments to develop the business going
forward.
Our Annual Conference was held in February 2024 to celebrate the success of
the business and the individuals within it. It was a hugely motivational and
positive day, with the vision for the business over the next year shared with
all our Head Office and General Manager teams. The spirit and culture of the
Tortilla team are inherent to the Group's success, and I would like to once
again thank the entire team for their hard work and commitment over the course
of the year.
On the technology front, we strive to ensure this is at the forefront of our
customer service offering and are continually reviewing how we can improve our
operations across the wider business. In 2023, we opened our very first
digital concept, a kiosk-only-site in London Wall, located in the City of
London's financial district. The site is performing well and is positioned to
take advantage of the peak lunch time trade from local office workers. The
average customer journey time is just two minutes and 20 seconds down from
nearly 10 minutes prior to the kiosk implementation, ensuring a steady flow of
customers. In addition, the implementation of kiosks has seen the average
order value increase by 14%. As this is the first of its kind for Tortilla, we
have learnt important lessons on implementation, ensuring the customer journey
is as smooth as possible and how to manage labour requirements under this
model. This proof-of-concept is promising and indicates the kiosk-only
approach may be a viable solution for sites with significant volume demand
that cannot currently be fully met. We will continue review opportunities to
integrate this model into our expansion strategy for the future with kiosks
installed in our Bath site during the first half of 2024.
2023 also saw the successful launch of a nationwide rollout of delivery
order-aggregation software to simplify the management of multi-platform
delivery channels at every store and to maximise the speed and accuracy of
delivery order fulfilment. Finally, we have also invested in a series of
productivity tools to support the Group in managing rota labour and
consequently drive efficiencies and improved margins across our sites. We look
forward to seeing the full benefits of these initiatives in the new financial
year.
Double down on franchise
Franchising has strategic importance to our business, with our operating model
working well for franchisees due to the flexibility of the site format, simple
kitchen setup and a central production food model that provides consistency of
high food quality and enables a simple labour model without reliance on chefs.
In addition, as an established business, our purchasing power and investment
in marketing and food development benefit our franchisees.
We have continued to strengthen our relationships with our 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. These sites
continue to perform very well, with strong like-for-like sales performance
across existing sites and SSP achieving sales records in all locations. In
2023, SSP opened a new site in Manchester Piccadilly railway station. Post the
year end, we also announced the launch of at least four new SSP restaurants in
2024, with an exciting pipeline of additional opportunities anticipated for
2025 and beyond.
Alongside this, our Middle East franchise business with Eathos had a record
year, giving us confidence to explore further franchise opportunities in the
Middle East and other jurisdictions, such as continental Europe. We expect to
open a further site in the Middle East in 2024, with Eathos, and are hugely
excited to see this growth.
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. We will open at least eight sites in 2024, compared to seven sites
in 2023 which means we are still in line with our IPO growth aspiration,
having doubled our rollout commitment in 2022.
Develop brand internationally
Tortilla is already the largest fast-casual Mexican chain in the UK &
Europe and Mexican cuisine continues to grow in popularity across the globe.
The UK will always remain at the core of Tortilla, but we are aware that there
is a huge opportunity to expand in other markets overseas. The Group continues
to seek out relationships with new businesses and partnerships as we develop
our European growth strategy. We will update shareholders with any significant
developments of this international strategy as and when appropriate.
Current trading and outlook
Current trading is in line with management expectations and our profit
conversion is improving. Our LFL sales are 4.7% down, which is in line with
expectation and reflecting the anticipated impact of change in delivery
strategy in February this year. The early indications of the change to a dual
delivery model are encouraging. We expect the favourable upside in
profitability to continue throughout 2024 as we leverage on initiatives
implemented in 2023 and launch new ones. Our key focus is to drive sales
growth and that underpins our investment in product quality, with the upcoming
appointment of a Director of Food, and our deployment of cash for a big drive
in raising brand awareness through marketing initiatives. We have already made
progress towards our targeted expansion plans with a site in Manchester
Arndale expected to open in May, and our franchise partners expected to exceed
the previous store opening plans with at least 5 new stores now expected for
2024.
We have a brand and product to be hugely proud of and I am very excited to
lead the business through the next step of the journey. Our team members,
managers, support office staff, executive team and Board of Directors all
share the ambition for growing the brand as we all see considerable
opportunity in the UK and internationally.
Andy Naylor
CHIEF EXECUTIVE OFFICER
24 April 2024
KEY STRENGTHS
Key strengths
Through continuous innovation, we work hard to maintain high standards in all
aspects of business. Over the past few years, the following elements have
proven areas of particular strength.
Our products
Tortilla has developed a great reputation for its freshly prepared,
customisable, value-for-money product range of burritos, tacos and salads.
This has enabled us to appeal to a wide demographic, maintaining our loyal
customer base and generating further customers as we grow. Our defining
characteristics also align with forecasted consumer trends and preferences,
providing a positive outlook for the future.
By offering great value-for-money, we have successfully expanded operations
across the UK, and are able to charge a minor delivery premium (to address
delivery commission costs) while remaining highly competitive.
Embracing sector trends
The Tortilla Group observes and embraces key consumer trends, flexing our
products, services, and formats to capitalise on growing demand and maintain
relevance in a rapidly changing market. Our offering thus adheres to the
dominant demands driving our sector, which include:
• Healthy eating - packed with rice, beans, vegetables and
plant-based options, our menu suits those seeking healthy fast-casual food
• Fresh and high provenance - our freshly prepared food is from high
quality, responsible sources communicated with full transparency to the
consumer
• Convenience - Tortilla food is available in-store, via takeaway or
delivery, ensuring maximum options for optimum convenience, and reaching more
customers than ever before via our multi-channel strategy
• Customisation - a wide range of options enable customers to tailor
their Tortilla meal to their preferences and dietary requirements
• Ethnic food - Tortilla's authentic Mexican style food caters to
consumers' growing interest in ethnic food
Flexible business model
Much of the Group's success, during the pandemic and beyond, can be attributed
to our ability to adapt, flexing our business model quickly and effectively to
suit circumstances and locations.
Our flexibility is driven by three key factors of our business model:
• Trading strength across eat-in, takeaway and delivery channels
• Ability to trade in small units and without extraction
• Value-for-money offering that appeals to diverse customers
including students, local residents, and office workers
In contrast to similar fast-casual restaurant businesses, Tortilla has
achieved significant geographical diversification throughout the UK - in terms
of both presence and sales. Over half of our estate and nine of our top twenty
selling stores are located outside of London, covering a wide range of sites
including shopping centres, high streets, residential areas, a delivery-only
kitchen and transport hubs. We are adept at scouting and identifying the best
format for new locations.
Moreover, our scalable central infrastructure, currently a 5,500 square foot
Central Production Unit ("CPU") in Tottenham Hale, provides cost advantages
over our direct competitors, the flexibility to increase its size in tandem
with our growth strategy and the assurance that product quality remains
consistent across all sites.
Marketing strategy
Through our clearly defined multi-channel marketing strategy, the Group has
built and maintained a loyal and diverse customer base.
Our national campaigns run throughout the year with special promotions for
seasonal products and recipes across print, online and social media, alongside
targeted regional marketing for new site launches.
With a large proportion of customers in the younger age demographic (aged
16-34), we achieve significant engagement via social media and our vast
influencer network drives widespread engagement across the most popular social
media platforms, sharing bite-size videos reaching millions of views.
Strong leadership
Tortilla's senior Management team continues to excel in its ability to deliver
strong and sustainable growth. Under the stewardship of an experienced Board
of Directors, our team has continued to execute Tortilla's growth strategy
effectively, taking full advantages of opportunities as they arose and
conducting all activity with kindness, integrity and ownership.
We focus on hiring the best people at all levels and work hard to propagate
our strong culture and values throughout the organisation.
Our Board and senior Management team regularly visit stores and speak with
teams and guests to ensure a strong connection between corporate objectives
and on-the-ground practice.
Cost effective hiring model
The simplicity of Tortilla's food means that recipes and methods are
straightforward, and managers can train those with limited experience to high
levels of competency within a short time period. We can therefore focus on
hiring those with the values and behaviour we seek, enabling us to maintain
our culture and avoid the negative impact of the UK's chef shortage.
This also helps us to hire from within our stores' local communities, reducing
travel time and cost for employees. All stores strive to get to know their
customers on first name terms as part of the 'Raving Fans' initiative, and by
creating this 'independent' feel to each restaurant, we gain a further
competitive advantage.
Property portfolio and strategy
At the end of 2023, the Group had 87 sites worldwide: 69 UK sites we operate
ourselves (66 Tortilla, three Chilango), five UK sites franchised to SSP
Group, five UK sites franchised to Compass Group and eight franchised sites in
the Middle East. The Group's property portfolio is entirely leasehold.
Within the UK, the Group's portfolio of sites is well diversified with respect
to locations, with 33 sites within the M25 area and 36 sites outside of it.
Three of Tortilla's top ten stores (by profit) are located outside of the M25.
