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

Ladies and gentlemen, thank you for standing by. I am Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Quest Holdings conference call and live webcast to present and discuss the three months 2024 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] 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 like every quarter, I'm sitting here with our CEO, Mr. Apostolos Georgantzis; and our Deputy CEO and CFO, Mr. Markos Bitsakos. Today, we are here to present you the first quarter of 2024 financial results and answer all your questions. Now we'll give the microphone to Mr. Markos Bitsakos for his opening remarks.

Good afternoon. I am Markos Bitsakos, Quest Group Deputy CEO and CFO. To start with, based on the seasonality that we have, today, we are presenting the weaker quarter of the year. Moreover, during the first quarter of 2024, on the EBITDA and EBT level, we had to deal with a lower gross margin of our products associated with a new Apple and iSquare wholesaling distribution agreement and the absence of last year government support for the replacement of [Primo] devices. These two elements were the more substantial headwinds for Quest Group consolidated results in the first quarter of the year, especially in EBITDA and earnings before tax. As we have repeatedly said in our previous communications, this decline of first quarter EBITDA and earnings before tax will be smooth and over partially during the second quarter, and eventually, we foresee the year-over-year increase to substantiate over the third and the fourth quarter of the year. Moving into the numbers in the three-month period of 2024. The total consolidated revenues reached EUR 303 million, increased by 6% versus last year. This growth derived largely from IQT Romania, which started operation mid-March of last year. Consolidated EBITDA amounting EUR 18.6 million is lower by 4.2% versus last year. Consolidated earnings before tax amounting EUR 11.7 million, dropped by 14.4% year-over-year for the reasons explained earlier. Earnings after tax and noncontrolling interest reached EUR 8.5 million, lower than the related quarter of 2023 by 15%. Quest Group ended up this quarter with a net debt of circa EUR 30 million compared to EUR 17 million net debt by the end of 2023, which is the usual trend we experienced during the first half of the year, every single year, having no surprises. Now let me pass you over to Alexandros to give us the sector overview.

Thank you, Marko. Now diving deep and several newcomers, namely Clima Quest, GED, FoQus, Team Candi and IQT Cyprus, grew by 5.4% at the sales level, while EBT decreased by 46.6% year-over-year. Lower profitability is mainly driven by squeezed gross margins in the Apple Ecosystem, lower contribution of Clima sales after the termination of last year's subsidies program grew by roughly 3.4% in sales and by roughly 1% in EBT. Growth is mainly driven by the rate of expansion of e-commerce, which was lower during the first three months. Last but not least, Quest Energy segment sales also grew by 3.6%, while EBT shrunk by 9.2% due to higher depreciation and financial costs. 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 foreseen in our previous conference call, through though revenue grew in all our segments during the first quarter, profitability was weaker year-over-year. We estimate, however, that this trend will reverse and profitability will improve during the rest of the year. April already shown upon already some positive first signs to yards these trends. In more detail per sector, the outlook for the whole year is the following: Regarding the commercial activity sector, for the full year 2024, we estimate single-digit growth in sales and EBT to be at the same levels as last year or slightly lower, mainly due to the trends that also affected the first quarter. This includes the interest rate, the cost of interest, the lower Apple margins as well as the lower Clima sales, as explained already by Alexandros. Regarding the second sector, which is the IT services sector, this sector is continuing to be positively affected by the strong demand in the IT services while it has a high backlog of signed projects, which exceed EUR 500 million and sales growth and improved profitability is estimated for the whole 2024. Now going on to the postal sector and ACS. Our estimations for the whole year include growth in sales and profitability at a similar or higher pace than the e-commerce growth. Finally, for the fourth sector, which is the renewable energy production sector and Quest Energy, our estimation for the whole year is for a mild growth driven by the new investments. On a consolidated basis, we are reaffirming our earlier estimation for the whole year 2024, anticipating a mid-single-digit increase in both revenue and profitability. Quest Group current cash position is solid with above $300 million in cash and available credit lines, allowing us to continue applying plan growth investments and to endure any hardships. Having this financial ability, we're also in pursue of suitable M&As for our group in order to further propel our growth. Now let me pass back to Alexandros.

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

Ladies and gentlemen, at this time, we will begin the question-and-answer session. All questions will be received via audio conference. [Operator Instructions] The first question comes from the line of Svyriadi Natalia with Eurobank Equities.

