Good afternoon, and welcome to Sphera Franchise Group H1-2023 Results Call. My name is Zuzanna Kurek, and I'm the Investor Relations Officer at Sphera Franchise Group. Today morning, we published our H1-2023 report, which you can find on our website in the investor relations section, as well as on Bucharest Stock Exchange's website, SFG investor profile. Thank you for joining our call to discuss our performance in the first six months of this year. Before we begin, I would like to mention that this call is being recorded, and that the recording of the call will be available on our website by tomorrow. As stated on the call invite, by joining the video conference, you automatically and implicitly consent it to being recorded. If you do not consent to being recorded, please leave this call.
In terms of the organizational aspects, we will follow our standard call setup, which means the management will deliver a presentation outlining the results for the first six months of 2023, and later we will have a Q&A session. Please note that all the participants shall be on mute. If you would like to ask a question, please type it in the chat box. Feel free to do it during the call, and we'll answer all the questions in chronological order as the presentation of the management is over. 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 might differ materially.
We encourage you to review the disclaimer that we have included in this presentation, which is also available on our website, as well as on the Bucharest Stock Exchange website. This disclaimer applies equally to all the statements made in today's call. Now, I would like to kick off the call. First, I will introduce the management that is here with me today and will be presenting you with our 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 the first six months of the year. Călin?
Thank you, Zuzanna. Good afternoon, everybody. Thank you for being here today in this call. We bring once again to good news. The results for the first six months of the year confirm the growth trends Sphera has entered since the end of the pandemic. We have delivered in terms of sales increase, but also profitability, despite the challenging conditions we encountered and which remain in the short term. Inflation is still high, and although it has tempered, we continue to see levels we haven't faced in more than 15 years. There is still a lot of uncertainty with regards to the future, both internal and international. Locally, several fiscal changes are under discussion, and the government has yet taken a decision on how to address the budget deficit.
Internationally, we face the prospects of an economic slowdown or even a mild recession. Geopolitically, risks persist. All this puts pressure on the supply chains and customer behavior. We have factored them into our plans, adapted and managed to continue our steady while improving our profitability. It's worth noting that first half of this year is one of the more profitable semesters in Sphera's history. At the same time, please mind that second quarter 2023 is the first quarter where results are compared to post-pandemic figures from the second quarter of 2022. As a result, moving forward, we expect the year-on-year growth rates to be more moderate, mirroring pre-pandemic levels. I will briefly mention some key figures, and Valentin Budeș, Sphera's CFO, will go into the details.
The total sales increased by almost 15% in the first half of 2023 versus half one of 2022. EBITDA saw a triple digit increase, 146.5%, while the net profit stood at RON 19.4 million. However, beyond the performance, there are other major achievements that I want to highlight. US Food Network Italy, our company to operate KFC in Italy, closed the previous breakeven with RON 6 million EBITDA, compared to a negative figure in first half of 2022. American Restaurant System, Pizza Hut [audio distortion] restaurant operating loss in the first six months. These improvements are the result of our very strict cost control management and cost optimization measures we have been carrying out in the past quarters.
We continue to pay close attention to cost at all levels and size all market opportunities to engage with our suppliers and obtain the best deals. As a result, restaurant expenses as a percentage of sales decreased with almost 5 percentage points, reaching 91.2% of sales in the first half of 2023, versus 96% in the first half of last year. All cost categories saw moderate increases, with food and material costs rising 7.2% year-on-year, lower than inflation rates for food products. Aiming as well to optimize costs while securing sales, we decided to gradually outsource our own delivery fleet to our existing partners. In the second quarter of this year, 10.5% out of all sales for delivery were delivered using Sphera's own delivery capacity.
