Quest Holdings S.A. (QUEST) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Constantino, your conference call operator. Welcome, and thank you for joining the Quest Holdings conference call to present and discuss the full year 2022 financial results. The event today provides the opportunity for participation via audio conference and live webcast, or a presentation deck is provided for your convenience. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Quest Holdings management. Gentlemen, you may now proceed.

Welcome, ladies and gentlemen. My name is Alexandros Roustas, and I'm the Investor Relations Officer of Quest Holdings, and I'm sitting here with our CEO, Mr. Apostolos Georgantzis; and our CFO, Mr. Markos Bitsakos. We are here to present you the Financial Results of the Full Year period of 2022 and answer your questions. Now I'll give the microphone to Mr. Markos Bitsakos for his opening remarks.

Good afternoon. I'm Markos Bitsakos, Quest Group CFO. From 2010 'til today, margin crisis is the new normality. So 2022, seeing the third year of the CPVID pandemic era was a challenging year, both for Quest Group and the entire Greek and global economy. On top of the pandemic crisis, we faced the Ukraine war, the pan-European energy crisis, the inflation, and the intense anomalies in the supply chain, which all created unprecedented conditions for the operation of businesses. In this challenging landscape, Quest Group continued to grow and to create value, having its sales more than tripled over the last decade. It is worth briefly mentioning some of the important actions and achievements that took place during this year, new milestones and records. In this financial year, Quest Group surpasses for the first time in its 42-year history, the barrier of EUR 1 billion in consolidated sales. Apple ecosystem, which consists from iSquare and iStorm exceeded EUR 340 million in total sales. Uni Systems for the first time in its Italy surpasses EUR 170 million in revenues. Our total workforce exceeded 2,500 people in Greece and abroad. Quest Holding. Stock was placed on the Athens Stock Exchange large-cap index. Moving on to the infrastructure. We are particularly proud for the investments made in 2 new warehouse and logistics centers completed during 2022. Specifically, the new large and modern in terms of automation warehouse of Info Quest Technologies in leased facilities in Aspropyrgos. This is a 25,000 square meters of usable area with a capacity of more than 25,000 pallets. It has an automatic storage and handling system of more than 16,000 part numbers, automatic pallet feeding rack system, and warehouse management system. And the new state-of-the-art in terms of automation parcel sorting center of ACS. This is a building with a total area of more than 30,000 square meters and a modern sorting system with a throughput capacity of more than 50,000 parcel per hour. It has a basement providing 275 parking spaces of which 100 with electric charging capability. Lastly, there is a 1-megawatt photovoltaic park installation on the roof for net metering. Moving on the reinforcement of internal group structure. The group's corporate governance was further strengthened by integrating new colleagues into critical new or existing departments, such as a new Compliance Department, the new Corporate Governance Department, and we made some additions in the Information Security Department, which is very critical in all the group. The task of aligning the group to the provisions of the new law 4706 regarding corporate governance issues has been accomplished, and the first audit and evaluation of compliance has been completed. On ESG issues, who participated in the EcoVadis ESG rating with 2 of our companies. We received ESG rating by ISS in environmental and social, and we obtain a medium risk score in governance-related topics. Quest Holdings became a member of the UN Global Compact, a voluntary initiative based on the commitment of businesses to implement universal sustainability principles and take actions in support of the United Nations goals. We updated the ESG strategy of the group and its companies with 10 long-term goals across the 4 pillars, which are environment, employees, responsible business, and sustainable services. Quest Group constantly creates value for all its stakeholders and in 2022, we rewarded our shareholders by distributing dividends of EUR 61 million and understanding the low-paid employee difficulty to cope with a sudden energy increase and the rising inflation, we decided to support them by distributing one-off extra allowance to 1,300 employees. This is almost half of our population with gross monthly salaries of up to EUR 2,000, and this is an amount of EUR 2.8 million in total. Moving now into the numbers and looking up on the continued operations. Total consolidated revenues reached EUR 1.032 billion, increased by 12.7% versus 2021. Our EBITDA amounting to EUR 72 million is higher by 12.4% versus last year. Consolidated earnings before tax amounting to EUR 54.7 million is increased by 6.6% versus last year. Earnings after tax and noncontrolling interest reached EUR 41.2 million, lower than last year by 3%. All in all, focusing on the continued operations and excluding capital gains, Quest grew in sales, EBITDA, and EBIT, while in earning after tax had a rather small 3% decline due to the higher taxable income of 2022 versus last year. The major sponsor to the notable increase in sales and profit figures is the Apple ecosystem, while Uni Systems, Intelli, and the whole Clima sector have also considerably contributed to the Quest Group overall growth. On our consolidated balance sheet, we can in summary highlight that group total assets of EUR 691 million or 17% higher than last year. Total equity decreased by 8%, mainly due to the large dividend distribution. We hold a strong cash amount of EUR 168 million. And lastly, our net cash amounts to EUR 28.7 million compared to EUR 84.5 million net cash of last year. I remind you that last year's large net cash caused the outcome of the cash inflow from Cardlink divestment while in 2022, cash was used for the increased dividends of EUR 61 million. Now I will pass you over to Alexandros, who will give us the sector overview.