As customers of fast-casual operators tend to be primarily impulsive
purchasers, sourcing locations with high footfall is a critical part of
boosting brand awareness and generating sales.
Tortilla's property portfolio
The Group's success is driven by our proven property strategy with flexibility
across site locations and formats. We generally target locations ranging from
60 square metres to 200 square metres, with the exception of our delivery-only
kitchen site, which operate in 25-35 square metres. The estimated capital
expenditure per site (excluding delivery-only kitchens) ranges from £375,000
to £475,000 (excluding landlord contribution) depending on the size of the
unit, site condition and store front requirements.
The Group aims for a 30% minimum target investment hurdle for its return on
capital employed. Our sites are primarily located in high street areas,
residential locations, shopping centres and transport hubs as these high
footfall locations provide seven-day trade with lunch and dinner availability,
helping the brand appeal to a wider range of consumers and trade throughout
the day.
New sites
New sites have historically been a core driver of Tortilla's development.
Tortilla opened eight sites in 2014, and five/six sites per year in 2015, 2016
and 2019, but slowed this rollout in 2017 and 2018 as rents did not provide
the necessary value at that time. Understandably, site openings slowed in 2020
but we accelerated our pipeline by opening seven sites in 2021 (four bricks
and mortar and three delivery kitchens) along with two new SSP Group franchise
units. 2022 was a record year for growth with a total of 18 additions to the
estate. Growth continued in 2023 with the addition of 6 Tortilla sites, and
one SSP Group franchise unit.
New sites will continue to play a key role in our targeted growth trajectory.
Tortilla has a specialised property team that supports our growth with a
rigorous new site process including site selection, assessment, contract
negotiation and fitting. We also have a dedicated operations team that
relocates to new sites to ensure that new staff are adequately trained and are
supervised appropriately before they manage the site themselves. The Board
see the strategic merit in accelerating our growth through existing and new
franchising partnerships and are evolving the mix of new openings to focus
more heavily on franchising whilst we take a more targeted approach on the
rollout of own stores, focusing on Grade A locations where the brand has high
awareness. We will open at least eight sites in 2024, compared to twelve
previously guided. We are still in line with our IPO growth aspiration, having
doubled our rollout commitment in 2022.
CHIEF FINANCIAL OFFICER'S REVIEW
Group financial KPI summary
2023 2022 Change
Revenue £65.7m £57.7m + 13.8%
Gross profit margin 77.3% 76.4% + 0.9% pts
Administrative expenses £50.1m £43.6m + 15.0%
Net (loss)/profit after tax (£1.1m) (£0.6m) + 71.2%
Cash generated from operations £9.9m £7.6m + 30.3%
Alternative performance measures ("APMs")
LFL revenue growth 3.6%(1) 16.4%(2) - 12.8% pts
Adjusted EBITDA (pre-IFRS 16) (3) £4.6m £4.0m + 15.8%
Net cash/(debt) (pre-IFRS-16) (4) (£1.3m) (£0.6m) - 135.2%
(
) (1) defined as the percentage change in like-for-like sales compared to
2022.
(2) defined as the percentage change in like-for-like sales compared to 2019,
to exclude periods of non-trading
(3)defined as statutory operating profit before interest, tax, depreciation
and amortisation (before application of IFRS 16 and excluding exceptional
costs) and reflects the underlying trade of the Group. The reconciliation to
profit from operations is set out below in this section of the report.
(4) defined as cash and cash equivalents less gross debt. Calculated on a
pre-IFRS 16 basis and so does not include lease liabilities.
Revenue
Revenue increased by 13.8% to £65.7m compared to £57.7m in 2022. This was
attributable to the following factors:
· The addition of six new equity sites in 2023, one franchise site, and
the annualisation of the 2022 openings. The Group remains ahead of its aim of
opening 45 new sites across the five years following its IPO in October 2021.
· An underlying 3.6% LFL revenue growth across the estate. This
translates to 4.9% growth when adjusted for Q1 VAT benefit from 2022.
The above factors are offset by a £0.8m decrease resulting from the VAT
benefit that was obtained in Q1 2022.
Gross profit margin
The Group achieved a gross profit margin in 2023 of 77.3% (2022: 76.4%). This
0.9% increase was attributable to effective negotiations with the Group's main
food suppliers, securing favourable commercials across 76% of the basket.
Administrative expenses
Under application of IFRS 16, administrative expenses exclude property rents
(except for turnover rent) and incorporate the depreciation of right-of-use
assets.
Administrative costs increased by 15.0% year-on-year to £50.1m. This is
largely attributable to the increased level of trade in 2023. As a percentage
of revenue, administrative expenses remained relatively consistent on prior
year at 76.3% (2022: 75.5%) with some additional costs being linked to
strengthening our Head Office support as we continue to grow. Management has
maintained focus on cost control with the benefits of multiple initiatives -
in strategic partnerships, energy, and productivity. The full benefit of cost
focused activities during the year will materialise in 2024.
Administrative expenses also incorporate exceptional items which decreased to
£0.4m in 2023 (2022: £0.5m). Of the £0.5m in 2022, £0.4m was associated
to costs incurred in relation to the Chilango acquisition. IFRS 3 requires
acquisition costs to be expensed to the P&L rather than capitalised as
part of the transaction. Of the £0.4m in 2023, £0.2m was incurred in
relation to a potential new site that was subsequently aborted, and £0.1m
related to restructuring costs.
We performed detailed impairment testing, resulting in an impairment charge of
£0.3m in 2023 (2022: £0.2m). The discount rate used for the weighted average
cost of capital (WACC) was 15.1% pre-tax (2022: 13.1%). See note 3 to the
Financial Statements for more information.
Adjusted EBITDA (pre-IFRS 16)
The Group utilises Adjusted EBITDA (pre-IFRS 16) as the primary assessment
metric of profitability. A reconciliation of this measure compared to profit
from operations is below.
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Profit from operations 684,110 536,129
Pre-opening costs 344,570 813,154
Share option expense 387,443 362,028
Depreciation and amortisation 8,155,814 6,194,997
Loss on disposal of fixed assets 40,746 17,781
Impairment charge / (reversal) 289,901 (208,023)
Exceptional items 437,756 542,140
Non-trading costs 18,540 18,538
IFRS 16 adjustment* (5,793,605) (4,304,273)
Adjusted EBITDA (pre-IFRS 16) 4,565,275 3,972,471
*The IFRS 16 adjustment relates to the impact of IFRS 16 on rental expenses
contained within administrative expenses.
The Group generated £4.6m of Adjusted EBITDA (pre-IFRS 16), an increase of
£0.6m compared to 2022.
Whilst the challenges of inflation have impacted our adjusted EBITDA for 2023,
we remain confident that our competitive price point and customisable offering
overall puts us in a strong position to continue to grow and succeed. The 2023
successful supplier negotiations will further help EBITDA growth in the new
year.
Cash flow and liquidity
Cash generated from operations increased in line with the increase in Adjusted
EBITDA.
Working capital requirements are by nature low and are indeed negative, with
cash from in-store customers received and recognised at the point of sale.
Hence, trade and other receivables in the main relate to delivery partner
receipts and landlord deposits. Trade and other payables relate to supplier
credit terms, wages and utility accruals. Additionally, fast delivery times
and Central Production Unit (CPU) efficiencies allow for low stock level
requirements, meaning inventories are kept at a minimum. This negative working
capital position should continue to grow in line with expansion plans.
Cash expenditure on property, plant and equipment decreased due to both fewer
new sites in 2023 compared to 2022 and higher maintenance capital costs
arising in 2022 from numerous refurbishments when the Group converted five
Chilango sites to Tortilla sites.
In the prior year, the acquisition of Chilango resulted in an initial cash
outflow of £2.5m against a total consideration of £2.75m. The remaining
£0.25m of consideration is contingent and will be paid upon achieving certain
conditions. The £2.5m initial cash outflow included £1.0m which was paid to
Chilango for working capital needs.
The liquidity position of the Group remains strong, with a low current ratio
of 0.3. The Group is confident it can pay its current liabilities as they fall
due, as consumers pay at the point of sale and the inventory is used before
supplier payment is due. The Group also have an overdraft facility of £2.5m
with Santander which can be utilised for any unforeseen events. The overdraft
is part of and not in addition to the revolving credit facility referred to
below.
Financing and net debt
The Group had cash balances of £1.6m on 31 December 2023, which translated to
a net debt position of £1.3m (2022: net cash of £0.6m), excluding IFRS 16
lease liabilities.
The Group's £10.0m revolving credit facility (RCF) is held with Santander UK
plc and comprises of a drawn balance of £3.0m at 31 December 2023 with a
further £7.0m of undrawn facility available to the Group. This additional
£7.0m remains undrawn as at the date of signing these financial statements.
The financing facility attracts interest at a rate of 2.75% above SONIA,
subject to an upward-only ratchet based on increased net leverage levels and
is secured until 14 September 2026.
