sphera franchise group€¦ · source: company information; euromonitor, consumer foodservice in...

1

Company presentation – May 2018

Sphera Franchise Group

2

Disclaimer

This presentation is not, and nothing in it should be construed as, an offer, invitation or recommendation in respect of shares issued by Sphera

Franchise Group SA ("Sphera"), or an offer, invitation or recommendation to sell, or a solicitation of an offer to buy shares in Sphera.

Neither this presentation nor anything in it shall form the basis of any contract or commitment. This presentation is not intended to be relied upon as

advice or recommendation to investors or potential investors and does not take into account the investment objectives, financial situation or needs of

any investor.

All investors should consider this presentation in consultation with a professional advisor of their choosing when deciding if an investment is

appropriate.

Sphera has prepared this presentation based on information available to it, including in-formation derived from public sources that have not been

independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness

or reliability of the information, opinions or conclusions ex-pressed herein.

This presentation should not be considered a comprehensive representation of Sphera's business, financial performance or results.

This presentation may contain forward-looking statements. These statements reflect Sphera’s current knowledge and its expectations and projections

about future events and may be identified by the context of such statements or words such as “anticipate,” “believe”, “estimate”, “expect”, “intend”,

“plan”, “project”, “target”, “may”, “will”, “would”, “could” or “should” or similar terminology.

Sphera undertakes no obligation to update or revise these forward–looking statements to reflect events or circumstances that arise after the date made

or to reflect the occurrence of unanticipated events. Inevitably, some assumptions may not materialize, and un-anticipated events and circumstances

may affect the ultimate financial results. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant

business, economic and competitive risks.

Therefore, the final results achieved may vary significantly from the forecasts, and the variations may be material.

3

Sphera Franchise Group At a Glance

13.6%

Normalized

EBITDA

growth(2)

1st

Full Service

Restaurant

Operator

120

Restaurants(1)

Track Record of

Rapid and

Profitable

Growth

RON 32.6m

Net profit

-39% yoy

14.7%

LfL(3) restaurant

sales growth

14.1%

Increase in no.

of restaurants

2017 pro forma results 3-year CAGR

RON 619m

Restaurant sales

+20.3% yoy

24.0%

Restaurant sales

growth

RON 69.3m

Normalized

EBITDA(2)

-5.8% yoy

11.2%

Normalized

EBITDA

margin(2)

24 Years of

Operation

Source: Pro-forma IFRS financial information

Notes: (1) As of 15-May-2018 ; (2) After excluding certain one-off expenses related to the reorganization of Sphera and the IPO process; (3) LfL performance for the reporting year is calculated by taking into account all the restaurants that have

been in uninterrupted operation from the beginning of the preceding year to the end of the reporting year

2nd

Quick Service

Restaurants

Operator

Leading Food Service Operator in Romania

4

51

15

12

Number of Locations (split per brand / restaurant format)2

Sphera at a glance

❑ Sphera is one of the leading food operators in Romania(1), operating also

through its subsidiaries in Moldova and in Italy

❑ Sphera was incorporated in May 2017 to consolidate all brands operated by

the Group, namely KFC, Pizza Hut Dine-In and Pizza Hut Delivery under one

company

❑ In 2017, Sphera secured the franchise for operation of Taco Bell restaurants

in Romania (two stores opened by 1-Dec-2017)

❑ In 2017, Sphera opened its first two KFC restaurants in Italy and is set to

become the largest KFC operator in Italy

❑ KFC Romania, KFC Italy, Pizza Hut, Pizza Hut Delivery Romania and Taco

Bell Romania operate under the Yum International Franchise Agreement

Introduction to Sphera Franchise Group Geographical Footprint

Notes: (1) first in FSR and second in QSR, in terms of sales, (2) As of 15-May-2018

Bucharest

4

2

114

29

11

15

KFC

PH

Pizza Hut

Delivery

Source: Company Inforrmation

Food Court In Line Drive-through

19

3

KFC restaurants

PH and PH Delivery restaurants

Taco Bell restaurants

2 Taco Bell

2

810

5

❑ holds the franchise

rights to operate KFC-

branded restaurants in

Moldova




certain regions of Italy


rights to operate Taco

Bell-branded

restaurants in Romania


rights to operate Pizza

Hut-branded restaurants

in Romania (Pizza Hut

Dine-In and Pizza Hut

Delivery)

❑ holds sub-franchise

rights




Romania

Sphera at a glance

US Food Network S.A.American Restaurant

System S.A.

California Fresh Flavors

S.R.L.

US Food Network S.R.L.

- Italy

US Food Network

S.R.L. - Moldova

99.9% 99.9% 99.9% 100% 80%

Corporate structure

https://plus.google.com/u/0/photos/albums/ptsl1vu3lasug9g5foedbn59uuqpa4me2?pid=6455626547879270322&oid=112160008827919013803

6

Key Investment Highlights

1 2

3

4

56

7

8

Logo/Text

Leading food service

group operating a

portfolio of internationally

recognized brands

Operational

excellence proven by

consistent top ranked

among YUM

franchisees in Europe

Significant further growth

potential in Romania and

massive white space

opportunity in Italy

Enhanced marketing

capabilities investing

directly into notable

successful marketing

campaigns

Solid macroeconomic

environment in

Romania and favorable

trends in the restaurant

sector

Proven network roll-

out capabilities with

long track record of

successful growth

Highly profitable

business model with

strong cash generation

and 100% dividend

payout ratio

Scalable platform

with fully fledged

process in place

allowing efficient

roll-out

7

Leading Foodservice Group in Romania

#2

#1

#2

QSR

player on the QSR segment (18% market share)

and #1 on the chicken segment

#2 player on the overall chained foodservice market (15% market share)

✓ c. 80% spontaneous brand awareness among

Romanian customers (YE 2017)

✓ customer base consists mainly of young and

middle aged people (78%), mostly educated

(at least 35% high school), with an average

household income

✓ 72 restaurants in Romania

as of 15 May 2018

player on the FSR segment

(nearly 3% market share)

#3 player on the overall chained

foodservice market (7% market share)

✓ 49% spontaneous brand awareness among

Romanian customers

✓ customer base consists mainly of young and middle

aged people (78%), mostly educated (at least 41% high

school & 32% university), with a focus on families with

an average to medium-high household income

✓ 22 restaurants as of 15 May 2018

player on the Home delivery segment (nearly 21%

market share)

✓ Order accessibility: classic call center lines,

dedicated website platform, mobile

application

✓ 18 restaurants as of

15 May 2018

✓ As of June 2017: 28% electronic

orders

Source: Company information; Euromonitor, Consumer Foodservice in Romania, May 2017; Deloitte Analysis

✓ First Taco Bell was opened on

12-Oct-2017 in Bucharest

✓ Second opened on 30-

Nov-2017, also in

Bucharest

Sphera in the Romanian Foodservice Market

8

15%

86%

Chained Independent

38%

31%

14%

12%

3%

Full-Service Restaurants/FSR

Cafes/bars

Street stalls/Kiosks

Fast Food/QSR

Self-Service Cafeterias

100% Home Delivery/Takeaway

Leading Foodservice Group in Romania

Market Structure and Competitive Overview

Chained players generated only 15% of sales (2016 data)

RON 17.8 bn

778 mn transactions

Source: Euromonitor, Consumer Foodservice in Romania, May 2017


KFC still no. 2 but growing faster (2016 data)

# Brand Product offering 2016 Mk share ‘13-’16 var. +pp.

1Burgers, Chicken,

Salads, Desserts29.2% +0.2%

2Chicken, Burgers,

Salads, Desserts18.0% +3.3%

3Sandwiches/tortillas,

Salads3.2% +1.3%

4 Salads 2.9% +2.0%

5Bakery products,

Sandwiches, Deserts2.3% -0.7%

Top 5 55.6%



1 Pizza, Pasta, Burgers 2.8% +0.7%

2Pizza, Pasta,

traditional Italian food0.6% 0.0%

3Traditional Serbian

food0.5% +0.1%

4Romanian cuisine,

Grill0.5% 0.0%

5Grill, Romanian and

Moldavian cuisine0.4% +0.4%

Top 5 4.8%

FSR: Sphera no. 1 and increasing distance vs no. 2 (2016 data)


