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

Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Quest Holdings conference call and live webcast to present and discuss the 9 months 2024 financial results. 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 as usual, I'm sitting here with our CEO, Mr. Apostolos Georgantzis; and our CFO, Mr. Markos Bitsakos. Today, we are here to present you the 9-month period of 2024 financial results and answer your questions. Now we'll give the microphone to Mr. Markos Bitsakos for his opening remarks.

Ladies and gentlemen, good afternoon. I'm Markos Bitsakos. And I have no doubt in my mind that today's IR call is quite exciting for all of you because apart from the financial performance information we usually share with you, we will also have the opportunity to answer your questions and provide the rationale behind the 2 recent strategic steps, which will certainly have an impact to our future growth. Obviously, I'm referring to the Benrubi acquisition and the entrance of the strategic investor GLS to ACS share capital. Although I'm pretty sure you would prefer to start with these 2 major events, I will keep the usual order, presenting the third quarter financial performance. And at a later stage, we will be happy to provide you with the rationale and the insights of both actions. The big picture of this 9-month period is that Quest Group had to deal both with headwinds and tailwinds. To start with the most significant headwinds during the current year, affecting mainly the EBITDA and EBT level were the decrease in Apple Products gross margin associated with the new Apple and iSquare wholesale distribution agreement, the absence of last year's government support for the replacement of clima devices, which caused substantial market decline in the entire clima sector. The instability in sea transportation cost, coupled with the substantial delays in delivering time, both being the outcome of the conflicts in the greater area of Suez Canal and finally, the rise in depreciation consequence of the new investments, mainly in ACS and IQT and the increase of Euribor combined with higher working capital needs. In contrast, we had several positive effects, so-called tailwinds, which were, first, the 2 additional companies that joined our group mid last year that contributed to the financial performance of Quest Group for the entire 9-month period. I'm referring to IQT Romania and Epafos. Second in a difficult environment where consumption was held back, most of the group companies increased their market shares and especially in certain categories, they have an exceptionally strong position. Third, in this 9-month period, iStorm set in operation one more point of sale located in Marousi, Athens. And as we speak, we added 2 more stores, one in Kifisia and the other in [indiscernible], covering the North and Northeast part of the greater area of Athens. Lastly, the governmental IT projects related to the EU recovery fund lifted the revenues of Uni Systems public business unit. So moving on to the third quarter and focusing on earnings before tax, July and August was relatively weak months compared to last year, whereas September boosted the consolidated performance, signaling the entrance into the last quarter, which is usually the strongest quarter of the year. This third quarter performance being relatively strong, reassured the recovery from the first quarter EBT decline, which I remind you was close to minus 14%. Believing that the last quarter of the year will be, as usual, the strongest quarter of the year, we keep our guidance for the entire fiscal year will be better than last year. Now moving into the numbers. Our total consolidated revenues reached circa EUR 926 million, increased by 12% versus last year. This increase derives largely from the commercial sector, including IQT Romania, which started operations mid-March of last year. Consolidated EBITDA amounting close to around EUR 65 million is higher by 9% versus last year. Our consolidated earnings before tax amounting EUR 43.4 million is better year-over-year by 4.8%, recovering though from the steep dive in the first quarter. Earnings after tax and noncontrolling interest reached almost EUR 33 million, increased from the related quarter of 2023 by 2.4%. Quest Group ended up this quarter with a net debt of EUR 45 million compared to EUR 17 million net debt by the end of last year. The height of net debt is on a normal level, facilitating the increased level of business activity in our commercial sector businesses. Now I will pass you over to Alexandros, once again, who will give us the sector overview.

Thank you, Markos. Now diving deeper into our segments, we observed that the commercial activity segment consisting of 10 companies continued to grow by roughly 11% at the sales level, while EBT decreased marginally by almost 2% year-over-year, mainly affected by increased interest rates and depreciation. IT services sector sales, which is mainly Uni Systems, also improved by roughly 20%, while its EBT grew by 9.7%. Postal Services, which is ACS, grew by roughly 6% in sales and in EBT, assisted by the growth of e-commerce. And last but not least, Quest Energy segment sales also grew by roughly 11% in sales with improved profitability by 13.5%. Now let me pass over to Apostolos to provide the outlook.

