Good afternoon and welcome to Sphera Franchise Group Q1 2023 results call. My name is Zuzanna Kurek, and I'm Investor Relations Officer of Sphera Franchise Group. Today morning, we have published our Q1 2023 report, which you can find on our website in the investor relations section, as well as on the Bucharest Stock Exchange's website, SFG investor profile.
Thank you for joining our call to discuss our performance in the first three 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 in the call invite, by joining the video conference, you automatically and implicitly consent to being recorded. If you do not consent to being recorded, please leave the call.
In terms of the organizational aspects, we will follow our standard call setup, which means the management will deliver a presentation outlining the Q1 2023 results. Later we'll have a Q&A session. Please note that all of the participants are put 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.
We'll answer all of the questions in chronological order as soon as the presentation of the management is over. Last but not least, I would like to mention, as always, we might be making forward-looking statements today during this call and about 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 this presentation, which you can see right now on the screen, as well as it is included in all of our investor relations materials. This disclaimer applies equally to all statements made in today's call. Now we, to kick off the call, I would like to introduce the management that is here with me today and will present the Q1 2023 results. I am joined today by Călin Ionescu, Chief Executive Officer, Valentin Budeș, Chief Financial Officer, Monica Eftimie, Chief Marketing Officer. I will now pass the floor to our CEO, Mr. Călin Ionescu, who will share with you some insights about our performance in the first three months of the year. Călin?
Thank you, Zuzanna. Good afternoon, everybody. Thank you for your participation. Today we present the result of first quarter. I'm happy that our results are good despite the seasonality that usually means weaker activity at the beginning of the year with an inflationary still not predictable context. Yes, the trends have tempered compared to 2022, but cost of input remains high, while inflation temperate only slightly continuing to put pressure on consumer's budgets. We have managed once again to handle these challenges and delivered another quarter with double-digit sales increase across markets and brands, as well as a comfortable EBITDA. It's also been a good quarter in terms of brand visibility, with KFC officially announcing the partnership with Rompetrol for opening restaurant within gas station on A1 highway.
It was a launch that sought media attention and positioned us as leading innovator in the food service industry. We have continued to put sustainability at the core, and we have voluntarily reported on risk and opportunities associated with climate change. In accordance with the recommendation of TCFD, the Task Force on Climate-related Financial Disclosures. Getting back to our results, they are testament to our capability of delivering against our commitments. We continue to carry out an efficient cost management strategy at multiple levels. We have succeeded in decreasing the share of restaurant expenses in total sales by 6 percentage points. We did this by continuing a strict management of both core and smaller suppliers. As a result, our food and material costs rose lower than the inflation for food products at national level.
Through a carefully tailored marketing strategy, we have increasingly brought customers in our restaurants and leverage our own more profitable channels. The share of delivery orders in total sales decreased 9 percentage point in first quarter versus similar periods of previous year. The outcome is a 12.5% reduction in the aggregators' commissions.
Last but not least, we have continued our sustainable development strategy, opening valuable restaurants which contribute to our performance and optimizing our network by closing non-performing units. We remind you that we closed two restaurant, KFC restaurant in Italy in January 2023, while one Pizza Hut was closed in April last year. The results are already visible. Pizza Hut at all stores performance, which includes sales registered by the newly opened units in 2022 that replaces the non-performing restaurants, improved by 10%.
We will continue to make the hard decision if necessary to streamline our restaurants network. We will also open new restaurants which will bring added value, as history shows. The new locations opening throughout the 12 months before end of the first quarter helped the group's performance. Taco Bell's most notably, where all store performance increased by 40.6%, while KFC Romania improved by 90.6%. We have also continued to roll out our price increase strategy well balanced between internal cost pressures and customers' sensitivity to higher prices. Due to the correctly calibrated price increases throughout 2022, we ended first quarter with a restaurant operating profit 307.8% higher compared to first quarter of last year. EBITDA also saw a three-digit increases of 525.6%.
