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

Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Quest Holdings conference call and live webcast to present and discuss the Full Year 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. All audio conference participants will be in listen-only mode 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 Deputy CEO and Group CFO, Mr. Markos Bitsakos. We are here to present you the financial results of the full year period of 2023 and answer your questions. Now we'll give the microphone to Mr. Markos Bitsakos for his opening remarks.

Good afternoon. I am Markos Bitsakos, Quest Group CFO. For those of you who followed our IR calls through the first 3 quarters of 2023, I'm happy to say that the last quarter was significantly stronger compared to the first 9 months boosting all P&L lines. This resulted to a further increase in revenue and EBITDA compared to our 9-month results and the turnaround in our EBITDA evolution which from low single-digit decrease [ 10% ] to 7.2% increase. 2023 was another record year with new picks for Quest Group. To be precise, this was the second consecutive year that the revenue surpassed the barrier of EUR 1 billion. We achieved new all-time high in EBITDA and EBT the backlog in IT project goes above EUR 550 million. Our human capital reached roughly 3,000 employees. We expanded our commercial activities in Romania offering the Xiaomi portfolio of products in the local market. And last but not least, we extensively enhanced our infrastructure, corporate governance policy and procedures and ESG goals and ratings. The group's consolidated sales amounts to EUR 1.2 billion, compared to EUR 1.03 billion, increased by 16%. This significant growth in sales as usual focus predominantly from the gross commercial activity companies. Out of this EUR 1.2 billion of sales, the split between product sales and services was 71% and 29%, respectively. Furthermore, 27% of total sales were generated from international activities. Consolidated earnings before interest, tax depreciation and amortization EBITDA stood at EUR 83.3 million, increased by 15.7%. Consolidated profit before tax amounting to EUR 58.9 million compared to EUR 54.9 million in 2022, was enhanced by 7.3%. It is worth noting that EBT was strongly impacted by the substantial increase in Euribor interest rates, which resulted in an additional financial expense of EUR 5.4 million and the increased depreciation of EUR 1.5 million due to our new investments of last year. In addition, in last year's results, there were capital gains amounting EUR 1.3 million, plus EUR 1.2 million one-off extraordinary profit. On an adjusted base, this year's EBT is higher versus last year by 12.5%. Consolidated profit after tax and noncontrolling interest, the minority interest amounted to EUR 44.8 million compared to EUR 41.4 million in 2022, increased by 8%. The group's net debt amounted to EUR 17 million compared to a net cash of EUR 28.7 million in the previous year. There are several reasons for this alteration from net cash to net debt, and I will mention some of them, which are the most characteristic. First of all, in 2023, due to the significant sales growth, our commercial companies increased their need in working capital by EUR 60 million. The EUR 60 million derived from an increase in inventory by EUR 10 million and an increase in trade receivables by EUR 50 million. The recent interest rates absorbed EUR 13 million of cash. And finally, investments in fixed assets and new acquisitions required additional cash of approximately EUR 27 million. Now I will pass you over to Alexandros, who will give us, as always, the sector overview.

Thank you, Markos. 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, Clima Quest, GED, FoQus, Team Candi and [ ITC ] Cyprus and several newcomers, namely EPAFOS and Xiaomi Romania continued to grow by roughly 17% in the sales level, while EBT increased by roughly 3% year-over-year, mainly affected by increased interest rates and depreciation, as Markos noted. It is worth noting also that the segments EBITDA increased by 28%, mainly due to the contribution of GED and Xiaomi Romania. IT Services sector sales, consisting of Uni Systems and Intelli improved by roughly 22%, while its EBT grew by about 25.6%. Demand for IT services continues to be strong due to the high number of digital transformation projects of the private and public sector, roughly 50% of sales are related to international activities. Postal Services, which is ACS grew by roughly 6% in sales and 4% in EBT, assisted by the growth of e-commerce. Q3 results were, however, adversely affected by one-off costs related to the floods in Central Greece in September. Last but not least, Quest Energy segment sales also were lower by roughly minus 2% and by 1.7% in EBT level. Reason for these reductions were northern unfavorable weather conditions for electric production, namely lower sunshine in 2023. Now let me pass over to Apostolos to provide the first estimation of the 2024 outlook.

