Sapphire Foods India Ltd Management Discussions

Economy Overview India:

India continues position among fastest-growing economy in the world remains less affected by the global slow down and other geopolitical crisis. The Government of India estimates its real GDP to have grown by 6.4% in FY 2024-25 compared to 8.2% in FY 2023-24 and the per capita Gross National Disposable Income at current prices to have grown 8.6% from 2.15 lakh in FY 2023-24 to 2.33 lakh in FY 2024-25. The IMF projects the Indian economy to expand at 6.5% in 2025 (FY 2025-26) and 6.5% in 2026 (FY 2026-27).

(Source: Government of India & IMF, Central Bank of Sri Lanka)

Sri Lanka:

The Sri Lankan economy grew 5.0% in 2024, marking a strong recovery from 2022 economic crisis. All the collective efforts by the IMF and the countrys government have helped improve their overall macro-economic indicators and helped the country return to normalcy. The country has been able to contain its inflation well below their set targets. Its foreign exchange reserves improved, and its currency appreciated.

Global Economic Growth: Actual and Projections (%)

Particulars	2024	2025 (Estimate)	2026 (Estimate)
Global Economy	3.2	3.3	3.3
Advanced Economies	1.8	1.8	1.8
Emerging Markets and Developing Economies (EMDEs)	4.2	4.2	4.2
(Source: IMF)
YoY GDP growth of the top five major economies:
Major economies	2024	2025	2026
United States	2.8	2.2	2.0
China	4.8	4.5	4.1
Japan	0.3	1.1	0.8
Germany	0.0	0.8	1.4
India	7.0	6.5	6.5
(Source: IMF)

Indian Food Services Market Overview

The food services industry in India has witnessed a paradigm shift in the recent decade due to economic development, young and working population, urbanisation, changing lifestyles, and consumption pattern. The Indian food services market was valued at 3,630 billion in 2022 and is projected to reach 8,720 billion by 2027, growing at an impressive CAGR of 19%. The organised chain market under the organised food services market is expected to grow by 23% till 2027, whereas the unorganised segment is expected to grow by ~ 4%. The market growth can be attributed to factors including the rising trend of dining out and online food delivery, the emergence of a branded food service ecosystem, growing fast food chains, and exposure to non-native cuisines, among others.

Food Services Market CAGR (%)

Format	CAGR FY 2010-15	CAGR FY 2015-20	R FY 2020-27 Projected
Unorganised Market	7%	5%	4%
Organised Standalone Market	13%	13%	17%
Chain Market	21%	18%	23%
Restaurant in Hotels	10%	8%	10%

Indian QSR sector review

The quick service restaurant (QSR) market growth in India is fostered by factors such as significant expansion in the food and beverage industry, the widespread adoption of franchise business models by popular restaurant chains, rising penetration of e-commerce channels and continuous focus on affordable offerings. Further, the availability of organised retail space aids the industry in encouraging the growth of local and international brands across different formats.

Chain food services market CAGR (%)

Format	CAGR FY 2010-15	CAGR FY 2015-20	CAGR 2020-27 Projected	Market Share FY 2027
Quick service restaurants	29%	19%	23%	48%
Casual dining restaurants	18%	19%	23%	36%
Cafe	16%	8%	14%	4%
Frozen dessert / Ice cream	15%	16%	20%	5%
Pub, bar, cafe, and lounge market	25%	22%	26%	7%
Fine dining restaurants	5%	3%	12%	1%
(Source: Technopak)

The top 8 cities (Delhi, Mumbai, Kolkata, Bengaluru, Chennai, Hyderabad, Pune, and Ahmedabad) of India contribute 43% of the total revenue of food service market in India in FY22, they contribute 83% of the chain food service market in India during the same period.

Of these top 8 cities, Sapphire KFC is present in 5 cities with 247 restaurants and Sapphire Pizza Hut is present in 6 cities with 186 restaurants.

