Good afternoon and welcome to Sphera Franchise Group's Results Call for the first half of 2025. My name is Zuzanna Kurek , and I am an Investor Relations Officer at Sphera Franchise Group, and I will moderate today's call. This morning, we have published our results for the first six months of 2025, which you can find on our website in the Investor Relations section, as well as on the Bucharest Stock Exchange website Sphera Franchise Group Investor Profile. Before we begin, I would like to mention that this call is being recorded and that the recording of this call will be uploaded on our website by Monday at the latest. As stated in the call invite, by joining the video conference, you automatically and implicitly consented to being recorded. If you do not consent to being recorded, please leave the call.
In terms of organizational aspects, we'll follow our standard call setup, which means the management will deliver a presentation outlining the H1 2025 results, and later we'll have a Q&A session. Please note that all the participants should 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. We will be answering the questions in chronological order as soon as the presentation of the management is over. Last but not least, as always, I would like to mention that we might be making forward-looking statements during today's call regarding 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 is available also on our website, spheragroup.com, Investor Relations section, as well as on BVB website.
This disclaimer applies equally to all the statements made in today's call. We can now kick off the call. I would like to introduce the management that is here with me today and will present our financial results. I am joined today by Călin Ionescu , Chief Executive Officer, and Valentin Budeș , Chief Financial Officer. I will now pass the floor to our CEO, Mr. Călin Ionescu , who will share some insights about our performance in the first half of 2025. Călin, the floor is yours.
Thank you. Good afternoon, everyone, and thank you for being here. We meet at the midpoint of the year, the end waves of fiscal changes and the ongoing shift in the economic landscape. The backdrop to that has continued to test our ability to adapt and respond quickly. The dynamics seen in the first quarter were confirmed in the second. The group closed the first six months of 2025 with restaurant sales of RON 745.2 million, up 0.7% year on year. This modest growth reflects the challenging context we are facing. Uncertainty is still the word of the day. Political instability earlier in the year has now been replaced by growing concern over the evolution of the economy. This has kept consumer behavior cautious, and the impact is visible when we look at the month-to-month evolution of our sales.
In April, uncertainty around the elections, arguably the most important in the past 30 years, weighed on results. In May, sales picked up, supported by optimists following the pro-Western outcome of elections. This demonstrated both the strength of the brands and the enduring consumer habit of dining out. However, this momentum proved short-lived. In June, public discussion on how to address the high budget deficits, including pessimistic scenarios such as sovereign rating downgrades, resurfaced. This once again dampened consumption. Competition has intensified, driven by aggressive expansion plans spurring the recent boom in the QSR industry. Current market growth is outpacing demand, as confirmed by the broader HoReCa sector's modest 1.2% year-on-year increase in May. TSE Romania, with its nationwide footprint, was most exposed in these shifts, particularly in small and medium-sized cities, and reported a 1.6% drop year-on-year in sales. It's a hot recovery that has slowed down.
Accordel, on the other hand, continued its strong trajectory, supported by a younger, more resilient consumer base. Our external markets have posted growth rates consistent with previous quarters, given they are not facing the economic challenges seen on the Romanian market. Looking ahead to the second half, the macroeconomic environment is expected to remain difficult as legislative changes compound the pressures. It is not only the European but also the cumulative effects of other measures, from the liberalization of energy prices to higher full excise duties, all of which influence both our costs and consumer spending power. Official perspectives shape the road we set on part of the year. The National Bank of Romania has revised its year-end inflation forecast sharply upwards to 8.8% from 4.6%. The Ministry of Finance has warned of the need to be prepared for a possible recession, while further fiscal tightening may follow.
Such pro-cyclical measures risk adding pressure on companies already strained by five years of firefighting to successive crises, diverting resources from innovation, talent development, and long-term investment. In this environment, our focus will remain on protecting margins by continuing the strict cost discipline and operational efficiency. We remain committed to optimization, but at this stage, it is less about major restructuring and more about fine-tuning, as we have already embedded efficiency disciplines since the pandemic. As such, we have decided to publish an updated guidance regarding our value, which takes into account the new realities. Valentin will provide you with details on it. We'll continue to offer value propositions that retain and attract customers as customers' budgets get more strained. Our strategy focuses more and more on affordable meals to secure our customer base.