Delivery in general, is on the downward trend, as expected following the pandemic, when customers prefer to dine in. As such, the total value of sales from delivery in the second quarter, 2023, is 12.7% lower versus second quarter of 2022. There are other three major developments I want to cover before moving on the details presentation of the financials by Valentin. First, the fact that in the first half of this year, we reached an absolute milestone for the total local market. KFC opened restaurant number 100 in Romania. KFC is the largest local food chain, and Sphera is to consolidate its leading position in the food service industry. We continue to develop and we aim at opening, especially drive-through restaurants, the format that covers all sales channels: dine-in, takeaway, delivery, drive.
Second, we have published at the end of June our sustainability report for 2022. We are one of the few companies that not only abide by the legal requirements and publish the report in due time, but we go beyond the mandatory and have higher transparency and increased sustainability efforts. We do this both because we believe it's our duty to be an example as a leading company and because sustainability is at our core. We are on the market for almost 30 years, and we plan to be for at least another 30. We invite you to read our report to find more about our initiatives and results, if you haven't done this yet. You can find it on our website. Third, and this is not a development for the second quarter, but a more recent one.
Sphera shares will be included starting tomorrow in the MSCI Frontier Markets Small Cap and MSCI Romania Small Cap Indices. It might not be news to you, but I didn't want it, this to go unnoticed, as it is an important steps for us. It is the result of our strategy and efforts to increase the visibility of the group on an international level and improve the liquidity, and we are very proud of this. With this in mind, I pass, the floor to Valentin.
Thank you, Călin, and a warm good afternoon to everyone joining our call today. We are very pleased to report that our financial performance has been strong, with record-breaking revenues, profits, and rising shareholder value. This accomplishment stands as a proof of our unwavering commitment to operational excellence and ensuring utmost customer satisfaction. H1 2023 was the best H1 semester in history, both in terms of sales, EBITDA, and net profit, registering a robust growth and improved operating margin. Restaurant operating profit in H1 was more than double versus similar period of last year, as a result of an efficient cost management and optimization of our operations. In Q2 2023, we had significant increase in net profit at consolidated level, 5.5 x higher than the similar period of last year. Q2 2023 EBITDA increased by 65% versus Q2 2022.
The great performance has been recorded across all markets in which we are operating. In Italy, we have demonstrated our ability to generate positive EBITDA on a sustained basis for each of the past 12 months, and even reached the break-even point in H1 2023 in terms of net profit. In Moldova, since Q2 2020, in every single quarter, we achieved double-digit EBITDA margin. Furthermore, in Q2 2023, we have obtained the highest Q2 double-digit net profit margin in history for a similar period. We are confident that our strong EBITDA performance will continue in the future as we continue to execute on our growth strategy. The consolidated net profit for the first semester reached RON 19.4 million , compared with a loss for a similar period of last year.
This performance represent the highest level of H1 profitability recorded since listing, embodying our commitment to continuous improvement and our never give up attitude. After highlighting the key developments of the first half year, I will walk you through our business performance and outlook in more details. Sales increased in H1 by 14.8% to RON 696 million. In H1, we achieved the highest H1 sales level ever recorded, driven also by the increase of number of transactions. Once again, same store improved the performance, their sales recording a notable uplift. In Q2 2023, the sales increased by 10.1% versus last year, this being the first quarter where the results are compared to the post-pandemic figures from Q1 2022, as Călin mentioned as well.
We will further capitalize on the amazing performance of having Q2 as the 10th consecutive quarter with same-store sales growth. Our ability to consistently grow our sales, even in the face of the increasing competition, this demonstrate the validity of our robust business model and our dedication to delivering amazing products and creating memorable experience for our customers. Regarding the cost of goods sold, in H1 2023, gross profit margin showed a marked improvement of 2.4 percentage points versus last year. The increase of food and material costs in H1 of 7.2% versus last year was lower than the inflation rates for food products registered at national level in Romania. The weight of cost of goods sold in sales reached 33.5% in H1, while during Q2 was only 32%-33.2% of sales.
