Good afternoon and welcome to our Q3 2025 results call. We will wait one to two more minutes for other participants to log in.

Thank you for your patience. Good afternoon and welcome to Sphera Franchise Group's earnings call for the third quarter of 2025.

My name is Zuzanna Kurek, and I'm Investor Relations Officer at Sphera Franchise Group, and I will moderate today's call. Today morning, we have published our Q3 2025 results, which you can find on our website in the Investor Relations section, as well as on BVB's 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 the call will be uploaded on our website tomorrow 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 will follow our standard setup, which means the management will deliver a presentation outlining the Q3 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 so during the call, and we will answer all the questions in chronological order as soon as the presentation of management is over. Last but not least, as always, I would like to mention that we might be making forward-looking statements today during this call regarding the future performance of Sphera Franchise Group, and that the actual results may differ materially.

We encourage you to review the disclaimer that we have included in the presentation, which you can see right now on the screen. 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 pass now the floor to our CEO, Mr.

Călin Ionescu, who will share with you some insights about our performance in the first nine months of 2025. Călin?

Thank you. Good afternoon and welcome.

In 2025, Sphera Franchise Group operated in a macroeconomic environment characterized by economic stagnation, persistently high inflation, and a series of tax changes that directly impacted household purchasing power. The removal of the energy price cap and the increase in the indirect taxes further intensified pressure on family budgets, reducing discretionary spending, the component of private consumption most critical to the restaurant industry.

In the third quarter, inflationary pressure escalated sharply with annual inflation rising from 5.66% in June to 9.88% in October, driven by the termination of the electricity price cap on July 1st and the increase in VAT and excise duties on August 1st. In this context, Sphera Group operation in Romania reflected the same trend of consumer caution, evident in a slower pace of visit and purchases.

Particularly for brands with a more mature customer base or those reliant on shopping center traffic. These dynamics are not unique to our brands, but align with the broader food service sector, which has impacted by declining real income and fiscal uncertainty.

Although sales remained stable, the group continued to face pressure from rising operating costs, especially labor expenses, which eroded margins during the first quarters of the year. The renewed increase in food and materials prices, combined with sustained growth in wage costs, further constrained the group's ability to manage expenses effectively in a context of flat consumption.

Even so, the third quarter saw a significant improvement in profitability compared to the beginning of the year, driven by rigorous efficiency measures and strict cost control aimed at protecting margins in a challenging macroeconomic context. The group's diversified portfolio served as key stabilizing factor.

Overall, 2025 has so far been a year of resilience for KFC in an unstable macroeconomic environment, with the brand maintaining its leadership position through a diversified sales channel strategy and moderate network expansion. KFC remained the group's primary revenue contributor, although its performance was impacted by Romania's challenging economic condition, the market that generates the majority of sales.

In Romania, KFC experienced the strongest signs of consumer caution, as it is a high-volume brand with constant traffic, heavily dependent on overall market dynamics. While brand visibility and awareness remained intact, demand stabilized and rising costs, particularly wages and raw materials, continued to pressure profitability.

In Italy, KFC delivered positive results, supported by a market less affected by fiscal constraints and by the gradual expansion of the network. This market added balance to the portfolio and highlighted the brand's potential in regions with different consumption patterns.

In the Republic of Moldova, the brand sustained solid growth, benefiting from an expanding market and the rapid adoption of the international QSR concept. Taco Bell, positioned for youth and urban consumers, continued to outperform, supported by the stable preference of key segments that maintained discretionary spending.

The brand remains the group's primary growth driver. Pizza Hut, by contrast, faced sharper pressure on discretionary spending, compounded by intensifying market competition and evolving consumer preference.

The macroeconomic environment remains volatile, and inflationary and fiscal pressure continued to influence consumer behavior. However, our diversified brand structure, along with the expansion of the portfolio with two new international concepts, give us a strong foundation to steer through this challenging period.

Sphera has added new brands to its portfolio: Cioccolatitaliani at the end of 2024 and, more recently, Hard Rock Cafe, a globally renowned name, has reinforced the group's growth and diversification strategy by adding a strong experiential and distinctly differentiated brand to its portfolio. The group plans to open five Hard Rock Cafe restaurants in Brașov, Timișoara, Iași, Cluj, and Chișinău over the next five years, starting in 2026.

