REG - Tortilla Mexcn.Grill - Tortilla Acquires Largest European Competitor

Tortilla Mexican GrillAnnouncement

25/06/2024 10:15

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RNS Number : 7867T  Tortilla Mexican Grill PLC  25 June 2024

Tortilla Mexican Grill plc

 

Tortilla rolls into France

Acquiring largest European competitor Fresh Burritos

 

25 June 2024

 

Tortilla Mexican Grill plc ("Tortilla" or "the Group"), the largest
fast-casual Mexican restaurant group in Europe, today announces its strategic
acquisition of Fresh Burritos, the second largest fast-casual Mexican
restaurant group in Europe, and largest in France, for a total consideration
of €3.95 million.

 

This acquisition is the latest step forward in Tortilla's ambitious 'Vital
Five' growth strategy, of which key pillars are to develop the brand
internationally and double-down on franchise.

 

Key highlights of the acquisition:

 

·    The acquisition includes:

o 13 company-owned leasehold restaurants, in high-quality locations in Paris
and other major French cities, and;

o Rights to the Fresh Burritos brand and network of 19 franchised locations

·    Provides springboard for franchise growth across Europe

·    Compelling synergies for the enlarged Group, including the
introduction of a French Central Production Kitchen, as well as wider buying
power, operational and marketing efficiencies.

·    New Tortilla European sub-Board committee created, chaired by Group
Non-Executive Director and former YUM! European Franchise Division CFO,
Francesca Tiritiello. Joined by newly appointed Non-Executive Director of the
sub-Board committee, Gilles Boehringer, former VP of Development &
Franchise for KFC France. An experienced European hospitality Managing
Director has been appointed and will join in September.

·    Tortilla has acquired Fresh Burritos from FBH through a combination
of cash payment and bank debt roll over. The deal is funded from the Group's
existing debt facilities and expected to contribute £2.5m of additional
annual adjusted EBITDA (pre-IFRS 16) at 24 months maturation.

 

Andy Naylor, Chief Executive of Tortilla, commented:

"Tortilla's international ambitions are no secret, and acquiring Fresh
Burritos is our gateway to mainland Europe. With Mexican cuisine surging in
popularity, these prime French locations give us a solid launchpad. We're set
to leverage this acquisition, just in time for the Paris Olympics!

 

We've assembled a top-tier European team, with Francesca and Gilles at the
helm, to navigate this new market. The brand synergies are clear, a new
central kitchen is in the works, and our dedicated team is raring to go. We're
primed for sustainable growth abroad!"

 

Timothée Tronet, Founder of Fresh Burritos, commented:

"I started Fresh Burritos after returning home from a stint in America, where
I fell in love with Mexican cuisine. Our brand was the first of its kind in
France, offering quick and affordable, customisable Mexican-inspired dishes -
similar to Brandon and Jen's mission to bring burritos to the UK.

 

I have long admired Tortilla and couldn't think of a better brand to partner
with to take the French business to the next level. As well as their passion
for the product and our category, Tortilla's operational model and scale will
be an incredible asset to our franchisees. There is great enthusiasm in France
and Europe in general for Mexican food, and Tortilla is the best positioned to
take advantage of the market trends."

 

About Fresh Burritos

Fresh Burritos is the largest fast-casual Mexican restaurant Group in France,
and the second in Europe after Tortilla. Founded by Timothée Tronet in 2011,
the business was an early champion of Mexican cuisine in the rapidly expanding
French market, serving up a vibrant menu of burritos, salads and tacos.

 

Fresh Burritos operates from an estate of 13 owned company stores, situated in
prime positions in leading French city centres including stores across Paris
(such as Gare du Nord, Bercy and Belle Epine), Nice, Nantes, Grenoble and
Strasbourg, as well as some of the best shopping centres in France (such as
Val D'Europe and Carré Sénart).

 

As a successful franchisor, Fresh Burritos also operates in 19 franchised
locations across metropolitan France including Corsica, some in the French
overseas department of  Réunion Island and one in South Korea.

 

Strategic Rationale

As outlined in the Group's ambitious 'Vital Five' growth strategy, Tortilla
has long recognised the opportunity to develop the brand internationally, as
well as the potential to accelerate growth through the expansion of its
franchsie network.

 

Rolling into France

Already the largest fast-casual Mexican group in the UK and Europe with 89
locations, Tortilla is more than twice the size of its nearest European
compeititor and therefore poised to lead the growing burrito market in Europe.

 

The Global Mexican food market is expected to grow by 6.65% ($114bn) between
2022 and 2026, with 42% of growth expected to come from outside of the North
American market and mainly in developed European countries. 1  (#_ftn1) The
European Quick Service Restaurant (QSR) market is estimated to grow with 3.7%
CAGR (+$45bn) during 2023-2030 to $192bn, of which the Mexican food segment is
growing considerably with no large burrito food chains currently servicing the
market. 2  (#_ftn2) The acquisition of Fresh Burritos offers the Group a
strategic platform in the fast-growing French Market.

 

Through the Fresh Burritos company-owned store portfolio, the Group will gain
a strong footprint of well-invested, high-qualiy sites which will be rebranded
to Tortilla, allowing more rapid expansion versus organic growth, with lower
early year losses.

 

A springboard for franchise growth across Europe

Through the acquisition of Fresh Burritos, Tortilla will takeover the rights
to the franchising of the Fresh Burritos brand alongside a portfolio of 19
franchised stores, providing a platform to accelerate its ambitions to
franchise across Europe.