This meaning that it was lower at 3.3 percentage points versus Q2 2022, and lower with 0.5 percentage points versus Q1 2023. So, a reduction for both categories. However, we are closely monitoring the inflationary pressure that persists as a potential challenge. Now, moving to the payroll costs, this increased by 15.1%. In H1 is a combination effect of network development and also the labor market alignment. The weight in sales remained, though, almost in line with the one recorded last year. For Q2 2023, from a per sonnel perspective, we have a weight of 23.7% with an increase of 14% versus last year. We are confident that the investment in our employees will create a stronger and more successful company in the future.
Now, going forward to the rent cost. In H1, this amounted for RON 50.5 million, with a weight in sales of 7.3%, mainly due to the larger restaurant footprint and reflecting the rent contract variable structure. In Q2, the rent cost amounted for RON 26 million, with 7.2 weight in sales. The next cost line is the advertising expenses, where we have made a strategic investment in marketing to increase brand awareness and drive sales in the first six months of 2023, in the amount of RON 35 million, which represents 5% of sales, also in line with our commitment to the franchisor. Other operating costs recorded a slight increase of only 3.1% in the first semester versus last year, reaching RON 92 million.
However, the weight in revenue decreased with 1.5 percentage points versus H1 2022, reaching 13.2%. In Q2, other operating costs amounted to RON 45.5 million . The weight in sales being lower with 1.1 percentage points versus Q1, reaching 12.6% of sales. The main contributors of the stable evolution of other operating expenses have been lower aggregator costs, energy costs, and lower volatility in the third party costs. Aggregator costs, as Călin said, decreased in H1 versus the previous years, with RON 2.8 million from 25.5 to 22.7 by 11.1%. As a result of the decreased aggregator sales, leading to a decrease of their weight from 21.6 last year for the first semester, to 16.1 this year for the same period.
This being linked with the traditional sales channel, increasing their weight. The weight in sales for the general and administrative expenses remain relatively constant at 4.4%. Now, finance costs decreased by 7.3%, mainly due to lower FX impact as a result of more stable FX rate in H1 2023, versus the similar period of last year. Moving to cash flow and balance sheet, I'm pleased to report that our cash flow remains strong and stable at the level of RON 84 million, looking at the end of June 2023, despite the payment of RON 20 million worth of dividends towards our shareholders. In H1, we have invested RON 25 million, both in new units and existing stores for remodeling and digitalization.
During H1, we have made strategic capital investment that are aligned with our long-term growth plans. Regarding the bank governance, our ratio of net debt to trailing twelve months adjusted EBITDA is 0.6, being at the low end of our track record range. Now we can see, as usual in this slide, a snapshot of revenue, EBITDA, and expenses. In H1, we have achieved impressive growth in both our top line and bottom line numbers. That is a result of our efforts to streamline our operations and manage costs effectively. We can see 15% increase in sales, triple-digit increase of EBITDA, if we are comparing with the previous year.
Also, for Q2 2023, we recorded also an exceptional performance, with EBITDA increasing 65% and the net profit 5.5 x higher versus last year. Now, the following slide displays our market and brand share. Again, a common slide, with Romania obviously the main market, having a share of 86.3%, while Italy secured a market share of 12.3%. In terms of brands, KFC remains the biggest contributors to the. From a turnover point of view, with revenues of RON 596 million, accounting for a share of 86% in H1, and then Pizza Hut generating revenues of RON 59 million, with a share of 8.5%, while Taco Bell brought in RON 41 million, representing 5.8% share. Now, some insights about development.
First, we are confident that our strategic approach to development will establish a strong foundation for the sustained success in the market over long run. In the first semester of 2023, we had opened four new KFC restaurants in Romania. As Călin mentioned, reaching an important milestone for KFC brand in Romania, the 100 stores in our country. Out of these four new openings in the first semester, two new integrated HoReCa retail stores developed in partnership with Rompetrol. One drive-thru location in Giurgiu Shopping Park, and another drive-thru location in Slatina. Consequently, at the end of June, we were operating 179 restaurants, 159 in Romania, 18 in Italy and two in Republic of Moldova.
