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

Ladies and gentlemen, thank you for standing by. I am Gaily, your Chorus Call operator. Welcome, and thank you for joining the Quest Holdings conference call to present and discuss the 3 months 2023 financial results. The event today provides the opportunity for participation via audio conference and live webcast where a presentation deck is provided for your convenience. [Operator Instructions] And 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. 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 to you the financial results of the first quarter of 2023 and answer your questions. Now I will give the microphone to Mr. Markos Bitsakos for his opening remarks.

Good afternoon, ladies and gentlemen. I am Markos Bitsakos, Quest Group Chief Financial Officer. Based on our seasonality track record, the first quarter of each year is the lowest quarter as far as revenues and profit before tax. Breaking down this first quarter of the year, we saw that it started with a strong January, followed by a weak February and ending with a relatively good paths. So we do not see a steady pattern so far. EBITDA for the quarter is stronger by almost 15%, while earnings before tax seems to be slightly lower due to last year's capital gains amounting to EUR 1.3 million derived from the sale of our participation in IQ Sonos. Excluding this capital gain impact, earnings before tax is higher by 8.6% versus the previous year. Moving into the actual numbers now in the 3-month period of 2023. Total consolidated revenues reached EUR 286 million, increased by 20% versus last year. This double-digit increase versus the previous year, derived primarily from the large sale increase of Apple ecosystem, followed by the rest of the commercial companies alongside, of course, with financial services and Courier business. Consolidated EBITDA, amounting to almost EUR 20 million, EUR 19.5 million, is expanded by 15% versus last year. As I said earlier, consolidated earnings before tax amounting EUR 13.6 million seems to be slightly lower by 2.2% versus last year, due to the last year's capital gains amounting EUR 1.3 million from the sale of our participation in [ IQ Sonos ]. So I'm saying again that excluding this capital gain impact, earnings before tax is higher on a like-for-like basis by 8.6%. Earnings after tax, a noncontrolling interest, reached EUR 10 million, on the same level with the corresponding quarter of 2022. Lastly, Quest Group ended up this quarter with a net cash of circa EUR 15.8 million compared to EUR 28.7 million net cash by the end of 2022. Now as always, I will pass you over to Alexandros, who will give us the analysis of the sector overview.

Now diving deeper into our segments, we observed that the Commercial Services segment -- our Commercial Activities segment, consisting of 5 main companies: Info Quest; iSquare; iStorm; Quest on Line; and several newcomers, namely Clima Quest, GED, FoQus, Team Candi and IQT Cyprus, continued to grow by 22% at the sales level, while EBIT increased by 3.8% year-over-year, mainly affected by increased interest rates and depreciation. IT services sector sales, consisting mainly of Uni Systems, also improved by roughly 20%, while its EBT grew by about 10%. Postal Services, which is ACS, grew by roughly 9% in sales and in EBT, assisted by the growth of e-commerce. Last but not least, Quest Energy segment sales also grew slightly in sales with improved profitability. Now let me pass over to Apostolos to provide the outlook.

Good afternoon from me, too. I'm Apostolos Georgantzis, Quest Group CEO. As has already been explained by Markos and Alexandros, all our segments grew during the first quarter, while many of them presented double-digit growth in sales and profitability. To be more precise, all segments growth, sales and EBITDA grew during the first quarter. During the first quarter, we achieved a positive start into 2023, aligned with our initial estimations for the whole year as group consolidated sales and profitability grew at an aligned pace. Now in more detailed per sector for the outlook for the whole year is the following: regarding the Commercial Activities sector for the whole 2023, we estimated growth in sales and similar to last year EBT. Furthermore, we have proceeded with an expansion of our Xiaomi operations in Romania as well as to other niche areas such as the Epafos acquisition just announced a few days ago, increasing Quest Group footprint. Regarding the IT Services sector, this segment is continuing to be positively affected by the strong demand in the IT services while it has a high backlog of signed projects, which exceeds EUR 500 million. Therefore, double-digit sales growth and improved profitability is estimated for the whole 2023. Going to the Postal Services sector, our estimations for the 2023, the whole year, includes a growth in sales and profitability, mainly driven by e-commerce growth. Finally, for the Renewable Energy Production sector, our estimation for the whole year is for a mild growth, driven mainly by 2022 and 2023 investments. Therefore, on a consolidated basis, our estimation for the whole year is positive regarding revenues and profitability, which are estimated to grow at a pace similar to that of 2022. This estimation has always been validated by the course of the first quarter. It has to be noted that Quest Group's current cash position is solid, with well above EUR 200 million in cash and available credit lines, which allows us to continue our planned investments and endure hardships. Therefore, we continue to pursue M&As in order to further prop our growth. An example of this M&A expansion and strategy is the acquisition of Epafos, which is a small IT company operating in a vertical education market offering varieties of services spreading out from digital transformation platform to specialized edu equipment. This acquisition provides Quest with an extended footprint in the education sector, a very promising sector taking into account the upcoming RRF investments to modernize the infrastructure of the public school. Now let me pass back to Alexandros.