Share based payments
In 2023, the Group granted further Long-Term Incentive Plan (LTIP) shares to
the senior leadership team. Share-based payment expenses of £0.4m were
recognised in 2023 (2022: £0.4m) relating to the Group's Long Term Incentive
Plan ("LTIP") created as part of the Group's admission to the Alternative
Investment Market ("AIM"). Further details around vesting conditions are
disclosed in Note 8.
Dividend
The Board did not recommend a dividend for 2023. The Group's capital will be
focused on growth over the coming years with the dividend policy subject to
re-assessment going forward.
Going concern
In assessing the going concern position of the Group for the consolidated
financial statements for the 52 weeks ending 31 December 2023 the Directors
have considered the Group's cash flow, liquidity and business activities.
During 2023 The Group did not draw down any further on the debt facilities
meaning it has access to a further £7.0m of financing and this remained
undrawn at 31 December 2023. The Group had cash balances of £1.6m on 31
December 2023, which translated to a net debt position of £1.3m.
The Group has prepared forecasts for the next twelve months, including a base
case and a severe downside case. Refer to note 2.6 of the financial statements
for details of the assumptions and methodology applied.
Upon consideration of this analysis and the principal risks faced by the
Group, the Directors are satisfied that the Group has adequate resources to
continue in operation for the foreseeable future, a period of at least twelve
months from the date of this report. Accordingly, the Directors have concluded
that it is appropriate to prepare these financial statements on a going
concern basis.
Maria Denny
CHIEF FINANCIAL OFFICER
24 April 2024
FINANCIAL STATEMENTS
Unaudited consolidated statement of comprehensive income
For the 52 weeks ended 31 December 2023
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
Note £ £
Revenue 4 65,674,965 57,698,487
Cost of sales (14,883,204) (13,605,825)
Gross profit 50,791,761 44,092,662
Administrative expenses (50,107,651) (43,556,533)
Operating profit 5 684,110 536,129
Finance income 9 31,900 1,384
Finance expense 10 (1,801,176) (1,466,062)
Loss before taxation (1,085,166) (928,549)
Tax on loss 11 (7,377) 290,327
Loss for the period and comprehensive income attributable to equity holders of (1,092,543) (638,222)
the parent company
Loss per share for profit attributable to the owners of the parent during the
period
Basic and diluted (pence) 12 (2.8) (1.7)
There were no items of recognised income or expense other than as shown in the
Consolidated statement of comprehensive income above. All activities relate to
continuing operations.
The accompanying notes within this announcement form an integral part of these
financial statements.
Unaudited consolidated statement of financial position
As at 31 December 2023
31 December 2023 1 January
£ 2023
Note £
Non-Current Asset
Intangible assets 14 2,627,039 2,632,205
Tangible assets 15 14,119,801 13,721,101
Right-of-use assets 13 29,520,494 31,035,358
46,267,334 47,388,664
Current assets
Inventories 16 358,861 397,083
Trade and other receivables 17 3,135,075 2,193,877
Cash at bank and in hand 18 1,644,674 2,375,800
5,138,610 4,966,760
Current liabilities
Trade and other payables 19 (9,749,505) (9,110,069)
Lease liabilities 13 (5,670,902) (5,614,340)
Net current liabilities (10,281,797) (9,757,649)
Total assets less current liabilities 35,985,537 37,631,015
Non-current liabilities
Loans and borrowings 20 (2,949,021) (2,930,481)
Lease liabilities 13 (29,532,937) (31,109,551)
Deferred taxation 21 (617,696) -
(617,696) -
Net assets 2,885,883 3,590,983
Equity attributable to equity holders of the company
Called up share capital 22 386,640 386,640
Share premium account 23 4,433,250 4,433,250
Share based payment reserve 23 839,978 452,535
Merger reserve 23 4,793,170 4,793,170
Profit and loss account 23 (7,567,155) (6,474,612)
Total equity 2,885,883 3,590,983
The accompanying notes within this announcement form an integral part of these
Financial Statements.
Unaudited consolidated statement of changes in equity
For the 52 weeks ended 31 December 2023
Called up share capital Share premium account Share-based payment reserve Merger reserve Profit and loss account Total equity
£ £ £ £ £ £
At 3 January 2022 386,640 4,433,250 90,507 4,793,170 (5,836,390) 3,867,177
- - - - (638,222) (638,222)
Loss for the period
Share-based payments - - 362,028 - - 362,028
At 2 January 2023 386,640 4,433,250 452,535 4,793,170 (6,474,612) 3,590,983
Loss for the period - - - - (1,092,543) (1,092,543)
Share-based payments - - 387,443 - - 387,443
At 31 December 2023 386,640 4,433,250 839,978 4,793,170 (7,567,155) 2,885,883
The accompanying notes within this announcement form an integral part of these
Financial Statements.
Unaudited consolidated statement of cash flows
For the 52 weeks ended 31 December 2023
52 weeks ended 52 weeks ended
31 December 2023
1 January 2023
£
£
Cash flows from operating activities
Loss for the financial period (1,092,543) (638,222)
Adjustments for:
Amortisation of intangible assets 5,166 10,456
Depreciation of right-to-use asset 4,344,878 3,657,710
Depreciation of property, plant and equipment 3,805,769 2,501,433
Loss on disposal of tangible assets 40,746 17,780
Net finance expense 269,491 183,939
Taxation charge/(credit) 7,377 (290,327)
Decrease/(Increase) in inventories 38,222 (19,178)
(Increase)/Decrease in trade and other receivables (327,477) 196,503
Increase in trade and other payables 639,436 762,249
Impairment of property, plant and equipment 289,901 160,930
Reversal of impairment of property, plant and equipment - (368,953)
Impairment of right-to-use asset - 380,673
Corporation tax paid (3,402) (610,363)
Share based payments 387,443 362,028
Finance cost on lease liabilities 1,531,685 1,280,739
Net cash generated from operating activities 9,936,692 7,587,397
Cash flows from investing activities
Purchase of tangible fixed assets (4,535,117) (6,643,962)
Interest received 31,900 1,384
Acquisitions, net of cash acquired - (1,687,365)
Net cash from investing activities (4,503,217) (8,329,943)
Cash flows from financing activities
Interest paid (282,849) (181,759)
Payments made in respect of lease liabilities (5,881,752) (6,353,067)
Net cash used in financing activities (6,164,601) (6,534,826)
(731,126) (7,277,372)
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period 2,375,800 9,653,172
Cash and cash equivalents at the end of period 1,644,674 2,375,800
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. General information
Tortilla Mexican Grill plc, the "Company" together with its subsidiaries, "the
Group", is a public limited company whose shares are publicly traded on the
Alternative Investment Market, "AIM", and is incorporated and domiciled in the
United Kingdom and registered in England and Wales (registration number
13511888).
The registered address of Tortilla Mexican Grill plc and all subsidiaries is
142-144 New Cavendish Street, London, W1W 6YF, United Kingdom. A list of the
Company's subsidiaries is presented in note 25.
The Group's principal activity is the operation and management of restaurants
trading under the Tortilla and Chilango brands both within the United Kingdom
and the Middle East.
Judgements made by the directors in the application of these accounting
policies have been discussed in note 3.
2. Accounting policies
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Accounting Standards in conformity with the requirements of the
Companies Act 2006 and in accordance with International Financial Reporting
Standards as adopted by the UK ("Adopted IFRS").
Tortilla Mexican Grill plc has taken advantage of the exemption under section
408 of the Companies Act 2006 to not present its own statement of
comprehensive income. The loss for the single entity Tortilla Mexican Grill
plc for the 52 weeks ended 31 December 2023 was £5,479 (1 January 2023:
£206,060).
2.2 Basis of preparation of financial statements
The consolidated financial information contained in this document includes the
consolidated statement of comprehensive income, the consolidated statement of
financial position, the consolidated statement of changes in equity and the
consolidated statement of cash flows, and related notes for the companies
which comprise the Group.
The financial statements have been prepared on an accruals basis and under the
historical cost convention unless otherwise stated. The financial statements
are presented in GBP.
2.3 New standards, amendments and interpretations adopted
The Directors do not consider that there are any new standards or amendments
applicable for the 52 weeks ending 31 December 2023 that would have a material
impact on the Group's accounting treatment.
2.4 Standards issued but not yet effective
The following standards are applicable for financial years beginning on/after
1 January 2024:
• IFRS 10 - Sale or contribution of assets between an investor and its
associate or joint venture
• IFRS 16 - Leases on sale and leaseback
• IAS 1 - Classification of liabilities as current or non-current
• IAS 1 - Non-current liabilities with covenants
• IAS 7 and IFRS 7 - Supplier finance arrangements
The following standards are applicable for financial years beginning on/after
1 January 2025:
• IAS 21 - Lack of exchangeability
When applied, none of these amendments are expected to have a material impact
on the Group.
2.5 Basis of consolidation
The consolidated financial information incorporates the financial statements
of the Group and all of its subsidiary undertakings. The financial statements
of all Group companies are adjusted, where necessary, to ensure the use of
consistent accounting policies. Where the Group has power, either directly or
indirectly, to govern the financial and operating policies of an entity to
obtain benefits from its activities, it is classified as a subsidiary.