I was wondering what was the reason behind the IT services drop in the EBITDA margins at the EBITDA level? I can see in the EBT level, the number was higher, but the EBITDA it was a bit lower with 100 bps, almost 100 bps lower margin. So I was wondering if this is something we should see reversing going ahead in the IT services. And I also have a question on the Commercial Products segment. If you could provide some more color on the running rates of the Apple, Xiaomi products. How is this going? You said April was better, but how should we think about this in terms of the full year?

As far as the first question about the EBITDA margin of IT services, the reason behind the small decline, let's say, on the presenters is that Uni Systems, which is the main driver of this sector, this segment had a lower margin because of increased sales in hardware. There were a lot of IT projects that had associated big volumes of at least higher volumes than last year on hardware. So, the hardware -- the hardware margin is very thin. That's the reason why you see this drop.

So probably, this will change as we move ahead and projects are being implemented?

Exactly, exactly.

About Xiaomi and Apple sales, the news are good. Xiaomi is -- Xiaomi sales are high -- significantly higher than last year since the beginning of the quarter, since the beginning of this year. Regarding Apple sales -- they are still up, not the rate that they were the previous years, but we see that as the year moves on, sales are improving. So, we are very optimistic about Apple as well, which is, again, I repeat, higher than it was last -- higher than last year.

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

I have a couple of questions. The first one regards the increased working capital requirements that we noticed during the Q1 of '24 results. When do you expect this to reverse? I mean, the working capital to diminish and come down again to the normal operating levels? Should that be expected towards Q4 of the year as it is the normal business? That's the first question. The second one relates to any potential developments on the front of ACS sale. The third question has to do with your capital expenditure program than expected for the full year of 24%. And to get it again clear on the consolidated outlook, you mentioned for a mild mid-single-digit growth across all lines of sales, EBITDA and EBT. So, you see a reversal of this minus 15% that we show on the net income line of the first quarter, you still stick with your -- expectation of this trend reversing in the forthcoming quarters, that's Q2, Q3 and Q4. So, sending it to a mid-single-digit growth towards the end of the year. Is that correct?

First question about the working capital increase. The reason behind this was mainly the Romania expansion for Info Quest, saving the Xiaomi products, which absorbed quite big, let's say, amount of working capital. And as far as the trend throughout the year, I would say that you're going to see exactly the same pattern, exactly the same trend, let's say, like last year. So, it's going to be smoothed out mainly in the last quarter of the year. It will start diminishing in Q3 and we will have exactly the same impact in Q4 like the previous years. Now as far as the capital expenditure for the whole year, we have planned in our budget, a CapEx of a little bit more than EUR 40 million. 30% of this CapEx is associated to ACS, another 30% to Quest Holding for potential new acquisitions and 20% for Uni Systems. The remaining is spread among all other subsidiaries. Let me remind you that in the first quarter of the year, the CapEx was only EUR 3.9 million versus EUR 3 million in last year in the same quarter of last year.

To go to the next two questions. The first one was regarding whether we have any development or any news on the ACS sale. The situation is that we don't have any development or any news to that respect. As we mentioned already in our previous call and the situation that we have had interest in the past and today from several potential investors, and we are under, let's say, examining valuation any serious investment proposal, considering the interest of our shareholders and the employees of our group. If in the future, we're going to have something that is going to be binding. This is going to be announced appropriately according to the law. Now regarding the -- next question was regarding the outlook. You understood well. Our previews -- during our previous call, we gave a guidance about the first half that was going to be weak. And you've seen the results for the first quarter in which the quarter was weak. We expect a gradual improvement during the second quarter and the second half of the year, better than last year. And therefore, overall, the year to move in sales, EBITDA and EBT in mid-single-digit growth versus the last year. Already in April, April was a very good month for us. And we've seen positive trends to yards what we -- what is our estimation for the whole year. I don't know whether this covers the questions you made or you want any more -- anything more to be clarified?

No. Just to get a better picture on the Consumer Products segment, you don't see any impact on -- on consumption, on consumer consumption in your areas of interest. I mean in the electronics, in the Apple Ecosystem, Apple handsets, Apple smartphones, Apple tablets, Xiaomi, whatever. There is no impact in consumption.