Company Overview

Sapphire Foods is one of the largest franchisees of Yum! Brands Inc. in the Indian subcontinent, with a track record of successfully operating more than 963 KFC, Pizza Hut and Taco Bell restaurants across India and Sri Lanka. The Company started operations in September 2015, following the acquisition of around 270 KFC and Pizza Hut restaurants in India and Sri Lanka by a group of leading Private Equity firms and managed by a team of professionals. As of 31^st March 2025, the Company owned and operated 502 KFC and 334 Pizza Hut restaurants in India, 117 Pizza Hut and 10 Taco Bell restaurants in Sri Lanka. The Company introduced compact omni-channel restaurants and expanded its footprints across over 185 cities in India. It opened total 91 net new restaurants in FY 2024-25 (73 KFC, 15 Pizza Hut in India and 7 Pizza Hut in Sri Lanka and 4 closures in Maldives).

KFC

The table below provides our key financial and operating metrics for KFC in India:

Particulars	31st March 2023	31st March 2024	31st March 2025	Growth YoY
Total store count	341	429	502	17%
Number of restaurants in top 10 cities	214	258	293
Total cities where present	90	106	131
Average daily sales per restaurant (in thousand)	135	125	114
Same store sales growth (%)	15.0	-1.1	-4.5
Delivery as % of restaurant sales (%)	36.0	38.0	41.5
Restaurant related revenue (in million)	14,529	17,157	19,039	11%
Gross margin (%)	66.6	68.2	68.2
Restaurant EBITDA (in million)	2,819	3,381	3,299
Restaurant EBITDA (%)	19.4	19.7	17.3	-240 bps

Sapphire KFC delivered a robust performance with double digit revenue growth of 11%. Same Store Sales (SSSG) declined by 4% with Same Stores Transactions decline lower than SSSG. Due to negative operating leverage and higher delivery mix our Rest. EBITDA margin declined by 240 bps to 17.3%. For 2^nd year in a row, Sapphire KFC delivered one of the highest restaurant margin in the Indian QSR Industry. During the year, we added 73 restaurants and achieved a significant milestone of crossing 500 restaurants.

In the recent Yum Global Franchise Convention in Sydney, Australia in April 2025, Sapphire Foods was recognised as "Worlds Best KFC Franchisee".

KFC continues to be the dominant player in Indias QSR space. Over the past few years, we have strengthened our brand position by expanding accessibility, accelerating digital adoption, and continuously innovating our menu.

Enhancing Fried Chicken Category Relevance: We

focussed on 3-day parts of Lunch, Late Night and Wednesday through advertising, value offerings and specific in-market activation. Of these, the Late Night and Wednesday occasions did well across markets, while Lunch has greater relevance in the larger Metro markets and in office-heavy catchment areas.

Product Innovation & Value Offerings: We introduced a three-tier value structure to cater to various customer needs: Core (2 Chicken pieces / Rolls) at 99/-, Individual meal offering at 149/-, and Group meal at 399/-. The Zinger range played a crucial role in increasing the contribution of burgers, making the brand more relevant to younger consumers and competitors customers. The Rolls category continues to do well and is now firmly established as a permanent core layer at the entry-price point of 99/-.

Operational Excellence & Service Speed in Dine-In: We

continued to improve on our metric of Under 7 Minutes service guarantee for dine-in orders. Self-ordering digital kiosks were rolled out in 369 locations across 163 restaurants, improving consumer experience which is also translating into a marginal increase in ticket size from kiosk orders. We are developing AI/ML tools to further ease and enhance customer ordering journey which can potentially lead to a further upside on ticket size.

Digital & Delivery Enhancements: A top priority for the year was to improve operational metrics in the delivery

channel thereby drive growth. As a result, our customer ratings have improved significantly across all three major platforms, with 76% of restaurants achieving ratings above 4.1 on Swiggy and Zomato.

Financial & Cost Controls: Despite negative SSSG we have managed to reduce the impact of negative leverage by maintaining tight cost controls and this has helped us deliver one of the best restaurant margin in the Indian QSR industry.