The statement of financial position as at 31 December 2023 incorporates the
results of Tortilla Mexican Grill plc and its subsidiaries for all periods, as
set out in the basis of preparation.
2.6 Going concern
In assessing the going concern position of the Group for the consolidated
financial statements for the 52 weeks ended 31 December 2023, the Directors
have considered the Group's cash flow, liquidity and business activities.
During 2023 the Group did not draw down any further on the debt facilities
meaning it has access to a further £7.0m of financing and this remained
undrawn on 31 December 2023. The Group had cash balances of £1.6m on 31
December 2023 which translated to a net debt position of £1.3m.
As part of their going concern assessment the Directors have prepared
forecasts for a minimum period of twelve months from the date of approval of
the financial statements. In addition, certain adverse scenarios have been
considered for the purposes of stress and sensitivity testing. In these
adverse scenarios, the Group would have sufficient liquidity to remain in
compliance with its covenant obligations.
Upon consideration of this analysis and the principal risks faced by the
Group, the Directors are satisfied that the Group has adequate resources to
continue in operation for the foreseeable future, a period of at least twelve
months from the date of this report. Accordingly, the Directors have concluded
that it is appropriate to prepare these financial statements on a going
concern basis.
2.7 Revenue
Revenue represents the amount receivable from customers for goods and
services, exclusive of VAT and discounts.
The Group has recognised revenue in accordance with IFRS 15. The standard
requires revenue to be recognised when goods or services are transferred to
customers and the entity has satisfied its performance obligations under the
contract, and at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for those goods or services.
The Group's revenue comprises of:
· Food and beverage sales at restaurants with one performance
obligation that is satisfied when control is transferred to the customer at
the point of sale, which is usually when payment is received, and no contract
assets or contract liabilities are created. The Group also generates revenue
with third-party delivery partners, which is payable the week after the
revenue was recorded. Revenue comprises the fair value of the consideration
received or receivable for the sale of goods and provision of services in the
ordinary course of the Group's activities. Revenue is shown net of sales/value
added tax, returns and discounts; and
· Franchise fees from the Group's role as franchisor in the UK and
Middle East. Revenue comprises ongoing royalties based on the sales results of
the franchisee and up-front initial site fees. Royalty revenue is accrued in
line with reported sales performance once revenue can be reliably measured.
Upfront initial site fees are recognised on opening of the associated
franchisee restaurant.
The Group operates a loyalty scheme for customers which entitles the customer
to free products after a specified number of purchases. IFRS 15 requires
entities to recognise a liability for the provision of these products as the
customer, in effect, pays the Group in advance for future goods. The Group has
not recognised this liability as the value is not considered material.
2.8 Employee benefits
Short-term benefits
Salaries, wages, paid annual leave and sick leave, bonuses and non-monetary
benefits are accrued in the period in which the associated services are
provided by employees of the Group.
Defined contribution plan
Contributions to defined contribution schemes are charged to the consolidated
statement of comprehensive income in the year to which they relate.
2.9 Share-based payments
A transaction is accounted for as a share-based payment where the Group
receives services from employees and Directors and pays for these in shares or
similar equity instruments.
The Group makes equity-settles share-based payments to certain employees and
Directors. Equity-settled share-based schemes are measured at fair value
(excluding the effect of non-market-based vesting conditions) at the date of
grant, measured by use of an appropriate valuation model.
The fair value determined at the grant date of the equity-settled share-based
payment is recognised as an expense in the statement of comprehensive income
on a straight line basis over the vesting period.
The vesting is dependent on achievement of specific performance conditions for
the 2023, 2024 and 2025 financial years. The share-based payment expense will
be modified if it is determined that these performance conditions will not be
met.
Share options are forfeited when an employee ceases to be employed by the
Group unless determined by the board to be a 'Good Leaver'. A participant who
ceases employment by reason of death, injury, ill-health or disability is also
deemed a good leaver.
2.10 Current and deferred tax
Tax is recognised in profit or loss except that a charge attributable to an
item of income and expense recognised as other comprehensive income or to an
item recognised directly in equity is also recognised in other comprehensive
income directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws
that have been enacted or substantively enacted by the balance sheet date in
the countries where the Group operates and generates income.
Deferred tax balances are recognised where the carrying amount of an asset or
liability in the consolidated statement of financial position differs from its
tax base, except for differences arising on:
· the initial recognition of goodwill;
· the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
· investments in subsidiaries and jointly controlled entities where the
Group is able to control the timing of the reversal of the difference and it
is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantially enacted by the balance sheet date and are
expected to apply when the deferred tax liabilities or assets are settled or
recovered. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
· the same taxable group company; or
· different company entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which significant amounts
of deferred tax assets and liabilities are expected to be settled or
recovered.
2.11 Alternative performance measures ("APMs")
The Group has identified certain measures that it believes will assist the
understanding of the performance of the business. These APMs are not defined
or specified under the requirements of IFRS. The Group believes that these
APMs, which are not considered to be a substitute for, or superior to, IFRS
measures, provide stakeholders with additional useful information on the
underlying trends, performance and position of the Group and are consistent
with how business performance is measured internally.
The Group's APMs are: like for like ("LFL") revenue growth/(decline), Adjusted
EBITDA (Pre-IFRS), Operating cash flow and net cash/(debt).
The Directors use Adjusted EBITDA as a primary KPI in managing the business.
This measure excludes exceptional items, share option expenses and site
pre-opening costs and applies pre-IFRS 16 treatment of leases. The Directors
believe this measure gives a more relevant indication of the underlying
trading performance of the Group and is also the measure used by the banks for
the purposes of assessing covenant compliance.
2.12 Intangible assets
Goodwill
Goodwill represents the difference between amounts paid on the cost of a
business combination and the acquirer's interest in the fair value of the
Group's share of its identifiable assets and liabilities of the acquiree at
the date of acquisition. Subsequent to initial recognition, goodwill is
measured at cost less accumulated impairment losses. Goodwill is tested for
impairment on an annual basis.
Other intangible assets
Intangible assets are initially recognised at cost. After recognition, under
the cost model, intangible assets are measured at cost less any accumulated
amortisation and any accumulated impairment losses. Amortisation is charged so
as to allocate their cost over their estimated useful life on a straight line
basis. Computer software assets have a finite useful life, which is determined
to be 3 years.
2.13 Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as the purchase price, cost includes directly attributable costs.
Depreciation is charged so as to allocate the cost of assets less their
residual value over their estimated useful lives, using the straight-line
method.
Depreciation is provided on the following basis, which is reviewed at each
balance sheet date:
Short-term leasehold property - over the
lease term
Plant and
machinery -
over 5 years
Fixtures and
fittings -
over 3 years
2.14 Leases
Right-of-use assets
The Group recognises a right-of-use asset at the lease commencement date.
Right-of-use assets are initially measured at the same amount as the lease
liability, reduced for any lease incentive received. Subsequently,
right-of-use assets are amortised on a straight line basis over the remaining
term of the lease and are assessed for impairment at each balance sheet date.
The majority of leases are covered by the Landlord and Tenant Act 1985 which
gives the right to extend the lease beyond the termination date. The Group
expects to extend the leases covered by the Landlord and Tenant Act 1985. This
extension period is not included within the lease term as the termination date
cannot be determined.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed lease payments less any lease
incentives receivable. In calculating the present value of lease payments, the
Group uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily determinable.
Where the Group expects to extend the leases covered by the Landlord and
Tenant Act 1985, the extension period is not included within the lease term as
the termination date cannot be determined and these are not reasonably
certain.
Subsequently, lease liabilities are increased to reflect the interest cost on
the liability and reduced for the lease payments made, which are recognised on
a straight-line basis over the term of the lease. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, for
example a rent review or a change in the lease term.
When a lease liability is remeasured, the Group adjusts the carrying amount of
the liability to reflect the payments to be made over the revised term, which
are discounted at a revised discount rate. An equivalent adjustment is made to
the carrying value of the right-of-use asset, with the revised carrying amount
being depreciated over the remaining (revised) lease term. Lease payments
which are variable in nature and are not linked to any index or rate are
expensed in the period to which they relate.
2.15 Impairment
Assets that are subject to depreciation or amortisation are assessed at each
balance sheet date to determine whether there is any indication that the
assets are impaired.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups of assets
(cash- generating units). Each site is considered to be a CGU in its own
right.
Goodwill arising on the acquisition of Chilango Ltd has been allocated to
individual cash-generating units based on the forecasted EBITDA expected to be
generated from each cash-generated unit at the date of acquisition.
Other assets are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's (or CGU's) fair value less costs to sell and value in use.
Non-financial assets that have been previously impaired are reviewed at each
balance sheet date to assess whether there is any indication that the
impairment losses recognised in prior periods may no longer exist or may have
decreased.