We definitely see that the consumption is the first quarter in consumer electronics is not that good. The insights we have from the companies that measure the consumption in consumer electronics, it is lower than last year for several reasons. One of the reasons is the subsidy programs for wide consumer goods that we had last year, but not this year. However, overall, we see that we managed to grow even at that single-digit pace are -- consumer goods sales. And we believe that in some cases, we also gain market shares. So the helicopter view is that we increase sales in rather declining market.

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

Wondering a few questions regarding ACS. Obviously, I suppose Q1 is traditionally low quarter. The new hub is -- is the new hub already working, right? And because obviously, you've added a lot of capacity, but the growth is for now at least low single digit. How should we expect the ramp-up of the new hub and the impact, obviously, on the margins? Because for now, you have -- I guess you have the cost of the new hub, but you don't have it fully utilized in terms of capacity. So where should we see the trend going into the end of the year and potentially more next year?

The new hub has been already about a year a bit more in operation. We have increased depreciation costs, as you know, from the investment, which was close to EUR 50 million. We already experienced some benefits during the last two years, and these benefits mostly come to the payroll, which doesn't increase as fast as revenue. However, so far, the market hasn't grown heavily. Therefore, e-commerce, which is the market which is affecting a lot of this company has been very close to zero over the last two years. And even during the first quarter wasn't so strong. It was maybe from zero to -- between 0% and 5%, the movement of this market, maybe most possibly close to zero. Therefore, we see that still the market is not growing so far. And the economies of scale efficiencies that will be brought by these investments will show more and more as we grow the volumes and the revenues. At the current level, it won't make any significant difference unless we grow revenue. We expect, however, that the revenue from e-commerce is gradually going to pick up as, let's say, inflation also is getting stabilized and consumption hopefully improves. So, we expect additional efficiencies to come as the business grows further. And the more growth, the bigger the benefits, the bigger the efficiencies of the automation achieved.

And if I can add something. So you mentioned obviously 0% to 5% growth in Q1. I suppose the same for last year. Does that mean you're taking market share in the core year business as well with regards to obviously better service due to the new sorting hub? And also, could you please provide a comment on what do you think is the actual utilization rate of the new hub right now?

You're very right. We -- our estimation is that we gain from our intelligence in the market is that we gain some market share because the market is not really moving. Therefore, even a slight increase like the one we had during the first quarter, give us some market share -- increasing market share. And the utilization is still low on the order of one-third, let's say, of the actual capacity of the hub. And this is an investment we've done for many years ahead. So it's not just for the next couple of years. It will bring us, let's say, efficiencies for capacity -- increased capacity and capacity availability, actually, for the next ten years, we believe at least. And we're also proceeding in investments and the service, I mean, we offer to the market, hopefully, it's better to other respects as well, not just because of the central hub. [indiscernible] The benefits as the market grows faster in the future is going to be the capacity and efficiency achieved due to this investment.

And if I can add another question with regards to the -- obviously, the M&A policy. First, maybe on the Renewables segment. I know that you were a bit more active, let's say, in 2021, 2022. I know there is a lot of problematics interconnecting the photovoltaic panels to the grid in Greece. So, what is your plan currently regarding the development of the renewable segment? And more general, what are the current expectations in terms of M&A for 2024?

As far as the energy sector for answering your question. You said correctly that we are a little bit skeptical starting from last November or December, we are in a rather still position, let's say, we don't do any new acquisitions because there is this problematic situation with the connection of the photovoltaic parks. And we are still waiting after 16 months for seven small photovoltaic parks of 3.5 megawatts in total to be connected to the grid. So, this makes us a little bit cautious about how we're going to proceed. Although we have a placeholder for potential new acquisition in the energy sector. As we speak, we don't see any opportunity, let's say, that will convince us to proceed with new acquisitions. But it remains to be seen how the whole market will evolve over the next months. I don't know if I'm -- if I answer your question. We are not very keen in new acquisitions.

In the renewables or in general?

I'm talking about only Quest Energy.

Just to adapt what Markos just said, is that we are a bit cautious in energy. But in the other sectors, we're quite active in pursuing M&A cases. Therefore, we could see an M&A from another sector, most probably rather than from Quest Energy during the next months over a year.

[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.

Dear all, we would like to thank you for your participation and [indiscernible] to our company and its prospects, and I hope to see you again in our next update for the six months in September. 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 evening.