Thank you, Alexandros. Good afternoon from me, too. I'm Apostolos Georgantzis, Quest Group CEO. We started the year with the first quarter being weak with a single-digit growth in sales and a drop in profitability. Then we continued the second and the third quarter with a stronger growth, both in sales and profitability. This led our segments to grow during the 9-month period, while many of them presented double-digit growth in sales and operational profitability. Overall, this performance was also in line with our earlier predictions and guidance for a better second and third quarter. Overall, the performance for the 9 months is aligned, therefore, without initial predictions for the whole year as both consolidated sales and operational profitability grew. Now going more detail for the outlook per sector. This is as follows. Regarding the commercial activity sectors for the full 2024, we estimate growth in sales and profitability EBT landing at the same levels as last year. Regarding the IT services sector, this sector seems to be continuing to be positively affected by the strong demand in IT services, while it still has a high backlog of signed projects exceeding EUR 500 million. 9-month growth in sales and profitability is estimated to be continued during the whole year. Going to the third sector, which is the postal services sector. Our estimations for 2024 include a continuation of the growth in sales and profitability similar to the 9-month results, mainly driven by e-commerce growth. Finally, for the renewable energy production sector, our estimate for the whole year is for a mild growth. On a consolidated basis, our estimation for the whole 2024 is for a mild growth in revenues and profitability, close to the pace that you've seen for the 9-month results. Quest Group current cash position is solid with above EUR 300 million in cash and available credit lines, allowing us to continue our planned growth investments and to endure any hardships. We continuously pursue M&As in order to further propel our growth. And to this respect, during October 2024, we managed to proceed with 2 important strategic moves. The first one was regarding the acquisition of Benrubi. And through this move, we expect to further strengthen our commercial sector through the presence in the small electric appliances market, a sector with high margins, promising growth prospects and potential synergies with our existing operation. The second, with sale of ACS shares to GLS, signaling the step exit from this sector enjoying significant capital gains from a core activity that has been systematically supported and developed over the last 25 years. ACS exit valuation also reveals the hidden value of our group, which we believe is not well depicted in Quest Holdings current market capitalization. These 2 strategic moves align with our long-term strategy, which focuses on the continuous exploration and acquisition of companies with increased profit margin and promising growth prospects, the long-term development of our company as well as seizing opportunities to deliver substantial capital gains for our shareholders when we have the opportunity. Now let me pass back to Alexandros.

Okay. That was our brief overview for the 9 months period of 2024 as well as the outlook for the full year. We are now happy to take your questions.

The first question comes from the line of Svyriadi Natalia with Eurobank Equities.

I hope you can hear me. Congratulations on a very good set of results for a third quarter. as we're also expecting a very strong Q4 ahead. I was wondering, okay, as you mentioned in your beginning remarks, the rationale and the insights on the 2 deals, I was wondering how will the 20% the sale of ACS affect our 2025 figures? And when should we be expecting the final divestment to come regarding this deal? And on Benrubi, I was wondering if you could remind us the profitability margins of the Benrubi company? And how will this affect your commercial activities going ahead? I know you also have synergies. You mentioned that, but what -- I remember it's a very high EBITDA margin, if I'm not mistaken there.

Natalia, thank you for your questions. This is Markos Bitsakos speaking. I will try to explain -- to answer your first question, and then Alexandros will give you the answer for the second one. The first question was about ACS and how the sale of the 20% stake will affect our numbers, our performance in 2025. And the answer is it will not affect our consolidated figures. And why is that? Because having the majority of the shares, we will have to consolidate ACS figures. And then the only change, let's say, that you will see is the minority -- the minority shareholder rights that will be at the top, let's say, of our financial -- at the bottom of the financial statements. GLS will have the right for the 20% of ACS performance and Quest will consolidate the 100%. Is this okay with you, Natalia? You need something else?

Do you have an indication of when we should expect the rest 80% if this will go through, of course...

As we have already announced, this is not something that we can give you a specific answer today. GLS has the option either to take over the rest of the shares either on October of 2025 or October 2026. But let me point out once again that this is an option. This is a call option.

Okay. Great. And with the money you're going to get from the ACS deal, this will go to Benrubi. Are you considering also a return to shareholders as you have been doing in the past also?