1 Pizza 22.3% +3.4%

2 Pizza 20.6% +2.1%

3 Pizza 13.6% +7.2%

4 Pizza 10.5% -0.9%

5 Chinese Food 2.8% -0.7%

Top 5 69.8%

Delivery: Sphera no. 2 (2016 data)


9

2.2%3.0%

3.3%

3.7% 7.7%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1,000

3,000

5,000

7,000

9,000

2011 2012 2013 2014 2015 2016 2022f

Value Sales (RON bn) % yoy growth

Supportive Macro and Sector Environment in Romania

Enjoying the Highest GDP Growth in EU28 Strong Private Consumption Growth (yoy %)

QSR Sector Development 2011 – 2022f FSR Sector Development 2011 – 2022f

Source: European Commission – European Economic Forecast – Spring 2017, Eurostat Newsrelease 7 September 2017, INNSSE

#1 yoy real GDP

growth in the EU

Q2 2018 yoy

vs.

4.2%

2.4%

#1

0.3%

3.5%3.1%

3.9%

4.8%

7.0%

4.5%

-0.1%

0.2%

1.6%

2.2%2.0%

2.4% 2.3%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2008-12 2013 2014 2015 2016 2017 2018e

Romania Bulgaria Hungary Czech Republic

Poland Slovakia EU28

0.7%

4.7%

6.0%

7.4%6.9%

4.7%

-0.1%

1.2%

2.1% 2.3%1.7% 1.6%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2013 2014 2015 2016e 2017f 2018f

Romania Bulgaria Hungary Czech Rep. Poland Slovakia EU

Source: European Commission – European Economic Forecast – Spring 2017, Eurostat

#1yoy private consumption

expenditure in the EU

3.4%4.5%

8.0%7.2%

5.0%

0%

2%

4%

6%

8%

10%

12%

14%

1,000

2,000

3,000

4,000

2011 2012 2013 2014 2015 2016 2022f

Value Sales (RON bn) % yoy growth

Source: Euromonitor, Consumer Foodservice in Romania, May 2017; forecasts according to Deloitte Analysis

1.7

2.2

Source: Euromonitor, Consumer Foodservice in Romania, May 2017; forecasts according to Deloitte Analysis

5.5

6.79.05,504 restaurants

dominated by

independents – 95%

1,816 restaurants,

with chains

accounting for 38%

3.3

CAGR (%)

CAGR (%)

10

12.6%

19.0%

17.0%

12.5%

4.0%

10.0%

13.0%

3.1%0.0%

5.0%

10.0%

15.0%

20.0%

2014 2015 2016 2017

KFC Pizza Hut

262330

413503

63

76

97

112

3

0

100

200

300

400

500

600

700

2014 2015 2016 2017

KFC Pizza Hut Taco Bell

(RONm)

Successful Track Record of Growth

Sustained Growth Across All Brands

Coupled with Strong and Resilient LfL Growth

KFC remaining the key contributor at ca. 81% of revenues

Source: Company information, Consolidated Pro Forma Financial Statements.

CAGR 2014-2017

24.0%

Note: (1) Includes KFC restaurants in Romania, Moldova and Italy. (2) As of October 12 , 2017

1 1 1 1 2 3 5 7 1118

2332

37 40 4349 52 53

5965

7278

1 1 1 1 3 3 3 3 3 34

4

5

11

1313

1313

1514 14

18

21

22

22

1

34

78

10 9 9

9

12

17

182

2

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

15-M

ay-1

8

KFC Pizza Hut Dine-In Pizza Hut Delivery Taco Bell

Long Track Record of Successful Network Development

First KFC

in Romania

First KFC

outside

Bucharest

First Drive

Thru KFC

(Sibiu)

First Pizza

Hut

Delivery in

Romania

First Pizza

Hut outside

Bucharest

First Pizza

Hut Delivery

outside

Bucharest

First Pizza

Hut in

Romania

First KFC

in Rep.

Moldova

1 1 1 2 4 4 4 5 6 8

1115

23

35

48

54

6064

74 75 76

86

98

113

(1)

Initial Phase

Acceleration Phase

Transformation Phase

Development Phases

Sphera

holding

company

created

First KFC

in Italy

First Taco

Bell in

Romania

120

11

82.4% 80.2% 82.1% 84.1%

0.0%

50.0%

100.0%

324.9

405.8

514.5

618.8

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2014 2015 2016 2017

Highly Profitable Business Model

Sales Restaurant Opex Structure

(RONm) Change

‘17 vs ‘14

1.6%

(% of sales)

Source: Company information, Consolidated Pro Forma Financial Statements

Note: (1) After excluding certain one-off expenses related to the reorganization of Sphera and the IPO process;

(0.1)%

3.6%

(0.7)%

0.0%

0.1%

(0.4)%

(0.8)%

47.3

67.9 73.5 69.3

14.5%

16.7%

14.3%

11.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2014 2015 2016 2017

Normalized EBITDA(1)

(RONm) Margin (%)

28.9

47.351.6

32.6

8.9%

11.7%

10.0%

5.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

2014 2015 2016 2017

Net profit

(RONm) Margin (%)

CAGR 2014 – 2016

3.3%

35.5% 35.2% 35.6% 35.4%

16.1% 16.0% 17.9% 19.7%

8.1% 7.2%6.9%

7.4%5.9% 5.9%

5.9%5.9%

5.2% 5.2%5.2%

5.3%8.3% 8.1%

8.2%7.9%

3.3%2.6%

2.4%2.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2014 2015 2016 2017

Food and material expenses Payroll and employee benefits

Rent Royalties

Advertising Other operating expenses, net

Depreciation and amortisation

12

Identify locations around

Residential

areas

Traffic

Scalable Platform Allowing Efficient Roll-out

New Restaurant Opening ProcessRestaurant / Unit Selection Criteria

Market Analysis

Identify Best Locations

Traffic & Market Research

Project Management

Architects & Designers

Contractors & Vendors

Generators

(leisure – e.g. shopping

centres, cinemas or retail –

e.g. DIY, hypermarkets,

furniture stores etc)

Construction

Grand Opening

13

Operational Excellence as Top Ranked YUM Operator

Constant top ranker in YUM’s

European Franchisee Business

Units (EFBU) tables

✓ First place in CEE Guest Experience Survey (GES),

Leader out of 17 KFC markets

✓ 4 restaurants in Top 10 GES – Overall Satisfaction, out of

a total of 472 restaurants

#1

2016

2015

2014

2013

2012

✓ Transition to GES; third place in CEE out of 15 KFC Markets

✓ 51 restaurants in Target – Overall Satisfaction

✓ First place in EFBU out of 11 KFC Markets

✓ 10 restaurants with maximum score

✓ First place in EFBU out of 12 KFC Markets


✓ First place in EFBU for our KFC Moldova restaurant

✓ Third place in EFBU out of 16 KFC Markets & 379 restaurants


…due to excellent operational results

enabling a successful growth strategy!

KFC: most

loved QSR

brand in

Romania (1)

significantly closed the gap on McDonalds over last five

years: closest penetration levels to McDonalds in the region &

one of few markets in CEE successfully opening restaurants in

cities <100k inhabitants

# of total restaurants at year end in Romania

63 68

57 67

52 67

51 65

vs.

