27 March 2023

Tortilla Mexican Grill plc
("Tortilla", the "Group" or the "Company")

Audited Annual Results for the 52 weeks ended 1 January 2023

Publication of Annual Report & Accounts and Notice of Annual General Meeting

A year of significant growth and further strategic progress

Tortilla Mexican Grill plc ("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 1 January 2023 (the "Period").

Financial highlights

·    Revenue increased by 20.0% to a new record of £57.7m (FY21: £48.1m), driven by a record year of new site openings.

·    Like-for-like ("LFL") revenue up 16.4% vs 2019.

·    Adjusted EBITDA (pre-IFRS 16) was £4.0m (FY21: £8.7m). Notably, FY21 included £3.9m of VAT benefit.

·    Gross profit margin was 76.4% (FY21: 79.6%).

·    Net debt was £0.6m (FY21: net cash of £6.7m).

Operational highlights

·    Year of record growth for the Group with 18 sites (net) added to the portfolio, increasing the total number of sites to 82 at the period end

·    A record number of UK new openings, with ten Group-operated sites added, as the Group takes advantage of the favourable property rental market

·    Excellent franchising proposition due to simplicity of operating model and flexible store format

o  Five franchise sites opened in universities through new partnership with Compass Group plc

o  One further airport site opened at Bristol, through franchise partnership with SSP Group plc

·    Strategic acquisition of Chilango in May 2022 strengthened the Group's market position in London:

o  Five of eight new sites converted to Tortilla branding

o  Three remaining sites refurbished post-acquisition

·    Relaunched Tortilla Club loyalty scheme, growing loyalty programme by circa 40% to more than 280,000 members.

·    Expanded successful partnerships with delivery partners Deliveroo, Uber Eats and Just Eat, alongside new partnerships with delivery kitchen partners including Growth Kitchen and Karma Kitchen.

·    Strengthened Board and management team, with the appointments of Francesca Tiritiello (Non-Executive Director), Holly Foot (People Director) and Andrew Brook (Head of IT).

Current trading & outlook

·    Trading in line with expectations. LFL sales growth for the eight weeks to 26 February 2023 remained strong, up 4% vs FY22 (up 11% vs FY22 when adjusted for VAT).

·    Action taken by management across supply chain to manage costs and aid profitability, including utilities hedge (Apr-Sep 2023), providing certainty for the majority of FY23. Food cost inflation rates have largely plateaued.

·    New sites opened in Q1 FY23 in Derby and Greenwich (London) have seen encouraging early trading, with a healthy pipeline of further openings planned for later in the year including in Milton Keynes, Belfast and Bracknell. Ahead of schedule with our targeted ambition, stated at IPO, of 45 new sites in five years.

·    Exploring several new franchise sites for 2023 to enhance diversity of locations, including through the expansion of existing partnership with Compass Group and further planned openings at rail stations with SSP Group.

·    Technology investments to enhance customer service and reporting efficiencies, to better support the Group's growth strategy and customer loyalty.

·    The Board remains confident in the Group's ability to perform in line with market expectations for FY23*.

Richard Morris, Chief Executive Officer of Tortilla, commented:

"We have a proven, great value, and highly popular customer proposition and these strengths continued to underpin our good levels of like-for-like growth and further strategic expansion during 2022.

More and more consumers are seeking out high-quality, healthy, customisable food at great value, and both of our brands - Tortilla and Chilango - sit at the heart of these exciting consumer trends. The strong performances of our restaurants up and down the country as well as the success of new openings in the likes of Lincoln, Coventry, Canterbury, and Leicester once again demonstrate the very broad appeal of our proposition and the demographic diversity in which we operate and succeed.

As well as our continued expansion across the UK, we further strengthened our market position in London through our strategic acquisition of eight Chilango restaurants in the first half of the year. We successfully converted five of these to the Tortilla brand and have refurbished the three remaining Chilango sites. All these sites are benefiting from increased footfall in London.