We'll also leverage the advantage of having diversified operational approaches and customer segments to support further stability. The opening of our first operation in Italy underlines our commitment to portfolio diversification. We remain agile, resilient, and ready to adjust our plans as conditions evolve. Our brands, our people, and the trust of our customers will continue to be the foundation for navigating the challenges ahead. Thank you, and I will ask Valentin to start his presentation.
Thank you, Călin. Good afternoon, and thank you for joining today's call. The first half of 2025 has been one of the most difficult reporting periods in recent years. As Călin mentioned, the increased uncertainty load on customer spending confirms the trend we first identified in Q4. With resilience in some brands and markets, overall results reflect this adverse environment, with stagnant sales in Romania and higher operating costs against a strong H1 2024 base. I will take you through the highlights, cost dynamics, brand and marketing performance, the Q2 pulse, and our outlook for the remainder of the year. For the first six months, group consolidated sales were RON 745.2 million, up 0.7% year on year. By markets, this evolution was mixed. Romania stayed relatively flat on the back of consumption slowdown. The other two markets, facing a different context, maintained their usual dynamics.
Italy is at a steady, mature pace, and the Republic of Moldova, the two-digit growth rate that we saw in the past. Cost lines moved faster than sales. Unfortunately, the total expenses went up 6% to RON 724.9 million, mainly due to the inflationary pressure. Both restaurant operating profit and normalized EBITDA are below the levels in the first six months of last year. Please allow me to point out that for the first semester of 2024, there was a recorded record high semester for our group. I want to highlight that we have managed to secure significant EBITDA, RON 52.8 million in normalized terms in H1 2025.
Looking to more details, at the second quarter alone, sales were RON 382.6 million, which is 2.3% year on year, a modest growth resulting from political instability in most of Q2, which was later replaced by the discussions around the imminent fiscal measures to address the budget deficit. At the restaurant operating expenses level, all categories except advertising rose in Q2 2025 with a faster pace than sales, increasing 7.5% year on year. After a period of stability, food and material costs increased by 4.7% year on year to RON 122.1 million, driven mainly by higher poultry prices. However, the largest contributor to expense growth remained payroll and employee benefits, which increased 9.3%, an increase which is in line with the industry adjustments.
Cost inflation, particularly on payroll and other operating expenses, and the return of the pressure for the food and material costs, limiting the group ability to restrain operating costs in the context of lower sales, reflected in a normalized EBITDA of 28.5% lower year on year. Looking at the first half of the year, sales went 0.7% up to RON 745.2 million, while restaurant operating expenses outpaced this growth, as mentioned, increasing by 5.9%. As a result, the weight in the total sales of restaurant expenses increased 4.6% this point to 92.8%. The entire H1 was affected by inflationary pressures. All categories, except advertising and royalty, increased at a faster pace than sales. Our continued efforts to motivate and secure our employee base in a still very competitive labor market are reflected in the 10.8% year on year increase in payroll and employee benefits.
Food and material costs grew at a moderate 2%, the cost pressures experienced in Q2 2025 being counterbalanced by a more favorable evolution in the first quarter. The elevated operating expenses, the stagnant sales in Romania, and the drop in EBITDA on the back of a very strong base effect led to a normalized net profit 56.5% lower than H1 2024 of RON 17.66 million. The evolution by brand and country is telling of the complex context we are navigating. KFC Romania, which we consider a barometer of the economy health due to its country and segment-wide exposure, best reflects the uncertainty Romania customer base has been facing. The flat evolution of sales compared to a decrease in the first quarter incorporates both the brief optimism post-May elections and the restricted prudence in the face of imminent unfavorable fiscal changes.
