Good afternoon, and welcome to Sphera Franchise Group's Q3 2023 Results Call. My name is Zuzanna Kurek, and I am Investor Relations Officer at Sphera Franchise Group. Today morning, we have published our Q3 2023 report, which you can find on our website in Investor Relations section, as well as on the website, Sphera Franchise Group Investor Profile. Thank you for joining our call to discuss our performance in the first nine months of 2023. Before we begin, I would like to mention that this call is being recorded and that the recording of this call will be updated on our website by tomorrow at the latest. As stated on the call invite, by joining the video conference, you automatically and implicitly consent to it being recorded. If you do not consent to being recorded, please leave the call.
In terms of organizational aspects, we will follow our standard call setup, which means the management will deliver a presentation outlining the Q3 2023 results, and later we will have a Q&A session. Please note that all the participants are put on mute. If you would like to ask a question, please type this in the chat box. Feel free to do it during our presentation, and we will answer all of the questions in chronological order as soon as the presentation of the management is concluded. Last but not least, I would like to mention that we might be making forward-looking statements today during this call regarding the future performance of Sphera Franchise Group and that actual results may differ materially.
We encourage you to review the disclaimer that we have included in the presentation, which is available, right now on your screen, as well as you can find it in the presentation uploaded on our website. The disclaimer applies equally to all the statements made in today's call. Now we can kick off the call. I would like to introduce the management that is here with me today and will present you with our Q3 2023 results. I am joined today by Călin Ionescu, Chief Executive Officer, Valentin Budeș, Chief Financial Officer, and Monica Eftimie, Chief Marketing Officer. I will now pass the floor to our CEO, Mr. Călin Ionescu, who will share some insights about our performance in Q3 2023. Călin ?
Thank you. Good day, everybody, and thank you for joining this call. With the nine months results, we mark another milestone. We reached RON 1 billion in sales for the first time in our history for this reporting period. This is not the only thing I am happy to share. Our normalized EBITDA margin has improved to 8.8%, while the normalized net profit reached RON 43 million, 175% higher compared to the first nine months of 2022. These results are relevant for the current stage Sphera has entered. First of all, a steady, more moderate growth in a VUCA environment. The RON 1 billion lei in sales represents a 12.7% year-on-year increase. It is a level consistent with pre-pandemic levels.
However, as opposed to the market conditions back then, we now operate in a volatile and uncertain both internal and external. Internally, this year has brought, unfortunately, another confirmation of the unpredictability of government behavior. The package of fiscal measures changed from one day to another, only to finally be adopted without taking into consideration the feedback of the business environment. The minimum wage increased once again, almost overnight, I must say, and I not even to details about the bubble with the cash payment ceiling. All in all, the result of the fiscal changes is that the inflation forecast from 2022 has been revised upwards. However, when we guide our business by official estimates, we also consider that this revision might not be the last, given that 2022 is an electoral year.
We can only hope that our politicians learn from previous experience and make a wiser decision next year. Moving on the external environment, we are in the very unfortunate situation in which from one reporting period to the next, we add another war with unpredictable consequences. As a result, the evolution of the global economy is still a question mark, and prospects of a recession are still looming. With interconnected markets nowadays, the Romanian economy will be in sync with the world's. While we are not happy with this volatile environment, we are not worried. We are confident that given our robust fundamentals, plenty of insightful experience and professional team, we will be able to surpass future challenges as we did in the past. I was saying that the result of the reporting period are relevant for the new stage of business has entered.
This includes the consolidation of the KFC business in Romania. We continue to develop our network, growing in a sustainable manner, targeting mostly cities with potential where we are not currently present, but also adding drive-throughs that allow us to serve a large customer base. The sales pace has stabilized to more moderate rates for KFC Romania as well, given both the scale of the business and its long history on the local market. At the same time, this is a period of sharp increase and improved profitability for the younger brands, Taco Bell, KFC Italy, and KFC Moldova, Moldavia.
The careful and efficient expansion strategy of Taco Bell, coupled with an excellent plan and executed marketing blueprint, as well as a well-tailored pricing strategy, have proved to be the correct cocktail. The company continues to register positive EBITDA and double-digit sales growth rates.
In case of KFC Italy, after making strategic decision to optimize the network earlier in this year, we are now seeing the fruit of those efforts, with the brands turning to the net profit. KFC Moldova remains an extremely profitable business, with an EBITDA margin of 16.9%. Last, but surely not least, we have entered a stage of accelerated activities to streamlining of Pizza Hut. We are closing 13 restaurants, and we are confident that even though in the short term, this is visible in our result, results, and Vali will take talk more about this.