The beginning of 2023 has started well with like-for-like sales up 4% in the 8 weeks to 26 February. We know that restaurants that offer great, consistent food at competitive price points will always be the winners in our sector, and we are confident that we sit very comfortably in this space. We remain highly motivated and excited about Tortilla's continued growth potential in the UK as well as our opportunities to build on our proven franchise operations to expand overseas."

* Company-compiled consensus: FY23: revenue £69.8m, Adjusted EBITDA £5.0m. 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 trading performance of the Group.

Publication of Annual Report & Accounts and Notice of Annual General Meeting

Tortilla Mexican Grill plc will publish later today its annual report and accounts for the financial year ended 1 January 2023 (the "Annual Report"), including the Notice of Annual General Meeting. These documents shall be available today on the Company's website.

The Company's Annual General Meeting will be held on 17 May 2023 at the offices of Liberum Capital Limited, 25 Ropemaker Street, London, EC2Y 9LY.

ENQUIRIES

For further information, visit tortillagroup.co.uk

NOTES TO EDITORS

About Tortilla Mexican Grill plc

Tortilla is the largest and most successful fast-casual Mexican restaurant group in the UK specialising in the sale of freshly made Californian-inspired Mexican cuisine. As at 1 January 2023, the Group had 82 sites worldwide, comprising 65 sites in the UK operated by the Group, 4 sites franchised to SSP Group in the UK, 5 sites franchised to Compass Group UK & Ireland and 8 franchised sites in the Middle East.

The Group was founded in 2007 by Brandon Stephens, originally from California who arrived in London in 2003 to find a gap in the market for quality burritos and tacos. As a result, Brandon established Tortilla with a mission of offering customers freshly prepared, customisable, and authentic Californian-inspired Mexican food.

The Tortilla and Chilango brands are synonymous with an energetic, vibrant culture, and with providing a great value-for-money proposition. They embrace fast-growing sector trends (including eating out, healthy eating, provenance, ethnic cuisine, delivery) across a variety of locations, through a differentiated product offering which is popular with a broad customer base, and a clearly defined multi-channel marketing strategy. It benefits from flexible site locations and formats, and a scalable central infrastructure.

CHAIR'S STATEMENT

Tortilla's last annual report was published shortly after the start of the war in Ukraine. Back then, little did any of us know the extent to which this geopolitical event would come to shape our year, due to the unprecedented levels of food and energy inflation impacting businesses and consumers. The Group has a long-established reputation for providing a high-quality and great value for money proposition and the Management team has worked hard to mitigate some of these cost pressures. We have resisted passing on all additional costs to our valued customers through price increases and jeopardising our key value for money score. However, taking this necessary long-term view has inevitably impacted the Group's short-term EBITDA margin and annual profits.

I want to thank you, our shareholders, for your understanding.

The Board has been determined that the business arises from this challenging period in a strong manner and is ready to take advantage of the economic recovery. Accordingly, I am pleased to report a number of excellent achievements delivered in the year:

1.   We continued our successful UK organic rollout of sites, opening ten new Group-operated sites, including our first sites in smaller cities like Leicester and Coventry. Early trading has been encouraging in these new locations.

2.   We acquired Chilango Ltd, which comprised eight additional sites, seven of which are in London strengthening the Group's market position. We have converted five of these sites to Tortilla branding, which supports our confidence in London as office working returns.

3.   We commenced a franchise relationship with Compass Group, with five university sites now open, ensuring our key 'student' audience gets to know the brand.

4.   We opened a further airport site with SSP Group in Bristol, in time for the summer holidays, which illustrates the relevance of the brand in super high footfall hubs.

5.   We strengthened our  Management Team with the appointment of a new Operations Director, Stephen Clark (ex-Whitbread plc), People Director, Holly Foot, and Head of IT, Andrew Brook.

6.   We relaunched our loyalty scheme - Tortilla Club - to enhance active customer engagement and have already seen good uptake. This scheme has also helped to support customers through the cost-of-living squeeze.

