Annual Report • Mar 30, 2017
Annual Report
Open in ViewerOpens in native device viewer
| All amounts in € million | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Revenues | 386.0 | 402.4 | 431.4 | 455.7 | 481.5 |
| EBITDA | 37.1 | 42.2 | 35.0 | 77.8 | 77.9 |
| Depreciation / amortisation 1 | 50.2 | 53.3 | 69.0 | 51.3 | 53.4 |
| EBIT | (13.1) | (11.1) | (34.0) | 26.5 | 24.6 |
| Net income (loss) | (25.1) | (13.2) | (33.9) | 23.6 | 19.0 |
| Earnings per share 2 (in €) |
(0.20) | (0.11) | (0.27) | 0.19 | 0.14 |
| Shareholders' equity 3 | 86.3 | 113.8 | 145.6 | 193.2 | 180.2 |
| Long-term liabilities 3 | 159.3 | 171.0 | 180.2 | 103.3 | 96.0 |
| Short-term liabilities 3 | 59.2 | 63.3 | 79.7 | 95.5 | 110.9 |
| Balance sheet total 3 | 306.0 | 348.1 | 405.5 | 392.0 | 387.1 |
| Equity ratio (in %) | 28.2 | 32.7 | 35.9 | 49.3 | 46.6 |
| Free cash fl ow | 8.4 | 7.1 | (24.9) | 25.6 | 23.6 |
| Liquidity 3 | 67.3 | 74.0 | 88.1 | 59.0 | 35.2 |
| Capital expenditure (capex) | 28.4 | 26.7 | 30.0 | 39.6 | 37.9 |
| Capex ratio 4 (in %) |
7.4 | 6.6 | 7.0 | 8.7 | 7.9 |
| Dividend per share (in €) | 5 0.03 |
0.03 | 0.10 | 0.10 | 0.09 |
| Xetra closing price 3 (in €) |
1.92 | 1.51 | 1.74 | 4.30 | 2.11 |
| Number of shares 3 | 124,172,487 | 124,162,487 | 124,142,487 | 124,057,487 | 137,307,152 |
| Market capitalisation 3 | 238.4 | 187.5 | 216.0 | 533.4 | 289.7 |
| Number of employees 3 | 1,360 | 1,454 | 1,697 | 1,689 | 1,485 |
Consolidated fi nancial statements (IFRS) from 2012 to 2016.
Including non-cash share-based compensation.
Basic.
As of 31 December.
4 Ratio of capital expenditure to revenues.
Proposal to the Annual General Meeting.
QSC AG is digitising the German SME sector. With decades of experience and expertise in its Cloud, Internet of Things (IoT), Consulting and Telecommunications businesses, we are accompanying our customers securely into the digital age. The digital expertise pooled in and around our Pure Enterprise Cloud and the Internet of Things has convinced more and more companies. Revenues in our Cloud segment rose almost 150% in 2016. And that was just the start – German SME players are only just beginning to go digital ...
Launch of the Pure Enterprise Cloud QSC presented its new Pure Enterprise Cloud to the public at the end of February. It is based on a mo dular system of proven cloud technologies, software solutions and service components together with high-performance network and infrastructure services. The Pure Enterprise Cloud enables users to link various cloud worlds while also making eff icient use of traditional IT applications.
on QSC's cloud competence The Pure Enterprise Cloud con vinced customers from the outset and quickly proved its worth in numerous projects. In August, for example, the metal processing company apt Hiller chose this innovative solution to standardise its heterogeneous ICT landscape. Within weeks, the fi rst employees benefi ted from a uniform workplace environment created by the Pure Enterprise Cloud.
QSC is the "rising star" in the sector Market researchers are also impressed with QSC's capacity for innova tion. Experton, for example, labeled QSC in 2016 the "rising star" in the sector for its Pure Enterprise Cloud and its IoT portfolio. Analysts at Crisp Research see the internally developed IoT platform as the leading solution in the market and have singled out QSC as an innovator.
QSC became a pioneer in Germany by acting early to upgrade its network with IP technology. Now, it is benefi ting to an above-average extent from great demand among SME players for sophisticated All-IP solutions. As a result, QSC defi ed the market trend in 2016 and increased its TC revenues with corporate customers.