2.16 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
the cost and net realisable value. Cost comprises all costs of purchase, costs
of conversion and other costs incurred in bringing the inventories to their
present location and condition.
Inventories are measured on a first-in-first-out basis.
2.17 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial institutions
repayable without penalty on notice of not more than 24 hours. Cash
equivalents are highly liquid investments that mature in no more than three
months from the date of acquisition and that are readily convertible to known
amounts of cash with insignificant risk of change in value. Payments taken
from customers on debit and credit cards are recognised as cash.
2.18 Valuation of investments
Investments in subsidiaries are measured at cost less accumulated impairment.
Income is recognised from these investments only in relation to distributions
receivable from post-acquisition profits. Distributions received in excess of
post-acquisition profits are deducted from the cost of the investment.
2.19 Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the Chief Operating Decision-Maker (CODM). The CODM has
been identified as the management team including the Chief Executive Officer
and Chief Financial Officer.
The Directors have taken a judgement that individual sites meet the
aggregation criteria in IFRS 8, constituting one operating and one reporting
segment and hence have concluded that the Group only has a single reporting
segment, as discussed in note 4.
2.20 Equity instruments
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Group's ordinary shares are classified as equity instruments.
2.21 Financial instruments
The Group does not trade in financial instruments and all such instruments
arise directly from operations.
Financial assets
Financial assets held at amortised cost are trade and other receivables and
cash. All trade and other receivables are initially recognised at transaction
value, as none contain in substance a financing transaction.
Trade receivables are all due for settlement within one year. Due to their
short-term nature, the Directors consider the carrying amount of trade and
other receivables to equal their fair value.
Fees paid on the establishment of loan facilities are recognised as
transactional costs of the loan and the fee is capitalised as a prepayment for
liquidity services and amortised straight line over the period of the facility
to which it relates.
Financial assets that are measured at cost and amortised cost are assessed at
the end of each reporting year for objective evidence of impairment. The Group
applies the IFRS 9 simplified approach to measure expected credit losses using
a lifetime expected credit loss (ECL) provision for financial assets. To
measure expected credit losses on a collective basis, financial assets are
grouped based on similar credit risk and ageing. There are no expected credit
losses as consideration for goods is received at the point of sale.
Interest income is recognised in the Statement of comprehensive income and is
included in the "finance income" line item.
Financial liabilities
Financial liabilities held at amortised cost include trade and other payables,
lease liabilities and borrowings. Trade and other payables are initially
recognised at transaction value as none represent a financing transaction.
They are only derecognised when they are extinguished.
There are no material differences between the carrying values of financial
assets and liabilities held at amortised cost and their fair values.
Financial assets and liabilities are offset and the net amount reported in the
consolidated statement of financial position when there is an enforceable
right to set off the recognised amounts and there is an intention to settle on
a net basis or to realise the asset and settle the liability simultaneously.
Interest payable is recognised in the Statement of comprehensive income and is
included in the 'finance expenses' line item.
2.22 Financial risk
The Group's activities expose it to a variety of financial instrument risks.
The risk management policies employed by the Group to manage these risks are
detailed below. The primary objectives of the financial instrument risk
management function are to establish risk limits and then ensure exposure to
risks remains within these limits.
Interest rate risk
The Group is exposed to interest rate risk as the Group's borrowings have an
interest rate of SONIA plus a margin.
Commodity price risk
The Group is exposed to movements in wholesale prices of food and drinks. The
Group sources the majority of its products in the UK, however there is the
risk of disruption to supply caused by Brexit, the Russian-Ukraine conflict,
and the Red Sea crisis. The Group always benchmarks any cost changes and
typically fixes prices for periods of between three and six months.
Capital risk
The Group manages the capital structure to ensure it will be able to operate
as a going concern, whilst maximising the return to shareholders. The
Directors look to optimise the debt-to-equity balance and may adjust the
capital structure by paying dividends to shareholders, returning capital to
shareholders, issue new shares or sell assets to reduce debt. The Directors
intend to maintain low net leverage levels as the Group's operating cash flows
are sufficient to fund the addition of new restaurants to the portfolio.
Credit risk
The Group's credit risk is attributable to trade and other receivables and
cash with the carrying amount best representing the maximum exposure to credit
risk. The Group places its cash only with banks with high-quality credit
standings. Trade and other receivables relate to day-to-day activities which
are entered into with creditworthy counterparties.
Liquidity risk
Liquidity risk is the risk that the Group may encounter difficulties in
meeting its financial obligations as they fall due. They may arise from the
Group's management of working capital, finance charges and principal
repayments on its debt.
The Group has access to a £10m revolving credit facility held with Santander
UK plc, of which £7m is undrawn at the yearend. Of this undrawn amount,
£2.5m has been allocated to an ancillary facility, an overdraft, which was
not utilised at 31 December 2023.
The Directors regularly review cash flow forecasts to determine whether the
Group has sufficient reserves to meet obligations and take advantage of
opportunities.
Maturity analysis
Within 1 year 1 to 2 years 2 to 5 years More than 5 years Total
£ £ £ £ £
31 December 2023
Trade and other payables 9,749,505 - - - 9,749,505
Lease liabilities 5,804,285 5,548,013 13,630,276 18,373,748 43,356,322
Borrowings - - 2,949,021 - 2,949,021
15,553,790 5,548,013 16,579,297 18,373,748 56,054,848
1 January 2023
Trade and other payables 9,110,069 - - - 9,110,069
Lease liabilities 5,740,772 5,469,318 13,870,702 19,454,295 44,535,087
Borrowings - - 2,930,481 - 2,930,481
14,850,841 5,469,318 16,801,183 19,454,295 56,575,637
2.23 Provisions for liabilities
Provisions are made where an event has taken place that gives the Group a
legal or constructive obligation that probably requires settlement by a
transfer of economic benefit, and a reliable estimate can be made of the
amount of the obligation.
Provisions are charged as an expense to profit or loss in the year that the
Group becomes aware of the obligation, and are measured at the best estimate
at the balance sheet date of the expenditure required to settle the
obligation, taking into account relevant risks and uncertainties.
When payments are eventually made, they are charged to the provision carried
in the Statement of financial position.
3. Critical accounting estimates and judgements
The Group makes certain judgements, estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on historical
experience and other factors, including the expectations of future events that
are believed to be reasonable under the circumstances. Judgements that have
been made by the directors in the application of these accounting policies
that fall within the scope of IAS 1 paragraph 125 have been discussed below.
Determining the discount rate for IFRS 16
At the commencement date of property leases the lease liability is calculated
by discounting the lease payments. The discount rate used should be the
interest rate implicit in the lease. However, if that rate cannot be readily
determined, which is generally the case for property leases, the lessee's
incremental borrowing rate is used. This being the rate that the individual
lessee would have to pay to borrow the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar economic environment with
similar terms, security and conditions.
The Directors carried out a review of the historic borrowing rates of the
Group and historic bond rates together with analysis of the lease terms. They
concluded that the use of a single discount rate applied to all leases signed
prior to 2 January 2022 is a reasonable approach. Based on this analysis a
discount rate of 3.4 percent has been applied. Subsequently, discount rates
have been applied on a lease-by-lease basis, in order to reflect the
increasing risk-free rate during this period. These discount rates range from
4.9 percent to 7.3 percent.
For the lease liabilities at 31 December 2023 a 0.1 percent increase in the
discount rate would reduce the total liabilities by £11,000 (1 January 2023:
£83,000), which is not considered to be material. Therefore this is not
considered to be a key source of estimation uncertainty.
Impairment of goodwill, right of use assets and property, plant and equipment
Goodwill, right-of-use assets and property, plant and equipment are reviewed
for impairment when there is an indication that the assets might be impaired
by comparing the carrying value of the assets with their recoverable amounts.
The recoverable amount of an asset or cash generating unit (CGU) is determined
based on value-in-use calculations prepared on the basis of the Directors'
estimates and assumptions. Individual sites are viewed as separate CGUs.
The key assumptions in the value-in-use calculations include the growth rates
of revenue and expenses, together with the Group's weighted average cost of
capital (WACC), which is used as a discount rate. Projected cash flows are
based on financial budgets approved by the Board covering a five year period.
Beyond this five year period, projected cash flows have been based on a 3.0%
growth rate until the end of the lease terms. The value-in-use calculations
also factor in the cost of maintaining the assets, set at £25,500 per annum
for each site based on historic averages, and the impact of direct overhead
costs.
For the leases held in Chilango Ltd, a further key assumption in the
value-in-use calculations was that the leases with terms ending in less than
five years would be able to be renewed with terms of 10-15 years, in line with
the term lengths of leases held by Mexican Grill Ltd. If this assumption was
incorrect, the maximum potential impact on the impairment charge for the 52
weeks ended 31 December 2023 is an increase of £1,605,818.
An independent external consultancy was engaged to calculate the Group's
post-tax WACC. As at 31 December 2023, the pretax WACC was determined to be
15.1% (1 January 2023: 13.1%). An increase in the discount rate of 1.0 percent
would increase the impairment charge for the 52 weeks ended 31 December 2023
by £nil, which is not considered to be material.