48 64

➔

developed successful

model for PH Dine-In

and Pizza Hut

Delivery enabling

expansion outside

capital city; resumed

expansion (for PH in

2015 and for Pizza Hut

Delivery in 2016)

+20 in 5Y +7 in 5Y

Note: (1) Sphera market surveys, Brand Image Tracker (YUM)

2017 68 71

✓ Third place in CEE Guest Experience Survey (GES) out

of 16 KFC markets

14

Enhanced Marketing Capabilities

Key Objectives

▪ Enhancement of marketing expenditure across

all brands results in increased brand awareness

and customer loyalty

▪ Working with award-winning partners for both

advertising and public relations

▪ Increased technology and digital focus across all

brands with online ordering topping 25% of Pizza

Hut Delivery sales, significantly above competition

▪ Optimised channel-mix and focus on the right mix

of objectives delivers business results

Marketing Strategy Highlights

Source: Company information and Deloitte Analysis

Contractual

obligation YUM to

invest at least 5% of

sales in marketing

Increase customer’s awareness of the

Company’s brands and loyalty to its product offering

Attract new customers in markets where Sphera

is present

Encourage existing customers to visit Sphera’s

restaurants more frequently

➢ Advertising produced in Romania with local

consumer insights to drive core messages

➢ KFC now has 48 weeks a year on TV, with PH

also on TV with 5 campaigns on average each

year

✓ KFC - the most loved brand in the sector

ahead of McDonald’s (one of the few countries

globally achieving this position)

✓ Pizza Hut benefits from the highest

awareness among key chains

15

Significant Further Growth Opportunities

Note: Size of segments do not constitute indication to their contribution to the overall growth.

Text

Long-term growth strategy based on four key pillars

Maintain Strong LFL Sales Growth

Continue Organic Network Roll-out

Develop a Significant KFC Business in Italy

Expand Brand Portfolio – Taco Bell

16


Key drivers:

➢ Macroeconomic backdrop to

remain highly supportive

➢ Continue to deliver strong

marketing

➢ Product innovation

➢ Price campaigns

❑ LfL performance for the reporting year is calculated by taking into account all the restaurants that have

been in uninterrupted operation from the beginning of the preceding year to the end of the reporting year

Maintain strong like-for-like growth on a supportive macroeconomic environment

12.6%

19.0%

17.0%

12.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2014 2015 2016 2017

4.0%

10.0%

13.0%

3.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2014 2015 2016 2017

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwi5r9vgnYfVAhVISRoKHaNFCtoQjRwIBw&url=https://en.wikipedia.org/wiki/File:KFC_logo.svg&psig=AFQjCNHiDsYxVRekK1hCI5oJKp5BWn7fuw&ust=1500068762628882

17

2017 2018 2019 2020 2021 2022 Total

KFC RomaniaCommitment 4 6 7 8 9 9 43

Target 7 7 7 10 10 10 51

Pizza Hut: Commitment 6 7 7 8 8 8 44

Delivery Target 5 5 5 6 6 6 33

Dine in Target 1 2 2 2 2 2 11


❑ Estimated market potential of ca. 30 restaurants

❑ Expand Pizza Hut Dine networks outside

Bucharest targeting major cities with a population

of below 200k

❑ Test latest YUM latest design and décor elements

in refurbishment of Flagship restaurant in

Bucharest (Sep 2017)

❑ Aim to cascade key elements to all new or

refurbished restaurants

KFC Network

❑ Continue development of KFC network to capture

market estimated potential of ca. 110 restaurants

over the next 5 years

❑ Future development with focus on Drive Thru (“DT”)

format in both Bucharest and outside the capital city

❑ Viability of DT format proven by McDonalds

expansion

❑ Smaller Drive Thru restaurant format in order to

enter smaller cities

❑ Estimated market potential of ca. 40 restaurants

❑ Aggressive growth planned by targeting cities with

population of below 150k

❑ Additional growth boost via sub-franchised locations –

with focus on smaller cities

Pizza Hut Dine-In Pizza Hut Delivery

Network roll-out plans (number of restaurants)

Continue organic network roll-out in Romania via distinct directions to capture

still existing market development potential

18

1) Identify and develop restaurant locations within the areas

of operation that Sphera’s has already secured by the end

of 2022

2) Develop a sizeable KFC network in North East Italy and

Piemonte, and also secure further geographic

opportunities in the North of the country as they come

available

3) Build a diversified portfolio of restaurants, including initially

Food Courts, but further on Drive Thrus, as well as Flag

Ship / In Line restaurants, when the opportunity arises

4) Hire and retain a dedicated management team

headquartered in Milan to drive business and network

expansion in the country


Opportunity for Italian Market

❑ 3rd largest national economy in the Eurozone and the world’s 8th largest economy

❑ Top tourist destination in Europe and the world: 51 m. tourists/year, ranking 5th in the

world in terms of tourist incomings per year and 7th in terms of value (tourism receipts)

❑ Northern part of the country is most developed (highly industrialized, lower

unemployment rate and higher per capita income)

❑ Foodservice industry dominated by independent operators, but during the economic

crisis, the number of independent food service operators declined, while chain restaurants

increased their revenues

❑ Franchise chains benefits from brand awareness, marketing, activities and technical

and management support

❑ Growth in QSR is a feature of eating out market representing an opportunity for a brand like

KFC to gain market share from full service restaurants

❑ Italians are changing their food consumption behavior, with food habits switching from

“traditional home country” leading to market opportunities for KFC and QSR players

❑ Proof of concept, American branded chains have strongly penetrated the Italian market

(e.g. McDonalds with over 550 restaurants, and Burger King with over 140 restaurants)

Sphera’s Strategy for Italy

Network Roll-out Plans (number of restaurants)

2017 2018 2019 2020 2021 2022 Total

KFC North East Italy

and Piemonte

Commitment 3 6 8 7 7 1 32

Target 3 6 8 8 7 2 34

Develop a significant KFC business in Italy to become the largest KFC operator in

the country

19

5543 35 32 26 25 22 13 8

-4 -3 -3 -4 -6 -9 -9 -17 -16-20

-3

14

31

48

65

Romanian Italian Greek French Turkish Mexican American Chinese Lebanese

I would definetly try it I would definetly not try it

Attitude to a new QSR chain by type of cuisine, Nov 2015, %, N=1,500

Good Perception of Mexican Food by the Romania consumer

Taco Bell

❑ Develop Taco Bell as the contemporary, dynamic Californian brand,

opening 14 restaurants in the initial 3 and thereafter growing the brand

steadily across the country

❑ Focus initial development in Bucharest and the more affluent cities over

200k population

❑ Planned restaurants will be located at malls, other types of restaurants

(In Line, drive through) will be considered in the future

Developing Taco Bell


2017 2018 2019 2020 2021 2022 Total

Commitment 2 3 5 - - - 10

Target 2 3 5 2 2 - 14

Network Roll-out Plan (number of restaurants)❑ Romanians are in general willing to try Mexican food and would like to see

more variety in foodservice offering – e.g. more than American

High market potential as QSR brand with scalability

Taco Bell most profitable QSR brand in the US

Spicy food meets Romanian taste preferences

Restaurant profile / customer profile similar to KFC

Brand focuses on young consumers / social media

Expand brand portfolio through the launch of Taco Bell in Romania

20


KFC RomaniaCommitment 4 6 7 8 9 9 43

Target 7 7 7 10 10 10 51

Pizza Hut: Commitment 6 7 7 8 8 8 44

Delivery Target 5 5 5 6 6 6 33

Dine in Target 1 2 2 2 2 2 11

Taco Bell RomaniaCommitment 2 3 5 - - - 10

Target 2 3 5 2 2 - 14

KFC Italy (North-East

& Piemonte)

Commitment 3 6 8 7 7 1 32

Target 3 6 8 8 7 2 34

Restaurants roll-out plan by brands

TOTAL OPENINGSCommitment 15 22 27 23 24 18 129

Target 18 23 27 28 27 20 143

2017 2018 2019 2020 2021 2022 Total

21


Total Restaurants at year-end

5360 65

7279

8696

106116

3

9

17

25

32

34

23

27

33

39

46

53

61

69

77

2

5

10

12

14

14

0

50

100

150

200

250

2014 2015 2016 2017 2018 2019 2020 2021 2022

KFC KFC Italy Pizza Hut Taco Bell

Notes: (1) Includes KFC Romania and KFC Moldova

(1)