Looking forward, we project our multi-layered management strategy to continue to deliver performance, and the approval of Sphera's 2022 budget by the general shareholders meeting in April, it's a vote of confidence in the company's perspectives. We see ahead of us a new challenging year, but we hope for more predictability, which would allow us a normal course of business. As such, we estimate that restaurant sales increase with 21% compared to 2022, a combined effect of some same-store sales growth and new store sales.
We'll continue to focus on the traditional, more profitable channels. Based on officials' forecast for inflation level, the temperate increase of food and material costs in 2023 will continue to the improvement of the gross margin. Energy cost is assumed to be predictable and in line with the regulation introduced last year. As such, we aim to achieve a normalized net profit 88% higher than 2022. With this bright perspective in mind, I leave Valentin Budeș, Sphera's CFO, to talk in more details about the first quarter results, which makes us so confident in the group's evolution this year.
Thank you very much, Călin, and good afternoon, everyone. Before I begin discussing business and numbers, allow me to give a brief update on myself and Călin. As you may have already seen from our latest reports, we are pleased to announce the renewal of our mandate. This extension is a clear indication of our commitment to maintaining stability and consistency within the organization. I'm happy and excited to have at least another four years to continue building together.
You know what? I'm confident that we'll be able to achieve our strategic objectives, both in terms of relevance and profitability. Now that profitability has been mentioned, I'm thrilled to discuss the impressive results of the first quarter of 2023. Our financial performance has been outstanding, with stellar increase in revenue, profitability, and shareholders' value.
This achievement reflects our laser-focused commitment to operational excellence and customer satisfaction. Despite the HoReCa quarter seasonality's specific challenges and all inflationary pressures, we have achieved a sustained improvement in EBITDA, 6x higher than the similar period of the previous year. Furthermore, Q1 was the best 1st quarter in history, both in terms of sales and EBITDA, even at the same store level.
From a consolidated perspective, restaurant operating profit was 4x higher than last year. We have achieved exceptional outcomes in Italy as well, where we have recorded positive EBITDA in each of the last nine months in a row, establishing a clear roadmap to sustainable growth and profitability there. The consolidated net profit for the first quarter reached RON 7.3 million, a 6 percentage points boost in margin compared to the previous year.
This performance reflects the highest level of Q1 profitability ever recorded since 2018, illustrating our resilience in the face of challenges difficult to predict and even harder to address. Let's have some color on the P&L structure. Sales increased by 20.3% to RON 335 million . In Q1, we achieved the highest Q1 sales level ever recorded, driven by an outstanding increase in the number of transactions. Yeah, our same-store sales experienced again another boost.
In fact, since the onset of the pandemic, we have continuously increased our number of transactions. We were able to achieve this not only by expanding our network, but also by improving the performance within the existing restaurants. We'll further capitalize on the amazing performance of the Q1 2023 as being the eighth consecutive quarter with both same-store sales and transaction growth.
Even as competitive landscape continues to evolve, our persistent increase in transactions volume represent a key driver of our strong growth. Regarding the cost of goods sold for 2023, we can see a remarkable improvement in our gross sales margin with 1.4 percentage points versus the last year, the similar period. The weight of cost of goods sold in sales reached 33.7% in Q1. Nonetheless, we remain vigilant to the inflationary pressure, which still remain a concern for us. It may be necessary to take as well additional pricing measures for the rest of the year. Going forward, the payroll cost increased by 16.5% this quarter. This being a result of both network development and labor market alignment.
There was a boost in the productivity as the waiting revenue decreased with 0.8 percentage points versus the similar period of previous year, reaching 23.2%. This is emphasizing the belief that investing in our employees is crucial for the long-term success of our story, as they are the most valuable asset for the achievement of the overall purpose.
Moving to the restaurant expenses, our rent cost in Q1 amounted RON 24.6 million . The weight in sales decreasing with 0.4 percentage points, which reflects the variable structure of our rental contracts. The other operating costs were in line with Q1 2022, as the energy costs and other utilities remain comparable and due to the stabilization of the third-party costs, which are the biggest contributors to this category.