Thank you, Apostolos. That was a brief overview of the first 3 months of 2023 as well as the outlook for the full year. 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 we could have a bit more details per segment. I was thinking on the Commercial Activities, very strong growth, where did this come from? Is it only from Apple products? Clima? The addition of Clima, which wasn't there last year? A bit more what we should be expecting in the summer period. I know you say, we are expecting similar growth to last year, but we are higher already in Q1 with a weak February, as you said. So I was wondering where we're going there. This is the question on Commercial Activities. On the IT Services, I was wondering on the increasing backlog and the implementation horizon there, are we seeing any delays there? Or this is just because the projects are growing very quickly? There are many projects coming in. So the backlog will go up in the next like couple of years and then go down again. And on the ACS, I was also wondering on the improving margin on the improvement we saw in Q1. Is this a sustainable seasonal? Is there a reason there?

Thank you for the questions, Natalia. I'll answer the first one about the Commercial Services segment. Yes, indeed, we have a high -- very high growth on the first Q. The main reasons for that is, first of all, the Apple growth of the segment -- the first -- of Apple business actually in the first quarter. There was also, I would say, a split over from last year where there was a great number of iPhones that were not delivered. So there was a split over of delivery and the invoicing of Apple products, mainly iPhones in the first quarter. And we also have a very high growth on the Clima sector, mainly air conditioning due to the subsidy -- the public subsidy program [ Exconomocaticon ] for the consumers, who are subsidized to buy and install conditioning for their homes. So these 2 reasons are to -- these 2 factors are the reason that have grown the revenue of the Commercial segment that much in the first quarter. Now about Uni Systems, Apostolos, respond?

Yes. Regarding -- Natalia, the second question, which was regarding the backlog of the IT services sector and Uni Systems. I understood that the question was how you see the increase of backlog affecting the business. And what about the RRF? And to be honest...

Yes. Yes. Where does it go very high up as we go ahead.

Yes. The truth is that as the business grows, we see also the demand is growing all this previous time. Therefore, some of the backlog is coming from RRF. Some of the backlog comes from abroad as well, which is also a big part of the revenues, about 50%, if you recall, in this segment. And just to have in mind that the RRF backlog, which, I think, exceeds EUR 100 million, still during even the first quarter, we haven't booked any revenue. Or if we have booked some, it was very little. Therefore, there are some delays in the RRF. But we expect that this is going to run at a better pace in the coming months and during the next year. So therefore, we see that the backlog is healthy, let's say, if that's the question. I understand.

Yes, yes, yes. How is it piled up and if there are delays, okay? So it's healthy. That's good.

Yes. Part of it, about 40% comes from abroad, about -- more or less on a rough split, if you would like to say, about 40% comes from outside Greece; about 1/4 comes from -- more or less from RRF; and the remaining from the public -- from the remaining private and public sector. And the third question was what about the improvement of profitability of the third sector, which is the courier and postal and ACS. And you're right, we have a small improvement in the margin during the first quarter. And this is due to the fact that we -- since the mid of last year, we're operating in the new installation of ACS in Nehallo, in the very modern new hub with advanced operational capabilities. And this helps us also to streamline OpEx, therefore, improving EBITDA slightly. This is the reason.

Okay. So this could be sustainable because of the new hub?

