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

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Quest Holdings Conference Call and Live Webcast to present and discuss the First Half 2023 Financial Results. The event today provides the opportunity for participation via audio conference and live webcast, where the presentation deck is provided for your convenience. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session via audio conference. [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 and Deputy CEO, Mr. Markos Bitsakos. We are here to present you the financial results of the first half of 2023 and answer your questions. The presentation of the half year results is uploaded in our company website in the IR section. Now I will give the microphone to Mr. Markos Bitsakos for his opening remarks.

Ladies and gentlemen, good afternoon. I'm Markos Bitsakos, Quest Group CFO. In the first half of the year, Quest Group achieved a double-digit growth both in revenue and earnings before interest, tax and depreciation. However, earnings before tax were slightly lower than last year, being primarily impacted by the significant increase of depreciation and financial expenses. More specifically, the 2 large and iconic investments that were concluded by the end of last year in the main Info Quest Logistics Center and the ACS sorting hub led to increased depreciation by EUR 1.3 million, and the Euribor rising resulted to additional financial expenses of EUR 2.4 million. Furthermore, in last year's first half, there were one-off capital gains from the sale of our participation in Accusonus amounted to EUR 1.4 million. These 3 elements, which sum up to close to EUR 5 million, led the earnings before and after tax to land practically on the same level as last year. To summarize, in the first 6 months of 2023, total consolidated revenues reached EUR 544 million, increased by 13.6% versus last year. Our consolidated EBITDA amounted to EUR 39 million is enhanced by 13% vis-a-vis 2022. Consolidated earnings before tax amounting EUR 27 million is slightly reduced by 1.3% versus last year. And earnings after tax and noncontrolling interest reached EUR 21 million, at the same level as last year. The group net debt is EUR 13.3 million compared to EUR 28.7 million net cash in the end of 2022. This is the outcome of the increase in working capital needs, as always in the first half of the year, plus the expansion we did in Romania, the new Clima sector capital needs, plus a dividend of EUR 21 million distributed in June. Now I will pass you over to Alexandros, who will give us the sector overview.

Thank you, Markos. Now diving deeper into our segments, we observed that the Commercial Activities segment, consisting of the following companies, Info Quest, iSquare, iStorm, Quest Online, and several newcomers, namely Clima Quest, GED, FoQus, Team Candi, IQT Cyprus and the recently acquired Epafos, grew by 13% at the sales level. However, EBITDA slightly decreased by minus 0.5% year-over-year, mainly affected by the 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 6.4%, driven by the high number of digital transformation projects of the private and public sector and by international activities. Postal Services sector, which is ACS, grew by roughly 9% in sales and 7% EBT, assisted by the growth of e-commerce. Last but not least, Quest Energy segment sales slightly decreased by minus 4.5% due to bad weather conditions, which is mainly the reduced sunshine, while profitability slightly improved by almost 2%. Now let me pass over to Apostolos to provide the outlook.

Good afternoon from me, too. I'm Apostolos Georgantzis, Quest Group CEO. As already has been explained by Markos and Alexandros, all our segments apart from renewables grew in sales and EBITDA during the first half, while in some areas, even, we experienced a double-digit growth rate, leading to an overall double-digit growth in sales and EBITDA for the whole first half. For the first half, we achieved a possible good start [ continuation ] to the remaining of the year, aligned with our initial estimations for the whole year as both consolidated sales and operational stability grew at an aligned pace. Now going into more detail per sector, the outlook is the following. Regarding the Commercial Activities sector, for the full 2023, we estimated a growth in sales and a similar or slightly lower than last year EBT. 2023 EBT versus 2022 is affected, among other things, by the increased interest rates, the pressure of margins in the Apple products and the increased depreciation of 2022 -- versus 2022, as well as from 2022 extraordinary capital gains. Regarding the IT Services sector, this segment is continuing to be positively affected by the strong demand in IT services, while it still has an continuously growing backlog of signed projects, which exceeds EUR 500 million. Double-digit sales growth and improved profitability, with improvement in the margin versus the first half, is estimated for the whole 2023. Now going to the Postal Services sector. Our estimation for the whole year includes continuation in growth in sales and profitability, again, mainly driven by the e-commerce. Finally, for Renewable Energy Production sector, Quest Energy, our estimation for 2023 is for similar or slightly higher results versus the last year, driven by this year and last year investments. Now if we go now on the consolidated basis, our estimation for the whole year 2023 is positive for both revenues and EBITDA profitability, which are estimated to grow at a pace similar to the first half. EBT is estimated also to grow but at a slower pace. Quest Group's current cash position is solid, well above EUR 200 million in cash and available credit lines, allowing us to continue our planned growth investments as well as to endure any hardships. We therefore continue to pursue M&A in order to further -- to propel further growth for our group. Now let me pass back to Alexandros for the next session.

That was a brief overview of the first half 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 hope you can hear me. I would like to begin from the end, where you said on M&A and opportunities. And I would like to start, if you could provide us with some like insight on the latest acquisition you had, Epafos, which you added in May, what this is expected to contribute in the group? And is this different clientele and business, or the strategy around this? And maybe if you have any identified opportunities you could share with us on your investment strategy? That's one question. And I have a question, what are the main challenges you see currently? Like the current trends you see in Q3, and how do you see this unfolding into your full year outlook and looking ahead? And I also have a question. I don't know if this is provided in the financial statements because I haven't had enough time to see them, but if you have any -- how the [ Dimitriou ] Toyotomi brand actually turned out in H1. If you could give us this investment, how has it turned out this far in the year?

Okay. Natalia, thank you. This is Apostolos Georgantzis speaking. Just to understand well, the first question was regarding acquisition, am I correct? Because your voice wasn't so loud.