This strategic move reinforces our position in the foodservice market by expanding our portfolio within the globally recognized entertainment brand segment. Looking ahead to 2026, we aim to build on the project initiated in this year and leverage the expansion of recently added brands, unlocking new opportunities in the premium experiential segment.

Despite an equally challenging economic environment, we remain committed to investing in sustainable growth and diversification, strengthening our market position while continuously adapting to industry dynamics and evolving consumer behavior. I'll conclude on a positive note.

Sphera Franchise Group is one of the six Romanian companies featured in the Financial Times and Statista's list of Europe's Long-Term Growth Champions. The prestigious ranking highlights European businesses that have achieved the most significant revenue growth over the past decade, and Sphera Group is the only player from Romania's foodservice industry to earn a spot.

Thank you, and I'll invite Valentin to continue the presentation.

Thank you, Călin. Good afternoon, and thank you for being with us today.

As Călin said, we navigated a difficult year that made us think about the pandemic period. However, having the the experience and learning to be resilient, we managed to recover in this quarter in which we saw an improvement in both sales and profitability if we are comparing it with the quarters one and two.

I will review the main results, cost dynamics, performance across brand and markets, third quarter performance, and the outlook for the remaining part of the year. In the first nine months, the group recorded sales of 1.2 billion, up 0.7% versus the nine months of the previous year, which essentially reflects the overall stability of our activity.

This moderate growth reflects the continued external pressure in the group main market, Romania, where the fiscal measures introduced to reduce the budget deficit have pressured the discretionary spendings. The trend, first visible at the end of the last year and which persisted in Q1 and Q2, is expected to continue in the last quarter of the year.

It's important to highlight that from quarter to quarter this year, sales increased, reaching 406 million in quarter three, thus marking the best third quarter in the history of our company if we are looking to the sales performance. In the first nine months, Romania remains the group main market with sales of 985 million RON, slightly down in volume compared to the previous year, i.e.

0.2% with minus, and as a share in total sales i.e. 80 almost 86%.

This is followed by Italy with 145 million RON, plus 3.7% compared to the same period of last year, and with a share of 12.6% in total sales. Of course, Republic of Moldova with sales of 21 million, plus 25% almost versus previous year, and 1.8% in the share of our portfolio.

Analyzing the performance at the brand level, KFC sales amounted to 995 million RON, which is 86.4% of the total sales, 0.2 slightly below zero compared to the previous year. Then Pizza Hut with 78.7 million RON, 6.8% of total sales and minus 1.7% compared to the previous year.

Taco Bell with 77.3 million RON, i.e. 6.7 of total sales, plus 16.4 compared with the previous year.

In quarter three, the the first Cioccolatitaliani restaurant was open in Italy. This unit was generating sales of 495,000 RON, representing a very small share yet in our portfolio.

The restaurant expenses amounted to 1.1 billion RON if we are looking to the first nine months of this year, with 4.9% exceeding the the growth rate of the restaurant sales. The operating costs outpace the sales, mainly due to the inflationary pressure.

Both restaurant operating profit and normalized EBITDA are below the levels in the first nine months of the last year, but it's very important to note the fact that in the first nine months of the previous year we were having a record performance for for our business. We have delivered a substantial normalized EBITDA of 96.2 million RON in this first nine of nine months of this year.

The Q3 per se showed a significant improvement, with EBITDA rising 65.5% compared to the previous quarter, and the net profit improving to a level five times higher than in the previous quarter of this year. In Q3 2025, Sphera Franchise Group achieved total sales of 406 million, up 0.6 year-on-year.

This magnitude was tempered by the fiscal pressure in our main market in Romania, with which reduced the discretionary spending visibly. Restaurant expenses increased by 3%, this outpacing sales.

Compared with the similar period of last year, food and material costs increased by 1.9% year-on-year, 127.9 million RON, driven mainly by higher poultry prices. The largest contributor to to expenses growth remains the payroll and the employee benefits, which increased by by 8.8%, mirroring the adjustments observed across the industry.

Persistent inflation across payroll and other operating categories, coupled with reinstated upward pressure on food and material costs, continued to limit our group capacity to contain operating expenses against sales, reflected in lower EBITDA by 12.9% if we are comparing the performance year-over-year. However, compared to the previous quarter of this year, the EBITDA shows a strong recovery, the 65.5% I mentioned, and a net net profit at 25.4 million, down 17.3% year-on-year, but five times higher than the Q2 of this year.