Yes, and we have mentioned that in the past that, as time passes and we're operating in a more steady way and the new installation, we'll be able to streamline any additional costs. And imagine still we're running at -- in the first quarter, we run at quite high transportation costs. Recall, during the first quarter, the energy prices were still at quite high levels. Therefore, hopefully, we're going to see some result of this cost in the future.

Okay. That's -- can I have a follow-up on this ACS? I wanted -- I was wondering if the boxes -- not the last mile, but delivering boxes is helpful on your operating expenses? Or is it the same as they grow and more customers deliver -- get deliveries in boxes?

You're talking about the lockers, I assume?

Lockers, yes. I don't know. Yes, the lockers.

Yes, these automated lockers, we're growing now. We're building -- rolling out a network of lockers. We have in operation more than 100 [ DQC ], 120 at the moment. They're growing and the demand is growing, but still, it's not very big. It's a small part in terms of the total volumes. It's less than 1%, still delivering through these boxes. More and more people are using them, but still the usability is at a very small percentage compared to the total volumes. And this is not just something that happens, where it sits, the overall market usability, more or less. However, it's -- this model requires initial investments in the lockers, which has not been significant. But once operating and you managed to fill them up, let's say, more than 56% or 70% of their capacity, you're starting -- getting a significant operational benefit because the cost of delivering to these boxes is relatively lower to the delivery at home. But still, we're not there. We need some time until the penetration of the delivery in the lockers is to that level. Still, we are at, let's say, around 15% to 20% of the capacity of the boxes.

Okay. That was very helpful. That was what I was thinking that as they grow, maybe this will help of -- okay.

It will, but needs time.

It needs time, yes, definitely.

[Operator Instructions] The next question is from the line of [ Messein Tebut ] with [ Gay Lussac Treccione ].

Congrats on a great quarter. Just a quick question. Could you remind -- maybe can you explain again the difference between the EBITDA and the EBT on the Commercial Activities? You mentioned higher financing costs and depreciations. Can you maybe tell us a bit more on that front? My second question would be on the -- specifically on the Uni Systems emissions related to the UE. From my understanding, this is -- I mean how disrupted can this activity be by the new artificial intelligence and GPT-4 activities for the group? Hello?

So this is Markos Bitsakos. So I will try to answer the first question. To be very honest, we didn't hear very clearly your second question. So you're going to have to repeat it afterwards. So as the Commercial segment and the difference between EBITDA and earnings before taxes, the percentages, I mean, of those 2 figures. I remind you that the difference we have repeatedly said, that the difference for the whole 2023 will be significant, and it is due to the higher depreciation and the interest rates that went up almost double than the interest rate that we had last year. The depreciation are directly linked with the new investments that the commercial sector have done last year for our new logistic centers. This is the pattern that we're going to see for the whole year or the years to come. At least, as far as the interest rate is concerned, until the time that interest rates will start having a deceleration, let's say.

Okay. How much debt is there like in the various Commercial Activities entities right now?

Can you repeat your question?

How much debt is there right now in the Commercial Activities, different entities?

Somewhere in the range of EUR 70 million, something like that.

Yes. But if you see -- this is Apostolos. If you see our presentation, which is already available on the website, you could see that the net debt or the whole activity is EUR 43 million. Yes...

Yes, which is the net debt.

Overall, the debt is about EUR 70 million, but we also have cash. But for the net, the net is EUR 43 million.

While the difference is that the cash is not producing any income or if it produced an income, it's a very low margin, let's say. On the contrary, the interest rates are more than double than last year.

So this is a floating rate debt, right?

Exactly.

Okay. Okay. My second question was on the IT systems, the Uni Systems activities for the European Union. How disruptible are these type of missions by the new technologies that are coming into the market like GPT-4, et cetera?

Okay. This is Alexandros. Thank you for your question. It's actually a very nice question. We can't predict the future, of course, and how fast AI will move for the moment and for the foreseeable future. Actually, our business in the European Union involves some sophisticated architecture of systems and, of course, the implementation, the development of these sophisticated systems. So for the foreseeable future, this cannot be performed by the generative AI, such as ChatGPT. In fact, we see, not just in Uni Systems, we have a lot of developers, and some of them are using ChatGPT to generate some simple code, but this is done to actually accelerate their everyday work and their business. But for the moment, we don't see that this can disrupt their everyday job by generating code by itself that much sophisticated code. So for the foreseeable future, again, I say, we don't see our business being disrupted by GPT-4. Of course, we cannot predict how fast this can involve and what can happen after 5 or 10 years.