In the 52 weeks ended 31 December 2023, property, plant and equipment assets
of £14,119,801 and right-of-use assets of £2,624,886 have been tested for
impairment. Detailed impairment testing resulted in the recognition of an
impairment charge of £289,901 (52 weeks ended 1 January 2023: £160,930) and
an impairment reversal of £nil (52 weeks ended 1 January 2023: £368,953)
against property, plant and equipment assets (note 15) and an impairment
charge of £nil (52 weeks ended 1 January 2023: £380,673) against
right-of-use assets (note 13).
As these assumptions have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year, these are considered to be key sources of estimation
uncertainty.
Useful economic lives of property, plant and equipment
The depreciation charge is dependent upon the assumptions used regarding the
useful economic lives of assets. A 10 percent increase in average useful
economic lives would result in a £346,000 decrease in depreciation in the 52
weeks ended 31 December 2023 (1 January 2023: £229,000). This is not
considered to be material and therefore this judgement is not deemed to be a
key source of estimation uncertainty.
Share-based payments
The charge for share-based payments is calculated according to the methodology
described in note 8. The Black-Scholes model requires subjective assumptions
to be made including the volatility of the Company's share price, fair value
of the shares and the risk free interest rates.
The vesting of certain share-based payments is dependent on the achievement of
specific performance and expansion targets over the three financial years
2023, 2024 and 2025. Assumptions have been made regarding the likelihood of
these criteria being met. A 25% increase in likelihood would result in a
£21,175 increase in share-based payment charge in the 52 weeks ended 31
December 2023 (1 January 2023: £nil). This is not considered to be material
and therefore this judgement is not deemed to be a key source of estimation
uncertainty.
4. Revenue
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Sale of goods 64,848,049 57,050,636
Franchise income 826,916 647,851
65,674,965 57,698,487
IFRS 8 Operating Segments requires operating segments to be based on the
Group's internal reporting to its Chief Operating Decision Maker (CODM). The
CODM is regarded as the management team of the Chief Executive Officer and the
Chief Financial Officer.
The Group has three segments:
• UK sales from Group-operated restaurants
• UK franchise sales from franchised restaurants
• Middle East franchise sales from franchised restaurants
The franchise aspects of the business have a minimal cost and asset base and
therefore they are not considered to be material and separable segments. There
are similar economic characteristics between the franchise aspects and the
Group-operated restaurant business, with each following a similar sales and
EBITDA trajectory. These have been reviewed by the Directors along with the
non-financial criteria of IFRS 8. It is the Directors' judgement that despite
some short-term variability, all segments have similar economic
characteristics in the medium and long-term and meet the criteria for
aggregation into a single reporting segment. Therefore, no segmental analysis
is provided.
5. Operating profit
The operating profit is stated after charging/(crediting):
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Depreciation and amortisation 8,155,814 6,194,997
Impairment of right-of-use assets - 380,673
Loss on disposal of fixed assets 40,746 17,780
Impairment of fixed assets 289,901 160,930
Reversal of impairment of fixed assets - (368,953)
Variable lease payments 692,886 969,880
Inventories - amounts charged as an expense 14,883,204 13,605,825
Share option expense 387,443 362,028
Pre-opening costs** 344,570 813,154
Exceptional items* 437,756 542,140
Bank arrangement fee amortisation 18,540 18,538
Auditors' remuneration:
Audit fees 138,400 120,000
Other assurance services 9,700 14,000
*Exceptional items in 2022 includes £415,908 of costs incurred in relation to
the acquisition of Chilango Ltd.
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£
£
Pre-opening costs 344,570 813,154
Number of sites openings in period 6 18
** The Group reports costs incurred prior to the opening of a site as a
separate expense and excludes these from the calculation of Adjusted EBITDA (a
non-GAAP measure). This approach is in line with the standard industry
practice and the methodology used by the Group's bank for the purposes of
assessing covenant compliance. The Directors view this as a better way to
analyse the underlying performance of the Group since it excludes costs which
are not trading related.
6. Employees
The average monthly number of employees, including the directors, during the
period was as follows:
31 December 2023 1 January 2023
No. No.
Operations staff 1,094 1,093
Head office staff 52 51
1,146 1,144
The average monthly number of employees, including the Directors, during the
period was as follows:
31 December 2023 1 January 2023
£ £
Wages and salaries 19,634,665 16,998,678
Social security costs 1,164,438 1,007,144
Pension costs 220,650 190,987
Share based payments (note 8) 387,443 362,028
21,407,196 18,558,837
Directors' remuneration, included in staff costs, was as follows:
31 December 2023 1 January 2023
£ £
Short-term employee benefits 585,205 511,677
Post-employment benefits 2,643 3,485
587,848 515,162
7. Director's remuneration and key management information
The highest paid director received remuneration of £231,000 (2022:
£215,000).
The number of Directors receiving pension contributions was 2 (2022: 2).
The share-based payment expense arising from the Directors' participation in
the Company's LTIP scheme was £219,000 (2022: £240,984).
There are no Key Management Personnel other than the Directors. Further
information about the remuneration of individual Directors is provided in the
Remuneration report.
8. Share based payments
A transaction is accounted for as a share-based payment when services are paid
for in shares or similar equity instruments.
The Group issues equity-settled share-based payments to Directors and certain
members of staff. Equity-settled share-based schemes are measured at fair
value at the date of grant, using the Black Scholes valuation model. The
expected life used in the model is adjusted, based on Management's best
estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Group's estimate of shares that will eventually vest.
The Tortilla Mexican Grill plc Long-Term Incentive Plan 2021 ("LTIP")
Under the LTIP, options were awarded to Directors and members of the senior
management team. 50 percent vests after three years and the remaining 50
percent vests after the fourth year. The vesting is dependent on achievement
of specific Adjusted EBITDA targets for the 2023 and 2024 financial years. The
Adjusted EBITDA target for 2023 has been met, and the target for 2024 is
expected to be met.
In the 52 weeks ended 1 January 2023, 205,714 nil cost options were awarded
under the LTIP to Directors which will vest on 1 December 2024. The vesting is
dependent on the Directors' continuous employment.
In the 52 weeks ended 31 December 2023, 600,387 nil cost options were awarded
under the LTIP to Directors and members of the senior management team which
will vest on 10 May 2026. The vesting of the awards made to Directors is
dependent on achievement of specific performance targets over the three
financial years 2023, 2024 and 2025, as well as the Directors' continuous
employment. The vesting of the awards made to members of the senior management
team is dependent on continuous employment only.
Awards are forfeited if the employee leaves the Group before the awards vest,
except under circumstances where the employee is considered a 'Good Leaver'.
Details of the share awards outstanding are as follows:
31 December 2023 31 December 2023 Weighted average exercise price 1 January 1 January
£ 2023 2023
Number of share options Weighted average exercise price
# Number of share options £
#
Outstanding at beginning of the period 1,946,046 1.6 1,809,393 1.8
Granted during the period Exercised during the period Forfeited during the 600,387 - 205,714 -
period
- - - -
(300,442) 1.8 (69,061) 1.8
Outstanding at the end of the period 2,245,991 1.2 1.6
1,946,046
The awards outstanding at the end of 31 December 2023 have a remaining
weighted average contractual life of nineteen months (1 January 2023: two
years) and an exercise price of £1.16 (1 January 2023: £1.62). No awards
were exercisable at the end of the period (1 January 2023: none).
The Group recognised total expenses related to the above equity-settled
share-based payment transactions in the form of options during the 52 weeks
ended 31 December 2023 of £369,021 (1 January 2023: £362,028) and related
employer National Insurance of £18,422 (1 January 2023: £9,988).
The fair values were calculated using a Black Scholes model. The inputs used
for fair valuing awards granted during the period was as follows:
31 December 1 January
2023 2023
Share price at grant date (pence) 107p 87p
Exercise price (pence) - -
Expected volatility (%) 56% 90%
Option life (years) 3.0 2.0
Risk free interest rate (%) 3.88% 3.57%
In the absence of any historical volatility data for Tortilla Mexican Grill
plc, the expected volatility was determined by reviewing the volatility of the
share price of similar entities which are currently traded on AIM.
9. Interest receivable
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Bank interest income 31,900 1,384
10. Interest payable and similar expenses
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Bank interest payable 269,491 185,323
Finance cost on lease liabilities 1,531,685 1,280,739
1,801,176
1,466,062
11. Taxation
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Current tax
Adjustments in respect of previous periods (610,319) (290,327)
Total current tax (610,319) (290,327)
Origination and reversal of timing differences 617,696 -
Factors affecting tax charge for the period
The tax assessed for the period differs from the standard rate of corporation
tax in the UK of 25%. The differences are explained below:
52 weeks ended 52 weeks ended
31 December 2023 1 January 2023
£ £
Loss on ordinary activities before tax (1,085,166) (928,549)
Profit on ordinary activities multiplied by standard rate of corporation tax
in the UK of 25% (2022 - 19%)
(271,292) (176,424)
Effects of:
Expenses not deductible for tax purposes 91,098 109,211
Depreciation in excess of capital allowances 608,059 721,889
Movement in tax losses 60,138 (683,653)
Other timing differences, primarily arising from operating lease accounting 129,693 28,977
Adjustments to tax charge in respect of prior periods (610,319) (290,327)
Total tax charge for the period 7,377 (290,327)
At 31 December 2023, the Group had unused carried forward tax losses of
£3,307,448 (1 January 2023: £3,548,435) which are expected to be fully
utilised in future periods. From 1 April 2023, the UK corporation tax rate
increased to 25% Accordingly, the rate used to calculate the deferred tax
balances at 31 December 2023 is 25% (1 January 2023: 25%).