 

Tortilla already operates a proven franchise model both in the UK and Middle
East through leading partners SSP Group, Compass and Eathos. The Tortilla
operating model works well for franchisees due to the flexibility of the site
format, simple kitchen setup and central production food model, with the
Group's purchasing power and investment in marketing and food development
being of significant benefit to its franchise partners.

 

Through its analysis, the Group believes there is signficant opportunity to
improve the performance of the Fresh Burritos sites by leveraging the many
brand synergies; offering economies of scale with enhanced favourable
commercial opportunities on both sides, including increased buying power,
wider operational and marketing efficientices.

 

The Group will be opening  a fully-fitted-out 1400 sqM Central Production
Kitchen ("CPK") in France, enabling Tortilla to produce consistent food at
scale for the French market, mirroring its operations in the UK. The CPK will
also enable Tortilla to support any future expansion locations in nearby
countries.

 

Further Details Of The Acquisition

A total consideration of €3.95 million, consisting of  a cash payment of
€2.71m and a bank debt roll over of €1.24m. The cash payment has been
funded from Tortilla's existing committed financial facilities with net debt
remaining well within the Group's covenant headroom ensuring flexibility to
continue to fund its plans.

 

Of the 13 restaurants being acquired, 7 are being purchased as an asset deal
through insolvency proceedings, while 6 are being acquired as going concerns.

 

For the 52 week period to 31 December 2023, Fresh Burritos delivered revenue
of €9.0 million and a loss before tax of €0.1 million. 3  (#_ftn3)

 

The acquisition is expected to generate a loss of c£0.5 million adjusted
EBITDA 4  (#_ftn4) (pre-IFRS-16) in FY24 before contributing with a positive
adjusted EBITDA of c£0.5 million to the Group in FY25, and c.£2.5 million
per annum after 24 months of maturation. Tortilla expects a quick EBITDA
turnaround seen through increased sales and margin conversions following the
introduction of the French Centralised Production Kitchen, and by utilising
the Group's buying power and operational efficiencies, as well as dedicated
marketing investment.

 

To drive sustainable growth in France, the Group has established a European
sub-Board committee chaired by Non-Executive Director Francesca Tiritiello.
Joining the Tortilla Board in 2022, Francesca brings extensive experience in
business development, franchising, finance, and M&A. As a Partner and
Co-Founder of Kikkirossi, a European boutique advisory firm specialied in
international franchise and brand development, she has also held various
Director and CFO roles in European hospitality. Her eight-year tenure at Yum!
Brands Inc., which owns KFC, Pizza Hut, and Taco Bell, included positions as
European CFO and Commercial Director.

 

The committee also welcomes newly appointed Non-Executive Director Gilles
Boheringer, former VP of Development & Franchise for KFC France. This
European sub-Board committee will report directly to the Tortilla Group Plc
Board.

 

An experienced European hospitality Managing Director is set to join in
September. They will receive support from several UK leadership team members
across operations, marketing, and finance, who have been seconded and their
positions backfilled. This arrangement ensures a smooth transition with
minimal disruption to the wider UK team.

 

Fresh Burritos founder and CEO Timothée Tronet will be an advisor to the
Tortilla France board, supporting on a smooth transiton, local market strategy
and managing franchisee relationships.

 

The acquisition is conditional on certain procedural items. Completion will
take place on 1 July 2024.

 

UK trading update

The core UK business is trading in line with the Board's full year
expectations. The Company will provide a market update on its H1 2024
performance in July.

 

Presentation on announcement

Further details of the acquistion will be provided during a webcast
presentation from management to financial stakeholders, today at 14:30 BST via
Investor Meet Company.

 

The presentation is open to all existing and potential shareholders. Questions
can be submitted via your Investor Meet Company dashboard at any time during
the live presentation.

 

Investors can sign up to Investor Meet Company for free and add to meet
TORTILLA MEXICAN GRILL PLC via:
https://www.investormeetcompany.com/tortilla-mexican-grill-plc/register-investor
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.investormeetcompany.com%2Ftortilla-mexican-grill-plc%2Fregister-investor&data=05%7C02%7CMBurton-Brown%40tortilla.co.uk%7C08acce55346f48eeeb6c08dc8f94400f%7C2eba4232a62e4c7f9bbccc54ddc8fca9%7C0%7C0%7C638543114154659288%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=usDFCSPxYcW3mwUItTNI97SzGzlZDXzsu%2B0LqSh1Dqc%3D&reserved=0)

 

Investors who already follow TORTILLA MEXICAN GRILL PLC on the Investor Meet
Company platform will automatically be invited.

 

The information contained within this announcement is deemed by the Group to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018.

 

 

ENQUIRIES:

 

 

 Tortilla Mexican Grill PLC                                    Via Houston
 Andy Naylor, Chief Executive  Officer
 Maria Denny, Chief Financial Officer

 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

 

 

About Tortilla Mexican Grill PLC

Founded in October 2007 by Brandon and Jen Stephens, Tortilla is Europe's
largest fast-casual Mexican restaurant brand with a fully customisable and
authentic California-style Mexican menu.

 

Tortilla operates 89 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 7 million customers every year. Food provenance and
quality is a critical component of Tortilla's proposition, with toppings and
fillings of burritos, salads and tacos being 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

 1  (#_ftnref1) Technavio Research Mexican Food Market: Size, Share, Growth,
Trends, Industry Analysis, Forecast 2026

 2  (#_ftnref2) Global Quick Service Restaurant Market Size, Share 2032,
custommarketinsights.com

 3  (#_ftnref3) Unaudited FY23 accounts

 4  (#_ftnref4) Adjusted EBITDA 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.

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