Tortilla plans AIM float

24 September 2021

Tortilla, the largest and most successful fast-casual Mexican restaurant group in the UK, announces its intention to seek admission of its shares to trading on AIM.

Tortilla specialises in the sale of freshly made Californian-inspired Mexican cuisine. The Group has 62 sites worldwide, comprising 50 sites in the UK operated by the Group, two sites franchised to Select Service Partners UK Limited (“SSP Group”) in the UK, and 10 franchised sites in the Middle East.

The brand is synonymous with an energetic, vibrant culture, and with providing a great value-for-money proposition. It embraces 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.

Tortilla is also pleased to announce that Emma Woods has joined the Tortilla Board of Directors as non-executive chairwoman and Laurence Keen as a non-executive director. Emma has extensive experience at Board level in multi-site leisure businesses. She is currently a non-executive director for The Gym Group plc and her hospitality experience includes being the CEO of Wagamama from December 2018 to June 2021. Laurence is currently CFO of Hollywood Bowl Group plc.

The Group has established a track record of strong financial performance driven by consistent expansion of the property portfolio and like-for-like growth. From FY2019 to LTM June 2021, the Group generated 250 per cent. EBITDA growth and opened eight stores. For the 12 months to June 2021 Tortilla outperformed the Coffer Peach Business Tracker by an average of 46 percentage points.

The Directors believe the Group is strongly positioned to capitalise on further growth opportunities in the post-Covid-19 pandemic landscape. The economic challenges facing the hospitality sector have resulted in a dramatically increased number of vacant units on the market with rent levels rebalancing to more sustainable levels, providing Tortilla with an unprecedented opportunity to accelerate its UK rollout strategy.

The Group is targeting circa 45 new sites over the next five years including building on the success of the existing portfolio of delivery-only 'cloud-kitchens'. The Directors are also targeting further franchising and licencing opportunities.

KEY STRENGTHS

Product offering
Tortilla has developed a reputation for its freshly prepared, customisable, value-for-money product range of burritos, tacos, and salads which enables the Group to appeal to a wide demographic and helps it maintain its loyal and broad existing customer base.

Embraces fast-growing sector trends
The Directors believe that Tortilla powerfully addresses many of the key trends that consumer demand is driving across the fast-casual food segment and wider hospitality industry, including: healthy eating; freshness and high provenance; convenience - including eating out and delivery; customisation; and the continuing growing popularity of ethnic food.

Flexible site locations and formats
The Group has succeeded with significant geographical spread across the UK, with almost half of the estate and four of the Group's top ten selling stores being located outside of the M25 motorway. In recent months, the Group has opened stores in Chessington World of Adventures, Windsor, Edinburgh, and Exeter.

The Group's operating model works across a variety of site types, such as high streets, shopping centres, residential areas, cloud-kitchens, transport hubs and theme parks.

The flexibility of the locations is driven by three key factors: (1) the trading strength of the brand over various sales channels: eat in, takeaway and delivery; (2) the ability of the brand to trade in small units and without extraction; and (3) a value-for-money proposition that resonates with students, office workers, local residents, and office workers.

Scalable central infrastructure
Tortilla operates a 5,500 square foot Central Production Unit (“CPU”) in Tottenham Hale which provides the Group with a robust central kitchen infrastructure, providing it with cost advantages over its direct competitors, giving it flexibility to increase the size of its estate in parallel with its growth strategy, and ensuring product and quality consistency across all of its sites.

Clearly defined-multi-channel marketing strategy
The Group's multi-channel marketing strategy includes new-site launch marketing, seasonal product and recipe campaigns, social media marketing, email marketing, brand collaborations, in-store proposition messaging and an extensive influencer network which drives engagement across the most popular social media platforms.

The wide-reaching impact of the marketing strategy has allowed the Group to build and maintain a loyal and diverse customer base with a significant number of the customer base in the younger age demographic of 16 - 34 (74 per cent.).

Strong leadership team and investment in the Group’s people
Tortilla's senior management team has demonstrated its ability to deliver strong and sustainable growth. Under the stewardship of an experienced Board of Directors, management is well placed to execute on the Company's growth strategy and available opportunities.

PLACING
Admission is expected to take place on or around 8 October 2021.

Liberum Capital Limited is acting as Nominated Adviser and Sole Broker in relation to Admission.

Richard Morris, Chief Executive Officer of Tortilla, said: “We are delighted to announce Tortilla’s Intention to Float on AIM, which marks an incredibly exciting milestone in our continued growth journey. Since its launch in 2007, Tortilla has established a long-term track record of strong financial performance driven by considered expansion of the property portfolio and like-for-like growth.

“The business has shown itself to be extraordinarily well positioned throughout the pandemic, as the Tortilla product proposition is well-suited to the growing delivery market and we have proved the brand’s flexibility to operate across a range of locations and formats, including smaller sites and cloud kitchens.

“We believe that this IPO unlocks our ability to consolidate on this momentum and enables us capitalise on significant long-term growth opportunities in the post-Covid-19 pandemic landscape.”