Board Changes

You will read in this report that our franchise business, both in the UK and in the Middle East, is flourishing and we are keen to explore how we can exploit strategic partnerships like this to expand quickly using less capital. I was delighted that Francesca Tirtiello, who has 20 years of European franchising experience, joined the Board as a Non-Executive Director and Chair of the Remuneration Committee in 2022.

In other changes, Laurence Keen, has recently taken on leading the expansion of Hollywood Bowl in Canada. Given the time and travel demands of this new role he has decided to not seek re-election at the AGM. The Board would like to thank Laurence for his support since IPO.

Francesca Tirtiello will now take over as Chair of Audit. We have begun recruitment for a new Non-Executive to chair the Remuneration Committee and will update you when we make this appointment.

2023 - a great value proposition

Our shareholders will undoubtedly have read about consumer spending on 'eating out' being under pressure. However, the Group has been monitoring customer behaviour closely over the last six months, and we remain confident that our great value proposition will give the Group resilience as people seek value-for-money options. After all, we continue to serve customers great fresh food and a drink, in a fun and vibrant atmosphere, at competitive price.

Finally, I have really enjoyed meeting several of our shareholders last year. So, alongside the dialogue you have with Richard and Andy, please feel free to contact me if you would like to discuss our business at any point.

Emma Woods

CHAIR

27 March 2023

CHIEF EXECUTIVE OFFICER'S STATEMENT

The Group was in fantastic shape as we entered 2022, following record performances achieved across our estate in 2021, having navigated the post Covid-19 environment and opened a record number of new sites.

This strong performance continued into 2022 until the UK was presented with several macro-economic challenges following Russian's invasion of Ukraine, which led to unprecedented levels of food and energy inflation. This set the business on a different footing for the rest of the year, as careful supply chain management became essential to the operation of the business.

However, Tortilla has a strong track record of resilience. The business has proven to be dynamic and able to quickly adapt to economic downturns, and 2022 was no exception. We have been able to capitalise on the opportunities afforded by the commercial property market for example, enabling us to continue to grow our footprint across the UK by stepping up our site rollout. We were also able to secure more favourable terms with landlords on our new sites. The Group's growth was further accelerated by the strategic acquisition of Chilango Ltd, which contributed a further eight sites to the estate. 

Chilango acquisition

Chilango was one of our strongest competitors in central London. As an award-winning fast-casual restaurant chain specialising in Mexican food, Chilango is a well-known and complementary premium brand with high levels of customer loyalty. The Group acquired the business in May 2022 to fast track our presence across London, particularly ahead of the anticipated return to office-based working in the capital.

As Covid-19 restrictions were lifted and businesses increasingly encourage employees to return to the office, we have seen demand in central London bounce back strongly, and we are confident that this demand is here to stay.

In line with our strategic plans following the acquisition, five Chilango sites have been re-branded to Tortilla. We have seen improved trading performances at these sites following conversion, which demonstrates the strength of the Tortilla brand and the success of the efficiencies found by utilising the Group's operating model.

Three acquired sites have remained as Chilango branded sites, and we have invested in refurbishment projects at these sites which were completed in early 2023. It is early days for these stores post-refresh, however the initial indicators are promising.

The complementary Chilango brand provides an excellent further growth opportunity for the Group in the years ahead and we are excited to see where the brand takes us.

New site pipeline

Since IPO, the Group's primary growth strategy has been to organically accelerate its presence across the UK, seeking to open 45 new sites over five years. I am thrilled to say that a grand total of 18 new sites opened in 2022, including the Chilango conversions previously outlined, and we are well on track to meet our five-year target. This is a huge triumph given the challenging economic landscape.

We have seen a significant increase in the availability of viable units in key target locations across the UK, and the Group has capitalised on this by securing favourable lease terms with landlords, not only in the form of lower rents but also often with incentive packages included to support capital expenditure. By securing such units and terms we are confident that we will continue to reap the rewards that these sites have to offer for years to come.

Looking forward, the Group is well-positioned to expand further, and we are continuing to have a strong pipeline of new sites for this year and beyond. In Q1 2023, we opened a further two new sites with positive early indicators. The Group is on track to open between 10-12 new sites in 2023.