To react even faster to new market requirements, in 2016 QSC pooled its IoT activities at Q-loud. This subsidiary's specialists in the Internet of Things demonstrated their fl exibility and expertise in several projects and increased revenues several times over in a single year.
SAP assesses QSC as excellent In the autumn, SAP awarded its highest possible assessment – "excellent" – to QSC's hosting services. At the same time, the software giant once again certified QSC's "SAP HANA Operations Services" and praised the Com pany's service management and service provision activities in particular.
+148%
Growth in Cloud revenues in 2016 JÜRGEN HERMANN, CHIEF EXECUTIVE OFFICER
"IN 2016, THE COMPANY GREW IN ALL BUSINESS FIELDS IN WHICH WE EXPEC-TED GROWTH – AND ABOVE ALL IN OUR CLOUD BUSINESS. THIS DEVELOPMENT WILL CONTINUE IN 2017."
QSC's future is digital. In our mission to digitise the German SME sector, we made progress on numerous fronts in 2016. Expanding our Cloud business was the key priority. In the spring, we began marketing our Pure Enterprise Cloud, whose turnkey services enable customers to move easily from traditional IT landscapes into the cloud. Not only that, its modular structure means that SMEs enjoy maximum freedom when it comes to shaping their own digitisation strategies on a step-by-step basis. The fi rst customers are already using our complete portfolio, while others are starting out by combining their own IT solutions with select cloud services from QSC. Diff erent customers have diff erent focuses: some attach priority to migrating workplace environ ments into the cloud, while others are at fi rst more interested in optimising their operating processes. Both approaches are possible with the Pure Enterprise Cloud, in addition to being both eff icient and secure. This outstanding fl exibility is driving its success and the great appreciation shown by customers and industry observers alike. The numerous awards from prestigious IT analysts speak for themselves.
The Cloud business has a second strong component: the IoT portfolio. This enables SMEs to network devices and structure their digital business models in the Internet of Things. In the past year, we pooled our IoT competencies at Q-loud. With its full-stack approach, this wholly owned subsidiary covers the entire IoT value chain – from transformation consulting to contract manufacturing for networked devices through to all aspects of operations. This approach meets the expectations of our SME customers, and in fact to an ever greater extent. Schüco, one of the world's leading manufacturers of high-quality window, door and façade systems, for example, has commissioned Q-loud to digitally network its existing and future product series. The aim of this cooperation is to achieve centralised management and monitoring for Schüco's products. More specifi cally, thanks to our technology, the doors and windows of entire buildings can now be centrally opened, closed and monitored.
Due in particular to numerous IoT projects and the marketing of the Pure Enterprise Cloud, revenues in the Cloud segment surged by 148% to € 18.1 million in 2016. Revenues also rose in the other two business fi elds where we expected growth, namely Consulting and our TC business with corporate customers. The success in our Consulting business was driven above all by the expertise shown by our team of more than 200 SAP-HANA specialists. This innovative IT platform is proving to be a core element of the digital transformation, as it facilitates smooth processing of large data volumes in real time. QSC has now implemented more than 40 HANA projects and also earned recognition from the software manufacturer itself – since 2016 QSC has been a "Partner of Excellence" to SAP.
The IoT portfolio meets expectations of SME customers "WE ARE ACQUIRING NEW CUSTOMERS FOR THE PURE ENTERPRISE CLOUD AND ARE PRESSING AHEAD WITH MIGRATING EXISTING OUTSOURCING CUSTOMERS."
Excellent is also the word to describe our performance in the TC business with corporate customers. Here, we once again increased our revenues in 2016 in what is a toughly contested market affected by overall decline. The key to our success is our unique expertise in All-IP. QSC was the fi rst TC provider to upgrade its network into a consistent IP-capable next generation network (NGN) and can now off er a broad range of services in this area – from basic Voice over IP connections through to complex telephony systems. More than 250,000 active latestgeneration SIP-VoIP connections underline QSC's pioneering role in this market. To focus on the three business fi elds of Cloud, Consulting and TC for corporate customers, we had to give our structures a thorough shake-up. We completed our two-year cost-cutting programme at the end of 2016. We have further automated our processes, especially in the traditional Outsourcing business, and signifi cantly downsized our workforce. At the same time, we have attracted new experts, particularly for our Cloud and Consulting businesses and our sales activities. Overall, our structures are now leaner and our processes swifter.
