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SPHERA FRANCHISE GROUP - SFG

Financial results - Q1-2019

Release Date: 5/15/2019 8:00:09 AM

IRIS Code: 07A9C

Financial analysis of Q1-2019 financial results

Impact of the adoption of IFRS 16 - Leases

Starting 1 January 2019, Sphera applied IFRS 16 that sets out the principles for the recognition, measurement, presentation and disclosure of leases. Given the material impact of the adoption of IFRS 16 on the consolidated financial statements of Sphera, we are providing below a comparison of the financial results including the impact of IFRS 16 and the financial results excluding the impact of IFRS 16.

For more information on the adoption of IFRS 16 and the impact on the financial statements of Sphera, please refer to Note 2 from the Appendix 1, Interim Condensed Consolidated Financial Statements.

 

Consolidated sales of Sphera reached RON 214.7 million in Q1-2019, representing an increase of 26.1% compared to the previous year. The main drivers for this performance were the growth in the sales of USFN Romania (KFC restaurants) (+19.5% Y/Y), which had a contribution of 15.0pp in the sales growth rate, and USFN Italy (KFC restaurants in Italy), whose sales advanced 317% Y/Y and contributed 7.7pp to the sales growth rate. CFF (Taco Bell restaurants) sales grew 126% and had a contribution of 1.9pp to the sales growth rate, while ARS (Pizza Hut restaurants) sales advanced 7.3% Y/Y and had a contribution of 1.3pp to the sales growth rate.

In Q1-2019, like-for-like sales across Sphera brands increased 7.3% Y/Y, being supported by a 10.9% advance of KFC Romania, while Pizza Hut operations fell 2.0%, Taco Bell fell 28.6% and KFC Italy fell 13.6%. The strong like-for-like growth of KFC Romania continued to be supported by a very good performance of the stores outside Bucharest, as well as by incremental sales generated by our increasing delivery business, especially in Bucharest. Pizza Hut’s negative performance was mainly driven by the underperformance of the delivery channel, which were partly offset by gains in the dine-in channel.

Consolidated operational expenses reached RON 191.9 million in Q1-2019, representing an increase of 33.2% compared to the previous year. As percentage of sales, operational expenses increased by 4.7pp year-on-year to 89.4% in Q1-2019, driven mainly by a 3.5pp increase in the cost of labour and a 1.9pp increase in other operating expenses, while being partly offset by a 0.4pp decrease in cost of food and materials. As a result of the adoption of IFRS 16, rent expenses decreased by 5.0pp to 2.2% of sales, while depreciation expenses increased by 4.5pp to 7.5% of sales.

Excluding the impact of IFRS 16, consolidated operational expenses reached RON 192.9 million in Q1-2019, representing an increase of 33.9% compared to the previous year. As percentage of sales, operational expenses increased by 5.2pp year-on-year to 89.8% in Q1-2019.

Restaurant operating profit reached RON 22.8 million in Q1-2019 (10.6% of sales), down 12.7% compared with the previous year (15.3% of sales), of which RON 21.4 million was accounted for by USFN Romania operations (3.4% below previous year) and another RON 1.1 million by ARS Romania (63% below previous year). Excluding the impact of IFRS 16 adoption, restaurant operating profit reached 21.8 million in Q1-2019 (10.2% of sales), down 16.5% compared with the previous year, of which RON 20.7 million was accounted for by USFN Romania operations (6.6% below previous year) and another RON 1.0 million by ARS Romania (66% below previous year).

General and administration (G&A) expenses reached RON 13.0 million in Q1-2019 (6.0% of sales), up 5.0% compared to previous year (7.3% of sales). Excluding the impact of IFRS 16 adoption, general and administration (G&A) expenses reached RON 13.1 million in Q1-2019 (6.1% of sales), up 6.0% compared to previous year.

EBITDA rose 43.7% Y/Y to RON 27.1 million in Q1-2019, while operating profit decreased 12.7% Y/Y to RON 22.8 million. EBITDA margin improved 1.5pp to 12.6% in Q1-2019, mainly as a result of the impact of IFRS 16 on restaurant operating margin, as described before. Net profit reached RON 1.3 million in Q1-2019, being 89.8% lower than in the previous year. The net profit margin decreased 6.8pp to 0.6% of sales in Q1-2019.

Excluding the impact of IFRS 16, EBITDA fell 17.5% Y/Y to RON 15.5 million in Q1-2019, while operating profit decreased 36.7% Y/Y to RON 8.7 million. EBITDA margin contracted 3.8pp to 7.2% in Q1-2019, mainly as a result of lower restaurant operating margin, as described before. Net profit reached RON 5.1 million in Q1-2019, being 59.1% lower than in the previous year. The net profit margin decreased 5.0pp to 2.4% of sales in Q1-2019.

 

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