Okay. It was regarding M&A and maybe some insights on Epafos which you did recently added? And what do you see if you've identified something going ahead?

Yes. Epafos is an acquisition completed during the second quarter of -- the beginning of the second quarter of the year and lies within our strategy to expand our footprint within areas in the IT products and services, which are, let's say, more niche markets which have more higher profitability versus the traditional product sector. Therefore, we decided and invested in Epafos because we feel like that it's in the segment of education, which has a lot of investments, both in hardware and solution to be executed, also part of these being funded by the RRF in the coming years. And we see that there is an opportunity of this market growing from a smaller market to a bigger market along with a much better margin compared to the traditional, let's say, box moving business. That's about Epafos. Now regarding other possible acquisitions, we are -- as we already announced, we are participating in the process of Kotsovolos which is a company that's been announced by [ Currys ] that is out for sale, and there is a process for that. And we are in the phase of evaluating the potential of this company and participating in the process, diligently examining the opportunity, and which completes, let's say, our group towards the retail sector. So be moving -- from being a pure wholesaler, moving also towards the end customer, which is retail; And that's why we're examining, [indiscernible] within our strategy, having a bigger footprint in retail. But at the moment, it's not something that we can disclose more about it, since we're in the process and we don't know how exactly it would end up. Now apart from that, we are also examining other cases, which lie in the -- mainly in the IT sector, similar to the case of Epafos, within particular smaller markets because the IT sector is quite segmented in general. So you have many smaller companies operating in smaller parts of the IT sector, to the extent they would also add us similar characteristics like the ones we've managed to achieve by Intelli and Epafos as well. I don't know whether I answered more or less our strategy behind acquisitions, what is our intention for the near future.

Yes, I think it was clear. Do you have a time line on the Kotsovolos there? Or is there a time line -- sorry, that somebody can...

Yes, basically, what it's -- we can't tell you because it's a closed process. It's not public. We participate in the process. We have been selected to participate in the next phase. And we're in the process of evaluating the company data, which we expect by the next month, sometime next month, to have a more clear picture regarding valuation and all the rest. Therefore, we see that could be something that could happen, if it happens, by the end of the year. In terms of time line. Now where exactly and when, at the moment, it's not so clear for us to disclose something that is not so sure.

Okay. Yes, that's good.

Now regarding the second question...

If I'm not mistaken, Natalia, your question was about the trends in interest rates and how they affect our business, correct?

Yes. And then what you're seeing going ahead, like in the near future?

Natalia, this is Markos again. Well, this is a million-dollar question, of course. However, we believe that after a long period of rising in Euribor rates, we have seen the majority, let's say, of the increase. So we would anticipate a further increase of something like 25 bps or 50 bps, something like that. Now what will be the impact in Quest Group? If we take the worst scenario from those 2, meaning an increase of 0.5%, an additional increase in Euribor, with the bank loans, the total bank loans that we have as a group in -- by the end of August, this would hit our financial expenses with an additional amount of approximately EUR 650,000, which is not -- it's not nothing, but it's not something that would really affect our profit and loss. And thereafter, of course, we all hope that we're going to experience a decrease, let's say, a glide path on the Euribor costs.

Okay. Can I add here? Are you thinking of reducing debt levels like some companies have been doing? I don't think so, but just...

If you see our balance sheet, apart from the bank loan that we have and mainly the 35% of the loan is related to the Quest Energy business, which is long-term loans. And the rest is mostly related with the Commercial Activities. We also have, on the other hand, cash available. We try to have time deposit for a 1-month period or a little bit longer than that in order to counterbalance, let's say, the financial cost that we have from the bank loans. Now if we will use this cash to delever, let's say, somehow, we will try to do that, but in a certain extent.

[Operator Instructions] The next question is a follow-up question from the Svyriadi Natalia with Eurobank Equities.

I'm sorry, I have one more question on the Toyotomi business. How have you been -- have you seen this turning out, if you have anything, something you can share with us?

Yes, you're right. You said it before, but we missed it out. Toyotomi seems -- goes after the company GED which was acquired -- its acquisition was finished the last few months of 2022. As of the beginning of the year, it's working back as a stand-alone company operating with the proper financing and capital as well as working capital in order to grow the company, which is one of the reasons that's why you see -- the reason because you also see an increased working capital during the first half affecting our operating cash flow. It's doing really well. It's growing with double-digit growth rates this year. Being also affected by the scheme that has been funded by the government funding for replacement of electrical equipment regarding refrigerator and air conditioning. It does really well. And it's supposed -- it's estimated to surpass in revenue EUR 50 million this year. So it's growing at a high double-digit growth rate with gradually improving profitability, also supporting, let's say, our decision to invest in this sector since it's a promising sector with improved profitability compared to the traditional IT business.

Yes, it has better margins, if I recall correctly, around 5% to 6% on the EBITDA level. Is this correct?

It's even higher, but it's been affected during the first quarter. It was affected by the increased transportation costs last year. It's also been affected by the increased interest rates and working capital. This is below, of course, EBITDA. Gradually, when it's going to be streamlined, we expect that the EBITDA would be able to reach between 8% and 10%.

That's very impressive for commercial activities.

And this year, as -- in a whole year, let's say, basis, hopefully it's going to be -- we hope it's going to be next year. This year has been already affected, the first half, the first quarter, a lot by imports that have been done in the end of the previous year, during which we also had the significant cost from transportation and also effects that affected, let's say, the margins, which are gradually improving, and hopefully next year are going to be better.

[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.

Dear all, we would like to thank you for your participation and interest in our company and its prospects. We wish you to have a nice afternoon. Thank you.

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