12. Earnings/(loss) per share
Basic earnings/(losses) per share is calculated by dividing the profit/(loss)
attributable to equity shareholders by the weighted average number of shares
outstanding during the period.
31 December 2023 1 January 2023
£ £
(Loss)/profit used in calculating basic and diluted profit (1,092,543) (638,222)
Weighted average number of shares for the purpose of basic and diluted 38,664,031 38,664,031
earnings per share
Basic and diluted (loss)/earnings per share (pence) (2.8) (1.7)
Due to the nature of the options granted under the long-term incentive plan,
they are considered to be contingently issuable shares and therefore have no
dilutive effect.
13. Leases
Right-of-use assets £ Lease liabilities £
At 2 January 2022 24,939,614 At 2 January 2022 (31,662,090)
Additions 8,459,288 Additions (8,459,288)
Disposals (996,353) Arising on acquisition (2,671,192)
Impairment (380,673) Interest expense (1,280,739)
Arising on acquisition 2,671,192 Lease payments 6,353,067
Depreciation (3,657,710) Disposals 996,353
At 1 January 2023 31,035,358 At 1 January 2023 (36,723,889)
Additions 3,682,001 Additions (3,682,004)
Arising on acquisition - Interest expense (1,531,685)
Disposals (851,987) Lease payments 5,881,752
Depreciation (4,344,878) Disposals 851,987
At 31 December 2023 29,520,494 At 31 December 2023 (35,203,839)
Carrying amount by maturity of the Group lease liabilities
Within 1 year 1 to 2 years 2 to 5 years Over 5 years More than 1 year Total
£ £ £ £ £ £
31 Dec 2023 5,670,902 5,195,183 11,769,439 12,568,315 29,532,937 35,203,839
1 Jan 2023 5,614,340 5,147,757 12,129,224 13,832,570 31,109,551 36,723,891
The Group has 33 (2022: 31) lease contracts that include variable lease
payments in the form of revenue-based rent top-ups. The Group also has certain
leases with lease terms of 12 months or less. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition exemptions for
these leases. In the 52 weeks ended 31 December 2023, the total expense
arising from variable lease payments amounted to £692,886 (52 weeks ended 1
January 2023: £969,879).
The majority of leases are covered by the Landlord and Tenant Act 1985 which
gives the right to extend the lease beyond the termination date. The Group
expects to extend the leases covered by the Landlord and Tenant Act 1985,
however this extension period is not included within the lease term for the
purposes of calculating the above lease liabilities because the termination
date cannot be determined and these are not reasonably certain.
14. Intangible assets
Computer Software Goodwill Total
£ £ £
Cost
At 3 January 2022 - - -
Arising on acquisition 24,600 2,624,886 2,649,486
Disposals (9,100) - (9,100)
At 1 January 2023 15,500 2,624,886 2,640,386
At 31 December 2023 15,500 2,624,886 2,640,386
Amortisation
At 3 January 2022 - - -
Amortisation charge 10,456 - 10,456
On disposals (2,275) - (2,275)
At 1 January 2023 8,181 - 8,181
Amortisation charge 5,166 - 5,166
At 31 December 2023 13,347 - 13,347
Net book value
At 31 December 2023 2,153 2,624,886 2,627,039
At 1 January 2023 7,319 2,624,886 2,632,205
Goodwill
In the 52 weeks ended 1 January 2023 goodwill of £2,624,886 was recognised on
acquisition of Chilango Ltd. Each site is considered to be a separate CGU for
impairment purposes and therefore the goodwill was allocated to individual
sites. The goodwill allocation was based on the forecasted EBITDA that was
expected to be generated from each site at the time of acquisition:
Goodwill
£
Brewer Street 334,647
Brushfield Street 171,507
Chancery Lane 117,126
Croydon 104,577
Islington 466,414
London Bridge 543,801
London Wall 363,928
Manchester 522,886
2,624,886
15. Tangible fixed assets
Long-term leasehold property Plant and machinery Fixtures and Total
fittings
£ £ £ £
Cost
At 3 January 2022 14,295,429 3,621,556 3,671,580 21,588,565
Additions 2,076,864 1,578,180 2,988,918 6,643,962
Arising from acquisition 104,019 43,047 194,143 341,209
Disposals (427,046) (114,138) (162,234) (703,418)
At 1 January 2023 16,049,266 5,128,645 6,692,407 27,870,318
Additions 1,995,101 960,841 1,579,174 4,535,117
Disposals (51,995) (860,302) (765,619) (1,677,916)
At 31 December 2023 17,992,372 5,229,185 7,505,962 30,727,519
Depreciation
At 3 January 2022 7,536,464 2,777,463 2,010,471 12,324,398
Charge for the period 1,222,230 548,409 730,794 2,501,433
Arising from acquisition 37,176 24,089 171,321 232,586
Disposals (518,938) (79,971) (102,268) (701,177)
Impairment charge 160,930 - - 160,930
Impairment losses written back (368,953) - - (368,953)
At 1 January 2023
8,068,909 3,269,990 2,810,318 14,149,217
Charge for the period 1,238,432 640,731 1,926,606 3,805,769
Disposals (34,288) (849,855) (753,026) (1,637,169)
Impairment charge 289,901 - - 289,901
At 31 December 2023 9,562,954 3,060,866 3,983,898 16,607,718
Net book value
At 31 December 2023 8,429,418 2,168,319 3,522,064 14,119,801
At 1 January 2023 7,980,357 1,858,655 3,882,089 13,721,101
16. Inventories
31 December 1 January
2023 2023
£ £
Food and beverage for resale 358,861 397,083
There is no material difference between the replacement cost of inventories
and the amounts stated above.
Total inventory recognised as an expense in the consolidated statement of
comprehensive income during the period was £14,883,204 (52 weeks ended 1
January 2023: £13,605,825).
17. Trade and other receivables
31 December 1 January
2023 2023
£ £
Trade receivables 404,241 573,832
Other receivables 1,713,007 1,129,420
Prepayments and accrued income 1,017,827 490,625
3,135,075 2,193,877
Trade receivables primarily relate to sales due from third party delivery
providers and these are settled the week immediately following the week in
which the sale was recorded. There are also amounts owed by the Group's
franchise partners, which are due within 30 days of the end of the period.
Other receivables consists of deposits held by third parties, generally
landlords, and franchise income accrued but not yet invoiced to third parties.
Other receivables also includes amounts due from HMRC relating to corporation
tax from a previous period adjustment.
The Group held no collateral against these receivables at the balance sheet
dates. The Directors consider that the carrying amount of receivables are
recoverable in full and that any expected credit losses are immaterial.
18. Cash and cash equivalents
31 December 1 January
2023 2023
£ £
Cash at bank and in hand 1,644,674 2,375,800
Cash and cash equivalents comprise cash at bank, in hand and cash in transit.
Cash in transit comprises card payment receipts, which are received on the
next working day. The fair value of cash and cash equivalents is the same as
their carrying value.
19. Trade and other payables
31 December 1 January
2023 2023
£ £
Trade payables 2,768,567 2,496,200
Corporation tax - -
Other taxation and social security 2,119,292 2,265,394
Other payables 940,674 864,184
Accruals and deferred income 3,920,972 3,484,291
9,749,505 9,110,069
20. Loans and Borrowings
31 December 1 January
2023 2023
£ £
Bank loans - falling due after one year 3,000,000 3,000,000
Amortised issue costs (50,979) (69,519)
2,949,021
2,930,481
As part of the Group's IPO on 8 October 2021, the existing facilities were
repaid and a new financing arrangement was signed with Santander UK plc. This
is a £10m senior facility, repayable in full on 14 September 2026, with a
drawn balance at 31 December 2023 of £3.0m (1 January 2023: £3.0m). The
Group has allocated £2.5m of the remaining undrawn amount to an ancillary
facility, an overdraft, which was not utilised at 31 December 2023 or 1
January 2023. Arrangement fees of £93,000 were incurred as part of the
refinancing and this is being amortised to the Group consolidated statement of
comprehensive income over the term of the facility. The loan balance is being
recognised net of these arrangement fees.
The facility accrues interest at rates of 2.75% - 3.25% plus SONIA and the
overdraft attracts interest at a rate of 2.75% plus SONIA when utilised. These
loans are secured by a debenture over the assets of the Group and are
presented net of capitalised amortised issue costs.