76

87

98

116

139

166

194

221

241

113

2017 Results

23

Sphera – 2017 key events

▪ Strong sales & operational performance

▪ Double-digit same-store sales growth for the full-year

▪ Q4 same-store sales performance eased on cannibalisation impact, with some softening in customer

spend facing leaping inflation

▪ Total net store openings: 15 (3 below plan on permitting delays; 2 have already been opened, third to open

during Mar-2018)

▪ 9 stores opened in Q4-2017 (5x KFC, 2x Pizza Hut, 2x Taco Bell)

▪ Network size: 113 @ YE 2017, 115 @ 26-Feb-2018

▪ 2018 network target: +23 (excluding the 3 included in the 2017 plan) to 139

▪ KFC and Pizza Hut continue to lead top of mind awareness in Romania

▪ Strong Taco Bell sales performance for both stores

▪ Both KFC Italy stores generated operating profits in December, on combined sales better than expected

▪ Preliminary results

Consolidated Pro forma Change in pro forma margin

▪ Sales +37.3% +20.3%

▪ Restaurant profit +18.3% +7.0% (2.0)pp

▪ Normalised EBITDA* (2.9)% (5.8)% (3.1)pp

▪ EBITDA (21.0)% (25.1)% (5.4)pp

▪ Net Profit (35.5)% (38.9)% (5.1)pp

* Normalised EBITDA was adjusted for one-off expenses totaling RON 14.2m (revised upward from RON 11.8m

as initially communicated, following reclassification of certain items from recurring G&A)

Sales performance by brands

25

Brand performance: KFC Romania

Sales growth analysis

Same-store

performance

All-store

performance

▪ All-store sales growth of 17.7% Y/Y supported

mainly by same-store performance (11.9%

contribution);

▪ The 11 net openings contributed 5.8% to the Y/Y

growth, with all but one in cities with existing KFC

stores;

▪ same-store sales growth of 12.5% Y/Y on the back

of continued strong performance from the Drive-

Thru format, as well as a better performance of

the restaurants located outside Bucharest;

▪ Q4 performance slightly affected by increased

cannibalization, as all new stores opened in cities

with existing KFC presence (Bucharest, Arad,

Oradea, Ramnicu Valcea);

▪ Average ticket was up 6% in 2017 and 4.5% in

Q4, with transactions advancing 6.3% in 2017 and

5.2% in Q4;

26.4%

17.7% 18.0%

20.6%18.8%

14.0%

0%

5%

10%

15%

20%

25%

30%

2016 2017 Q1 Q2 Q3 Q4

26

Brand performance: Pizza Hut


Same-store

performance

All-store

performance

▪ All-store sales growth of 15.5% Y/Y, with a

relatively uniform performance across quarters, of

which 13.4pp was the contribution of the net 12

stores opened starting Jan-2016 (+44% network

growth)

▪ Same-store sales growth of 3.1% Y/Y, which is

deemed to be a significant performance given the

magnitude of the brand growth over the past two

years (with 8 of the 12 net openings taking place

in cities with existing Pizza Hut stores);

▪ We expect same-store growth to be in slight

negative territory at least for the next couple of

quarters as we plan further roll-outs in some of the

existing cities;

▪ Average ticket up 8% in 2017 and 7% in Q4, with

transactions falling 4.4% in 2017 and 6.0% in Q4;

13.0%

3.1%

1.4%

5.6% 5.4%

0.6%

0%

2%

4%

6%

8%

10%

12%

14%

2016 2017 Q1 Q2 Q3 Q4

Development

28

Development

Restaurant openings in 2017

OpeningsTotal stores BoY New store locations

8

5

2

65

12

0

21

▪ Romania: Bucharest (1x DT, 1x IL), Oradea (1x

DT, 1x FC), Arad (1x FC), Valcea (1x FC)

▪ Italy: 2x FC

▪ Closed stores: Romania (Oradea: 1x FC)

▪ Bucharest (4x IL), Ploiesti (1x IL)

▪ Bucharest (2x FC)

Legend: FC – foodcourt; IL – inline (street); DT – Drive-Thru

-1

Plan Total stores EoY

10*

1

72

17

2

22

1598 18 113

▪ Galati (1x FC)

2

1

5

* The three restaurants planned for 2017 opened in Jan-2018 (Botosani - DT), Feb-2018 (Bucharest – DT) and Mar-2018 (Italy - FC).

Marketing / CSR

33

Marketing

Note: size of campaigns’ pictures are not an indication of exact duration of the respective campaign

Continuous activities to promote our brands

January February March April May June July August September October November December

34

Marketing

Q4-2017 highlights

▪ Christmas campaign focused on buckets with the aim to drive top line in Q4 whilst building on the

freshness pillar and enjoyed higher sales mix Y/Y

▪ launched digital menu boards in the first two stores with the aim to continue roll-out throughout

2018.

▪ new brand website was launched, which has resulted in increased traffic and longer interaction

with the site.

▪ Extended the delivery test in Bucharest after encouraging start.

▪ Continued to be recognized for outstanding digital marketing performance with numerous awards

at FIBRA, including most creative client.

▪ launched Pepperoni Stuffed Crust pizza, which enjoyed notable sales mix throughout the campaign

▪ The new enhanced dine-in menu was extended to additional stores and offers customers wider

variety and higher product quality

▪ Access to the Delivery channel through digital platform is increasing, with 31% of all orders coming

through the digital, of which 9% through the Pizza Hut app

▪ Strong communication campaign (with a total budget of c. RON 1m) through all relevant channels

(guerilla marketing activities, digital & social media, special brand and product videos, dedicated

launch website, engagement of local communities, OOH (Bucharest, Vienna, Prague and

Budapest), special signage inside and around the store’s location, VIP Party and Special Launch

ceremony)

35

‘Hospice, House of Hope’“SOS Children’s Villages Bucharest”

‘Physics (taught) differently’ (with CEAE)‘I want to go to high-school’ (with World Vision Romania)

Corporate Social Responsibility

Ongoing CSR campaigns & programs

EUR 140k

raised in

2017, to

finance

school for 200

children

36

Corporate Social Responsibility

Replate Waste (partnership with Shutterstock US)

We take all the food that’s left on the plates

when people leave our restaurant and, with the

help of a food stylist and photographer, we

create new, stunning plates.

Then, we take photos, we upload them on

Shutterstock and sell them. All the money that

we raise will be donated to the Hospice House

of Hope.

Financials

38

Sphera – Financial reports in brief

Consolidation perimeter

2016 2017 2018

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Sphera - Consolidated financials

KFC Romania

KFC Moldova

Pizza Hut

KFC Italy

Taco Bell

Sphera - Pro forma information (P&L only)

KFC Romania

KFC Moldova

Pizza Hut

KFC Italy

Taco Bell

Pro forma financials

40

Financial performance: Pro-forma

Statement of comprehensive income

▪ Pro forma sales up 20.3% Y/Y on strong performance from KFC Romania/Moldova and Pizza Hut and increasing contributions from the new businesses (KFC

Italy and Taco Bell);

▪ Restaurant operating profit up 7.0% Y/Y, with margin down 2pp, especially on salary costs and impact from new openings and new areas of business;

▪ G&A expenses up 88.5%, or 3.5pp up in sales, driven by increased head-office payroll expenses (on both higher headcount and selected salary adjustments)

and to one-off expenses (RON 14.2m, or 2.3% of sales);

▪ EBITDA fell 25.1% Y/Y and EBITDA margin contracted 5.4pp, of which 3.5pp due to higher G&A and 1.9pp due to higher restaurant expenses;

▪ Normalized EBITDA (excluding one-offs) fell 5.8% Y/Y and normalized EBITDA fell 3.1pp;