Thank you, Alexandros. Good afternoon from me, too. I'm Apostolos Georgantis, Quest Group CEO. As has already been explained by Markos and Alexandros, most of our segments grew during 2023 while some of them presented double-digit growth. Overall, over the course of 2023, we had a strong beginning during the first quarter. During the second quarter, the growth continued, but at a lower pace. The third quarter was weak as the consumption was affected by weather incidents with the fires and the floods. However, the closing of the year, during the fourth quarter was very strong and all our figures evolved with a strong double-digit growth. This positive lending of 2023 makes us also more positive for the year ahead, 2024. Now going into more details per sector regarding the outlook for 2024. Regarding the Commercial Activity sector, for the full year, we estimated a growth in sales and EBITDA. The expansion of Xiaomi business in Romania and the improvement of EPAFOS figures are estimated to counterbalance part of lower margins in the wholesale ITC business. EBT is expected to be at the same levels of last year or slightly lower, mainly to the significant increase of the financial expenses caused by the rise of Euribor. Regarding the IT Services sector, this segment is continuing to be positively affected by the strong demand in IT services, while it has also a high backlog of signed projects. Altogether, exceeding EUR 550 million. And in these segments, we expect -- we estimate that we're going to have a growth and improve profitability for the whole year 2024 versus the previous year. Now going to the third sector, which is the Postal Services sector, our estimations for the whole 2024 foresee higher growth in sales and profitability versus 2023, mainly driven by e-commerce growth and increase in market share. Finally, for the Renewable Energy Production sector, we estimate growth in sales and profitability, driven by new investments based on the assumptions of normal weather conditions. On aggregate for the whole 2024. We, therefore, estimate mild growth in sales, EBITDA and EBT with a weaker first half and a stronger second half. And also we noted that the group has a solid commercial and financial position to successfully address any challenges that might arise having more than EUR 300 million in cards and available credit lines. Now let me pass back to Alexandros.

Okay. That was a brief overview for the full year 2023 as well as the first estimation of the outlook for 2024. We are now happy to take your questions.

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

Very good results that wasn't expected. I was wondering, if you could give us some indications on a per segment basis, how are you seeing Apple and Xiaomi trends, if you have any indications on these up until now. And maybe on the IT services, if you have not a breakdown, but roughly saying what is -- what about [ VRRS ] projects and how much are you expecting from these in our 2024 numbers? I also have a question on courier services, if you have a rough breakdown on the volumes and pricing growth and are you investing in inboxes going ahead. Trying to understand that per segment perception of what you're thinking...

Thank you, Natalia. This is Alexandros. Now regarding the Xiaomi and Apple question. What we see from the beginning of the year is that the growth of smartphones is not as steep as it was last year. This is a European, if not global trend. And I think that it's coming increase, at least during the first month, we see a growth, but it's not a step, for example, for Apple, as it was during last year in Greece. Now regarding the second question about IT services. I don't have the numbers in front of me, but there should be about EUR 100 million to EUR 150 million of the backlog that we present right now that we have right now, which is more than [ EUR 550 million ] for Unisystems. We don't have an exact view of what will come other than the backlog, which for us is contracted projects. For sure, there is a pipeline. For sure, there are more money to be in that by [ this ] because the total amount was more than EUR 2 billion. But right now, I cannot give you any further color because we are not sure. We hope that there will be -- I mean, the backlog, the RRF backlog, we will expand -- now about the boxes, the third question about the boxes regarding courier services and lockers, correct?

Yes, correct. And if you're thinking in investing there?

Okay, Mr. Georgantzis will answer this.

Yes. Hi, from me as well, I'm Apostolos . Yes, we are investing in lockers. We've invested already about EUR 5 million so far. And we're rolling out about 450 lockers at the moment and we're going to invest more, and our target is to soon arrive to about 1,000 lockers hopefully by the end of the year and next year, gradually to in the next 3 years to double this amount. Therefore, if you recall, we said about the Postal sector that we've done in the past few years, EUR 50 million investments in the central hub infrastructure mainly. And in the next 5 years, our plan is to invest another EUR 50 million in the last mile, big part of the last mile [ regards to ] -- for them, evolvement of the postal or the lockers, which facilitate deliveries and makes it more convenient also for the end users to pick their parcels, when they're not at home. So this is more or less the plan. Basically, we're going to speed up the process of installing boxes during the next few years to gradually arrive to a point that we're going to have about 2,000 or 3,000 lockers within the next 5 or 6 years -- the speed depends on the adoption from the consumers as well.

Yes. I think consumers are more normally are using them more than they used to, as I can see...

Correct. Correct. Correct.

I also have one more I just to -- about the interest rate -- I mean, interest costs actually. Do you have -- have you got any hedging, [ OEM ] place or something that could mitigate the big rise we saw or we should expect this to just go down as likely Euribor plus whatever happens there?