In January, we have closed two unprofitable location in Italy, i.e., KFC Verona Corso Milano and KFC Torino Moncalieri, and also in July 2023, so beyond the first semester, the Pizza Hut Delivery location in Cluj-Napoca Centru has been closed as well. At the end of June 2023, around 5,400 employees have been contributing to the achievement of our group success. Now, going forward, we have some info related to the capital market, some of them touched by Călin as well. First of all, we need to emphasize the notable increase in our share price by 29% versus December 2022. This, while BET Index grew only by 7%.
Also worth mentioning that at the end of June, Sphera initiated a share buyback program for the purpose of implementing the SOP for the activity related of the years 2021 and 2022, having a maximum shares in scope of 104,000 shares. On August 10, the Global index provider, Morgan Stanley Capital International, the MSCI, announced that Sphera shares will be included as of end of August in the on one hand, the Frontier Markets Small Cap, and on the other hand, the Romania Small Cap indices. This bringing greater transparency to the financial markets and enabling the investment community to make better decisions. Also regarding dividends payment, we propose to pay further RON 45 million on October 10, 2023.
This dividend proposal, of RON 1.16 per share, being subject for approval on the agenda of the ordinary general meeting of shareholders on 4th of September. Overall, during 2023 full year level, we will record a historical payment of dividends, if this will be approved, of RON 65 million . With this, I finish my part of the presentation, so I'm more than pleased to pass the floor to Monica.
Thank you, Vali. Hello, everybody. Before going into detail with the individual updates for marketing, a few words about the general context, which shapes our marketing strategy for all brands. Although inflation is subsiding, consumers continue to pay close attention to their spending, looking for offers that are both budget-friendly and quality satisfying. As such, you will see we address this expectation with value for money offers for all brands, which drive visit into stores and transactions. At the same time, we need to stay true to our core and strengthen the brands through products that have built our reputation throughout the years. As such, we continue to improve or bring into focus distinctive products. Moreover, they have the role of ticket protector, counterbalancing the value for money offers. With this in mind, I will start with KFC.
In terms of innovation and building on products that delivered, we ran two successful campaigns in Q2. The relaunch of the innovative burger, Zinger Mozzarella, which also strengthened favorability for the burger layer. The results were strong, strong same-store sales growth and an increase in restaurant visits. We also relaunched Popcorn Chicken, a very well-received innovation in the past, which confirmed this time as well. We reinforced the value for money perception, as I already mentioned, through several actions. Tuesday Bucket, a 360 campaign that drove traffic into stores. We offered coupons through our mobile app and launched a campaign in selected locations with an aggressive offer of buy one, get one free for hot wings.
We celebrated the opening of our 100th restaurant through a national campaign, which rewarded our clients with daily prizes. Digital is always a focus for us. Therefore, in collaboration with Coca-Cola, we ran a campaign with prizes for Click & Collect. Then, this campaign increased the number of active users for our mobile app. An extra support for sales growth was the retail launch of a new sauce, American Dip. We are always looking for new revenue streams and retail sale of our sauces. We started in 2018 with our famous garlic sauce. So, this is one of them. Moving on to Pizza Hut. Actions are two main directions: increasing transactions through value for money offers, and remaining distinctive in the category through innovation.
In terms of value for money, we launched buy a medium, get a large, to drive transactions by attracting new users. To increase both frequency among regular users and the value of the average ticket, we brought into focus Crown Pizza, an iconic and popular crust. We also communicated as a secondary layer, both value offers, namely Good Deals and Product Innovation, namely Flatbread, which resulted in same-store sales growth. For Taco Bell, a newer brand, the focus is on increasing trial, both through value for money offers and product innovation. We relaunched the innovative Naked Chicken Taco, a fan favorite, which resulted in both trial by light users and increased frequency among regulars. While Mix Menu, a complete meal at an affordable price, significantly increased transactions.