KFC Italy maintains a steady pace, with sales advancing by 4.3% in Q2 versus a similar period of last year. The constant growth of this market gives us confidence to look to expand our network there, with valuable additions in relevant areas. KFC Moldova, on the other hand, delivered the strongest growth in the group, fueled by the opening of the third restaurant in Chișinău. Sales went up by 24.5% to RON 13.6 million for the year-to-date analysis, indicating the still on-top potential of this country. Pizza Hut remained broadly stable in the first half of 2025. Sales reached RON 53.4 million, which is up 0.5%, while more importantly, operational losses were reduced significantly. Restaurant operating loss narrowed by nearly 75% compared to the same period of 2024.
This demonstrated that the optimization measures, the closing duplicate store, the adapting of the offer, and fine-tuning of the marketing strategy are yielding results. We continue to monitor the brand carefully as the local context is not favorable at all, but the improvement is encouraging and shows that the decisive steps taken were the correct ones. Taco Bell continued to be a strong growth driver. In the first half of 2025, the brand delivered RON 50.1 million in sales, which is an impressive 18.4% increase year on year. Profitability also improved, confirming Taco Bell's resilience and its appeal to a young generation customer base, less affected by the current macroeconomic uncertainty yet. In Q2 alone, the brand grew by more than 21% year on year, further consolidating its position in the Romania urban market.
With its differentiated concept and strong traction in big cities, Taco Bell continued to offset part of the softness seen in more mature brands and remained a key pillar for diversification within our group. Now, for the delivery figures, here is the illustration of our efforts to maintain a balanced mix of sales channels. While delivery keeps normalizing versus the levels in the pandemic patterns, it remains a meaningful contributor across brands, and we continue to be careful with the order volumes and the aggregator/on-channel mix. Operationally, we progressed with the development of our network. In Q1, as you know, we had the KFC drive-thru in Galați open, while in Q2, we opened two more KFC restaurants in Romania, one in Iași and one in Pitești, both food court formats.
At the end of the second quarter, on June 20th, Călin mentioned we launched our first Cioccolatitaliani in Riccione, which is a very mini-tourist area of Italy. Also, we have published today updated guidance for 2025 consolidated group results. We believe it was necessary to provide a more accurate view on the business outlook, given how much the landscape has changed since the approval of the initial budget for this year. We assume a more resilient consumer demand, gradual normalization of the inflationary pressure, and a much more stable fiscal framework. However, the Romanian government adopted a set of measures highly unfavorable for the business environment, and moreover, similar changes are unfortunately further expected. They directly impact the consumer purchasing power, but also the cost lines.
The combined cost inflation for payroll, utilities, and meat prices, and the weaker discretionary spending in Romania, our main market, deteriorated the outlook for the second part of the year. We thus revised the 2025 budget to reflect the current market realities. We anticipate revenue between RON 1.6 billion-RON 1.65 billion, slightly lower than those initially budgeted, and a normalized EBITDA without IFRS impact at a level of RON 140 million-RON 150 million. Despite the budget revision, we maintain our operational efficiency objective and a solid financial position, with a normalized net profit estimated between RON 63 million and RON 70 million and a free cash flow estimated to be in the range of RON 62 million-RON 72 million. As for the share price evolution, after multiple quarters of consecutive growth, Sphera underperformed the revenue indices year to date.
We remain focused on transparency and on the operational levers that can support long-term shareholder value. Before closing, I would like to mention that on the 6th of June, it has paid a RON 1.09 gross dividend per share. Looking ahead, the outlook remains cautious. Elevated inflation expectations and potential fiscal tightening can continue to weigh on consumption and operating costs. Our priorities are discipline and cost management, margin protection, and selective investment to strengthen the business. We stay in alert, prepared to adapt plans based on the condition's evolution. Thank you very much.
Thank you, Valentin. This concludes the presentation of our results for the first half of 2025. We will now give you two to three minutes to type your questions, and we'll then start the Q&A. Once again, a kind reminder, if you would like to ask a question, please type it in the chat box.
We will then read it out loud and address it directly. Thank you. Thank you very much for the questions sent thus far. We can start the Q&A. The first question is, what initiatives are in place to re-accelerate top-line growth in Romania, especially for brands like KFC Romania? I will ask this question to Călin.