General and administrative expenses recorded a decrease of their share in the consolidated sales with 0.4 percentage points from 4.9% in 2022 to 4.5% for the current year. This is demonstrating our persistent effort to optimize workflows and eliminate unnecessary steps. Moving to the balance sheet, our cash flow remains very solid at the level of RON 108 million at the end of March 2023, despite the payment of RON 20 million worth of dividends towards our shareholders. Basically, during Q1, we have done nothing but continue to have a disciplined capital spending, being focused on the opening new stores, remodeling the existing ones, and investing in digitalization.
Regarding our bank covenants, our ratio of net debt to trailing 12 months Adjusted EBITDA is 0.7, being in the low end of our track record range. On the following slide, we present as usual the overview of revenue, expenses and EBITDA. Through diligent efforts to optimize operational and managing costs effectively, we have successfully enhanced our profitability with impressive growth in both top line and bottom line numbers. 20.3% increase in sales in Q1 and EBITDA 6x higher versus the previous year, as you can see here. The following slide displays our market and brand share. Romania obviously again our main market with a share of 86%, while Italy secured a market share of 12%.
In terms of brand, KFC brought in revenue RON 284 million, accounting for a share of almost 85% in Q1. Pizza Hut generated revenues of RON 31 million with 9.3% share, while Taco brought almost RON 20 million, representing 6% share. Advancing now to development. We believe that our development strategy will position us for long-term success in the market, as a result, we remain committed to executing this year a number of 10 new restaurants, eight KFC and two Tacos. In the first quarter, we had already opened two new KFC restaurants in Romania. One of them is a drive-thru KFC open in Giurgiu, and the other one is an integrated HoReCa retail store. As Călin mentioned, development developed in partnership with Rompetrol on the highway at Orăștie.
This new, this new format is a validation of our leading innovation in the Romanian food services industry, and it allow us to address new consumption opportunities and of course, implicitly, to meet customer needs that were previously unaddressed. Consequently, at the end of March, we were operating 177 restaurants, 157 in Romania, 18 in Italy and two in Republic of Moldova. In January, we have closed two unprofitable location. Călin mentioned this. more specifically, it's KFC Verona Corso Milano and KFC Torino Moncalieri. Another topic covered is related to the fiscal updates, where I remind you that we have starting from first of January, the specific tax for HoReCa being no longer available in Romania.
This has been replaced by the classic profit tax or the tax on the micro company income at the company choice. Therefore, US Food Network, i.e. KFC, opted for payment of micro tax, micro company tax, while American Restaurant System, i.e. Pizza Hut, and California Fresh Flavor, i.e. Taco Bell, opted for profit tax. Going forward, we have some info related to the capital markets, here emphasizing the notable increase in our share price by 16.4% versus December, and also better evolution of our share price versus the BET benchmark for the first quarter. Now, going forward, you can see here the approved budget for 2023. Our guidance for the year remains consistent with this. The Q1 performance shows a strong progress towards the success of full year achievement.
Despite all inflationary headwinds and the high degree of uncertainty related to the consumer spending landscape, we guide the magnitude of sales to RON 1.6 billion with a solid double-digit year-on-year evolution and the target for EBITDA to a record high level of RON 163 million. With this, I have completed my part, I'm now delighted to pass the floor to Monica.
Thank you, Vali. Good afternoon, everybody. Our marketing strategy in the first quarter focused on counteracting the seasonality, which is a lower start of the year, while continuing our actions to protect the bottom line and consolidate the brands. As such, we maintained our pricing strategy of adapting to market conditions.
In the current economic climate, we increased prices in March for all three brands to absorb the increased cost of inputs, while considering customer sensitivity and keeping a balance that ensures continued transactions. For KFC, key in the first quarter was to increase transactions while strengthening the perception of good value for money. We addressed the first through a promotional campaign with attractive prizes aimed at counteracting the lower consumer appetite for spending in the post-holiday period.
The campaign mechanics set us apart in the category and resulted in a significant transaction boost. Two campaigns were rolled out to reinforce the value for money perception. Marți Bucket through a 360 campaign that drove traffic in the stores, and the relaunching of the Booster, which resulted in a significant same-store sales increase. The partnership with Rompetrol was strongly leveraged in the first quarter.