▪ Net profit was 38.9% lower Y/Y and net profit margin fell by 5.1pp compared to the 5.5pp drop in operating profit margin, on lower income tax expense

(-38.4%, or 0.6pp of sales)

Y/Y% % of Sales

Data in RON'000 2017 2016 2017/2016 2017 2016 Δ%

Restaurant sales 618,804 514,475 20.3%

Restaurant expenses 520,031 422,204 23.2% 84.0% 82.1% 2.0%

Food and material 219,232 183,409 19.5% 35.4% 35.6% -0.2%

Payroll and employee benefits 121,623 91,960 32.3% 19.7% 17.9% 1.8%

Rent 45,512 35,525 28.1% 7.4% 6.9% 0.4%

Royalties 36,567 30,356 20.5% 5.9% 5.9% 0.0%

Advertising 32,727 26,521 23.4% 5.3% 5.2% 0.1%

Other operating expenses, net 48,720 41,972 16.1% 7.9% 8.2% -0.3%

Depreciation and amortization 15,650 12,461 25.6% 2.5% 2.4% 0.1%

Restaurant operating profit 98,773 92,271 7.0% 16.0% 17.9% -2.0%

General and administration expenses, net 60,297 31,988 88.5% 9.7% 6.2% 3.5%

Operating profit 38,476 60,283 -36.2% 6.2% 11.7% -5.5%

Finance costs 2,354 929 153.4% 0.4% 0.2% 0.2%

Finance income 220 113 94.7% 0.0% 0.0% 0.0%

Profit before tax 36,342 59,467 -38.9% 5.9% 11.6% -5.7%

Income tax expense 3,786 6,144 -38.4% 0.6% 1.2% -0.6%

Profit for the year 32,556 53,323 -38.9% 5.3% 10.4% -5.1%

EBITDA 55,065 73,502 -25.1% 8.9% 14.3% -5.4%

Normalised EBITDA 69,268 73,502 -5.8% 11.2% 14.3% -3.1%

41

20.3%

14.1%

0.2%

2.4% 2.9%

0.6% 0.1%0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Sph

era

US

FN

(R

O)

US

FN

(M

D)

US

FN

(IT

)

AR

S

CF

F

Cons.A

dj

20.3%

17.7%

13.3%

15.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Sph

era

US

FN

(R

O)

US

FN

(M

D)

US

FN

(IT

)

AR

S

CF

F

Cons.A

dj


Breakdown of results by Group companies – year 2017

Y/Y Sales growth by companies Contribution to Sales growth by companies Contribution to normalized EBITDA by companies

Data in RON'000 USFN (RO) ARS USFN (MD) USFN (IT) CFF SFG Cons.Adj ICO ellim. PPA Adj. SFG Cons.

Restaurant sales 482,587 112,011 8,492 12,377 2,876 12,420 (11,958) (1) 618,804

Restaurant expenses 397,194 99,520 7,648 12,501 3,837 0 (909) (1) 241 520,031

Food and material 180,421 30,422 3,628 3,822 1,087 0 (146) (2) 219,232

Payroll and employee benefits 85,660 29,920 1,252 4,005 786 0 0 0 121,623

Rent 33,719 9,643 796 878 476 0 0 0 45,512

Royalties 28,754 6,514 506 736 57 0 0 0 36,567

Advertising 23,835 6,846 364 809 969 0 (75) (21) 32,727

Other operating expenses, net 34,068 12,433 831 1,734 320 0 (688) 22 48,720

Depreciation and amortization 10,737 3,742 271 517 142 0 0 0 241 15,650

Restaurant operating profit 85,393 12,491 844 (124) (961) 12,420 (11,049) 0 (241) 98,773

General and administration expenses, net 32,612 12,576 241 1,601 791 23,525 (11,049) 60,297

Operating profit 52,781 (85) 603 (1,725) (1,752) (11,105) 0 0 (241) 38,476

Finance costs 1,491 811 138 358 37 141 (622) 2,354

Finance income 14,634 7 15 0 0 30 (14,466) 220

Profit before tax 65,924 (889) 480 (2,083) (1,789) (11,216) (13,844) 0 (241) 36,342

Income tax expense 4,375 1,346 82 (428) 11 (1,600) 0 3,786

Profit for the year 61,549 (2,235) 398 (1,655) (1,800) (9,616) (13,844) 0 (241) 32,556

EBITDA 64,257 3,783 926 (1,208) (1,610) (11,083) 0 0 0 55,065

Normalised EBITDA 64,752 3,968 926 (1,208) (1,610) 2,439 0 0 0 69,268

42


Restaurant operating expenses

▪ Operational expenses increased 23.3% Y/Y to RON 520.0m in 2017,

▪ As percentage of sales, operational expenses increased by 1.9pp Y/Y to 84.0% in 2017, of which:

▪ By main areas of business:

▪ +1.7pp was the combined effect of the changes in the restaurant expenses of KFC Romania, Pizza

Hut and KFC Moldova (+1.5pp from payroll cost);

▪ +0.6pp was the combined impact of our new KFC stores in Italy and Taco Bell stores (+0.3pp from

payroll cost and +0.2pp from advertising);

▪ By expense category:

▪ +1.8pp from payroll cost

▪ +0.4pp from rent expenses (mostly related to new stores),

▪ (0.2)pp from cost of food and materials

▪ (0.3)pp from other operating expenses.

▪ In Q4-2017, cost of labour fell 1.6pp to 19.3% on stronger seasonal sales, cost of food advanced 1.2pp to

36.5% on higher acquisition prices for a number of products, while depreciation increased 0.6pp on higher

number of store openings.

Change Percentage of sales

Data in RON thousand 2017 2016 2017/2016 2017 2016

Restaurant expenses 520,031 422,204 23.2% 84.0% 82.1%

Food and material 219,232 183,409 19.5% 35.4% 35.6% Payroll and employee benefits 121,623 91,960 32.3% 19.7% 17.9% Rent 45,512 35,525 28.1% 7.4% 6.9% Royalties 36,567 30,356 20.5% 5.9% 5.9% Advertising 32,727 26,521 23.4% 5.3% 5.2% Other operating expenses 48,720 41,972 16.1% 7.9% 8.2% Depreciation 15,650 12,461 25.6% 2.5% 2.4%

Contribution to change in restaurant opex margin

Contribution to change in restaurant profit

Guidance for 2018

▪ While we expect the same-store restaurant operating margin to improve by up to 0.5pp in 2018 (0.5pp decrease in cost of sales, 0.5pp increase in cost of labour,

0.2pp decrease in rent, 0.3pp decrease in depreciation), we believe the all-store restaurant profitability will decrease by up to 1pp on the impact of the new stores (of

which 0.8pp from increased depreciation expense).

43


G&A expenses

▪ General and administration expenses increased 88% Y/Y to RON 60.3 million in 2017 (9.7% of sales, up from

6.2% in 2016).

▪ The company’s G&A expense was mainly impacted by a series of incremental one-off costs and expenses,

totaling RON 14.2m (revised upward from RON 11.8m as initially communicated, following further

reclassification of management bonuses and professional legal and commercial services). These one-off

costs most notably include the payment of a significant management bonus as well as expenses relating to

legal, advisory, and audit fees relating to the corporate restructuring work that was undertaken during the

year.

▪ We awarded RON 12.2m in extraordinary remuneration to the senior management, including the heads

of all key functions of the business, in order to reward the significant growth and value creation that has

been achieved over the recent years, and incentivize key individuals towards what is committed and

planned to be achieved as part of our 5-year plan.

▪ We incurred RON 2.0m in one-off third-party expenses, relating mainly to legal, advisory, and audit fees

as part of our reorganization process and we treat these fees as non-recurring.