Natalia, this is Markos speaking. -- we have interest rate hedging, but only in a part of the bond loans that we use for the energy sector, which is almost 50% of the loans for energy, not for all the rest of loans to the group.

The next question is from the line of [indiscernible].

Gentlemen I have few questions from my side. Starting from the commercial activity. Could you please help us a bit to understand what explained the very good performance on Q4? Maybe some color on the ramp-up of the financing of AC. And then maybe how is the dynamic related to the last 3 months, I mean, the big Q1 '24. Going a bit more into IT services? I'm just trying to grasp what explain the exceptional performance of IT servicing in Q4? If you can give us a bit more color related to Courier same -- what has been the -- what has been the impact on the Q4 related to Black Friday and Christmas. We were -- I mean, we were a bit surprised that the performance was still quite good. And then maybe give us a bit more color on the potential acquisition from GLS and how you will relocate the cash if the deal goes through. And -- and maybe if we can -- if I can ask a last question related to the CapEx for 2024. Could you please update us on the CapEx you will do on 2024 and how you will allocate division by division.

This is Apostolos. We will have to put to help me remind -- remind me the questions, but the ones I remember, and I've note this down, I'll try to...

If you prefer we can go one by one.

I would prefer one by one. And the first one, which I recall is to start with is why we had this exception over the last quarter. This has to do also with the seasonality of the technology, which is much stronger during the first -- the last quarter of the year as well as the trends of, let's say, consuming due to, as you mentioned, the Black Friday, the pre season of -- pre-Christmas season, et cetera, which help us grow faster than expected. Possibly part also of the consumption, which was, let's say, frozen during the third quarter in Greece, due to the incidents of big floods and fires, came back stronger during the fourth quarter. And altogether, all the sectors did very well, leading us to a very strong double-digit growth, which was the best quarter. Therefore, more or less, I would say there's no single thing that did the difference. It was altogether. Including also the IT sector, which performed really good over last year 2023 and surpassed the new acquisition we had a year ago, again surpassed in the revenue, EUR 50 million added up to the commercial part and with the bottom line of -- if I will recall, more than EUR 2 million and also help the margin because it has much better margins compared to the traditional IT business. Now regarding the IT services. The IT services...

Maybe just in order to come back on the commercial activity. Have you seen any ramp-up on incentive plan linked to the AC any finance [indiscernible] plan that could have helped, sorry, the dynamic on Q4. And if you have the turnover generated by Clima Quest and G.E.Dimitriou might be also interesting.

Yes. Basically, the Clima sector is relatively new in our group. We only entered operating Clima Quest about 2 years ago. At the beginning of 2023, we started operation of [ again ] Dimitriou after the restructuring of the company. They altogether surpassed EUR 60 million in revenue, if I would recall, altogether, it could be about EUR 65 million or maybe a bit higher. So they both did very well. And especially Dimitriou also was helped because of subsidy program from the Greek government during the last year, which facilitated consumers to buy with a small part of, let's say, of the cost being granted by the government with a coupon and this boosted up revenues of last year. However, this business is a lot affected from weather conditions as well. Therefore, it works much better when we have severe conditions of heat or cold. Therefore, in the summer, does in the fourth month of summer between mid of May and mid of September, that's about 60% of its revenue as many of the consumers decide then to buy new equipment. In the winter, we have the heat equipment. This winter hasn't been proven to be, let's say, a cold winter. In Greece, at least we have the Christmas with about 20 degrees in the morning. Therefore, let's say, the consumption of heating equipment wasn't so strong. And as of the beginning of the year, we don't have, at the moment, any more continuation of the subsidy of the government. Therefore, we expect a weaker first half or first 4 months of the year for the Clima sector for a retail part at least. What has -- with regards mostly to Toytomi and GED. With regard to Clima Quest, which is mostly regards to Gree equipment, this is more directed to yards bigger installations in big buildings, big officers, hotels, and this continues to grow quite fast as it is -- we have many developments and new building developments throughout Greece. I don't know whether I give you a color on what you answered. I think I did.

Yes, and that's very clear for the commercial activity.