We launched a localized marketing campaign aimed to support this new growth layer, which addresses a new usage occasion, while an all-encompassing PR campaign helps position KFC as a leading innovator in the food service industry. Our priorities for Pizza Hut were improving transaction levels and increasing distinctiveness in an extremely competitive category. As such, at the beginning of the year, we ran an aggressive campaign in terms of pricing, which attracted price-conscious consumers and increased trial.
To increase frequency among regular users and average tickets, while differentiating in our category, we brought into focus Cheesy Bites, an iconic and popular crust. In Q1, we also finalized Pizza Hut's complex menu optimization process by aligning prices in all sales channels. This will result in a lower cost of goods and a more consistent customer experience across channels. For our newest brand, Taco Bell, focus is still on driving trial and building brand. We launched a new taco at an affordable price, a value innovation which resulted in increased transactions in Q1. In an effort to further educate consumers about our brand universe, we also launched a digital activation called Taco Zoom.
We continue to communicate Taco Bell mobile app with a rewards program on top, aimed at creating loyalty through exclusive offers. For all three brands, digital remained a key priority, focusing on ease of access for our consumers who expect frictional experiences. We use digital communication for our click and collect services and e-commerce platforms, thus promoting our own more profitable channels.
Our carefully tailored marketing strategy resulted in strong results for all brands in Q1. KFC Romania performed well both in terms of top and bottom line. All store performance rose by 20% year-over-year due to excellent same store results, +18%, paired with the sales generated by the new openings. EBIT and EBITDA increased by 133.3% year-over-year, with EBITDA margin of 9% and net profit of RON 11.6 million.
Moving on to KFC Italy. KFC Italy improved its performance. With a 22% all store sales increase, it registered restaurant operating profit versus loss in Q1, 2022. EBITDA amounted to RON 2 million with EBITDA margin at 5%. KFC Moldova had an excellent quarter. The two stores located in Chisinau continued accelerated sales increase, with all store performance increasing by 43%. EBITDA stood at RON 0.6 million , having the highest margin among all brands of 13.1%. Net profits reached RON 0.5 million . Pizza Hut significantly improved its bottom line.
With an all store 10% sales increase and 8.7 same store increase, Pizza Hut closed the first quarter with an improvement on RON 1.7 million in EBITDA compared to the previous year. Taco Bell continues to register very good results. All store sales increased by 41% and same store by 28%, with one unit opened between Q2 2022 and Q1 2023. Taco Bell registered again positive EBITDA of RON 0.4 million. Concluding, while the first quarter has been challenging due to both seasonality and the inflationary context, sales growth has been strong and bottom line has improved across brands and markets.
Thank you very much, Monica. We have now concluded the presentation of our Q1 results, and we will open the floor for questions. We saw we already have two questions. I would like to just remind you all, if you would like to address the management team, please type the question in the chat box. We will read them out loud one by one, and address them as they come. I would like to go the first question that we received. Congrats for the results. Could you please elaborate on the mechanism that allowed the decline of cost of food and total restaurant sales? Is it from higher prices to the customer or cost management on the food side? I will let Vali answer this.
This is the combined effect of on one hand, the current pricing policy that we have implemented throughout the year, including in the first quarter of this year, and also the moderate inflationary trend in the food market. As mentioned during the call, we are lucky that the inflation it's a little bit more under control, even though it's still present and creates us difficulties. At least, has a higher degree of predictability, which helps us to navigate and better allocate the stocks and the negotiation with our suppliers.
Thank you, Valentin. We have another question: What is the outlook target for sales growth and EBITDA margin this year? I will let Vali answer the question. I'll go back a few slides to showcase the budget that was approved by the shareholders meeting in April.
Exactly. As mentioned in the beginning of our call today, the guidance for this year remains in line with the approved budget, and the approved budget show us a sales growth of 21% versus the year of 2022, with an EBITDA margin of 10.2%.
Thank you. We have another question. EBITDA presented on every brand is excluding IFRS 16. Thank you.
