IBERSOL | Integrated Management Report 2022

INTEGRATED MANAGEMENT REPORT 2022 3. Operational Risk Management 3.1. Risks of the global context The Ibersol Group attaches particular importance to the global geopolitical context, namely, changes in the global supply chains of food products, which have conse- quences on the operations and profitability of the business. The upward trend in energy and fossil fuel prices, which induce food prices increas- es, also affect the profitability of business in the restaurant sector. 3.2. Risks of development and franchise agreements In previous years, the Group signed development contracts with Taco Bell and KFC (for Portugal and Spain). During 2022 a new development contract was signed with the Pret a Manger brand. These development contracts guarantee the right and obligation to open new res- taurants (in exceptional circumstances, such as the pandemic crisis, readjustments to the development programs were agreed upon). In case of non-fulfillment of the opening plans foreseen in these contracts the franchisors may terminate the respec- tive development contracts. In addition, the development agreements provide for requirements and conditions to be met prior to the sale of the controlling interest of the subsidiary that oper- ates the agreement, the issuance of capital instruments and/or change of control in those subsidiaries, as well as the sale of the business or restaurants owned by said subsidiaries, which include, among others: the prior agreement of the franchisors, in- formation obligations and several transfer procedures, possible payment of charges or fees, as well as the right of first refusal in favor of the franchisors. The franchise contracts in relation to some international brands foresee the possibility of termina- tion in case of change of control of Ibersol SGPS, S.A. without the franchisor’s prior agreement. In the restaurants where it operates with international brands, the Group enters into long-term franchise contracts: 10 years in the case of Pizza Hut, Taco Bell and KFC, renewable for another 10 years at the franchisee’s option, as long as certain obliga- tions are met. It has been the practice for these contracts to be renewed upon expiration. However, nothing obliges franchisors to do so, so there may be the risk of non-renewal. In these contracts it is normal to pay an “Initial Fee” at the beginning of each con- tract and a “Renewal Fee” at the end of the initial period, in addition to an operating and marketing royalty on sales made. 397