To the AC. Therefore, the commercial activity was boosted by the Clima sector versus the previous year, which was there, but it was with much lower volumes. We expect this to do much better in times, where we had extreme weather, such as strong heat or very low temperatures. At the moment is we don't have these during this period. So it works weather -- better in the summer and a bit better in the winter. We expect -- we believe that the climate change is going to increase these differences and extreme conditions. Therefore, we're very optimistic for this sector over the coming years, as we mentioned in the past. Now during certain periods could be -- could have -- might not be so strong. But overall, during the course of the next few years, we were very positive on this sector and also has better margins, double margins, let's say, in terms of gross margin and operational margins in comparison to the traditional IT equipment. Now this is the second question. The third, if I will recall, is the IT Services. With the IT Services, we see a continuation of demand, which started a few years ago. We have to mention here that half of the revenue comes from abroad about Uni System, which is the main subsidiary in this sector is performing about EUR 200 million in revenue. About half of it comes from the market of European Union organization. And in that market, we still have a very small market share, which is single digit. And this market has been proven to grow over the last few years and is expected to grow in the future as well as more and more organizations try to digitize their operations and their infrastructure, helping us also boost our revenue. The same also happens in Greece in both the private and the public sector. The public sector is being boosted by the RRF investments, which yet are -- haven't really started kicking in within our revenue. Very small part of our revenue, less than 10% of that order regard to RRF projects for 2023. We hopefully, over the coming months and the next 2 years, we believe that this is going to become much bigger. As well the private sector, we see that there is a much higher demand for digitization and IT automation from our customers. So we're positive that this business is going to continue with double-digit growth over the next 2 years. Now regarding -- you said what is the course of the first...

Maybe for the IT services, could you please quantify a bit what you expect by double digit for 2024, maybe the higher than -- of course, higher than 10%, but I mean, high double digit? Or what do you expect?

Look, we were quite conservative when we try to do estimates. We don't try to, let's say, to say something that might not come before. Our estimation that's going to be double digit means that it's going to be above 10%. But then we said the same last year, and it nearly arrived to 20% growth. Therefore, it also depends on these RRF projects, which could boost up severely the revenue as well as in the capacity of the company because we have also the challenge of the people -- there is a very big lack of personnel in this segment to try to accommodate, let's say, the growth of this -- the demand. So now regarding the first quarter of the year, you said, as we mentioned in our initiative -- initial presentation. We said that we expect a weaker first half and this has to do mostly with a weaker margin of the IT sector as well as the weaker AC sales for this period. But we believe that our estimate is that the second half is going to be stronger. Now I have noticed 2 other -- written out to other questions. The one in regards to the acquisition of the discussions and the publication from -- for acquisition of ACS. As you know, we recently responded to a letter of -- maybe you noticed, I don't know whether you've seen it -- to a letter from the Hellenic Capital Market Commission, referring to relevant [ portion ] publication saying that Quest Holdings received interest from -- and proposals regarding ACS from international investors. As always, what we do in Quest is we carefully examine and evaluate any serious proposals for investments in our subsidiaries, and we consider the interest for our shareholder as well as the employees of the group. Up to now, what we can say is that we have been received interest, not just now, but over the several previous years for ACS. But so far, we haven't entered into any binding agreement for the participation of a new investment to the share capital of ACS. In case that we have any kind of such agreement, we will proceed in accordance with any -- with the relative announcements regarding that. And regarding the last question that I've written down is about CapEx, and I will pass to Markos to explain what is our plan for the CapEx of 2024. And if we forgot something, please let us know. Markos?

Starting from the CapEx of 2023. You already saw that we have invested an amount close to EUR 27 million. Out of this, 27% of the CapEx is related to the ACS infrastructure, 29% to Quest Energy, new parts and the remaining was mainly invested in the EPAFOS acquisition. Now for 2024, our budgeted CapEx is above EUR 40 million. Out of this, 70% of the amount will be allocated in the subsidiary companies and 30% in the mother company, which is Quest Holdings. The 30% of Quest Holdings, which is approximately EUR 15 million is a placeholder in order to facilitate the company, let's say, to explore new possible acquisitions. For the subsidiary companies, the remaining CapEx, which is in the area of EUR 30 million, EUR 30 million, EUR 33 million. Info Quest Technologies and the Apple company, which is iSquare and iStorm they have only running CapEx of EUR 2.5 million altogether, all the companies together. And ACS, for ACS, we have a placeholder of EUR 15 million for the continuation of the last mile strengthening. Uni Systems, we have EUR 10 million, EUR 10 million, which is both running CapEx and growth CapEx meaning that will play some of this amount for acquiring stakes in other companies like Intelli, for example. And lastly, for Quest Energy, we have EUR 6 million. But of course, let me put here a big question mark. Because as you already know, we have 7 small photovoltaic parks greenfield projects that are still waiting after 16 months for the connection to the grid and this shows a lack of capacity to the grid that makes us very skeptical, let's say, if we will continue searching the opportunities on greenfield projects. So there is a question mark on the energy sector, whether we will continue, let's say, to build new photovaltic parks or we will focus on potential acquisition on -- only on up and running photovoltaic parks.