Expansion & Accessibility: We opened 90 new KFC

restaurants in CY 2024 (our highest number ever in a calendar year) and 73 new restaurants were open in FY25, bringing KFC closer to customers across existing and new markets. We were largely able to double our restaurant count in 3 years ending Dec24. Tamil Nadu & Punjab were key focus markets, with 32 & 8 new net units, respectively. We also experimented with smaller footprint stores, drive-thru models, and all-digital restaurant formats to improve customer experience, efficiency and speed of service. We aspire to continue to open 60-80 new restaurants every year.

Pizza Hut

The table below provides our key financial and operating metrics for Pizza Hut in India:

Particulars	31st March 2023	31st March 2024	31st March 2025	Growth YoY
Total store count	286	319	334	5%
Number of restaurants in top 10 cities	194	207	215
Total cities where present	66	75	80
Average daily sales per restaurant (in thousand)	58	46	46
Same store sales growth (%)	12	-16	-1
Delivery as % of restaurant sales (%)	50	50	51
Restaurant-related revenue (in million)	5,214	5,185	5,450	5%
Gross margin (%)	74.7	75.6	75.8
Restaurant EBITDA (in million)	691	253	130
Restaurant EBITDA (%)	13.3	4.9	2.4	-250 bps

Sapphire Pizza Huts revenue was up by 5% YoY, SSSG declined by 1% with similar SSTG decline. Due to negative operating leverage Rest. EBITDA margin declined by 250 bps to 2.4%. We had a reasonable recovery in Average Daily Sales (ADS) between Apr-Dec24 at 48K vis-a-vis Q4FY24 ADS at 41K, however, starting Q4FY25, we have not invested in mass media advertising, this has impacted ADS (?42K) for the quarter. We opened 15 new restaurants during the year.

In the recent Yum Global Franchise Convention in Sydney, Australia in April 2025, Sapphire Foods was recognised as "Worlds Top 4 Pizza Hut Franchisee".

We are implementing a template for revival of Pizza Hut around a Dine-In forward, Omni-Channel Asset strategy, with superior product and experience, and significantly higher levels of marketing investment to revive consumer interest in the brand.

Elevated Marketing Investments & Innovation Impact:

The launch of Melts, the innovative folded pizza concept, and other innovations including Momo Mia, Thin & Crispy Pizza, and Pasta by Pizza Hut (introduced as a separate brand on aggregator platforms) along with increase in marketing investment has certainly helped reverse the dipping trend of quarterly sales starting the AMJ 2024 quarter.

Operational Improvements & Customer Experience:

By driving specific projects, customer satisfaction scores across Dine-In and Delivery platforms improved considerably. 85% of our stores attaining a 4+ rating on Swiggy & Zomato (compared to 47% in Jan24), and 100% of stores rated above 4 on Google.

Cost Optimisation & Financial Efficiency: Despite negative SSSG for 2^nd consecutive year, lower ADS

and higher marketing spends (beyond mandated under Yum agreement), we have managed to remain positive at restaurant EBITDA level by maintaining tight cost controls.

Cautious Store Expansion & Design: We were cautious in our store expansion and opened 20 new restaurants in CY24 and 15 new restaurants in FY25. Our new 1,000 sq. ft. store model (maintaining the same customer seating area as the larger 1,200 sq. ft. model) is now being implemented in large towns and is helping drive

lower capex without any loss in sales potential. For future expansion, we continue to be cautious until the brand revives at the desired level.

The collective impact of these initiatives is laying the foundation for Pizza Huts long-term revival. While we acknowledge that achieving full momentum will take 2-3 years, we are confident that our focussed strategy on dine- in forward omni-channel assets, innovation, enhanced marketing and operational efficiency will yield sustained growth in the coming years.