Okay. If I may, I have a few more questions regarding ACS. To my understanding, the first semester of 2022 was a bit obviously lagging in terms of volumes because of e-commerce drops. I would have expected maybe, I don't know, more growth considering the easier comparable basis on the first half or first semester first half of this year. Does that mean that we should expect a lower growth coming into the second semester due to the higher comparison basis?

Yes. The first quarter of 2022 was -- we had an open market. Therefore, it was a normal period. We had an abnormality during the previous year, during the first half of the year of 2021. Therefore, the comparison of 2023 first quarter versus 2022 is normal, and we see a growth, which is of the order of just below 10%, which is a normal growth. We expect that this growth could continue. We see some -- I mean, we would have expected there should be -- the cost of inflation for the consumptions would have been, let's say, less, we would have been expecting a higher growth in the market, but all this has also to do with the retail growth. The foremost of the growth comes from the -- I would say, from the higher penetration of e-commerce versus retail. And we estimate that there is a pressure -- that was a pressure during the first quarter coming from the higher inflation with FX consumption.

Okay. From my understanding, you had last year passed on some price increases. That was not the case for the rest of the market. How are the dynamics in terms of market share and pricing right now on your side related to the competition on ACS?

Yes. It's a very competitive market. Of course, ACS is the leader. It was one of the first companies implementing increase of high rates in the beginning of the year. I think that others have also implemented them, but they implemented in different times of the year, usually after 12 months of the previous changes. It's a very competitive market, which we have the feeling that we are gaining some market share in the market, but the whole market is moving not so fast as I explained, due to the consumption pressure during the first quarter. Therefore, I assume the -- we assume that the market -- or we estimate that the market is moving lower than ACS, and ACS is gaining some share.

Okay. And finally, last question after that...

The numbers are not, let's say, strong double digit yet. Therefore, it's -- any changes or, let's say, any differences are relatively small in terms of percentages.

Got it. Last question, and then I leave the floor for other people. You've now came back to a nice net cash position, obviously, excluding the acquisition of Epafos. You mentioned you want to stay active. Could you have -- could we maybe have a bit more details on the different segments? I think last year, you were mentioning that, obviously, you wanted to reinforce the IT system segment. But other than that, you took some nice opportunities to add capacities to the renewable segment. Can you tell us a bit what's on the table right now in terms of what's available in the market and the strategy access you're willing to take in terms of M&A?

Okay. Let me start -- this is Markos again. Let me start from your last question about Quest Energy and the plans that we have. As we always say, Quest Energy has a strategy of searching the market for potential acquisition of photovoltaic parts. Apart from this, we are also in the process of building our own -- some of our own photovoltaic parks like greenfield project, let's say. We're going to be in the position of giving more details, most likely on the second quarter of this year. The problem with the energy sector here in Greece nowadays is the grid. I mean, to give you an example, we have are ready for being connected 8 small photovoltaic parts from late December of 2022, which are not still connected with the grid. We have -- we are ready to do so, but we are still waiting for being connected, let's say. So this is a huge delay on -- for new parts, not only photovoltaic parts, but in general, renewable energy parts.

It's a bureaucracy, let's say, play that we have, but it's going to happen, but it takes some time. And regarding this, Apostolos, the first part of the question, which has -- which was what is our strategy with regard to the M&A and inorganic growth? At the moment, what we're seeing during the last period is that we're searching for niche markets within the segments in which we operate. That will bring us value or bring us, let's say, knowledge and capability in vertical markets, such as the ones we have done in the end of 2021, we acquired Intelli, which is a specialist with a digital onboarding platforms. Now we moved with Epafos. Epafos is a specialist in the educational IT system markets. And hopefully, we're going to be able to extend to other similar M&As in the markets in which we operate, and this is our strategy.

[Operator Instructions] 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.

Thank you. Dear all. We'd like to thank you for your participation and the interest to our company and its prospects. Have a nice afternoon.

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