Just maybe if I may, to come back on the question that hasn't been answered related to the Courier division. Has the Q4 been impacted by the [ meteorological ] event that impact Greece in September. I mean, its impact during Q3, but did it impact also Q4 and maybe a bit more color on the margin contraction for the Courier division on Q4, what's the reason, maybe some more frequently risen during Black Friday and Christmas. How do you explain that? Then maybe a last one. Could you please quantify the, I mean, the growth you expect in 2024. Your guidance say is higher than what you have done in 2023, where you have done 5.7%. So we can expect between high-single-digit and double digit from what I understood? Or maybe it's a misunderstanding, if you can comment on that might be good.

Okay. This is Alexandros. Okay, let's start about the event. I guess you are assuming about floods that we had in Greece. Well, this event, as I think we have already stated suddenly influenced the Q3 and that was mainly August and September. However, Q4, I wouldn't say that it was influenced on the contrary. What we saw in Q4 was that after a deep, let's say, that we had in demand in Q3. During Q4, things changed, went up. So during Black Friday, Christmas and so on and so forth, we saw a higher demand that was depicted on the results of our companies. So yes, the flood impacted Q3, though, not Q4. Now the second question had to do with margin. Can you repeat it, please? Which sector -- commercial sector? Are you referring to the commercial sector?

No, on the Courier. I'm trying to grasp what explained the margins contraction? And then the guidance you gave, I know if you ride on this one, but, yes. What I'm trying to understand is considering you have made a 5.7% growth in 2023. And do you expect more in 2024, should we I mean, should we forecast high single-digit growth in 2024 or even double digits? What should we expect?

You are referring however, to the Courier sector, correct? Is that correct? Again.

Yes, for the guidance, yes.

Yes, this is Apostolos. I happen to be also the CEO of ACS, which is the subsidiary operating in the Courier sector. What happened during 2023, we -- I think we mentioned in our previous call, we had some extraordinary circumstances due to the floods, which led us to extraordinary costs during the third mainly quarter leading to additional costs expressed the margins or especially over the first quarter and over the year, of course. We had extraordinary cost of more than EUR 1 million overall. Therefore, if we didn't have this, we would have been better by this amount. Apart from that, we've seen the growth just after that. Actually after mid-October, we've seen a comeback of demand gradually and especially just before the Black Friday, which led up to a much better -- to a stronger fourth quarter. Of course, we have to note here about the Courier business that we come after 2 years of extraordinary growth, 2021, which were the COVID period with lockdowns and difficulties with very big volumes and peaks, we had the next 2 years, '22, '23, which was opened, with no lockdowns. People and demand for e-commerce wasn't so strong. We grew in both years, and we believe that we grew better than the market. And we've seen that the market is doing better than what is the general trend globally, where we've seen in several countries of Europe, for example, especially in the north, even the markets of the e-commerce, which is a big part of this business, contracting. Then we haven't seen that here, and we've seen also the company to grow, meaning that we gain market share. We expect also for the next few years, that the market will continue on a more, let's say, stable growth and e-commerce will continue to grow like it was growing in 2018, 2019 where we didn't have the COVID period and the post-COVID period. Therefore, we estimate growth to grow to be close to double digit maybe surpass it, but this has to be proven because still, we have the inflation, which affects the consumption from the consumers. And should we see a decline in, let's say, in this -- in the higher prices for goods that are necessary to buy such as supermarket. We believe also that the consumption in more luxury goods like the ones you buy from Internet will grow at a much steeper pace.

Okay. So if I sum up, the margin contraction has been -- is explained by the flood, then the extra cost linked to these exceptional events. And then you expect a growth around double digit for the upcoming years on Courier business?

We believe that we're going to grow over the next few years on an average of at least 10%. Now if it's going to be higher or lower, it will depend also on the market and the consumption and all others. The cost, just to mention about the extraordinary cost, imagine that Greece was -- the main road from the north of the side was closed for about 1.5 more or less 1 month or 1.5 months. And we had to go around the whole country from the -- moving from the west, to the south and then again to the east to connect the north of Greece to the south of Greece, doubling the, let's say, the kilometers that have to be done in order to transport goods between South and North. And this is explained the additional cost, let's say, in a quick way.

So in Q4, that was also the case even if it happened in August and September, in Q4, you had also longer trip in order to go from the southern part to the northern part of Greece and is now finished? Or do you still have an impact on 2024 due to this arrangement?

We don't have it. It finished in the beginning of Q4, and we don't have any.

[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.

Yes. Thank you. We all 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.