Sri Lanka operations

The table below provides our key financial and operating metrics for Sri Lanka:

Particulars	31st March 2023	31st March 2024	31st March 2025	Growth YoY
Total store count	114	120	127
Number of restaurants in top 10 cities	37	39	41
Total cities where present	67	72	74
Average daily sales per restaurant (in LKR thousand)	322	305	337
Average daily sales per restaurant (in thousand)	72	79	95
Same store sales growth (%) (in LKR terms)	22.0	1.0	13
Delivery as % of restaurant sales	38.0	37.0	38.0
Restaurant-related revenue (in LKR million)	12,166	13,123	14,969	14%
Restaurant-related revenue (in million)	2,716	3,397	4,228	24%
Gross margin (%)	58.1	61.6	61.1
Restaurant EBITDA (in LKR million)	1,799	1,801	2,309
Restaurant EBITDA (in million)	402	466	652
Restaurant EBITDA (%)	14.8	13.7	15.4	170 bps

The Sri Lanka business has continued its strong recovery as the economy stabilises. Through a strategic mix of value-driven offerings, innovative product launches, and increased marketing investments, we have achieved healthy growth and improved profitability. Our focus on affordability and innovation, including the introduction of the Delight range of pizzas and Melts, has resonated well with consumers, leading to sustained traction in the market.

In the recent Yum Global Franchise Convention in Sydney, Australia in April 2025, our Sri Lanka Pizza business was recognised as "Worlds Best Pizza Hut Franchisee for People Practices".

Sri Lanka business delivered very strong performance with revenue growth of 24% in (14% in LKR). It delivered double digit SSSG (13% in LKR) and double digit SSTG (13%). Restaurant EBITDA margin improved to healthy 15.4% up by 170 bps. During the year, we opened 7 new restaurants.

We continue to be the #1 QSR brand in Sri Lanka, leading in terms of number of restaurants, revenue, and consumer satisfaction, as confirmed by multiple independent surveys. This leadership position reinforces the strength of our brand and the trust of our customers.

Looking ahead, we are highly confident in the long-term potential for growth in Sri Lanka. With a resilient economy, a growing middle class, and an increasing demand for high- quality dining experiences, we see significant opportunities to expand our footprint, strengthen brand affinity, and drive sustained performance in the market.

Strategy / Outlook:

Sapphire Foods is well positioned to capture multi-decade growth opportunity in the QSR sector. The evolving consumer landscape, increasing digital penetration, and demand for high-quality, accessible food experiences position us well for the future. Through continued investments in innovation, operational efficiency, digital transformation, and customer engagement, we aim to reinforce our leadership position and drive sustained growth.

Following continues to remain our key elements of growth

Continuously enhance the relevance of our brands

Rapid expansion of restaurants

Leverage our omni-channel strategy

Drive Margins through operating leverage (growth) & cost efficiencies

Pursue inorganic growth

Financial Overview

Summarised consolidated Profit and Loss statement

2025			2024	%age YoY
Total income	Million	29,190.79	26,277.21	11.09%
Revenue from operations	Million	28,818.64	25,942.79	11.09%
Cost of materials consumed	Million	9,068.44	8,109.06	11.83%
	% of revenue	31.47%	31.26%
Employee benefits expense	Million	3,863.95	3,455.55	11.82%
	% of revenue	13.41%	13.32%
Finance costs	Million	1,116.26	1,009.08	10.62%
	% of revenue	3.87%	3.89%
Depreciation and amortisation expense	Million	3,639.16	3,238.96	12.36%
	% of revenue	12.63%	12.49%
Other expenses	Million	11,118.67	9,765.47	13.86%
	% of revenue	38.58%	37.64%
Total expenses	Million	28,806.48	25,578.12	12.62%
	% of revenue	99.96%	98.59%
Profit / (Loss) before tax	Million	231.36	699.09	-66.91%
	% of revenue	1.33%	2.69%
Total Tax expense	Million	64.32	179.53	-64.17%
	% of revenue	0.80%	2.69%
Profit / (Loss) after tax	Million	167.04	519.56	-67.85%
	% of revenue	0.22%	0.69%

Total Income: Our total income increased by 11.09% to 29,190.79 million for the financial year 2024-25 from 26,277.21 million for the financial year 2023-24. Increase in Total Income was primarily led by 91 new restaurants opened during the year.