Building a cult brand that drives sales is key. This is why we ran locally a global campaign. It featured LeBron James, the famous basketball player, who is a well-known Taco fan. And he became the ambassador of Taco Tuesday, the buy one, get one free taco offer. Before moving on to the financial part of my presentation, I want to highlight actions in other key areas. We continue to focus on digital. We communicated through digital media our Click & Collect services, and e-commerce platforms, with the objective of expanding our user base and gaining repeat visits for existing users. We adapt our prices to market conditions. We increased the prices in June for the three brands to protect our profitability.
To offset this move, as you've seen in my presentation, we focused on value, on value offerings that ensure continued traffic visits and transactions. Last but not least, sustainability remains at core. Călin already mentioned our sustainability report, and I would like to bring to your attention our CSR platform, Tomorrow's Meal, a long-term initiative through which we address the nutritional and educational needs of those in need. Moving on to the financials, I am happy to share improved performance across brands. KFC Romania consolidated its business in the second quarter. All store performance improved 10.5% year-on-year, due to solid same-store sales results, which increased 6.5. The results for half year are even more encouraging.
EBITDA is up by 68.7% year-on-year, with a margin of 9.3%. Net and net profit increased by 119.6% to RON 26.3 million. Moving on to KFC Italy. KFC Italy has a great first half of the year. EBITDA entered positive territory, amounting to RON 6 million versus a negative EBITDA of RON 2.7 million in H1 2022. And EBITDA margins stood at 7.1%. As a result, KFC Italy closed the period on breakeven in terms of net profit. This was due to efficiently controlled expenses and streamlined activities, including the closing of two non-viable units. KFC Moldova continues to be a success story. Sales increased by 19.7% and EBITDA by a remarkable 45.6%.
And KFC Moldova has the highest EBITDA margin of all brands, of 15.9%. Net profit increased significantly as well, by 60.3%. The process of improving efficiency in Pizza Hut led to better bottom line figures. The negative EBITDA of RON 3.1 million in the first half of the year is RON 1.8 million lower than in the same period of 2022. Taco Bell continues to improve its performance as well. All-store performance registered in the second quarter a 19.9% increase year-on-year, while same-store performance is up 14.5%. Taco Bell closed the first semester with an EBITDA of RON 1.6 million , 169.9% higher versus last year.
These are the updates from the marketing side. Thank you, and I remain open to any questions. And now, giving the floor back to Zuzanna.
Thank you very much, Monica. We are now done with the formal presentation, and we are going to move to the Q&A. As a kind reminder, please, type your questions in the chat box, and we are addressing them one by one as they were sent. Therefore, we're going to start with the first set of questions. You mentioned a slowdown due to growth as post-pandemic quarters kick in. Where do you see like for like growth going forward?
So I will start with this. Indeed, there is a base effect now after the entering into the period of comparable figures, because as mentioned, Q2 2022 is basically the first quarter after the pandemic without any restrictions in the normality area. However, even for this quarter of 2023, compared with the similar period of last year, we have registered growth both in terms of same-store and both in terms of transactions. To answer directly your question, in the future, we foresee a growth in the range of one single digit for the comparable restaurant.
Uh, the-
The second part of the question is, the number of openings. We continue to open new restaurants, especially drive-thru, I mentioned at the beginning. And, we still have this year in plan another, two or three, depends how the construction work will evolve it. But, what I want to mention now is that we don't have, in this moment, any development agreement in plan, which were under discussion with, the American.
Thank you, Călin. This was the answer to the second question to provide openings per year and CapEx for each type of store. The next question, number three.
Yeah, let me add a little bit-
Yeah.
The part of CapEx, Zuzanna. So, on top of what Călin said, precisely in terms of figures, I need to remind you that our investment differs per type of restaurant. The focus in terms of type of restaurants, definitely it will be towards the drive-through type of restaurants, but we still continue to build also some food courts, depending on the availability. So, amounts for a food court, it's in the range of EUR 500,000, and for a drive-through, we speak about a figure of about EUR 1 million, EUR 1+ million, depending on the type of drive-through as well.