BACKGROUND TO THE COMPANY
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. The Group has 62 sites worldwide, comprising 50 sites in the UK operated by the Group, two sites franchised to SSP Group in the UK, and 10 franchised sites in the Middle East.

The Group was founded in 2007 by Brandon Stephens, originally from California who, upon his arrival in London in 2003, found it difficult to satisfy his desire 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 brand is synonymous with an energetic, vibrant culture, and with providing a great value-for-money proposition. It embraces 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.

The Group has established a track record of strong financial performance driven by consistent expansion of the property portfolio and like-for-like growth.

• From FY2014 to FY2019, the Group opened 20 stores (excluding franchised outlets) and generated 18 per cent. and 12 per cent. sales and EBITDA CAGR respectively. Between September 2017 and February 2020 it outperformed the Coffer Peach Business Tracker, commonly seen as the benchmark index for the UK hospitality sector growth, by an average of 4.9 percentage points per month.

• Since March 2020 and the outbreak of the Covid-19 pandemic, the Group has continued to perform strongly, which the Directors believe is attributable to the Group's flexible business model, a proposition which is well-suited to take-away and delivery, and a range of locations benefitting significantly from the increased work-from-home trends. The Group opened eight stores, and generated 250 per cent. EBITDA growth from FY2019 to LTMJune2021. For the 12 months to June 2021 Tortilla out-performed the Coffer Peach Business Tracker by an average of 46 percentage points.

The Directors believe Admission will enable the Group to raise new equity in order to accelerate its growth strategy, increase brand awareness, and position it strongly for the next stage of its development, which will further underpin its expansion plans, as well as assist in the recruitment and retention of its employees and key personnel. Additionally, Admission will allow the Selling Shareholders to realise part of their investment in the Group.

GROWTH STRATEGY
The Directors believe that the Group is in a strong position to continue its organic growth strategy through the rollout of new sites in addition to franchising opportunities. Cloud-kitchens will also contribute significantly to the growth strategy for the Group, as they provide opportunities to drive increased sales volumes. The Directors believe that the Group is now also at a stage in its growth profile where it is well capitalised, with the requisite operational infrastructure in place to scale.
UK roll-out

The primary objective of the Group's growth strategy will be to accelerate its UK presence, with the Directors targeting circa 45 new sites in the UK in the next five years.

The Group opened six and four new sites in FY19 and FY20 respectively. The Group has so far opened six new sites in FY21. For FY22, the Group has seven sites that are in the legal documentation stage and a further eight sites at the heads of terms stage.

The Directors believe that, due to the Covid-19 pandemic and the consequent negative impact on the wider hospitality industry and commercial property market, an exceptional opportunity exists for the Group to secure favourable rental rates and incentive packages and that the Group is now strategically well positioned to capitalise on this.

Franchising
The Group entered into an agreement with SSP Group in 2019 to franchise the Tortilla proposition in transport hubs. The first site with SSP Group opened in London Euston Station in December 2019 followed by the Group’s first airport location at Gatwick Airport which opened in September 2021. Additional sites are expected to be rolled-out in due course. With transport hubs becoming an increasingly important channel for operators in the fast-casual industry to access consumers, the Group intends to leverage its easily scalable business model to further expand its franchise model, with the spare capacity in the CPU and established operational infrastructure allowing it to do so within its current growth plans.

Cloud-kitchens
The suitability of burritos and a number of the Group's other product offerings highlight the significant opportunity that exists to expand the Group's delivery proposition. Cloud-kitchens are acknowledged as the most commercially efficient avenue by which to accelerate this process, and the Group has successfully integrated four cloud-kitchens into its existing property portfolio to date. The Directors believe that continuing to increase the number of cloud-kitchens in residential areas across the UK as part of the Group's expansion plans will allow it to align with, and satisfy the growing demand for delivery products in the UK market.

Strategic partnerships
Strategic partnerships with amusement parks, contract caterers, supermarkets, hotels, and cloud-kitchen franchisees are also considered by the Group as an attractive opportunity to further expand its presence domestically through multiple avenues. Some of the key strengths of the Group that will drive success in these channels are: (1) being able to operate in small kitchens, without extraction, (2) access to a CPU to produce some of the slow-cooked products which just need regenerating at site and (3) no requirement for high skilled chefs.

International
Tortilla is already the largest fast-casual Mexican chain in the UK and Europe. With the popularity of burritos and tacos growing worldwide with successful chains across Europe, Asia, the Middle East and Australia, there is an opportunity for the Group to establish a broader presence internationally. The Group is exploring the opportunity to expand into Europe in the mid-term.

As at the date of this document, the Group's only international sites are the 10 sites being operated in the Middle East by Eathos Ltd, as franchisees.

New financing facility
The Group signed a new financing facility with Santander UK plc on 14 September 2021 to replace the Group’s prior facilities. Santander has provided financing to Tortilla since 2012 and has remained a supportive partner throughout this period. The new Senior Facility Agreement allows the Group to access up to £10 million of funds via a Revolving Credit Facility for general working purposes and will provide the Group with the balance sheet flexibility to pursue its growth plans. Following Admission, the Group anticipates being in a net positive cash position by the end of 2021 and therefore the facility provides significant undrawn cash headroom.

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