Revenue from operations: Our revenue from operations increased by 11.09% to 28,818,64 million for the financial year 2024-25 from 25,942.79 million during the financial year 2023-24, primarily due to an increase in the sale of products from our new restaurants. Our restaurant sales increased by 11.11% to 28,753.63 million for the financial year 2024-25 from 25,879.61 million for the financial year

2023- 24. This increase was mainly due to increase in sales on account of opening of new restaurants during the year: 73 KFC restaurants, 15 Pizza Hut restaurants in India and 7 restaurants in Sri Lanka. Our other operating income increased by 2.90% to 65.01 million for the financial year

2024- 25 from 63.18 million for the financial year 2023-24.

Expenses

Cost of Materials Consumed: Cost of materials consumed increased by 11.83% to 9,068.44 million for the financial year 2024-25 from 8,109.06 million during the financial year 2023-24. Such an increase in the cost of materials was primarily due to an increase in purchases to 9,104.03 million during the financial year 2024-25. The increase in purchases was in line with the increase in sales

by restaurants primarily due to opening of new stores, compared to purchases in the amount of 8,045.73 million during the financial year 2023-24. The cost of materials consumed as a percentage of revenue from operation increased to 31.47% in FY 2024-25 as against 31.26% in FY 2023-24 on account of promotions and offers.

11%

Revenue from operations

4%

EBITDA

Employee Benefits Expense: Our employee benefits expense increased by 11.82% to 3,863.95 million for the financial year 2024-25 from 3,455.55 million for the financial year 2023-24. This increase in Employee Benefits Expense was primarily on account of the new restaurants opened during the year and increase in minimum wage cost as compared to 2023-24. The employee benefits expenses as percentage of revenue from operations, increased reasonably to 13.41% in FY 2024-25 from 13.32% in FY 2023-24, on account of lower SSSG, increase in wage offset by cost optimisation measures.

Finance Costs: Our Finance Costs increased by 10.62% to 1,116.26 million for the financial year 2024-25 from 1,009.08 million for the financial year 2023-24. Such an increase in finance costs was primarily due to an increase in interest on lease liabilities by 11.43% to 1,096.10 million for the financial year 2024-25 from 958.79 million for the financial year 2023-24. The increase in interest on lease liabilities was primarily on account of new restaurants opened during the year, which was offset by a reduction in interest on loans from banks and other loans.

Depreciation and Amortisation Expense: Our

Depreciation and Amortisation expenses increased by 12.36% to 3,639.16 million for the financial year 2024-25 from 3,238.96 million for the financial year 2023-24, primarily due to an increase in Depreciation on property, plant and equipment by 16.79% to 1,788.64 million for the financial year 2024-25 from 1,531.55 million for the financial year 2023-24 and increase in Depreciation on right of use assets by 8.55% to 1,583.85 million for the financial year 2024-25 from 1,459.08 million for the financial year 2023-24. Led by opening of new restaurants during the year.

Other Expenses: Our Other Expenses increased by 13.86% to 11,118.67 million for the financial year 2024-25 from 9,765.47 million for the financial year 2023-24.

Reasons of increase in Other Expenses are as follows:

Increase in royalty by 15.46% to 1,961.38 million for the financial year 2024-25 from 1,698.77 million for the financial year 2023-24 due to increased revenues from operations.

Increase in electricity expenses by 12.44% to 2,121.81 million for the financial year 2024-25 from 1,887.10 million for the financial year 2023-24 on account of increase in consumption of energy on account of increase in revenue coupled with higher inflation on energy prices.