Change Percentage of sales

Data in RON thousand 2017 2016 2017/2016 2017 2016

General and administration expenses (net), of which:

60,297 31,988 88.5% 9.7% 6.2%

Payroll and employee benefits 34,695 13,564 155.8%

Third-party services 13,605 10,197 33.4%

Depreciation and amortization 939 758 23.9%

Rent 2,344 1,736 35.0%

Banking charges 1,921 1,525 26.0%

Transport 2,599 1,314 97.8%

Other expenses 4,194 2,894 44.9%

Contribution to growth in G&A expense

Breakdown of one-off costs

Total one-off costs, of which: 14,202

Management bonuses 12,154

Third-party 2,048

Legal services 681

Commercial due diligence 652

Audit services 534

Other 181

▪ A second important component of growth in G&A were head-office salaries which, excluding the new businesses (KFC Italy and Taco Bell), increased by

approximately RON 9.5m Y/Y.

▪ c. RON 6.5m represent increased expenses with base salaries of the head-office staff, due to the significant increase in headcount and salary adjustments for a

number of key employees;

▪ c. RON 3.0m represent increased expenses with the bonus accruals for the year 2017 that will be paid in 2018 to both the management team and head-office

staff.

▪ A third distinct component was represented by the new businesses (KFC Italy and Taco Bell operations), which generated RON 2.4m in G&A expenses.

Guidance for 2018

▪ We expect normalized G&A to reach approximately 7.0% of sales in 2018, with a 0.5pp seasonal variation between quarters (20-25% increase in payroll, with

4% increase in existing salaries and 30-40 new hires, 10% decrease in third-party, 8% increase in other G&A positions)

44


Overall guidance for 2018

▪ Sales

▪ Same-store sales: +6-8%

▪ All-store sales: 20-25%

▪ Restaurant operating margin

▪ Same-store margin: +0.5pp to 18.5%

▪ All-store margin: -1.0pp to 15.0%, of which impact from Depreciation: -0.8pp (3.3% of sales)

▪ G&A expenses

▪ 7.0% of sales

▪ Normalized EBITDA margin

▪ 11.0-11.5%

Consolidated financials

46

Sphera – Consolidated financial performance


▪ Consolidated sales up 37.3% Y/Y on strong performance from KFC Romania (+17.7% Y/Y), while the consolidation of ARS (Pizza Hut restaurants), starting

with June 2017, contributed 15.9pp in the consolidated sales growth rate;

▪ Restaurant operating profit up 18.3% Y/Y, with margin down 2.6pp, especially on salary costs and impact from new openings and new areas of business;

▪ G&A expenses up 143%, or 4.3pp up in sales, driven by increased head-office payroll expenses (on both higher headcount and selected salary adjustments)

and to one-off expenses (RON 14.2m, or 2.5pp of sales);

▪ EBITDA fell 21.0% Y/Y and EBITDA margin contracted 6.6pp, of which 4.3pp due to higher G&A and 2.3pp due to higher restaurant expenses;

▪ Normalized EBITDA (excluding one-offs) increased 0.9% Y/Y and normalized EBITDA margin fell 4.1pp;

▪ Net profit was 35.5% lower Y/Y and net profit margin fell by 6.2pp compared to the 6.8pp drop in the operating profit margin, on lower income tax expense

(-44.1%, or 0.8pp of sales)

Y/Y% % of Sales

Data in RON'000 2017 2016 2017/2016 2017 2016 Δ%





Rent 41,615 27,498 51.3% 7.3% 6.6% 0.7%

Royalties 33,885 24,654 37.4% 5.9% 5.9% 0.0%

Advertising 30,231 20,736 45.8% 5.3% 5.0% 0.3%

Other operating expenses, net 44,412 30,313 46.5% 7.7% 7.3% 0.5%





Finance costs 2,156 825 161.3% 0.4% 0.2% 0.2%

Finance income 214 95 125.3% 0.0% 0.0% 0.0%


Income tax expense 3,233 5,783 -44.1% 0.6% 1.4% -0.8%

Profit for the year 31,428 48,733 -35.5% 5.5% 11.7% -6.2%

EBITDA 51,424 65,070 -21.0% 9.0% 15.6% -6.6%

Normalised EBITDA 65,627 65,070 0.9% 11.4% 15.6% -4.1%

47


Statement of financial position

All data in RON'000 31-Dec-17 31-Dec-16 All data in RON'000 31-Dec-17 31-Dec-16

Assets Equity and liabilities

Non-current assets 176,123 54,246 Total equity 104,544 58,253

Property, plant and equipment 105,220 47,551 Equity attributable to equity holders of the parent 104,525 58,292

Intangible assets 67,471 6,365 Issued capital 581,990 190

Deposits for rent guarantee 1,288 290 Share premium (520,578) -

Deferred tax assets 2,144 40 Other capital reserves - 19

Retained earnings 43,191 58,124

Current assets 73,255 65,399 Foreign currency translation reserve (78) (41)

Inventories 8,509 5,744 Non-controlling interests 19 (39)

Trade and other receivables 8,418 8,780

Prepayments 3,673 1,907 Non-current liabilities 42,190 16,304

Cash and short-term deposits 52,655 48,968 Interest-bearing loans and borrowings 39,520 14,630

Trade and other payables 2,670 1,674

Assets held for sale 195 -

Current liabilities 102,839 45,088

Total assets 249,573 119,645 Trade and other payables 77,647 37,292

Interest-bearing loans and borrowings 25,192 7,796

Total liabilities 145,029 61,392

Total equity and liabilities 249,573 119,645

Interim results: Jan-Mar 2018

49

Sphera – Q1-2018 key events

▪ Strong sales & operational performance

▪ All-store sales up 22.5% with same-store sales growth of 9.7%

▪ continued strong growth from KFC, increasing contributions from KFC Italy and Taco Bell

▪ Total store openings: 3 (3x KFC, all being part of 2017 development plan)

▪ other 4 stores opened so far in Q2-2018 (3x KFC,1x Pizza Hut Delivery)

▪ Network size: 116 @ 31-Mar-2018, 120 @ 15-May-2018

▪ 2018 network target: +23 (excluding the 3 included in the 2017 plan) to 139

▪ KFC Romania and Moldova in Yum’s top 4 CEE GES performance, with both stores in Italy leading the

Italian performance chart

▪ KFC and Pizza Hut continue to lead top of mind awareness in Romania

▪ Taco Bell restaurant operating margin moving into positive territory at 4%

▪ KFC Italy restaurant operating margin improving to 3.5%

▪ Interim results*

RONm Y/Y* Margin

▪ Sales 170.2 +22.5%

▪ Restaurant profit 26.1 +0.5% 15.3%

▪ EBITDA 18.8 (3.9)% 11.1%

▪ Net Profit 12.5 (13.7)% 7.4%

*) Comparison between Q1-2018 consolidated results and Q1-2017 pro forma results.