As expected, revenues in our two traditional business fi elds of Outsourcing and TC for resellers declined. Both markets have witnessed extremely tough price competition, while the TC business has also been adversely aff ected by regulatory decisions. Overall, these factors will cost us revenues of up to € 20 million in our Outsourcing business and around € 25 million in our TC business with resellers in the current year. Given the market situation, since 2015 we have not participated in tenders requiring personnel to be taken over in our traditional Outsourcing business. Instead, we are relying on our Pure Enterprise Cloud when it comes to outsourcing and operating IT services. Not only that, this innovation is gradually benefi ting our existing Outsourcing customers. In close liaison with these customers, we began the migration process in 2016 and will be continuing this in the years ahead as well. In view of this, we expect disparate developments in the current year – revenue growth above all in our Cloud business, as well as in Consulting and our TC business with corporate customers, and a further fall in revenues in Outsourcing and our TC business with resellers. On a group level, we have budgeted for a further reduction in our overall revenues for 2017. The focus on industrialised IT operations and our Cloud business expansion nevertheless guarantee that EBITDA will remain at least stable. The EBITDA margin is set to rise compared with 2016, as is the free cash fl ow.
The Cloud business will remain the key focus of our activities. We will acquire new customers for the Pure Enterprise Cloud and press ahead with migrating existing Outsourcing customers. We are also extending our range of services to provide a multi-cloud approach. This involves a networked, service-driven cloud that pools the benefi ts of various solutions. Today, many companies already draw on inexpensive off erings from global data centre operators such as Amazon or Microsoft for standard applications. QSC is integrating these kinds of cloud solutions into its own services. This way, based on its Pure Enterprise Cloud, it is off ering customers what will be the dominant IT architecture for the decade ahead – a multi-cloud.
QSC extending its range of services to provide multi-cloud approach
The IoT portfolio will also make a major contribution to the dynamic growth in the Cloud business. Working with a full-stack approach, our IoT experts will attract new industrial customers while forging stronger business relationships with existing customers. We are still only at the beginning of the IoT age. Many companies are starting out with pilot projects and low unit quantities. Q-loud is already able to scale up these kinds of pilot projects, enabling SME companies to market networked devices in high unit numbers.
We have budgeted revenue growth in our Consulting business, with a key focus on consistently expanding our SAP-HANA competence. In our TC business with corporate customers we aim to outperform the market once again. In this traditional business fi eld, our decades of experience, extensive portfolio and established relationships with customers and partners off er many opportunities for the future as well.
QSC is growing in precisely those areas that will shape the future. For its part, the capital market is not yet entirely convinced. In particular, many investors are sceptical about the development in our overall revenues. In terms of our EBITDA and free cash fl ow, however, we have already achieved a turnaround. We set ambitious, but achievable targets for the respective fi nancial year and then we meet them. Given this reliability and the right strategy, we will regain the confi dence of further investors and convince the capital market.
The growth achieved in our forward-looking business fields and turnaround in our EBITDA and free cash fl ow would not have been possible without the contribution of all our employees. I would like to take this opportunity to thank them for their commitment and for their willingness to continue playing an active role in reshaping our company. I would also like to extend my particular thanks to you, our shareholders. I know that the many positive aspects of our company's development are not always apparent at fi rst sight and that the volatility in our share price calls for patience. I would therefore off er a special thank you for the trust you have placed in us. QSC – your company - will make further progress in numerous areas in 2017 and underline its pioneering role as the digitiser to the German SME sector.
Cologne, 29 March 2017
Turnaround already achieved for EBITDA and free cash flow
Jürgen Hermann Chief Executive Off icer
QSC's future is digital. Jürgen Hermann, a prime mover at QSC, has been pressing ahead with the right strategy to put this into practice since taking over as CEO in May 2013. Alongside strategy, this graduate in economics also bears management board responsibility for the key areas of innovation and communications. Having held senior positions for several years at Thyssen Telecom AG, he joined what was then QS Communication Service GmbH back in 1997 already. As Director of Finance, he played a key role in organising QSC's IPO in April 2000 and was the Company's Chief Financial Off icer from 2009 to 2013.