Franchising and Partnerships

A flourishing aspect of our business is the world of franchising. We have continued to strengthen our relationships with our existing partners, SSP and Compass Group, which led to six new sites opening in 2022 across the UK. Five of these were with Compass Group located in higher education UK campuses at Brunel, Swansea, Middlesex, Sussex and Salford, following a successful trial early in the year. We opened one further site with SSP Group at Bristol Airport which delivered a fantastic performance. Other travel hubs such as Gatwick Airport achieved a record sales performance, proving that busy travel locations are well suited to Tortilla's operating model.

Our UK franchise manager relocated to the Middle East to help grow our franchise partnership in the region. This provides us with great comfort for the future prospects of the business, with a 'home-grown' Tortilla expert working directly to identify new site locations.

Last year we reshuffled our estate of delivery-only kitchens by expanding further with Growth Kitchen and commencing a new partnership with Karma Kitchen. We also expanded our partnerships with delivery partners, adopting a multi-platform approach.

Supply chain

One of the key pillars of Tortilla's success has always been our strong relationships with our suppliers, and in 2022 this became more critical. Early in 2022, we encountered unprecedented levels of food inflation, and it became essential for us to work diligently with our suppliers to ensure that operations were not disrupted. It is a testament to the strength of our supplier relations that we were able to maintain 100 percent menu availability throughout the year despite the numerous challenges presented.

In the meantime, as the reality of the cost-of-living crisis in the UK set in, we recognised the importance of our competitiveness in terms of pricing. To help mitigate this, we looked for other ways of delivering on profitability. We provided top line sales incentives for employees to boost sales volumes at our peak times and implemented tighter controls around expenditure. Full menu reviews were conducted to ensure that the most suitable recipes and ingredients were being used at any given time in the rapidly changing environment. Pricing will remain closely monitored and under review.

Where our prices did increase, the sensitivity of such rises was closely monitored to ensure that the spending habits of both existing and potential customers were not impacted. We were also proud to have kept our price rises below inflation and maintain our competitive price position. We managed to strike the right balance of maintaining reasonable margins without pricing our customers out of our great value offer.

Looking forward to 2023, supply chain management continues to be a key focus area. As we navigate the current economic environment, we will continue to optimise what is within our control whilst continuing to work with suppliers to find cost efficiencies.

People Values and Culture

In September 2022 the Group published its first ESG report, setting out its sustainability commitments and vision for the future.

People are at the core of Tortilla's success.  Our ongoing commitment to our people is evident in the career progression of our General Managers, of which 40% have risen through the ranks and have been promoted into their current role in the last year.

The Group recognises that our General Managers form the very foundation of the business and to reflect this, we offer an excellent benefits package. This includes a paid sabbatical for General Managers who serve in the role for five years and bonus payments for mystery diner scores, as well as competitive pay rates for all team members.

In 2022, we recruited Holly Foot as our People Director. She is focusing on enhancing our manager training and development programme, in line with our drive to grow from within. Her role is incredibly important in the context of the current recruitment environment, and we are confident that Holly's expertise will help us to attract and retain the best talent in the industry.

Our Annual Conference was held in February 2023 to celebrate the successes of the business and the individuals within it. It was a hugely motivational and positive day, with the vision of the business shared with all our Head Office and General Manager teams.

Technology

Technology will be at the forefront of our customer service offering and will also be used to implement more efficient reporting procedures across the business moving forward. This will help us to drive more positive relationships with employees and customers alike.

In March 2023 we were delighted to welcome our new Head of IT to the Group. This newly-created role was made to enable us to move forward with our technology strategy, and we look forward to providing updates on this crucial business area in the coming months.

International

Tortilla is already the largest fast-casual Mexican chain in the UK & Europe and Mexican cuisine continues to grow in popularity across the globe. We are committed to furthering Tortilla's UK growth story, though we are simultaneously aware of the huge opportunity for a leading Mexican fast-casual brand to thrive across continental Europe.