In the future, we estimate to be not long ahead of us, we will see the business turn around. One important aspect I must mention here is that we put great emphasis on ensuring that the colleagues in Pizza Hut restaurants planned to close are impacted as little as possible.
We are the largest group in the local food service industry, a large, solid company for which in the ESG acronym is as important as the other two letters. We are and have been capable to absorb and maintain the development paths we have committed for, to four colleagues impacted by the organization process. They have all received relocation proposal within another Pizza Hut unit, where this was possible, or in KFC or Taco Bell. We see this as a great gain as we strengthen of our teams in existing restaurants. I will wrap up here and give Vali the opportunity to walk you through the details of the current financial reporting. Vali, please.
Thank you very much, Călin. Good afternoon to all listeners on this call. I will start with a confession. I have to admit that I am very pleased that for quite some earnings calls now, I can come to you saying Sphera reached a new record high. So even if it is not news, I must say I'm extremely proud we have reached the RON 1 billion milestone in sales in the first nine months for the first time in our history. But more than this, I'm happy that behind this figure, lying indicators that show a well-planned and well-executed strategy that delivered, and most importantly, has the potential to keep Sphera on growth and improve profitability track we have seen in the post-pandemic period.
We have ended the first nine months of this year with a normalized EBITDA 62.5% higher, an increase of almost 55% in operational profit of the restaurants, and triple-digit growth in net profit. These results clearly demonstrates our unwavering commitment to efficiency, starting with tactical measures that ensure cost control across all areas of the business, to strategic actions such as the reorganization of Pizza Hut network. It's a path we have embarked on fully, and whose benefits we are confident will be more and more visible in the upcoming period. Please allow me now to go into the specifics of the results, and as usual, I will start with the nine-month performance. As previously mentioned, revenue totaled RON 1.07 billion, which represented a 12.7% rise compared to the same period of last year.
This increase is the result of a meticulous, tailored pricing strategy and higher sales volumes as well, driven by insightful, creative, and efficient marketing activity. An important achievement is that due to the increased efficiency, restaurant operating expenses grew at a slower pace than sales, namely 9.5%, with their weight in sales decreasing by almost three percentage points to 90.6. Our network performance has significantly improved, with restaurant operating profit of RON 100.6 million for the first nine months, 55% higher year-on-year, a result of improved results in KFC across all markets and Taco Bell as well. Moving now in GNA, they continue to be in check, maintaining a nine months weight in sales compared to the one in the first nine months of the previous year, namely 4.3 percentage points versus 4.2.
The cost control measures taken across the group at all levels resulted in a very good evolution in terms of profitability for the first nine months compared to the similar period last year. Normalized EBITDA increased by 62.5% to RON 94.7 million, and normalized net profit almost tripled, reaching RON 42.9 million versus RON 15.6 million last year. We are considering the normalized indicators as several one-off events are impacting the result of this reporting period. One is the closing of the 13 Pizza Hut restaurants, part of the brand's turnaround process, which Călin mentioned earlier, and which we publicly announced a couple of months ago. The impairment of the closing of the units is RON 4.1 million, while the closing costs are around RON 2.3 million.
Another event is the temporary closing of KFC Romana and Paul Romana restaurants due to the building restorations, with an impact of approximately RON 0.4 million. Now, on the next slide is the breakdown on quarters, and I will detail the results of July-September period. I will start with restating what Călin said, namely, that we enter in a new phase in Sphera journey, which brings a more moderate growth rate, reflecting the pre-pandemic levels and indicative of the consolidation of the group's business across the three markets. Even so, Q3 brought another quarter of top line increases and historical sales for Sphera Group, which reached almost RON 380 million, a 9.1% year-on-year surge. The expense line grew in Q3, almost in line with the sales, up 10% to RON 339.2 million.
Testament to our commitment towards strict cost control management is the increase in food and material cost of only 4.1%, which is significantly below the inflation rate. This is the result of negotiation and close collaboration with all the suppliers for best prices, while maintaining the high quality standards which have long established our brand among customers. The second largest contributors to the expense line is the payroll and employee benefits, which saw a 12.8% increase, reflecting our effort to motivate and secure the employees based in an extremely tight labor market. As large part of our brand strength lies in customer experience, competent and dedicated employees are a crucial ingredient for the brand success mix. The expense line is almost impacted by the one-off events I have previously mentioned.