As mentioned at the beginning, in the first nine months of 2025, our group sales increased by 0.7%, reaching the 1.2 billion RON, slight evolution influenced by consumer prudence in the context of the political and economical uncertainties, but also due to the exceptionally strong compared based comparative base from the first nine months of the the previous year. The period was marked by broad-based inflationary pressures.

Most cost categories grew faster than sales, with the exception of the advertising, which is in our control, and royalties. The 10.2% year-on-year increase in payroll and employee benefits mirrors the strong labor market competition that we are facing here in in Romania.

The food and material costs grew at a moderate 1.9%, as I mentioned, driven mainly by the the higher poultry prices. The rising operating expenses, the stagnant sales in Romania, and the drop in EBITDA by 25% on the back of a very strong last year base effect led to restaurant operating profit in the first nine months of 2025 to 102.1 million RON, registering a decrease of 28% if we compare this amount with the same period of 2024, and to a reduction of 2.5 percentage points in normalized net profit margin again versus last year.

KFC continues to be the engine of our portfolio and the brand with the largest operational footprint. In Romania, which is our main market, the first two quarters were characterized by strong macroeconomic pressure, with high inflation, with tax increases, and a reduction in the discretionary spending.

This context tempered KFC growth pace, a high-volume and high-traffic brand, as Călin mentioned, which is sensitive to to to all the changes that we can see in the consumption. However, in Q3, we observe an improvement driven in part by seasonal factors and as well because of the commercial measures implemented throughout the the beginning of of this year.

Italy had a more stable business environment if we are comparing with Romania, and it maintains its steady pace of around 2.3 percentage points increase. However, the sales evolution were affected by the closure of the KFC Bari unit in that happened in in Q3, and I will mention later as well.

In the Republic of Moldova, the KFC maintained a strong growth trajectory. Although the market is relatively small, it demonstrates rapid adoption of the main international concepts there, which has supported the steadily and positive evolution for our brand as well.

Overall, KFC remains a highly resilient brand. The regional performance in in 2025 reflects both the unique characteristics that we are seeing in each market and the importance of our diversified geographic presence.

In Q3, together with the improvements seen in Romania and the growth in Moldova, show the brand it's on a good trend in in the remaining for the remaining part of the year. Pizza Hut had a performance that most closely reflects the market changes and the consumer pressure in 2025.

Following 2024, a year in which recovery measures began to began to take effect, Pizza Hut entered a more cautious consumer environment in 2025, which was strongly affected by inflation, by tax increases, and by all this changing consumer habits. In the dine-in segment, the traffic was influenced by the decrease in discretionary spending, and in the delivery area, competition remained intense, which adds pressure on the overall brand performance.

Taco Bell continues to be one of the most dynamic and resilient brand in our portfolio. It has shown consistent growth from quarter to quarter.

The brand maintained its growth rates thanks to a young, urban audience, less sensitive to price changes, and its differentiating positioning in in the market. The expansion of the network, the presence in high-traffic locations, and the intelligent adoption of the offer to the present to the preference of the young generation supported the brand the brand performance in all of these quarters of 2025.

While other segments felt the macro pressure more strongly, Taco demonstrated consistency and provided balance to the entire portfolio. This evolution demonstrates the brand potential while reaffirming diversification as a key pillar for our group strategy.

Taco remain a stable growth engine and an important support point for the future performance of our group. Now analyzing the evolution of the deliveries, we observe that the first part of the year all brands registered a slight increase, initially fueled by optimism followed following the government announcements regarding the fiscal packages and expectation of the potential economic stabilization.

However, then this positive trend proved short-lived once the fiscal measures come into effect, such as increase in the VAT, the excise duties, and all the other taxes that impacted the household real income became significant. Instead of supporting consumption, these measures contracted it for a short period of time at least, causing much greater prudence in spending, especially in delivery orders orders, which are perceived in general as more expensive.

Thus, all brands entered a downturn trend in the second part of the year as the real effect of the fiscal and the inflationary pressure were felt more strongly by the the consumers and reflecting their behavior. In now, in Q1, Sphera opened a new restaurant, the KFC drive-thru in Galați, as we remember.