Depends, depends also what kind of deal we have with the developer, we... Depends who will build the houses. Depends. It's, it's only an estimate, what Valentin.
Yeah, exactly.
Uh.
Thank you. The next question: What EBITDA margin do you target on a long term?
So, as always, mentioning to the interaction with the investors, the, our first milestone is to consolidate the level of 10%. So, this has been close. If you remember, we have been, we have managed to achieve it in 2019. Then we have been disturbed by the pandemic. Now, the purpose is to revalidate this deal, this milestone of 10% EBITDA margin, and then easily to start building on it and increasing it as much as possible in the next years.
Thank you, Valentin. Next question. We saw that Pizza Hut posted a net loss of RON 5.8 million, excluding IFRS impact in the first half of 2023. Do you expect an improvement in profitability in the second half of the year as regards Pizza Hut? When can we expect a turnaround?
I'll take this. Yes, we expect an improvement. We work on this. This is our main goal, to turn around the business.
Going, going to the next question: Do you think your budget is achievable in terms of bottom line?
So, our guidance, it remains the same, so we are sticking with our published budget, our approved budget. However, as you probably noticed, the conditions are extremely challenged. So, we will work hard to go towards the published figures. But it's important to have in mind the fact that the situation is totally different than the one anticipated, when we built the budget. We remain agile and agile, and we have done different actions. We took a decision on the spot to adapt to the new reality. First of all, the inflation is different than the one foreseen in the last part of the year when we have built the budget.
As a result, the price increase that we were planning to execute were not in line with the ones in the budget, and this was our immediate reactions to the new conditions in order to secure the number of transactions. So, we are working hard to cover the part of revenue that was supposed to come for some price increases that we have canceled. And we remain confident that we'll be able to find solutions for the remaining part of the year to cover this.
Next question: I saw that in Q2, food costs were almost flat year -on- year, even though you have a larger network. Is there a drop in food prices, or have you implemented changes to the recipes?
So, indeed, we can see a good evolution from a cost of goods sold, from an acquisition price point of view. The remark is valid, but this should be correlated with the fact that the sales increase. So, a real feeling of the impact of the cost of goods sold can be perceived together with the revenue. So, by comparing the weight in revenue, the percentage, which we can see that recorded a decrease in Q2, 2023.
In terms of details, we can see a better management in terms of price for chicken meat, which is an important part of our cost of goods store structure, also on other important categories. And this helps us to build the good performance of Q2 as well.
Next question is also related to Pizza Hut. Would it make sense to close your Pizza Hut stores and refocus these resources on your more profitable areas? Is that even possible, given your contracts with Yum? I will let Călin answer that.
Yes, we are focused on Pizza Hut. It's our main focus. We are working on this, and of course, if we reach an agreement, we probably will close some location in the process of reorganization.
Just to add something, as you probably remember from our financial statements of last year, we have booked a provision for the closure of three restaurants that are still in progress. So, once we will have an agreement, as Călin said, definitely we'll inform the market, and this will be a good step towards the reorganization and the turnaround of the business that came in another question today as well.
We are now getting close to concluding the call. We have one more question. If there is any other questions, please, please type them right now so we can still answer them. Otherwise, we will conclude the call. The last question that we have so far is: any update in terms of M&A opportunities, are you actively interested in acquiring other brands?
Yes, we are looking for another brand, even that would be M&A or, to apply for a new, franchisee business or, acquire another business. But once you have something very clear, we'll inform the market.
Perfect. Thank you very much. I think this concludes the call since we have no more questions. As we mentioned also at the beginning, the replay of this call will be available on our website. In terms of our next results, this will be for Q3, published on 15th of November, and we will hear each other on 15th of November. In the meantime, next week, we're going to join Wood & Company Frontier Markets Conference, so we hope to meet some of you there. Otherwise, for any other questions related to our activity on the Bucharest Stock Exchange, please contact us at investor.relations@spheragroup.com. Thank you all very much for joining our call, and we look forward to hearing you next at the next available opportunity.