As such, the depreciation amortization increased 43 percentage points amounting to RON 14.6 million. Out of this amount, RON 4.5 million is due to the impairment of the non-current taxes related to the plan closings. As a result, if we exclude the impact of the one-offs, the profitability indicators had mostly a positive double-digit evolution. The normalized operating profit increased 19.8%, reaching RON 31 million in Q3, while the normalized gross profit for the period amounting RON 28.3 million, a 28.2 year-on-year increase. The normalized net profit is slightly lower by 3.3 percentage points versus Q3 2022, due to the increase in taxes, a combined effect of deferred tax and change in tax regime applicable to HoReCa companies in Romania.
In terms of normalized EBITDA, the evolution is positive, which is revalidating the efficiency of our strategy. It increased 14.4% year-on-year in Q3 to RON 42.4 million, while the margin stood at a comfortable level of 11.2%, a 0.5 percentage points improve year-on-year. Now, moving forward, looking to the breakdown on geographies, the situation is similar to the previous reporting periods. Romania is the biggest contributor to the nine months of 2023 turnover, with 86%, followed by Italy with 12.6%, and then the Republic of Moldova. Please allow me to talk a bit more about the business in these two markets, as their evolution, it's extremely notable.
We have proudly announced in our last call that KFC Italy reached breakeven in terms of net profit, as the business is entering in the consolidation phase. In the nine months, we improved the net profit margin by 9 percentage points compared to the same period of 2022, while in the Q3 , the EBITDA margin reached 12.4%. KFC Moldova, though a small business, is increasing steadily and boosting its profitability. The EBITDA margin for the Q3 stands at 18.8%, while the margin for the whole nine months period is at a comfortable level of 16.9%. Moving on the split per brand, it registered a visible change, reflecting their different stage at the moment.
KFC continues to generate the highest turnover, and as all three market register high growth rates, it contributed 86.1% to the nine months of 2023 turnover versus 85.5% in nine months of the previous year. The excellent performance of Taco Bell led to an increase in its share of total turnover of 0.6 percentage points to 5.8% in the first nine months. Pizza Hut contributed 8.1%, which is 1.2 percentage points lower than the similar period of 2022, following the initiation of the process to streamline the activity here. Now, next, the evolution of our network reflects as well the transformation of Pizza Hut is undergoing.
In the Q3 of 2023, two of the brand's restaurants, i.e., the Cluj Center and the Mureș Mall in Târgu Mureș, were closed. At the same time, we opened a new KFC restaurant, the second one in Alba Iulia, in the Carolina Mall. The judgment of the network will for Pizza Hut will intensify over the upcoming months as the process of the activity streamlining at Pizza Hut accelerates and the group continues to execute its development plan. It is visible even starting with October, when the five Pizza Hut restaurants closed, mainly unit serving areas with a high degree of overlap, resulting from a consolidation under one brand and the alignment of Pizza Hut and Pizza Hut Delivery operations in Romania.
Also in October, one KFC and one Paul restaurant, as mentioned, closed due to the external factors, as the owner decided to rehabilitate the building. At the same time, in October, we open, we expanded our footprint by entering a new city, Slobozia, with the drive-thru for KFC, and we have opened a new food court in Craiova for KFC as well. We have mentioned several times today, both me and Călin, about the process of activity streamlining that is happening at American Restaurant System, i.e., the operator of the Pizza Hut brand in Romania. As you know, this is a recurring topic in our call, so I would like to get a bit into the details of this undergoing, which implies changes on several layers.
Some of them started more than one year ago, such as the consolidation under one brand, which involved the alignment of Pizza Hut and Pizza Hut Delivery activities and operations. The next step was reorganizing the restaurant network to reflect this new structure. Therefore, we took the decision to close 13 Pizza Hut units over a period of approximately six months now, particularly unit serving area with a high degree of overlap resulting from these, brand consolidations. As such, on September 25, we enter a new phase with Pizza Hut by intensifying the process of turnaround the business. This new phase will be conducted by a new general manager. As of first of September, Mr. Costică Mișaca took over this position for an initial mandate of two years.
We are confident that this measure will lead to an optimization of cost, increased agility in face of the high competition we are facing in Romania, and not least, the better customer experience, all of which will be reflected in the profitability indicators we are monitoring. Now, next, there are some important fiscal changes in Romania that I must mention. Călin, touch point on, touch base on this point. We all know that, the saga of the fiscal package that unfolded during most of the year, it has been introduced an increased income tax for micro-enterprises from 1% to 3%.