Yes. As you know from the previous calls, we are deliberately still doing all the analysis and the discussions on the figures, including everything we have presented today without the IFRS 16 impact. However, in the full set of the financial statements, either preliminary or final or for the quarter, you can always see the figures with IFRS 16 as well.
The quarter on quarter sales decrease is 9%. I understand there is some seasonality in HoReCa. Isn't that a big decrease? Historically, excluding 2021 and 2020 due to COVID, revenue decline like this: Q one, 2018 versus Q four, 2017, -0.9%. Q one, 2019 versus Q four, 2018, -2.2%.
Here it's important to capture also the rhythm of the development. 17 and 18, there were years with more intense development, which can of course have a difference on the quarter evolution. At the same time is the current context with all these influences, it's totally different than the history. That's why, when we're looking to the seasonality, there is not a perfect recipe anymore in the industry.
However, we are going towards the normality in the next quarters, hopefully, and the next year for sure. It's very hard to identify only one reason for this variation. I don't have the variances now. I count on the numbers on the questions. High level, as I said, it's very hard to have comparability even before the pandemic.
Sorry, I would like to add something. It's normal if you want to be lower, this is coming from the December, the November, December, that's the best periods of sales. It's also, if you take only thing that February is a short month, we use two days only for the selling days only from this. As Vali mentioned, depends on the period that you mentioned, 2017, 2019 or 2018, yeah, we need to do an analysis. We don't have all the numbers now in front of us, and we can compare next time these numbers.
Thank you, Călin. The next question is related to the development plan. Can you elaborate on plans for opening new restaurants in 2023 and beyond?
For 2023, I was saying earlier that our target is for the opening of 10 new restaurants with the following split: eight KFC in Romania and two Taco Bell, of course, in Romania as well. However, as usual, we are working very hard on maintaining a good pipeline of very attractive locations in such a way to create us the capability of being able to fulfill also the next years with good opening locations.
Before we go to the last question, I would like to mention that if you have any additional questions, please type them right now in the chat box. After we answer the last question, we'll wait one to two more minutes. If there are no further questions, we will conclude the call. Now the question that I mentioned, do you plan to propose a dividend for 2022?
Related to dividends, we are carefully analyzing the evolution of the current situation in the market with the consumption trends and everything else that can impact the business. However, one very important information here related to dividends, as mentioned before as well, is our capability of being able to distribute dividends as we have in our retained earnings undistributed profits of around RON 70 million. Out of which RON 30 million comes for the period before 2022, and RON 40 million from the profit of 2022. Of course, linked with the cash flow evolution and our evolution of the strategy in the next months, we'll definitely have a look, and if appropriate, we'll not hesitate to have it in discussion.
Okay, thank you. We will wait one more minute to see if there are any further question. From our side, we wanted to thank you for joining us for this conference call. Our next results call is going to take place at the end of August to present the results for the 1st half of the year. As in the past, we're gonna hold two calls, one in English and another one in Romanian to allow all of you to participate.
Yeah. I see another question from Caius. Thank you for the question, Caius. Indeed, I limit the answer to the development to 2023, because what is very clear now for us, is the 2023. However, we are in advanced discussions for stabilizing the target for the next year because this is also dependent on the Yum! approval and on the negotiation that we have with them. I remind you that in this moment, we are out of official commitment, our development plan finished with Yum!. Depending on the finalization of the discussion, this will be materialized in a new development plan, which will create us visibility for the period beyond 2023 as well.
We have one more question. Any update on potential M&A and own brand developments?
Here, the situation it's in line with what was last time. We are into some discussions, but in this moment, we are far from having something to be able to communicate to the market. We remain agile, and we are evaluating everything that comes on our table, and also we are in the market to see if opportunities can fit our strategy and our culture. There is some progress, but again, far from being able to communicate something concrete.
Thank you all. If you have any further questions, you can always message us at investorrelations@spheragroup.com . We will conclude this call. As I mentioned at the beginning, it will be available by tomorrow on our website, as well as on the Bucharest Stock Exchange website. Thank you very much for joining, have a great day.