Are you talking about the first transaction, meaning the EUR 74 million or the second?

The EUR 74 million.

Well, the EUR 74 million, as we speak, we have already collected. And of course, Benrubi will be paid, the first transaction again for the 70% stake in Benrubi will be paid out of this money. As far as the increase, let's say, the potential increased dividend. It's too early to answer something like that. We'll see it on a later stage.

And Natalia, hello from me. It's Alexandros. Regarding Benrubi, let me remind you that it's a company which is operating in the sector in the market of the small domestic electrical appliances. Their focus is on cooking appliances and now they're expanding in other areas like air treatment or cleaning. The revenue is a little bit north than EUR 30 million, and their EBITDA is north than EUR 5 million. So their margins are a little bit more than -- EBITDA margins are a little bit more than 50%.

Okay. So looking at your commercial activities, EBITDA margin of around 4%, probably this will boost margins as we go ahead and as this is integrated, I assume.

Yes, the EBITDA margin of the commercial activities is around 7%.

Sorry, the commercial -- this is Apostolos -- the commercial activity is about 4%. The overall EBITDA is about 7%. It will boost both.

Yes, it will boost both, yes. Both the commercial segment and the group.

The next question comes from the line of [indiscernible]

Obviously the call option for GLS.

A little bit louder, please. A little bit louder.

Yes. Is that better?

Yes, it is.

My question was about the call option regarding GLS. From my understanding of the press release, if GLS does not exercise the call option for the 80% left of ACS, you would have a chance to purchase back the 20% you sold today. Can we have an understanding of the formula at which you would rebuy basically the 20%? Is that a fixed price or an EBITDA multiple? Or could you please elaborate a bit on that?

This is Apostolos Georgantzis. Thank you for your question. Should the GLS decide as not to proceed with the option to buy the remaining 80%, then Quest has the option to buy back 20% at a price which will be defined from a mechanism. Probably it's going to be with a discount should the results of the company are the same or higher. So it's a bit more complicated to be able to explicitly describe it. But should it happen, let's say, today, this would end up at a discount from the sale value. I hope it answers more or less the question, but please, should you need anything more, happy to reply.

Sure, sure. Very clear. And in terms of Benrubi, from my understanding is still subject to competitive authorities. When do you have visibility on the final conclusion of the acquisition?

Not full visibility, but we would expect to have a final answer for them within the next 2 months.

Okay. Very clear. And my last question is regarding Romanian market. Can we please have an update on how is the situation evolving there, especially with Xiaomi?

Well, it's -- our business is growing. It's growing at a double-digit pace. Xiaomi in Romania used to have very small market shares, and now we are expanding. Of course, it's a very competitive market, low margins. It's a low-margin market. The company there has managed that we established there has managed within 1 year to become breakeven, which is, we think, a success. And we think that from now on, we will expand and we'll manage to have a better profitability.

Okay. Very clear. And one other question, sorry, about ACS. Obviously, you've passed on some significant capital expenditures in the past few years with the new sorting hub. You're getting -- basically my question is what should we expect in terms of free cash flow usage from ACS in the next 2 years? Do you expect to kind of pay back a bit the CapEx you've put for the past few years into ACS distributing a dividend to the holding? Or is there like constraints posed by GLS in the deal in terms of use of cash within ACS?

This is Apostolos. Probably it's going to be a combination of both. I imagine even this year, 2024, we've given dividend back to Quest during the summer of EUR 80 million, but we're still continuing investments in the last mile as we explained in the previous calls with reference in expanding the locker network, for example. Therefore, this is more or less what we expect to happen also in the future. So it's going to be a combination of most probably of expanding -- continuing CapEx investments to further propel the capacity and abilities of the company as well as some of the cash produced to be distributed back to the shareholders. But now from now on, it's going to be on an 80 to 20 basis as we also have GLS, the minority shareholder.

The next question comes from the line of Chatzidakis Manos with Beta Securities.

Just one question from my side. Will the group be cash positive at the end of the year, taking into account any remaining CapEx that you are planning to do?

This is Markos. The answer is providing that the Benrubi case will be materialized early next year and not in 2024. The answer is yes. We anticipate to be on a cash positive position by the end of the year.

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 the participation and the interest to our company and its prospects. We wish you to have a very nice afternoon. Thank you.