This fiscal update is applicable for our group, only for US Food Network Romania, which will probably lead to the switch from tax on income, the 1% that we are applying as of now, to corporate income tax 16%, which we are planning to happen from first of January, 2024. This year, US Food Network Romania, the operator of the KFC, benefited from the option allowed to HoReCa companies by the state to pay only 1% of their income. The other Romanian entities we are operating in our group have opted to corporate income tax regime already, starting from first of January, 2023.
Also, something important, it was in the introduction of a new minimum tax of 1% on taxable basis for companies with a turnover higher than EUR 50 million, which, luckily, is not applicable for our group. Here, the only company meeting the turnover criteria, it's US Food Network, Romania, the KFC, but, luckily, it is generating more tax on profit than 1% tax on income, so no incremental taxation coming from this initiative. Another fiscal change impacts some products with added sugar, for which the current VAT tax of 9% will increase to 19%, also starting from first of January 2024. Moving now to the last slide. In my section, I'm very happy to see that we continue to benefit from investors' trust.
Sphera shares substantially outperformed reference indices in the first nine months of 2023. Since the beginning of this year, the shares appreciated 47.9%, while the BET Index grew 22.9%. Moreover, the total return for Sphera shares in nine months of this year, including the dividend paid on March, was 51.5% versus 29% increase in the BET-TR Index that we saw for the similar period. Before closing, let me briefly address 2 other significant events for the Q3 . The first is that we concluded the share buyback program, which we initiated in July in order to implement the share option plan for directors, buying the maximum of 104.1 thousand shares in scope.
The second is that following the GSM approval in October, we distributed another RON 45 million to our shareholders. With this, we reach an annual record high level of dividends, RON 65 million lei payment in 2023. All this show our strong commitment to delivering value to our shareholders, and we assure you we'll continue to do so. On this good note, I give the floor to my colleague, Monica.
Thank you, Vali, and good afternoon to you all. We've had a very busy Q3 with product innovations, value campaigns, continuous digitalization, and a new step in our community involvement. For KFC, the focus was on driving transactions while consolidating the brand by restating its core attributes: freshly prepared chicken with a unique taste, including two innovations in the menu. One such example is Hot Bites, a dark meat product, which was successfully launched this quarter. A spin of product innovation, but aimed at growing sales through transactions, was Pui Burger, a value offer communicated for the back-to-school period. The value for money perception is an attribute we constantly build up, both through disruptive offers such as Tuesday Bucket and everyday value through our well-known CEVA platform. Both initiatives drove traffic in the stores and had positive same-store transaction numbers.
Winning on taste is a strategic pillar for KFC, so we launched a campaign to reinforce that fresh chicken sourced from local producers is cooked by hand daily in our stores. Since consumers could be skeptical in opposition to the AI revolution, we offered a natural intelligence platform called Chat KFC, where real people answer real questions in real time. Moving on to Pizza Hut. Innovation and value are keywords for Pizza Hut as well. Over the summer, we introduced an innovation called Crown Pizza to attract both new and lost users. For the back-to-school periods, we launched Family Deals, a campaign aimed at improving transaction levels by offering any medium pizza at an affordable price point, which increased trial.
Disruptive values through early week special offers and everyday values through the launch of My Box are two initiatives which attracted price conscious consumers without cannibalizing sales. At Taco Bell, we continue to focus on driving trial and building brands. To increase consideration, we concentrated on value for products. As such, we launched Little Burrito and Little Crunchwrap, based on two of the most popular products among customers. This proved to be a winning card, as both campaigns resulted in double-digit same-store sales and transaction growth. As I've mentioned in the past, Taco Bell is a cult brand, so to continue building this, we relaunched this year the Nothing Ordinary campaign. It focuses on the distinctiveness of the experience and products Taco Bell offers while delivering strong sales.
One pillar support, supporting all three brands is digitalization, as consumers increasingly expect ease of access and frictionless experiences. So we continue to promote our click and collect services and e-commerce platforms to expand our user base and gain repeat visits from existing customers. Last but not least, we continue to play a valuable role in the communities. For the back-to-school period, we launched the second phase of our Tomorrow's Menu CSR platform. While in the initial phase, we focused on food needs, we now covered mostly educational needs through a partnership with the Zi de Bine NGO. Moving on to the financials. After Vali walked us through the figures, there is no surprise brands performed well during the nine months period.