In Q2, we opened three new restaurants, two KFC in Romania, both both of them food court location, one in Mall Moldova in Iași and one in Pitești. Also in Q2, we opened the first Cioccolatitaliani, as I mentioned, in Riccione, which is a tourist area.

In Q3, we had a new opening in Italy for KFC, i.e. a drive-thru in No, sorry, is the closing, I was mentioning the closing of KFC Italy in in Bari that that I mentioned earlier.

In Q4, we had opening in Udine, but we are not discussing Q4 now. As of September, Sphera Franchise was operating 176 restaurants, out of which 110 were KFC in Romania, 3 in Moldova, and 17 in Italy, as well as 28 Pizza Hut restaurants in Romania, and 16 Taco Bell restaurants as well in Romania, plus the Choco that we have opened in Italy.

Far Q4 In Q4, we have opened a new Taco Bell location in Promenada Mall, and the one I was mentioning, the drive-thru KFC in Italy in Udine. On October 15, we have announced the expansion of our portfolio by the addition of the Hard Rock Cafe, as Călin mentioned, which will be operated by one newly created entity fully owned by us.

We we're planning the the five openings that were mentioned by Călin as well in Brașov, Timișoara, Iași, Cluj, and Chișinău, all this in a period of five years from now. The performance of Sphera shares over the first nine months of this year, of course, mirrors the operational context we navigated during this period, and naturally, these developments influenced the the sentiment and were reflected accordingly in in the share price.

Despite all this context, we remain the interest the investor interest in Sphera shares remains strong. We have increased liquidity, and we have a stable shareholding.

We have a consistent dividend policy with the payment of a gross dividend of 1.09 RON per share in June and another extra one of 1.04 RON per share, which is scheduled to be paid in 15th of December. In in conclusion, although 2025 has been challenging so far, our group has responded with adaptability, with discipline, and well-calibrated investments, which is laying a solid foundation for the improved performance in in the period ahead.

Thank you very much.

Thank you, Valentin. This concludes the presentation of our results for the first nine months of 2025.

We will now start the Q&A session. If you would like to ask a question, please type it in the chat box.

We will read every single question out loud and address them one by one for the benefit of those who will be listening to the replay of this teleconference. To give you a few more minutes and to carry out the Q&A efficiently, we will now take two minutes to give you time, and we will start it at 1:30 sharp.

Thank you. Thank you all for sending the questions.

Please continue to type your questions in the chat box. The first question is, how do you expect wage and raw material cost pressures to evolve in Q4 and throughout 2026?

Is there room for price adjustments or further operational efficiency measures to help stabilize EBITDA margins? I will invite Valentin to address this question.

In the end of this year and in the beginning of next one, we can see a constant pressure in both labor market and the cost of goods. It's something that will continue to be present, even though the pressure is not as intense as it was until now.

We are prepared to offset this. We remain largely focused on cost control measures, and all this efficiency will be able to offset the pressure that we still see in the cost of goods.

We also work smartly in the menu engineering, all our offers remain with a clear focus on protecting margin in the new context, but also we are looking to very strong value-for-money proposition. It will be a tough end of the year and probably beginning of the next one, but we remain optimistic and we remain committed to the latest guidance that we have made public.

In respect of price adjustments, we had a recent price adjustments in August, in the middle of Q3. Based on the current context and on the pressure on our consumers, we do not plan any price adjustments until the end of this year at least.

We are sure that it's a very sensitive aspect, the price adjustments, even though probably there is still some pricing power, but should be exercised very strategically when it is the most appropriate moment.

Thank you, Valentin. The next question: could you provide more color on the planned investments, rollout timeline, and the expected financial impact of the Hard Rock Cafe franchise on the group's cost structure and profitability over 2026 and 2027?

I will pass this question to Călin.

It's a very easy answer. We planned to open each year one Hard Rock Cafe starting with next year.

We planned to open end of Q3, beginning of Q4 the first one. Probably will not affect our financial performance next year.

The first restaurant will start to contribute to our performance starting with 2027.

Thank you, Călin. The next question: we're seeing diverging trends between KFC and Taco Bell, with KFC showing stagnation and Taco Bell continuing to grow strongly.

How would you explain the difference in consumer behavior between these brands, and do you expect this performance gap to persist going forward? We link it with the next question that is also about KFC: can you detail plans of reviving KFC brand appeal in Romania?