Yes. We are focusing on targeted value campaigns, strengthening our reality and digital channels. Digital pushes are also helping us to upsell and increase average tickets, but our focus should be to maintain the customer in our restaurant.
Thank you, Călin. The next question, how sensitive is your 2025 bottom line to further RON depreciation, and what is your base- case FX assumption for the second half of 2025? I will invite Valentin to address this.
In our cost structure, there are a couple of elements denominated in euro, which will be directly impacted by the evolution of the exchange rate. Our debt is also denominated in euro. Mainly, the equipment that we acquire for the opening of the stores is denominated in euro, together with the rent contracts. Definitely, an evolution of the FX will have a negative contribution on the overall cost structure, especially for the elements in our cost of goods sold that we are acquiring from our suppliers in Europe. However, for the remaining part of the year, i.e., in the latest estimate in the new guidance, the provision for the exchange rate was considered to be almost stable with a slight deterioration. We didn't capture anything related to a short-term deterioration of the exchange rates based on the current level that we see now published.
Thank you. The next question, are there any changes to your CapEx plans or store rollout strategy in the light of the revised guidance?
No, we continue to invest. We continue to develop. However, we are more cautious. Definitely, we'll be more selective, and the current context will be embedded in the business case for each approval of the openings that we proceed. As a matter of fact, we are planning to stick with one extra more opening for KFC in Romania, one extra KFC in the Republic of Moldova, hopefully this year. Also in Italy, we expect to have two openings for this year and one more Cioccolatitaliani in Italy. This is a validation of the fact that we will not stop the development. However, as mentioned, much more careful and much more correlated to the current macroeconomic context.
Thank you. What was the main reason of sales decrease for KFC Romania? Was it driven by mostly lower volumes?
I'll answer this. Traffic was softer, reflecting reduced consumer spending power, but we mitigate part of the impact through promotions and menu mix, with priorities like protecting traffic volumes for vertical size.
Thank you, Călin. The next question, do you count positive same-store sales dynamics for Pizza Hut in the second half of 2025?
Pizza Hut, as mentioned in my speech, had a good trajectory until now. However, the current context definitely is affecting the brand as well. In the current development of this brand, it is the most vulnerable on the market changes. We hope we expect to have a stable evolution for the remaining part of the year. However, the customer spending is something that will have a visible touch on the evolution of the same-store sales dynamics.
In the revised budget for the second half of 2025, you assume a net profit margin similar to the second half of 2024. Does this imply you expect to fully pass through inflationary cost pressures to customers despite not managing to do so in the first half of 2025?
Regarding the pricing power, we are in a territory where we need to be very careful. We are evaluating the elasticity very carefully. Definitely, if anything, it's more than whatever we can absorb, we will consider to readjust the price. However, our main focus is to be very less focused on cost management in such a way to be able to provide the best value proposition for our customers, which represents the foundation of the future development of the sales for next year as well. Everything that we decide will be with the philosophy of keeping the customers in our restaurants and being as appealing as possible to bring more as well.
What are your sales expectations for the Cioccolatitaliani brand for full- year 2025?
Yeah, I'll take this, Călin, if I may. Now, in this moment, it's extremely early to have a judgment. However, the brand awareness and the customer acquisition phase is what is characterizing this period for the first opening. That's why we are planning to add a second demand, and with two of the restaurants, we'll be more in a position to evaluate and to compare versus the expectation we had in the business plan.
Please make some comments on payroll and poultry expenses trends, and also for the expenses and depreciation and also for other expenses and the depreciation and amortization.
I'll read these questions. Regarding poultry, the price for poultry is still volatile, but other categories are more stable. For the second half, we don't expect a major improvement. Our strategy is to manage mix, renegotiate supply contracts, and adjust promotion rather than rely on external relief. Regarding the payroll.
This year, as usual, we are trying to secure our employees by providing competitive salaries and improved costs by working smarter. The context is still challenging. Nothing changed in terms of the labor market, especially in Romania. We are now with the trend that we saw in the market in terms of salary adjustments. We expect to have a more stable remaining part of the year in terms of pressure in labor. There is already something that we get used to, the minimum salary adjustment in the beginning of each year.