KFC Romania remains the flagship brand, with sale, with sales of over RON 776 million, up 13.2% compared to nine months, 2022. Its profit margin are double digit. The operating profit of restaurants increased by 31.4%, normalized EBITDA by 31.4%, and normalized EBITDA up by 28.7%, and the normalized net profit by 29.3%. KFC Italy continues its very good performance after breaking even last semester in terms of net profit. With an increase in sales of 14.6%, up to RON 135 million, the company remains profitable for the nine months. The two KFC restaurants in Moldova maintain their track of excellent evolution.
With nearly 22% sales growth, the company closed the 9 months period with a net profit of RON 1.9 million , 33% higher compared to the similar period of 2022. Pizza Hut has a slight decrease in sales at nine months of 2.3% and the start of the reorganization process that my colleagues previously mentioned. It closed the period with a negative normalized EBITDA of RON 4.6 million , and the normalized net loss of RON 9.3 million . However, the quarter's three results factor in the effects of the acceleration in the streamlining process and we expect that in the medium to long term, the value of this strategy will be indisputable.
Moving on to Taco Bell, it once again had excellent results with sales up 25.5%. The brand continues to record positive EBITDA and a three-digit growth rate. Moreover, Q3 was a champion quarter in terms of sales, EBITDA, and net profit. Our ingenious marketing strategy brings consumers to our restaurants, so the share of delivery, the share of delivery orders decreased by 5 percentage points quarter-on-quarter in the Q3 to 23%. On this positive closing note, we look forward to your questions.
Thank you very much, Monica. We are now ready to start the Q&A session. As I mentioned at the beginning of the call, you are invited to type your questions in the chat box. I see the first question was sent at the beginning of our call regarding the expanding on the restaurant reorganization program. So if there is anything still unclear following what Călin and Valentin mentioned about the reorganization of Pizza Hut network, please let us know. Otherwise, we're going to jump to the next question, which is the following: Can you give us the total sales? How much represent dine-in, and how much represents delivery, EBITDA, and net loss for the 13 Pizza Hut restaurants that will be closed? And I will invite Valentin to answer that question.
Yes. Thank you, Zana. So, for this restaurant in scope, we have, on an annualized basis, an amount related to sales of around RON 26 million. Out of this amount, delivery represents 70%+. So this will lead us to an annualized negative EBITDA of around RON 3.5 million to RON 4 million and a net loss of around RON 4.6 million .
Thank you. I hope that answers your question. Now, the second one is, how do you see sales and net profit for 2023?
So I will take this as well. As you are aware, we didn't came with a new guidance so far for this year, so we are still fighting for the budgeted figures. Definitely, it's very challenging. We run with a concrete handicap as of now because the pricing it was not executed as embedded in the budget, for obvious reasons, i.e., that the inflation didn't strike as anticipated in the budget. So, this will put even more pressure on the challenge we have to reach the figures. But we remain confident, and we are doing all the possible efforts to go towards the approved target for this year.
Thank you, Valentin. I would like to mention we have one more question. If there are any further questions, please, please type them right now. Otherwise, we'll conclude the call after answering the, the last question. So, the question is as following: Good afternoon, and congratulations for the results. Can you tell us how much from the 12.7% year-on-year increase is attributable to price increases? Again, this is for Valentin.
Yes. So, around one-third of the increase is attributable to transaction increase. An increase that is seen also on the same store level, and obviously, the rest, it's a result of higher average scale.
Perfect. We just received another question: Do you have a hard target deadline for Pizza Hut return to profitability? And, I will let Călin answer.
A very short and very clear answer. Our target is next year, Pizza Hut to turn around to full profitability.
Thank you. We got one more, one more question from our analyst. Hello, and congratulations on the results. Regarding Pizza Hut restructuring, what would be the financial impact on the company's 2023 financial results, and will the restructuring also affect 2024? Again, I will pass this to Valentin.
Yeah. So, since we have a clear commitment towards the reorganization and all the costs are on the table are committed, whatever is reflected for the nine months, it is covering the closing of the entire number of 13 restaurants. So the impact will be just fine-tuned based on the actual figures for the one not yet already closed, but it is the best estimate that covers the cost, both the cost and the impairment of this closing. So, in 2024, we do not expect to have costs related to this turnaround, and as mentioned by both me and Călin, we are confident that we'll see positive effects next year.
Thank you very much. This concludes right now our Q3 2023 Results Call. This is also our last call for 2023, so thank you all for another year with us. We will be publishing the financial calendar for 2024 in January, in line with the Bucharest Stock Exchange requirements, and most probably , without any doubt, we will hear each other again at the end of February, when we'll be reporting the preliminary results for 2023. It will also include the Q4 . Thank you all very much, and we wish you a great, great day.