Increase in marketing and advertisement expenses by 18.34% to 1,367.06 million for the financial year 2024-25 from 1,155.16 million for the financial year 2023-24, primarily due to increased contributions to YUM for marketing activities on account of our increased revenue from news stores and higher marketing spent on Pizza Hut.

Increase in commission on aggregators and meal coupons by 18.73% to 2,020.70 million for the financial year 2024-25 from 1,701.89 million for the financial year 2023-24 due to increased aggregator sales on account of new restaurants added during the year.

Rent decreased by 2.60% to 785.00 million for the financial year 2024-25 from 805.95 million for the financial year 2023-24. This is due to higher number of restaurants paid minimum guarantee lease rentals on account of lower sales vis-a-vis revenue linked lease payment in the previous year.

Total Tax Expense: Our Total Tax Expense was 64.32 million for the financial year 2024-25 compared to an income tax credit of 179.53 million for the financial year 2023-24 towards recognition of deferred tax assets on accumulated tax losses and other items in the standalone financial statement of the company.

Profit / Loss for the Year After Tax

As a result, our Group reported Profit after tax of 167.04 million for the financial year 2024-25 as compared to 519.56 million for the financial year 2023-24.

Key Balance Sheet Items

Particulars	2025 ( in Millions)	2024 ( in Millions)	%age YoY
Capital employed	14,160.37	13,675.75	3.5%
Net Worth	13,961.76	13,398.12	4.2%
Equity Share capital	642.38	637.04	0.8%
Borrowings	198.61	277.63	-28.5%
Property, Plant and Equipment	10,185.36	9,623.95	5.8%
Cash and bank balances including fixed deposit and current investment	2,648.27	2,121.13	24.9%
Current Assets	4,226.62	3,631.85	16.4%
Inventory	956.14	968.82	-1.3%
Current Liability	4,587.26	4,443.64	3.2%
Trade Payable	2,425.21	2,308.33	5.1%
Trade Receivable	365.62	343.84	6.3%

 

Key Financial Ratios
Key ratios	2025	2024
Return on Capital Employed % (RoCE)	2.9%	5.6%
Return on Net Worth % (RoNW)	1.2%	4.0%
Return on Equity % (RoE)	1.4%	4.1%
Basic Earnings per Share	0.60	1.66
Net Profit %	0.6%	2.0%
Debt Equity Ratio	0.01	0.02
Interest Service Coverage Ratio	177.71	77.5
Debt Service Coverage Ratio	36.67	14.3
Current Ratio	0.92	0.8
Debtor Turnover Ratio	81.24	99.1
Inventory Turnover Ratio	11.78	10.4

a) Return on capital employed % (RoCE) = RoCE indicates the ability of a Companys management to generate returns for both the debt holders and the equity holders. It measures a Companys profitability and the efficiency with which its capital is used. It is calculated by dividing profit or (loss) before exceptional item and tax + finance cost (excluding interest on lease liabilities) by average of total equity and total borrowing.

b) Return on net worth % (RoNW) = RoNW is a measure of profitability of a Company expressed in percentage. It is calculated by dividing net profit or (loss) after tax / average total equity.

c) Return on equity % (RoE) = RoE measures the companys financial performance on shareholders equity. It is calculated by dividing net profit or (loss) after tax attributable to equity shareholders by average shareholders equity.

d) Net profit % = The net profit margin is equal to how much net profit is generated as a percentage of revenue from operations. It is calculated by dividing profit or (loss) after tax by revenue from operations.

e) Debt equity ratio (D/E) = D/E is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly-owned funds. It is calculated by dividing total borrowings by total equity.

f) Interest service coverage ratio = The interest service coverage ratio measures how many times a Company can cover its current interest payment with its available earnings. It is calculated by dividing net operating income by total finance cost paid.

Net operating income: Profit/ (loss) before tax + depreciation and amortisation expense + finance cost excluding interest cost on lease liabilities - other income + rent waiver due to COVID + exceptional items.

g) Debt service coverage ratio = Debt service coverage ratio is used to analyse the firms ability to pay-off current interest and loan instalments. It is calculated by dividing earnings available for debt service by debt service i.e. net operating income / total finance cost paid and repayment of borrowings.