It's more important to see how the next year will come with pressure on this cost area.
The question regarding depreciation, yes. The depreciation reflects our network expansion. It will remain elevated as long as we grow, but we remain disciplined, and new openings, prioritizing locations with strong retail profiles.
Thank you, Călin. The next question, what are your main initiatives in tackling OpEx increase? I believe we've already addressed this, so we can consider this answer. Can you comment on the Romanian potato initiative? How does it help you?
For potato, it's important to, I mean, it's part of our strategy to have a diversification in terms of supplier. The fact that we were able to localize the supplier in our country, being closer to our business, and with a pressure in terms of capability of negotiations of this material cost, it's an add-on. It's something that we're looking at. It's a strategic move, and it's something that we want to replicate for as more as possible cost categories. For example, in the poultry, we are in the position to have a very diversified portfolio of suppliers, which creates a good dynamic in our ability to supply the restaurants, and potato seeds completing the picture of this strategy.
Thank you, Valentin. As August is already coming to an end, how have you seen the impact of the VAT increase so far in terms of volumes and average ticket size?
I will take this. It was an initial impact in the VAT, I think, in the entire market in the first period. After this initial impact, we see a stabilization. It is important how the market will calibrate in terms of consumer spending in the months after August, the September on-off. I will classify August as a transition month with an initial one-off effect, and very important is how we'll be able to see the normalization of September customer spending.
What are the key assumptions underlying your revised profitability estimates, and how do these differ from your previous guidance?
There are multiple effects on the cost structure in our TML. It starts from the top line and it ends with the last cost line in the cost sections. First of all, I will classify it as a spider effect because everything that happened since our initial assessments had a ramification of impacts in all categories. It starts from the customer spending, from the transactions point of view, and we can see also cost effects in each line, from energy, from utilities, from the increase in the taxation for the sugar. Everything puts a pressure on our cost line, but also on the cost line of our suppliers that come at the end of the story in our channel with an effect.
I don't think that except the royalty, there is one cost line that was not affected by the inflation and the fiscal changes that happened since the beginning of the year in Romania.
Thank you. We have the last question. Before I read it out loud, just an invitation for all of you, if you have any other questions, please type them. Otherwise, we will be concluding this teleconference. The next question is, considering Taco Bell's strong performance for more quarters in a row, could you clarify why the Romanian market isn't seeing a more accelerated rollout of this brand, especially amid slower sales of KFC?
Indeed, Taco Bell has remarkable results with the EBITDA positive and continued double-digit growth rate. It's definitely a strong brand appeal for the young customers, without any doubt. In our portfolio, it's still small, as correctly interpreted from the question. However, it's still a niche. It's still something that works very well, and this is a reality that we can assess in urban areas. It's something that in this moment, we do not see it very well functioning in smaller rural areas. Also, critically important is the availability of good locations for opening. As we always mention, no matter how strong and good is the brand, if it is not open in a proper location, then it can destroy everything. All these arguments together, it's limiting us to the current pace of development. Definitely, in case of opportunities, we'll not just stick with the pace because this is the pace.
We'll exploit any opportunities that we'll identify in the future.
May I add something? With Taco Bell, one of the reasons that performs better, if you look at high level, performs better comparing with the KFC, that's okay. It's facing that temporary headwinds. It's the rate of penetration. If you compare Taco Bell with KFC, the rate of penetration in terms of number of population, it's very, very low. Especially only in the main city like Bucharest, where in Bucharest are 30% of the money of Romania that is located here in Bucharest. It's normal that once you don't have a national coverage, and you don't penetrate the smaller cities, it's normal for the result to be better.
Thank you very much, Călin. I see we have answered to all of your questions. Therefore, we will be wrapping up this teleconference. Thank you all for joining us. The next time we are going to hear each other is going to be on 17th November. After we publish the results for Q3 2025, we will also be hosting a teleconference on the very same day, 17th of November. In the meantime, in case of any questions, please don't hesitate to reach out to us at investor.relations@spheragroup.com. Thank you all for your attention, and we wish you a great day.