Sales performance by brands

51

Brand performance: KFC Romania


Same-store

performance

All-store

performance

▪ All-store sales growth of 19.6% Y/Y supported

mainly by same-store performance (11.6pp

contribution);

▪ The 8 net openings contributed 7.8pp to the Y/Y

growth, with all but one in cities with existing KFC

stores;

▪ same-store sales growth of 11.8% Y/Y on the back

of continued strong performance from the Drive-

Thru format, as well as a better performance of

the restaurants located outside Bucharest;

▪ Average ticket was up 8.2% and transactions were

up 3.3% in Q1-2018 vs Q1-2017;

17.0%

12.5%

10.7%

15.6%

14.0%

9.9%

11.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2016 2017 Q12017

Q22017

Q32017

Q42017

Q12018

26.4%

17.7% 18.0%

20.6%18.8%

14.0%

19.6%

0%

5%

10%

15%

20%

25%

30%

2016 2017 Q12017

Q22017

Q32017

Q42017

Q12018

52

Brand performance: Pizza Hut


Same-store

performance

All-store

performance

▪ All-store sales growth of 9.8% Y/Y, with a relatively

uniform performance across quarters, of which

8.2pp was the contribution of the net 6 stores

opened starting Jan-2016;

▪ Same-store sales growth of 1.6% Y/Y, still

reflecting a certain cannibalization impact from the

stores opened since Jan-2017 (with 4 of the 6 net

openings taking place in cities with existing Pizza

Hut stores);

▪ Average ticket was up 7.6% and transactions were

down 5.5% in Q1-2018 vs Q1-2017;

28.0%

15.5%16.8% 16.6%

14.9% 14.1%

9.8%

0%

5%

10%

15%

20%

25%

30%

2016 2017 Q12017

Q22017

Q32017

Q42017

Q12018

13.0%

3.1%

1.4%

5.6% 5.4%

0.6%1.6%

0%

2%

4%

6%

8%

10%

12%

14%

2016 2017 Q12017

Q22017

Q32017

Q42017

Q12018

Development

54

Development

Restaurant openings in Q1-2018

OpeningsTotal stores BoY New store locations

3*

0

0

▪ Romania: Bucharest (1x DT), Botosani (1x DT)

▪ Italy: 1x FC

Legend: FC – foodcourt; IL – inline (street); DT – Drive-Thru

Plan Total stores EoP

13

0

75

17

2

22

3 23 116

3

2

5

* All three restaurants opened in Q1-2018 were part of 2017 development plan.

72

17

2

22

113

55

KFC Bucharest Sun Plaza (DT)

56

KFC Botosani (DT)

57

KFC Italy - Villesse

Brand news

59

Brand news

Q1-2018 highlights

▪ KFC focused on communicating value for Q1, successfully re-launching Smart Menu (full meal for 12.9

RON) and Ceva (Something) (value bundle for 5 RON) and maintaining strong same-store sales growth;

▪ Continuous activities to build KFC as a digital brand by making the story more relevant for the

millennials: they could apply to an online “smart job” platform in order to gain experience and win prizes;

the digital activation had c. 29k online participants that generated over 120k sessions;

▪ c. 4.5% price increase done in mid-February;

Delivery

▪ Delivery test

expanded to four

stores in Bucharest

and two in Cluj, with

very encouraging

results;

Self-ordering kiosks

▪ Model and journey

selected and

customized for local

market needs and

specifications;

▪ Integrations with IT

systems and bank’s

POS solution finalized

▪ Pilot kiosks to be

implemented in

selected locations;

▪ Expected roll-out by

year-end

60

Brand news

Q1-2018 highlights

▪ Pizza Hut started the year by communicating abundant value through its Pizza Festival all-you-can-

eat signature campaign;

▪ The new menu designed by a well-know chef was introduced in selected stores with the aim of

covering all stores by end of Q2;

▪ Pizza Hut Delivery experienced positive same-store sales growth in Q1 after launching Mix for 2,

an abundant value campaign;

▪ Overall online orders exceeding 30% of delivery sales;

▪ c. 5% price increase done in mid-February;

▪ Taco Bell continued to use social media as its main brand awareness builder and launched a

Monday offer to help value perception and boost sales;

▪ 2018 awards: ADC school of creativity - KFC client of the year; CSR awards - KFC & Pizza Hut for

involvement in education; MomentUM media awards - Silver for KFC “Winter is not coming”

campaign, best content creation

61

Marketing

Q1-2018 campaigns

Financials

Pro forma financials

Note:

Q1-2018 pro forma results are identical to consolidated results

Q1-2017 pro forma results include ARS performance for the full period

Q1-2017 consolidated results do not include ARS performance

64

Financial performance: Q1-2018 (Consolidated) vs Q1-2017 (Pro-forma)


▪ Pro forma sales up 22.5% Y/Y on strong performance from KFC Romania/Moldova and Pizza Hut and increasing contributions from the new businesses (KFC

Italy and Taco Bell);

▪ Restaurant operating profit up 0.5% Y/Y, with margin down 3.4pp, especially on food and salary costs, as well as impact from new openings and new areas of

business;

▪ G&A expenses up 16.7% Y/Y, but 0.3pp down to 7.3% of sales, driven mainly by head-office payroll expenses;

▪ EBITDA fell 3.9% Y/Y and EBITDA margin contracted 3.0pp to 11.1% of sales, virtually due to higher restaurant expenses;

▪ Net profit was 13.7% lower Y/Y and net profit margin fell by 3.0pp to 7.4% of sales.

Y/Y% % of Sales

Data in RON'000 Mar-18 Mar-17 2018/2017 Mar-18 Mar-17 Δ%



Food and material 61,909 49,138 26.0% 36.4% 35.4% 1.0%


Rent 12,416 10,260 21.0% 7.3% 7.4% -0.1%

Royalties 9,918 8,288 19.7% 5.8% 6.0% -0.1%

Advertising 7,060 5,770 22.4% 4.1% 4.2% 0.0%




General and administration expenses, net 12,350 10,586 16.7% 7.3% 7.6% -0.4%


Finance costs 487 278 75.3% 0.3% 0.2% 0.1%

Finance income 183 131 39.4% 0.1% 0.1% 0.0%


Income tax expense 910 705 29.1% 0.5% 0.5% 0.0%

Profit for the period 12,549 14,545 -13.7% 7.4% 10.5% -3.1%

EBITDA 18,836 19,598 -3.9% 11.1% 14.1% -3.0%

65

22.5%

15.5%

0.1%

2.9%1.9% 1.8%

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5.0%

10.0%

15.0%

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25.0%

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22.5%

19.6%

6.3%

9.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

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(R

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Breakdown of results by Group companies

Y/Y Sales growth by companies Contribution to Sales growth by companies Contribution to EBITDA by companies

Data in RON'000 USFN (RO) ARS USFN (MD) USFN (IT) CFF SFG Cons.Adj SFG Cons.

Restaurant sales 131,007 29,962 2,188 4,123 2,544 5,949 (5,541) 170,232

Restaurant expenses 108,839 27,014 1,914 3,978 2,440 0 (67) 144,119

Food and material 50,363 8,452 954 1,215 975 0 (51) 61,909

Payroll and employee benefits 22,858 7,745 326 1,284 798 0 0 33,010

Rent 9,210 2,522 191 286 205 0 2 12,416

Royalties 7,821 1,670 130 246 51 0 0 9,918

Advertising 4,890 1,802 49 232 103 0 (15) 7,060

Other operating expenses, net 10,480 3,659 192 506 104 0 (3) 14,938

Depreciation and amortization 3,218 1,164 72 209 205 0 0 4,867

Restaurant operating profit 22,168 2,948 274 145 104 5,949 (5,474) 26,113

General and administration expenses, net 7,334 2,755 61 800 615 6,257 (5,474) 12,350

Operating profit 14,834 192 213 (656) (512) (308) 0 13,764

Finance costs 339 144 30 131 76 168 (401) 487

Finance income 455 46 5 0 0 78 (401) 183

Profit before tax 14,949 94 188 (787) (587) (398) 0 13,459

Income tax expense 732 347 19 (184) 28 (32) 0 910

Profit for the period 14,217 (252) 169 (603) (615) (367) 0 12,549

EBITDA 18,153 1,412 298 (447) (307) (273) 0 18,836

66


Restaurant operating expenses and margin

▪ Operational expenses increased 27.6% Y/Y to RON 144.1m in Q1-2018,

▪ As percentage of sales, operational expenses increased by 3.4pp Y/Y to 84.7% in Q1-2018, of which:

▪ By main areas of business:

▪ +3.4pp was the combined effect of the changes in the restaurant expenses of KFC Romania and

KFC Moldova (+1.6pp from cost of sales, +1.5pp from other operating expenses);

▪ +0.5pp was the impact from ARS operations

▪ (0.3)pp was the combined impact of our new KFC stores in Italy and Taco Bell stores;

▪ By expense category:

▪ +1.5pp from other operating expenses

▪ +1.0pp from cost of food and materials

▪ +0.7pp from payroll expenses

▪ Compared to Q4-2017, restaurant opex ratio fell 1.3pp, mainly attributed to lower advertising expenses;

cost of food and cost of labor remained virtually unchanged, while other operating expenses increased by

1.1pp on expenses associated with the newer stores.