QSC needs lean structures to thrive in the digital age. Implementing these is the role of Stefan A. Baustert, who since becoming CFO at the beginning of 2015 has been adapting QSC's cost structures accordingly. In addition to finance, this graduate in business administration also holds board responsibility for procurement, human resources, and investor relations. His previous positions include working as CEO at the publicly listed company Singulus Technologies AG, as Commercial Director at E-Plus Mobilfunk GmbH, and, at the beginning of his career, holding various management positions at the ThyssenKrupp Group, where he was latterly CFO of Thyssen Telecom AG.
QSC's strategy and its success are determined by its customers – and that is why Udo Faulhaber is in touch with them on a daily basis. This multifaceted entrepreneur came on board as Chief Sales and Con sulting Off icer on 1 August 2015 and has played a key role in shaping the success of the Pure Enterprise Cloud and its IoT portfolio. A graduate in production technology, he has long felt at home in the cloud. Together with Felix Höger, he turned Pironet NDH into a leading provider of cloud services in Germany. Further stations in his career were at Nixdorf, Bayer, Postbank and at arxes, an IT service provider he founded.
QSC is entering new dimensions with its Pure Enterprise Cloud. The brain behind it belongs to Felix Höger, QSC's Chief Technology and Operations Off icer since 1 January 2016. Until the end of 2014, he was CEO at Pironet NDH AG, whose predecessor NDH he already founded during his training. The merger with Pironet followed in 2000. As a pioneer and trailblazer for cloud computing among German SMEs, Felix Höger successfully turned his company from a network service and outsourcing provider into a successful and profi table cloud service provider.
The six-member Supervisory Board comprises four shareholder and two employee representatives. In the regular election held at the Annual General Meeting on 29 May 2013, shareholders elected four representatives for a term in off ice of fi ve years each. The employees selected their two representatives in advance of the meeting.
Dr. Schlobohm, who holds a doctorate in engineering, founded QSC in 1997, had the Company publicly listed in April 2000, and then managed it as CEO until May 2013. Together with QSC's co-founder, Gerd Eickers, he is the largest shareholder. At the end of 2016, these two shareholders held a combined stake of 25% in QSC.
Dr. Zurlino, holder of a doctorate in business engineering, was elected to the Supervisory Board in May 2013. Formerly head of strategy consulting and development at IBM Deutschland, he is now Managing Partner at the international management consultancy Horn & Company.
QSC's second founder, Gerd Eickers, moved to the Supervisory Board in June 2004 after three years on the Management Board. In subsequent years, this graduate in economics played a major role in shaping the political framework for the TC market, particularly in his capacity as President of the Association of Telecommunications and Value-Added Service Providers (VATM).
Longstanding head of the global tax department at SAP SE, Ina Schlie was appointed to the Supervisory Board in September 2012 and then confi rmed with a large majority at the Annual General Meeting in May 2013. As a fi nance and tax expert, she also chairs the Audit Committee.
QSC's workforce elected Anne-Dore Ahlers, the Hamburg-based Chair of its Works Council, as one of the two representatives on the Supervisory Board in April 2013.
QSC's workforce elected Cora Hödl, now head of the TC/Voice Services department, as its second representative on the Supervisory Board. A qualifi ed communications electrician, Cora Hödl has worked at QSC since 2002 and is based in Cologne.
Dear Shareholders,
The following Supervisory Board Report informs you about the activities of the Supervisory Board in the 2016 fi nancial year.
Activities of the Supervisory Board. In 2016 as well, the Supervisory Board performed all of the duties incumbent on it by law and the Articles of Association. It continually monitored and advised the Management Board in its management of QSC AG. It was directly involved in all decisions and measures of material signifi cance, particularly those impacting on the Company's fi nancial position, fi nancial performance and cash fl ows. After careful consideration, it voted on all measures for which its consent is required by law, the Articles of Association and the Rules of Procedure of the Management Board.
The members of the Management Board attended the meetings of the Supervisory Board unless stipulated otherwise by the Supervisory Board Chairman. At these joint meetings, the Supervisory and Management Boards discussed key aspects of the Company's business policies and strategy, as well as its performance and planning. Moreover, the Chairs of the two boards were in regular contact to discuss topics arising between Supervisory Board meetings.
The Management Board informed the Supervisory Board with regular, timely and detailed reports, both written and oral, about the Company's business performance, drawing in particular on monthly and quarterly fi nancial statements and rolling budget / actual comparisons. The Management Board reports also included information about variances in the actual performance from targets previously reported and variances in the business performance from the planning. The reports also contained all relevant information concerning the Company's strategic devel opment and planning, risk situation, risk management and compliance. All enquiries and requests for additional information by the Supervisory Board were promptly and thoroughly answered by the Management Board.