The Group continues to seek out new businesses and partnerships as we develop our European growth strategy. We are thrilled that Francesca Tiritiello joined the Board as a Non-Executive Director. She has brought a wealth of experience with European restaurant franchising to help the Group achieve this. Following our success with UK franchising, we are excited about the opportunity to utilise a similar low-capital approach and establish a greater international presence.

Current Trading and Outlook

Looking forward, the Board is excited about the opportunity ahead. Current trading remains in line with expectations, with like for like (LFL) sales growth for the eight weeks to 26 February 2023 up 4 percent on FY22 (11 percent when adjusted for VAT).

The last few years have been punctuated by exceptional events that continue to test us, our industry and the wider UK economy in every area. Whilst Covid-19 gave us opportunities, the cost implications for us over the last 12 months clearly created challenges that inevitably had an impact on profitability. We see these issues as relatively short term in nature, although we expect that costs will remain at a higher level than before the Ukraine conflict over the longer term. We have a flexible pricing strategy and remain confident that we offer excellent value for money to our customers, but clearly a greater semblance of certainty and normality will help in all aspects of our business and the wider sector alike. There has been action taken by management across supply chain to manage costs and aid profitability, including hedging utilities (April-September 2023), providing certainty for the majority of FY23.

Tortilla is an incredibly resilient business, as we have shown over a number of years. The continued growth in popularity of Mexican cuisine and related consumer trends towards healthier eating, customisable options and convenience have supported our consistent growth. Our recent successes in Derby, Leicester and Coventry and other cities show that the brand can operate across different communities, geographies and demographics. We have a healthy pipeline of further openings planned for later in the year including in Milton Keynes and Bracknell; and are ahead of progress on our IPO 2021 target of 45 new sites in five years.

We will continue to push to develop and grow the brand through new site openings, partnerships, the implementation of new technology and our increased presence in all aspects of social media. Our Tik Tok posts are legendary!

Messaging remains buoyant from us all. This business will succeed whatever is thrown at it and we look forward to continuing this journey in 2023 and beyond.

Richard Morris

CHIEF EXECUTIVE OFFICER

27 MARCH 2023

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 widespread delivery-only kitchens

•     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 over 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 spread throughout the UK - in terms of both presence and sales. Over half of our estate and twelve of our top twenty selling stores are located outside of London, covering a wide range of sites including shopping centres, high streets, residential areas, delivery-only kitchens 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 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 2022, the Group had 82 sites worldwide: 62 UK sites we operate ourselves (59 Tortilla, three Chilango), four 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 34 sites within the M25 area and 28 sites outside of it. Five 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 (65 percent of our customers visit on impulse), 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 sites, which operate in typically 25-35 square metre sites. 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 percent 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 FY21 (four bricks and mortar and three delivery kitchens) along with two new SSP Group franchise units.  FY22 was a record year for growth with a total of 18 additions to the estate.

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. By opening new sites on a regular basis, we have a well-established, reliable infrastructure in place to manage the roll-out as required. 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.

As the number of sites within the Group's portfolio increases, Tortilla will benefit from an expanding base of senior employees familiar with these processes, and a larger regional Management infrastructure to support new site openings. During 2022, we have been working closely with CACI who have confirmed there are in excess of 200 locations throughout the UK which meet the specific criteria of Tortilla.

CHIEF FINANCIAL OFFICER'S REVIEW

Group financial KPI summary

¹ defined as the percentage change in like-for-like sales compared to 2019 and so it excludes periods of non-trading

² 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.

³ 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 20 percent to £57.7m, compared to £48.1m in FY21. This was attributable to the following factors:

·    An underlying 16.4 percent like-for-like revenue growth across the estate;

·    The strategic acquisition of Chilango Ltd, adding a further eight sites across the estate and revenue of £3.3m; and

·    The addition of ten new company-owned sites in FY22 (+£3.2m), as well as the annualisation of the FY21 openings (+£1.2m).

The above factors are partially offset by a £3.9m decrease resulting from the removal of the reduced rate of VAT which benefitted the Group in FY21.