Now diving deeper into our segments. We observed that the commercial activity segment consisting of 5 main companies; Info Quest, iSquare, iStorm, Quest on Line; and several newcomers namely; G.E. Dimitriou in Q4, Clima Quest, FoQus, TeamCandi and IQT Cyprus grew by 15% at the sales level, while EBITDA marginally decreased by minus 1.5% year-over-year. The sales growth comes mainly from Apple product sales, while on the opposite side, e-commerce sales are lower compared to last year, where there was no physical retail alternative for several months due to the lockdowns. The reason of the decrease of the profit margin is mainly attributed to the one-off personnel allowance of 2022, the lack of 2021 government one-off support of the lockdown, the weaker e-commerce profitability of 2022. Now going to the IT services sector, consisting of Uni Systems, Intelli Solutions, and TeamCandi also improved by roughly 15% in sales and by 29% in EBITDA. Demand for IT services continues to grow due to the high number of digital transformation projects in the EU, while there is an upcoming opportunity for the digitization of the public sector, which is still under development. Postal Services, which is ACS sales, grew by almost 5%, while EBIT marginally improved by 1%. The results were mainly driven by the drop in e-commerce during the first 5 months since last year's parcel deliveries were boosted by lockdowns. There's also an impact by higher transportation costs related to the increase in the cost of fuel. Last but not least, Quest Energy segment sales were higher by 13% and by 19% due to the addition of 6.2 megawatts during 2022. Now let me pass over to Apostolos to sum up and to provide the outlook.

Good afternoon from me too. I'm Apostolos Georgantzis, the Managing Director of Quest Group. As Markos and Alexandros explained, most of our continued operations grew in sales during 2022 and with some of them presenting double-digit growth. Profitability also improved mainly due to the first and third quarter, while the second and fourth quarter being nearly at last year's levels, excluding the one-off allowances of EUR 2.8 million for the lower paid personnel. Overall, the diversification of our business helped us once again to move in a positive ground during a challenging year, talking about 2022. During the previous years, we have managed to diversify profitability inflows and now this comes from all 4 segments. This diversification traditionally helped us to perform well even in difficult periods. Now going into more detail. The outlook per sector regarding continuous operations is the following: for the first sector, which is the commercial activity sector. We estimate for 2023, a mild growth in shale and similar profitability versus 2022. A margin pressure in IT and Apple projects is estimated to be recovered by Clima sector and the expansion abroad as we expand the commercial sector operations in Romania through cooperation with Xiaomi. Regarding the IT services sector, this segment is continuing to be positively affected by a higher demand in IT services, while it has an increased backlog of signed projects, which is of the order of EUR 500 million and EUR 550 million. Growth of sales and profitability is estimated for 2023 to be driven by accelerated investments in digital transformation by both the private and the public sector. Therefore, sales and profitability are estimated in this sector to grow at nearly a double-digit growth rate versus 2022. Going to the third sector, which is the postal services and courier sector. For the whole 2023, we estimate sales to grow at a mild pace and profitability, the same, driven by e-commerce growth. Our new automated state-of-the-art sorting hub is fully operational and allow us gradually to improve operational efficiency in 2023 and the future years. Finally, for the last sector, which is a renewable energy production. Our current estimation for 2023 is for a mild growth in both sales and profitability, driven by the investment made in 2022 and the once estimated to be executed during 2023. Now on a consolidated basis, regarding continued operation, our current estimate for the whole 2023 is for a mild growth in sales and profitability and similar growth rates like those presented during 2022 versus the previous year. The group has a solid commercial and financial position to successfully address any further challenges that might arise. Quest Group's current cash position and available credit lines is solid, well above EUR 200 million. This allows us to continue our planned growth investments and to endure any hardships. Our investment plans for the year 2023 include investments of about EUR 30 million, related mostly to growth investments. As you recall, probably from previous communication we've done, usually, the CapEx the group has, which is required for maintaining the business -- the maintenance CapEx is very low and is of the order of EUR 4 million to EUR 5 million. Therefore, more of the estimated investments in regard to growth CapEx, which is going to bring further growth to the group. This investment mainly regarding infrastructure of courier services, the increase of energy portfolio as well as international expansion, plus some possible M&As targeted in the IT sector. At the same time, we also carefully pursue possible M&As in order to further profile growth. Now let me pass back to Alexandros.

Thank you, Apostolos. That was a brief overview of the 2022 full year as well as the outlook for 2023. We are now happy to take your questions.

[Operator Instructions] The first question is from the line of Svyriadi, Natalia with Eurobank Equities.