Net operating income: Profit/ (loss) before tax + depreciation and amortisation expense + finance cost - finance cost on lease liabilities - other income + rent waiver due to COVID + exceptional items.

h) Current ratio = The Current ratio indicates a Companys overall liquidity position. It measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing current assets by current liabilities.

i) Debtors turnover ratio = Debtors turnover measures the efficiency at which the firm is managing the receivables. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivables.

j) Inventory turnover ratio = Inventory turnover measures the efficiency with which a Company utilises or manages its inventory. It establishes the relationship between cost of goods sold and average inventory held during the period. It is calculated by dividing the cost of goods sold by the average inventory.

Internal Controls and their Adequacy

Your Company has aligned its current systems of internal financial control with the requirement of Companies Act 2013. The Internal Control Framework is intended to increase transparency and accountability in an organisations process of designing and implementing a system of internal control. Your Company has successfully laid down the framework and ensured its effectiveness. The internal controls are commensurate with the size of the Company and the nature of its operations. These

have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance with corporate policies.

M/s. S R B C & Co LLP, Statutory Auditors of the Company have audited the financial statements included in this annual report and have issued an attestation report on our internal control over financial reporting (as defined in section 143 (3) (i) of the Companies Act, 2013).

The internal audit department carries out internal audit of the Companys business/functional activities based on the internal audit plan, which is reviewed and approved by the audit committee. The audit committee reviews the internal audit and statutory audit reports submitted by the respective auditors. Basis inputs received from the audit committee, suggestions for improvement are considered, monitored for implementation and periodically reviewed by the audit committee.

Based on the framework of internal financial controls and compliance systems established and maintained by the

Company, the work performed by the internal auditor and statutory auditors, including the audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by management and the relevant board committees, including the audit committee, the Board is of the opinion that the Companys internal financial controls were adequate and effective during the financial year ended 31^st March 2025.

Risk Management Framework

Risk management is integral to Sapphire Foods operations and embedded in its day-to-day business operations and activities. The framework enables risk identification, risk assessment, risk response planning and actions, risk monitoring and overall risk governance. The approach is based on the assessment of several factors and associated risks covering strategic, operational, compliance, financial risks and providing a holistic approach towards informed decision-making. Risks are assessed and managed at various levels with a top-down and bottom-up approach covering the organisation and the respective business functions. Your Company has constituted a Risk Management Committee of the Board to monitor and review the risk management plan and ensuring its effectiveness.