Contribution to change in restaurant opex ratio

Contribution to change in restaurant profit

Y/Y% % of Sales

Data in RON'000 Mar-18 Mar-17 2018/2017 Mar-18 Mar-17

Restaurant expenses 144,119 112,988 27.6% 84.7% 81.3%

Food and material 61,909 49,138 26.0% 36.4% 35.4%

Payroll and employee benefits 33,010 25,964 27.1% 19.4% 18.7%

Rent 12,416 10,260 21.0% 7.3% 7.4%

Royalties 9,918 8,288 19.7% 5.8% 6.0%

Advertising 7,060 5,770 22.4% 4.1% 4.2%

Other operating expenses, net 14,938 10,126 47.5% 8.8% 7.3%

Depreciation and amortization 4,867 3,443 41.4% 2.9% 2.5%

Restaurant operating profit 26,113 25,983 0.5% 15.3% 18.7%

67


G&A expenses

▪ General and administration expenses increased 16.7% Y/Y to RON 12.3 million in Q1-2018 (7.3% of sales,

up from 7.6% in Q1-2017).

▪ The main contributor to the G&A growth was payroll (up 12.0% Y/Y), which accounted for 6.9pp of the total

growth rate;

Contribution to growth in G&A expense Change Percentage of sales

Data in RON thousand Mar-18 Mar-17 2018/2017 Mar-18 Mar-17

General and administration expenses (net), of which:

12,350 10,586 16.7% 7.3% 7.6%

Payroll and employee benefits 6,828 6,098 12.0% Third-party services 2,405 2,191 9.8% Depreciation and amortization 205 334 -38.6% Rent 738 418 76.6% Banking charges 635 383 65.8% Transport 742 483 53.8% Other expenses 797 680 17.2%

Consolidated financials

69



▪ Consolidated sales up 52.4% Y/Y on strong performance from KFC Romania (+19.6% Y/Y), while the consolidation of ARS (Pizza Hut restaurants), starting

with June 2017, contributed 26.8pp in the consolidated sales growth rate;

▪ Restaurant operating profit up 20.0% Y/Y, with margin down 4.2pp, especially on salary costs and impact from new openings and new areas of business;

▪ G&A expenses up 69.9% Y/Y, up 0.7pp to 7.3% of sales, driven mainly by the consolidation of ARS and the KFC Italy and Taco Bell operations;

▪ EBITDA advanced 9.3% Y/Y and EBITDA margin contracted 4.3pp to 11.1%, mainly due to higher restaurant expenses;

▪ Net profit was 10.9% lower Y/Y and net profit margin fell by 5.2pp to 7.4%.

Y/Y% % of Sales

Data in RON'000 Mar-18 Mar-17 2018/2017 Mar-18 Mar-17 Δ%





Rent 12,416 8,071 53.8% 7.3% 7.2% 0.1%

Royalties 9,918 6,687 48.3% 5.8% 6.0% -0.2%

Advertising 7,060 4,317 63.5% 4.1% 3.9% 0.3%






Finance costs 487 141 245.1% 0.3% 0.1% 0.2%

Finance income 183 93 97.6% 0.1% 0.1% 0.0%


Income tax expense 910 355 156.8% 0.5% 0.3% 0.2%

Profit for the period 12,549 14,090 -10.9% 7.4% 12.6% -5.2%

EBITDA 18,836 17,230 9.3% 11.1% 15.4% -4.4%

70



Data in RON'000 31-Mar-18 31-Dec-17 Data in RON'000 31-Mar-18 31-Dec-17

Assets Equity and liabilities

Non-current assets 180,192 176,123 Total equity 117,114 104,544

Property, plant and equipment 108,305 105,220 Equity attributable to equity holders of the parent 117,059 104,525

Intangible assets 67,938 67,471 Issued capital 581,990 581,990

Deposits for rent guarantee 1,606 1,288 Share premium (0) (520,578)

Deferred tax assets 2,343 2,144 Other capital reserves 55,705 -

Retained earnings (520,578) 43,191

Current assets 66,310 73,291 Foreign currency translation reserve (59) (78)

Inventories 8,185 8,509 Non-controlling interests 55 19

Trade and other receivables 9,779 8,454

Prepayments 3,757 3,673 Non-current liabilities 40,975 42,190

Cash and short-term deposits 44,588 52,655 Interest-bearing loans and borrowings 38,419 39,520

Trade and other payables 2,557 2,670

Assets held for sale 195 195

Current liabilities 88,607 102,874

Total assets 246,697 249,609 Trade and other payables 62,800 77,682

Interest-bearing loans and borrowings 25,808 25,192

Total liabilities 129,583 145,064

Total equity and liabilities 246,697 249,608

Pro forma financials – 2014-2017

72



Abolute data (RON'000) % of Sales Y/Y% change

2014 2015 2016 2017 2014 2015 2016 2017 2015 2016 2017

Restaurant sales 324,912 405,830 514,475 618,804 100.0% 100.0% 100.0% 100.0% 24.9% 26.8% 20.3%

Restaurant expenses 267,699 325,134 422,204 520,031 82.4% 80.1% 82.1% 84.0% 21.5% 29.9% 23.2%

Food and material expenses 115,286 142,859 183,409 219,232 35.5% 35.2% 35.6% 35.4% 23.9% 28.4% 19.5%

Payroll and employee benefits 52,401 65,135 91,960 121,623 16.1% 16.0% 17.9% 19.7% 24.3% 41.2% 32.3%

Rent 26,447 29,020 35,525 45,512 8.1% 7.2% 6.9% 7.4% 9.7% 22.4% 28.1%

Royalties 19,103 23,830 30,356 36,567 5.9% 5.9% 5.9% 5.9% 24.7% 27.4% 20.5%

Advertising 16,777 20,960 26,521 32,727 5.2% 5.2% 5.2% 5.3% 24.9% 26.5% 23.4%

Other operating expenses, net 26,864 32,904 41,972 48,720 8.3% 8.1% 8.2% 7.9% 22.5% 27.6% 16.1%

Depreciation and amortization 10,821 10,426 12,461 15,650 3.3% 2.6% 2.4% 2.5% -3.7% 19.5% 25.6%

Restaurant operating profit 57,213 80,696 92,271 98,773 17.6% 19.9% 17.9% 16.0% 41.0% 14.3% 7.0%

General and administration expenses, net 21,419 23,912 31,988 60,297 6.6% 5.9% 6.2% 9.7% 11.6% 33.8% 88.5%

Operating profit 35,794 56,784 60,283 38,476 11.0% 14.0% 11.7% 6.2% 58.6% 6.2% -36.2%

Finance costs 1,287 1,013 929 2,354 0.4% 0.2% 0.2% 0.4% -21.3% -8.3% 153.4%

Finance income 247 417 113 220 0.1% 0.1% 0.0% 0.0% 68.8% -72.9% 94.7%

Profit before tax 34,754 56,188 59,467 36,342 10.7% 13.8% 11.6% 5.9% 61.7% 5.8% -38.9%

Income tax expense 5,195 8,421 6,144 3,786 1.6% 2.1% 1.2% 0.6% 62.1% -27.0% -38.4%

Profit for the period from continuing operations 29,559 47,767 53,323 32,556 9.1% 11.8% 10.4% 5.3% 61.6% 11.6% -38.9%

Loss after tax from discontinued operations (620) (476) (1,683) -0.2% -0.1% -0.3% 23.2% -253.6%

Profit for the period 28,930 47,291 51,640 32,556 8.9% 11.7% 10.0% 5.3% 63.5% 9.2% -37.0%

sphera franchise group€¦ · source: company information; euromonitor, consumer foodservice in...

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