I will start. I will start mentioning that the KFC appeal is not penalized at all in none of the countries that we are operating.

It's still a very strong brand and very appealing for the customers. The difference, it's coming rather from the magnitude of the footprint of these two brands.

On one hand, as I mentioned in the previous call, we have a very small footprint for Taco Bell and a very spread footprint for KFC. We speak a number of below 20 restaurants for one and more than 100 for the other.

This is very important because if we are looking micro in the statistic of the performance of both brands, we can see that the pressure is coming from the rural, from the smaller cities. This is one aspect.

Then the other aspect is the competition. Chicken has a very strong competition everywhere.

Taco Bell, it's a niche, it plays in a market with a different offer proposition for this type of food. Then, of course, the segment which is more pregnant, the young segment in the Taco Bell versus in KFC, which is more popular for more categories of customers, which again creates a temporary difference, because if we are looking to a broader picture and we have a cut-off period in the future, then they will not eventually normalize.

In this moment we take benefit of this power that we have, and we are happy to counterbalance the effects between the brands that we have in our portfolio.

I want to add only to explain better regarding of Taco Bell. It's about penetration ratio.

Yeah? It's how many restaurant per 100,000 inhabitants, if you compare with KFC, 110 location in Romania, comparing with 17 Taco Bell location, it's a totally different results, and is normal for a brand that start to develop a network to perform better.

For a brand that is a mature brand, it is normal to be more affected by when it's a crisis.

Thank you, Călin. The next question: what is your opinion the reason for the continued lackluster performance of Pizza Hut?

Pizza Hut, as we know, it's a brand in a transition. We have made a lot of changes recently to the overall structure.

In this moment, all the effects in the market are reflecting in the performance of this brand. It's a huge pressure that it's visibly immediately in brand less stronger than the others.

In our portfolio, Pizza Hut is the less strong brand, the effects here are very visible. However, all the measures that we saw them paying good effects in the past, we hope to have them back on track and trying to have the revival of the performance of this brand.

However, in the same time, we are realistically analyzing the evolution of the market, the evolution of the competition, and the potential evolution of the success of all the measures, and we are ready to take measures if we draw conclusions in the future.

Thank you, Valentin. The next question: what trends do you see in chicken pricing?

The chicken pricing is very pressured. It was a very difficult year because all the epidemiologic disease in the continent has an effect in the Romanian market as well.

Now the cold season is coming, which definitely will have an impact on the prices due to the higher utility cost for the suppliers. It's a very critical category in our cost of goods sold.

Here, all the measures, we are partnering with our suppliers, everything that we can do, we are putting on the table in such a way to minimize the negative effect. Also, as mentioned earlier, we are linking this with the way in which we are bundling the offers in such a way to protect the margin.

Thank you. The last question: how do you see personnel costs going forward?

We expect the cost with the personnel to continue to growth, yeah, because of the pressure from the inflation and all the cost of living, but probably the increase will be lower comparing with the last years.

Thank you very much, Călin. We just got a question: please also discuss the G&A costs and advertising.

The the G&A costs, it's very strictly monitored by us. I we we consider we have a a very good performance in terms of weight of the G&A costs in in in revenue.

However, as the G&A costs has a fixed component. There are also some small categories that are controllable and on which we are trying to synchronize them with the overall performance.

If it is a transitory evolution, we don't consider that there is a need for systemic adjustments, rather the much better synchronization of the overall performance. We in this moment, I may say that we are lucky that we take the benefits of a category that we have control very thorough in the past, and there is no need to be harmful in in a more difficult context like the one that we are facing in this period.

Regarding advertising, advertising, it's it's is not a cost for us, it's an investment. We we have this philosophy, and it's the the I I may say it's the most important tool by which we can leverage the the turnover and finally the profitability.

Thank you, Valentin. I see we have exhausted all the questions and answered all of them.

Therefore, we will be concluding this teleconference. Thank you all for joining us.

Next year, we're going to hear each other next year after we publish the preliminary financial results for 2025 at the end of February, with the teleconference most probably taking place at the end of February. We will have the final dates released as always in January when we'll be publishing the financial calendar for full year 2026.

Thank you all for joining us today, and we wish you a great rest of the day.

Thank you.

Thank you.