Sylwester Cacek, Sphinx: we are positively surprised by the dynamics of increasing sales

Restaurants operating within the chains managed by Sfinks Polska in Q1/2011 generated sales revenues of PLN 39.88mn vs. PLN 44.66mn in the same period a year earlier. The decrease in turnover was a direct consequence of the closure of all restaurants on March 14 due to the pandemic. In January-February this year, the Sfinksa chain generated an 18 percent increase in catering sales compared to the first two months of the previous year (33.57 million PLN vs. 28.45 million PLN, respectively). As much as 9.9 million PLN (61%) of the Sfinksa network recorded a decrease in turnover in March this year.

The drop in catering revenues due to the pandemic had a direct impact on the financial results achieved by Sfinks Polska. In Q1 2012, unit sales revenues amounted to PLN 29.63m vs. PLN 37.67m a year earlier, while unit net profit amounted to PLN -14.71m vs. PLN -2.51m in the corresponding period of the previous year (when calculating the data for 2019, taking into account the changed accounting policy). Apart from losses directly resulting from the drop in sales in connection with COVID-19, the deterioration of the net result was also influenced by a write-down on fixed assets in the amount of PLN 6.89 million, which was also a result of the change in economic conditions resulting from the epidemic and inclusion in the result of PLN 4.33 million of costs of unrealized exchange rate differences due to valuation of financial liabilities according to IFRS16. The unit EBITDA in Q1 2020 amounted to PLN 5.79m, down by PLN 4.27m y/y while ensuring comparability of data after the change in accounting policy.  

 - All of our leading chains recorded significant sales increases during the first two months of this year. Having the largest share in the catering revenue, as much as 83%, the Sphinx chain increased its turnover by 13.5%, Chłopskie Jadło by 18.5% and Fabryka Pizzy by 92%. Such a significant increase in the latter network was caused by its development within the group over the past year. Between April and December 2019, we opened four restaurants under this brand, and during the first three months of this year another one. In the first quarter, we also recorded over PLN 1 million in catering revenue, acquired in the second quarter of last year. Additionally, in January and February we received over 900 requests for franchise. Unfortunately, the pandemic stopped these increases. Since the beginning of March, we have been observing increased caution among Poles, which also translated into a decrease in the number of visits to restaurants even before the introduction of the official ban. After this government decision of 13 March we were completely cut off from our main source of income. Thanks to the previously implemented delivery service, we were able to save at least a part of our sales during the period of complete closure of the restaurants - explains Sylwester Cacek, President of the Board of Sfinks Polska.

Situation during the lockdown

After the closure of the restaurant, Sfinks Polska switched to customer service in the delivery channel. Thanks to previously developed IT tools, Smacznieiszybko.pl's own service and signed contracts with online ordering platforms such as Uber Eats, Wolt, Pyszne or Pizzaportal, the group already had an organizational base, and the delivery service was already implemented in over 80 restaurants throughout Poland. Within the group, orders of different brands were carried out from one restaurant. During the pandemic, in April this year, two more virtual brands were implemented for the needs of this channel (next to Spryna Pizza and The Burgers introduced to the offer in 2019): YOLO Chicken, i.e. chicken dishes, and KEBAPI, based on the kebab offer. Despite all these measures, during the lockdown, a drop in revenue of over 90 percent was noted. Currently, Sfinks Polska is gradually rebuilding sales after the pandemic. Last week, the already opened Sphinx and Chłopskie Jadło restaurants recorded 75 percent of the sales value from the same week last year, while in the first week after the lockdown it was only 34 percent y/y.

We are positively surprised by the dynamics of increasing sales in restaurants. However, given this year's several percent increase in sales in the period to the beginning of March, restoring the level of sales from 2019 cannot satisfy us. The last 3 years, due to changes in the environment, have been very difficult for the catering industry and when we could already count on very good results in 2020 and make up for the losses incurred in the past, the hardest of the changes in the environment occurred, which causes much greater losses than the previous ones. However, the observed pace of guests' return to the restaurant gives hope for a resumption of the upward trend from the beginning of this year in the second half of 2021, even taking into account the temporary slowdown due to a possible second wave of the epidemic - comments Sylwester Cacek.

Long-term strategy

At the same time, in accordance with the strategy, Sfinks is still working on the development of managed networks. In the first quarter one new restaurant was opened within the group - in Nowy Sącz, and in the whole 2020 four, three of them after the pandemic. For the sake of the chain's development, the company launched the "Franchise for 1 PLN" programme, addressed to the existing non-network restaurants on the market, which in the current situation may need organizational and business support. They may transform into premises operating under one of the operator's brands with a symbolic franchise fee of PLN 1 within the first 12 months and without an initial fee for know-how for restaurants which decide to cooperate with Sfinks Polska in 2020. In the first year there is also no need to bear the costs of the full investment.

 - The second wave of the increase in Covid-19 infections can cause a lot of disruption to the operators of non-affiliated restaurants if they do not have adequate safety procedures, methods of supporting sales and reducing the costs of restaurants and the possibility to find financial support themselves. The adopted strategy and its consistent implementation, as well as the experience related to restrictions due to the epidemic, complementing our know-how, enable us, for the benefit of both parties, to offer the "Franchise for 1 PLN" programme to existing non-network restaurants of different catering service profiles," adds Sylwester Cacek.

Consolidated sales revenues of the Sfinks Polska group amounted to PLN 1.5 million in the first three months of this year. PLN 31.62mn vs. PLN 39.11mn in the same period last year. At the same time, consolidated net profit in Q1, affected by the same factors as in the unconsolidated result, was PLN -14.57mn vs. (comparative data for Q1/2019 have been recalculated taking into account the revised accounting policy).

Revenues from catering sales of Sfinks Polska include revenues from sales of all restaurants operating within the group, except for Piwiarnia Warki.