21. Deferred
taxation
Deferred taxation asset / (liability)
£
At 1 January 2023 -
Charged to profit or loss (617,696)
At 31 December 2023 (617,696)
31 December 2023 1 January
2023
£
£
Accelerated capital allowances (1,444,558) (887,109)
Tax losses carried forward 826,862 887,109
(617,696) -
No deferred tax assets or liabilities were recognised as at 2 January 2022
with no amount recognised in profit or loss in relation to deferred tax for
the period ended 1 January 2023. Therefore no comparative information is
presented.
22. Share capital
31 December 1 January
2023 2023
£ £
Allotted, called up and fully paid
38,664,031 Ordinary shares of £0.01 each 386,640 386,640
Ordinary shares entitle the holder to participate in dividends and the process
on the winding up of the Company in proportion to the number of and amounts
paid on the shares held. The fully paid ordinary shares have a par value of
£0.01 and the Company does not have a limited amount of authorised capital.
23. Reserves
Share premium account
The share premium account records the amount above the nominal value received
for shares sold.
Share based payment reserve
The Group presents employee share options as an adjustment to own equity
through this reserve until the point that the shares are awarded and cease to
be conditional awards.
Merger Reserve
The merger reserve represents the excess over nominal value of the fair value
consideration for the business combination of Tortilla Mexican Grill plc and
Mexican Grill Ltd during the Group's IPO. This was satisfied by the issue of
shares in accordance with Section 612 of the Companies Act 2006.
Profit and loss account
The accumulated net profits and losses of the Group.
24. Analysis of net debt
At 2 January Cash flows Additions and disposals of Finance expense At 31 December
2023 Leases 2023
£ £
£ £ £
Cash at bank and in hand 2,375,800 (731,126) - - 1,644,674
Bank loans (2,930,481) - - (18,540) (2,949,021)
Lease liabilities (36,723,889) 5,881,748 (2,830,013) (1,531,685) (35,203,839)
Net debt 5,150,622 (2,830,013) (1,550,225) (36,508,186)
(37,278,570)
25. Subsidiary undertakings
The subsidiaries of Tortilla Mexican Grill plc, all of which have been
included in the consolidated financial information and comprise the Group, are
as follows:
Name Registered office Principal activity Holding
Mexican Grill Ltd United Kingdom Operation of restaurants 100%
Mexican Grill International Franchise Ltd United Kingdom International franchising 100%
California Grill Ltd United Kingdom Holding leases 100%
Chilango Ltd United Kingdom Operation of restaurants 100%
Chilango City Ltd United Kingdom Holding leases 100%
Chilango London Ltd United Kingdom Holding leases 100%
Chilango Mexican Ltd United Kingdom Holding leases 100%
Chilango UK Ltd United Kingdom Holding leases 100%
The registered address for all above named subsidiaries is 1st Floor Evelyn
House, 142 New Cavendish Street, London, United Kingdom, W1W 6YF.
The shares held in all above named subsidiaries are ordinary shares.
26. Related party transactions
Mexican Grill Ltd was charged monitoring fees of £30,000 for the 52 weeks
ended 31 December 2023 (1 January 2023: £30,000) by QS Direct SI 2 S.à.r.l,
in its capacity as General Partner of the Group's shareholder QS Direct SI 2
SCA SICAR.
Tortilla Mexican Grill plc was charged non-executive director fees of £9,000
for the 52 weeks ended 31 December 2023 (1 January 2023: £12,375) by
Kikkirossi SARL, an entity incorporated in Switzerland which is wholly owned
by a Director of Tortilla Mexican Grill plc.
27. Controlling party
The Directors believe that there is no ultimate controlling party of the
Group.
28. Capital commitments
The Group had capital commitments of £nil at 31 December 2023 (1 January
2023: £nil).
29. Post-balance sheet events
The Directors consider that there are no material post balance sheet effects
affecting the Group or the Company that have occurred between the end of the
period and the date of publication of this report.
30. Unaudited IFRS comparison to UK GAAP (non-IFRS)
This is a non-GAAP note and does not form part of the financial statements.
The Group applied IFRS for the first time in the 52-week period ending 2
January 2022. The Group applied IFRS 16 using the modified retrospective
approach, with the date of initial application of 1 January 2018.
Pre-IFRS 16 IFRS 16 IFRS Pre-IFRS 16 IFRS 16 IFRS
52 weeks adjustments 52 weeks 52 weeks adjustments 52 weeks
ended 31 Dec ended 31 Dec ended 1 Jan ended 1 Jan
2023 2023 2023 2023
£ £ £ £ £ £
Revenue 65,674,965 - 65,674,965 57,698,487 - 57,698,487
Cost of sales (14,883,204) - (14,883,204) (13,605,825) - (13,605,825)
Gross profit 50,791,761 - 50,791,761
44,092,662 - 44,092,662
Administrative expenses (51,657,149) 1,549,498 (50,107,651) (44,377,113) 820,580 (43,556,533)
Profit/(loss) from operations (865,388) 1,549,498 648,110 536,129
(284,451) 820,580
Adjusted EBITDA 4,565,275 5,793,606 10,358,881 3,972,471 4,684,946 8,657,417
Pre-opening costs (478,911) 134,341 (344,570) (978,457) 165,303 (813,154)
Share based payments (387,443) - (387,443) (362,028) - (362,028)
Depreciation and amortisation
(3,818,112) (4,378,449) (8,196,561) (2,563,782) (3,648,996) (6,212,778)
Impairment (charge)/reversal (289,901) - (289,901) 208,023 (380,673) (172,650)
Non-trading costs (18,540) - (18,540) (18,538) - (18,538)
Exceptional items (437,756) - (437,756) (542,140) - (542,140)
Profit/(loss) from operations (865,388) 1,549,498 684,110 (284,451) 820,580 536,129
Finance income 31,900 - 31,900 1,384 - 1,384
Finance expense (269,491) (1,531,685) (1,801,176) (185,323) (1,280,739) (1,466,062)
Profit/(loss) before tax (1,102,979) 17,813 (1,085,166) (468,390) (460,159) (928,549)
Tax credit/(charge) (7,377) - (7,377) 290,327 - 290,327
Profit/(loss) for the period (1,110,356) 17,813 (1,092,543) (178,063) (460,159) (638,222)
Pre-IFRS 16 IFRS 16 IFRS Pre-IFRS 16 IFRS 16 IFRS
52 weeks adjustments 52 weeks 52 weeks adjustments 52 weeks
ended 31 Dec ended 31 Dec ended 1 Jan ended 1 Jan
2023 2023 2023 2023
£ £ £ £ £ £
Fixed assets
Intangible assets 2,627,039 - 2,627,039 2,632,205 - 2,632,205
Tangible assets 31,573,308 546,493 14,119,801 13,033,022 688,079 13,721,101
Right-of-use asset - 29,520,494 29,520,494 - 31,035,358 31,035,358
Total fixed assets 16,200,347 30,066,987 46,267,334
15,665,227 31,723,437 47,388,664
Current assets
Inventories 358,861 - 358,861 397,083 - 397,083
Trade and other receivables 4,213,507 (1,078,432) 3,135,075 3,563,818 (1,369,941) 2,193,877
Cash at bank and in hand 1,644,674 - 1,644,674 2,375,800 - 2,375,800
Total current assets 6,217,042 (1,078,432) 5,138,610
6,336,701 (1,369,941) 4,966,760
Current liabilities
Trade and other payables (11,416,127) 1,666,622 (9,749,505) (10,913,989) 1,803,920 (9,110,069)
Lease liabilities - (5,670,902) (5,670,902) - (5,614,340) (5,614,340)
Total current liabilities (11,416,127) (4,004,280) (15,420,407) (10,913,989) (3,810,420) (14,724,409)
Non-current liabilities
Loans and borrowings (2,949,021) - (2,949,021) (2,930,481) - (2,930,481)
Lease liabilities - (29,523,937) (29,523,937) - (31,109,551) (31,109,551)
Deferred taxation (617,696) - (617,696) - - -
Total non-current liabilities (3,566,717) (29,532,937) (33,099,654)
(2,930,481) (31,109,551) (34,040,032)
Net assets 7,434,545 (4,548,662) 2,885,883 8,157,458 (4,566,475) 3,590,983
Equity attributable to equity holders of the company
Called up share capital 386,640 - 386,640 386,640 - 386,640
Share premium account 4,433,250 - 4,433,250 4,433,250 - 4,433,250
Share based payment reserve 839,978 - 839,978 452,535 - 452,535
Merger reserve 4,793,170 - 4,793,170 4,793,170 - 4,793,170
Profit and loss account (3,018,493) (4,548,662) (7,567,155) (1,908,137) (4,566,475) (6,474,612)
Total equity 7,434,545 (4,548,662) 2,885,883 8,157,458 (4,566,475) 3,590,983
1 CGA consumer survey (c.3,000) Q2 2023
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