Gross profit margin

The Group achieved a gross profit margin in FY22 of 76.4 percent (FY21: 79.6 percent). 

To support the hospitality industry in FY21, following the lifting of the Covid-19 lockdown, the Government temporarily applied a reduced VAT rate of 5 percent to certain suppliers. This was in place from Q1 FY21 to Q3 FY21 and was lifted to 12.5 percent in Q4. From Q2 FY22, the VAT rate returned to 20 percent. Consequently, FY22 benefitted less than FY21, by £3.9m, which equates to a 1.9 ppts reduction in gross profit margin.

The war in Ukraine, combined with the legacy of the pandemic, led to unprecedented levels of inflation in FY22. We saw a c.30 percent increase in protein costs, which accounted for approximately one-third of our cost of goods sold. This was the main contributor to the remaining 1.3 ppts decrease in gross profit margin.

Administrative expenses

Administrative costs increased by 19.3 percent year-on-year to £43.6m. This was largely attributable to the increased level of trade in FY22, as the restaurants were closed for a period in FY21 due to the pandemic. As a percentage of revenue, administrative expenses remained consistent year-on-year at 75.5 percent (FY21: 75.9 percent).

Administrative expenses also incorporate exceptional items, which decreased to £0.5m in FY22 (FY21: £1.8m).  The £1.3m decrease was attributable to costs incurred for the Group's IPO in FY21. Of the £0.5m in FY22, £0.4m is related to the Chilango Ltd acquisition.

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.

The Group generated £4.0m of Adjusted EBITDA (pre-IFRS 16) in FY22, a reduction of £4.7m compared to FY21. This decrease was most notably driven by the £4.8m VAT benefit that was received in FY21.

Whilst the ongoing challenges of inflation impacted our Adjusted EBITDA for FY22, we remain confident that our competitive price point and customisable offering put us in a strong position to continue to grow and succeed going forward.

Cash flow

Cash generated from operations decreased in line with the reduction in Adjusted EBITDA, save for the settlement of a number of FY21 working capital related cash flows (namely leasehold payments) that were deferred to early FY22. 

Cash expenditure on property, plant and equipment increased due to the addition of more new sites in FY22 compared to FY21 and higher maintenance capital costs arising from numerous refurbishments when the Group converted five Chilango sites to Tortilla branding.

The acquisition of Chilango Ltd 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 Ltd for working capital needs.

Financing and net debt

The Group had cash balances of £2.4m on 1 January 2023 which translated to a net debt position of £0.6m (FY21: net cash of £6.7m).

The Group's £10.0m revolving credit facility (RCF) is held with Santander UK plc and comprises a drawn balance of £3.0m at 1 January 2023 with a further £7.0m of undrawn facility available to the Group.

The financing facility attracts interest at a rate of 2.75 percent above SONIA on drawn balance, subject to an upward-only ratchet based on increased net leverage levels, and is secured until 14 September 2026.

Share based payments

Share-based payment expenses of £0.4m were recognised in FY22 (FY21: £0.1m) relating to the Group's Long Term Incentive Plan ("LTIP") created as part of the Group's admission to AIM.

Dividend

The Board did not recommend a dividend for FY22. As previously announced, 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 year ending 1 January 2023, the Directors have considered the Group's cash flow, liquidity and business activities.

During FY22 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 1 January 2023. The Group had cash balances of £2.3m on 1 January 2023 which translated to a net debt position of £0.6m.

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.

Andy Naylor
CHIEF FINANCIAL OFFICER
27 MARCH 2023

FINANCIAL STATEMENTS

Consolidated statement of comprehensive income

For the 52 weeks ended 1 January 2023

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.

 Consolidated statement of financial position

As at 1 January 2023

The accompanying notes within this announcement form an integral part of these Financial Statements.

The financial statements of Tortilla Mexican Grill plc (registration number 13511888) were approved and authorised for issue by the board and were signed on its behalf by:

Consolidated statement of changes in equity

For the 52 weeks ended 1 January 2023

The accompanying notes within this announcement form an integral part of these Financial Statements.