Key Risks	Definition / Impact on the Company	Mitigation Plan
Risks arising	Business impact due to changes	Collaboration with YUM to proactively assess and
from industry,	in industry, and economic factors	address various industry and economic factors
economic and geo-	including global factors impacting	impacting YUM Brands.
political factors	the above.	Proactive tracking of market factors leading to changes in cost of operations to either hedge against the rising costs/secure benefit from declining costs.
		Maintaining competitiveness through:-
		- Optimising Cost
		- Driving Sales
		- Value Proposition (Value for money to the customers)
		- Promotional Offers
		- Customer Connect
		- Representation through Industry Associations to take up the industry-wide issues with the government for resolution
Macro-economic	Potential impact on business due to	Our strength of business in terms of highest number of
and Geo-Political	forex shortage, high inflation, fuel	stores thereby providing accessibility, our own digital
Risks relating to	shortages, restaurant shutdowns.	and delivery capabilities, price increase and supply chain
Offshore Subsidiary		management with support from parent company in India
	This is further impacted at the	can help us mitigate the impact to some extent in the
	time of forex translation for	short run. We continue to expand stores and in the long
	consolidation at India level due to	run, we believe this would help us further consolidate
	currency depreciation.	market leadership position.
Key Risks	Definition / Impact on the Company	Mitigation Plan
IT and Cybersecurity Risks	Risks arising from breakdown of / unauthorised access to the IT systems	Strong emphasis on maintaining and preserving secured IT systems and database through adequate IT policies and processes.
	Threats from virus attack / hacking	Regular review and upgradation of IT systems and processes in line with the business requirements.
		Enhanced cyber-security processes through investment in Next-Gen Security Tools.
		Continuous tracking and monitoring of IT systems to prevent / remediate security breach.
Risks arising from changing Laws & Regulations	The Company has to comply with various regulations covering areas such as Food Safety, Employment and Labour, Taxation, Environment, Health and Safety, and so on. The laws and regulations are continuously evolving that results in enhanced greater compliance risk and cost of compliance for the company. The fast pace of changes in the regulatory environment requires quick understanding of their implications and adaptation in business operations. Failure to comply could result in penalties, reputational damage, and criminal prosecution.	Deployment of compliance management framework that enables tracking of regulatory changes and management of compliance risks.
		In-house digitised regulatory compliance platform facilitating tracking and reporting of compliances and enabling clear accountability and self-governance.
		Operationalising regulatory requirements through adequate business policies and processes.
		Regular training and awareness sessions for restaurants and other employees on the evolving food safety and other regulations.
		Periodic food safety and quality assessments at Restaurants, Supply Chain Centres, Vendors.
		Emphasis on fostering ethical and compliance culture.
		Adequate and effective internal controls to comply with regulations and to keep a check on unlawful and fraudulent activities and internal audits to provide assurance.
		Adequate governance at Board, executive and management level.
Operational Risks	Business impact due to: Sales variations Delayed pay backs on new restaurants Disruption in supply chain High attrition of restaurant staff Other business uncertainties	Robust business processes with regard to business plan evaluation, implementation and monitoring.
		Robust, multi-layered and data-driven approach to site selection for new restaurants.
		Improved payback through compact omnichannel format.
		Effective business / marketing strategies through collaboration with YUM to foster brand awareness and combat competitor actions.
		Enhancing supply chain and distribution systems and processes to ensure uninterrupted supplies.
		Strategic resource planning across all levels and effective hiring processes.
		Regular review of remuneration, recognition and training model to ensure retention and development of talent.
		Proactive approach to BCP processes to deal with business uncertainties.

 

Key Risks	Definition / Impact on the Company	Mitigation Plan
ESG-related Risk	Risks arising from non- identification and non-tracking of various sustainability focus areas across company operations Risk of non-compliance with evolving regulations around sustainability	Formalised approach towards identification of ESG impacts, determination of ESG material topics, strategising goals and action, and periodic monitoring. Operationalising sustainability within the day-to-day operations through business policies and processes Aligning ESG reporting with the applicable regulatory / global standards.

Human Resources

We are committed to building the capabilities of our employees through rigorous on-the-job functional training programmes as well as intensive leadership programmes such as the Young Turks and Talent Edge that develop managerial capabilities for higher roles. We encourage organic growth of our talent and provide opportunities for our employees to build their careers in our Company through vertical and cross-functional movements. The health and safety of our employees is important to us. Apart from medical insurance and accident coverage for all employees, we provide unlimited access to medical and mental health professionals for our employees with the rank of restaurant manager and, as well as for their families. We provide multiple formal and informal platforms for employees to give us feedback on their experience

- Sapphire Speak, our employee engagement survey runs annually in partnership with Gallup, and measures and monitors year-on-year movement of indices on employee engagement. Our mean Gallup Engagement Score increased from 4.12 in financial year 2018 to 4.47 in financial year 2024 and our Gallup global mean percentile rank improved from 57 in financial year 2018 to 78 in financial year 2024. As on 31^st March 2025, our Company had 13,495 permanent employees compared to 12,500 on 31^st March 2024.

Cautionary Statement

The statement made in this section describes the Companys objectives, projections, expectation and estimations which may be forward-looking statements within the meaning of applicable securities laws and regulations.