I was wondering if you could give us some indication of the current trends in the supply chain if there are any discrepancies left or if things have normalized, especially in Apple products, which was quite -- there was a lag there? And what we should be expecting like looking in the current year on that? And I was also wondering if what should be a reasonable estimate for the G.E. Dimitriou deal on sales? I recall we were talking around the sales of EUR 30 million. Is this reasonable to expect like in 2023 or was this looking forward into the future? And I have another question about the Quest on Line drop in 2022. What was this actually mainly coming from on the sales and on the EBITDA line? And I also have one more if you have any indications on the e-commerce trends currently. How is this going forward? And if you could get further pricing in your courier business? I think that's more or less.

Okay. Thank you, Natalia, for all the questions. First of all, I'll start with the supply chain difficulties we had in past years. What we see right now is that supply chains are streamlined and normalized, and there are no huge delays or huge problems in most of the products. Also, costs have been more normalized than we used to be during the last years. So I wouldn't say that supply chain is a major area of focus in terms of issues or problems at the moment. Now I jump your second question to the third question, I'll come back -- we'll come back to the second question. I'll talk about Quest on Line. As we all have seen in 2022, e-commerce has been a kind of shrunk compared to the last 2 years of 2020 and 2021, which were COVID years. And this is normal, I would say, it has happened all over the world. The reason is that the physical stores opened. So most of the consumers went back to the physical stores. That does not mean that e-commerce trends have changed. But it only means that 2022 compared to 2021 is lower but what we see in terms of trends since you mentioned that, is that e-commerce continues to grow -- will continue to grow in the next years. Most of the analysis say that the trends will be -- or growth would be somewhere between 8% and 10% CAGR within the next 4, 5 years. Now getting back to Dimitriou, Apostolos will respond to this.

Regarding Dimitriou, if you recall, we've been operating as a sub-dealer of Dimitriou during the last few years, supporting the company until we had the approval for the restructuring process, which ended up at the last quarter, nearly of 2022. Our estimation for this year is this company, which is 99.1% subsidiary, so nearly 100%. To have sales of the order of EUR 40 million to EUR 50 million, maybe a bit higher as well, depends a lot on how the program of the government for subsidizing the electronic equipment for lower power consumption will perform, so far goes well. However, some of this revenue has been written down during 2022 since we've been operating in the past as a sub-dealer of Dimitriou. Therefore, we expect this size in terms of sales. The profitability, again, it's going to be -- we estimate it to be higher than the profitability of the additional IT sector, wholesale sector. The margins here are at least double compared to the traditional IT wholesale. We believe it's going to evolve because gradually, we're moving in an area where the cost of transportation, which last year for goods from China, last year, there were 5x higher of what it was the previous year. During the course of the previous year, these costs have been reduced gradually and now at normal levels. Therefore, we expect also gross margin to gradually improve, allowing us to improve further the down, let's say, the EBITDA and EBIT margin in this business in the coming months and years. Now just to adapt also to Alexandros' comment on e-commerce. The e-commerce is a market, I would say, which is estimated to grow for many years to come and this would affect both the Quest on Line and ACS, who are operating -- Quest on Line being a 100% retailer. ACS has about 75% of its volume coming from e-commerce. We've seen a big spike during 2020 and 2021. As Alexandros explained, 2022 was an intermediate period because of lockdowns, therefore, it wasn't easily compared to the previous year. We see that this year, gradually volumes and this business is picking up. It has to do also consumptions, but we're quite positive that it's going to grow in both these -- companies that we have are going to be positively affected.

Okay. That's very clear. And do you think you will be able to get pricing in the courier segment or further pricing because, obviously, you did this in 2022 also?

2022, we have managed during a difficult year to have increase in prices after 14 years. We're doing the same for 2023. Of course, it's a very competitive market. It's not the same like last year. Therefore, the aim here is not to have a reduction in overall prices or to have, if possible, a small increase that would call for any increased costs. So far, the energy costs seem to be coming down as the example I've made for things coming from China. The petrol prices affect this business. Therefore, we see that costs are going to be more normalized during the course of the year.

The next question is from the line of Kalogeropoulos, Yiannis with Beta Securities.

I have a question regarding your balance sheet and element on your balance sheet and especially on the goodwill line. We see an increase of nearly EUR 17 million on the goodwill line between 2021 and 2022. Does it have to do all -- is it all related to the acquisition of Dimitriou or there is further goodwill from any other acquisitions?

This is Markos speaking. Good afternoon. You are right. The goodwill was increased by close to EUR 17 million. Out of this, the EUR 16 million refers to G.E. Dimitriou, you are correct again. The rest, which is something like EUR 1 million. It's a very small amount. It represents the goodwill from additional parks that we have bought during last year -- photovoltaic parks.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Apostolos Georgantzis for any closing comments. Thank you.

Dear all, we'd like to thank you for your participation and interest in our company. We hope to see you soon in about 1.5 months, we're going to have the results for the first quarter during which we expect also to be able to give you more, let's say, a solid outlook for the whole 2023. Thank you, and wish you to have a nice afternoon.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.