Topics addressed by the Supervisory Board. The main focuses of Supervisory Board meetings and resolutions in the 2016 fi nancial year were:
Furthermore, in 2016 the Supervisory Board dealt with the internal control mechanisms at QSC AG, and here in particular with the risk management system and with corporate governance and compliance consistent with statutory requirements. The Supervisory Board reviewed these areas on the basis of submissions and Management Board reports and discussed them with the Management Board. The Supervisory Board is of the opinion that the internal control and early warning risk identifi cation systems operate reliably. The Supervisory Board also addressed the amendments resulting from the European market abuse regulation and audit reform in detail and, among other measures, made corresponding adjustments to the Rules of Procedure for both the Supervisory and Management Boards.
Composition of the Supervisory Board. The Supervisory Board witnessed no changes in its composition in 2016 and continued to comprise four shareholder representatives, namely Dr. Bernd Schlobohm (Supervisory Board Chairman), Dr.-Ing. Frank Zurlino (Deputy Chair), Ina Schlie and Gerd Eickers, and two employee representatives, namely Anne-Dore Ahlers und Cora Hödl.
Supervisory Board meetings and committees. The Supervisory Board held four scheduled meetings in person in the 2016 fi nancial year, all of which were attended by all members. Where necessary, the Supervisory Board also adopted resolutions on individual topics by circulating and approving the respective documents. Committee members attended all meetings of their respective committees in 2016.
The Supervisory Board has formed four committees to assist it in its work. These are the Human Resources Committee, the Audit Committee, the Nomination Committee and the Strategy Committee. The Chairs of the respective committees regularly report to the full Supervisory Board on the work of their committees.
The Human Resources Committee met twice in the year under report. The members of this committee are: Dr. Bernd Schlobohm (Chair), Gerd Eickers and Cora Hödl. As well as preparing the conclusion of a target agreement with Felix Höger, a member of the Management Board who commenced his board activity as of 1 January 2016, the committee also reviewed the target agreements concluded with the three other Management Board members in March 2015 in respect of the multiyear targets contained therein. The Human Resources Committee proposed to the Supervisory Board that it should adjust specifi c aspects of the individual parameters of these multiyear targets as external developments unforeseeable in March 2015 made it necessary to restore the incentive eff ect of the variable compensation on a uniform basis for the Management Board members in the interests of the Company and thus boost the overall responsibility of the Management Board. At the same time, the committee prepared the Supervisory Board decisions on the annual targets to be agreed with the members of the Management Board.
The committee also prepared the Supervisory Board resolution concerning Management Board members' target achievement in the 2015 fi nancial year and the resultant variable Management Board compensation.
The Audit Committee comprises Ina Schlie as its Chair and independent fi nancial expert, as well as Dr. Bernd Schlobohm and Dr.-Ing. Frank Zurlino. The Audit Committee monitors the fi nancial reporting process and may submit recommendations to safeguard its integrity. It also monitors the eff ectiveness of the internal control, risk management and internal audit systems, as well as compliance, and prepares any decisions required by the full Supervisory Board in this respect. The Audit Committee also deals with the audit of the fi nancial statements and is responsible for selecting and issuing the audit assignment to the auditor, as well as for monitoring the auditor's independence. It decides whether the Company may commission the auditor to provide non-audit services and, where appropriate, monitors the auditor's provision of such services. In this regard, on 16 November 2016 the Audit Committee adopted a catalogue of non-audit services agreed in advance that it will subsequently review annually. The services listed in this catalogue may be commissioned by the Management Board without consulting the committee provided that the overall budget for non-audit services approved by the Audit Committee for the respective fi nancial year is not exceeded and the expected total fee for any individual non-audit service does not exceed € 50,000.00.
The Audit Committee met fi ve times in the past fi nancial year. It reviewed the documents relating to the annual and consolidated fi nancial statements, including the dependent company report, for the 2015 fi nancial year, held in-depth discussions about these documents and the accompanying audit reports in the presence of the auditor and adopted recommendations for the full Supervisory Board resolution concerning the annual and consolidated fi nancial statements and their audit. The Audit Committee discussed the interim fi nancial reports and statements due for publication with the Management Board. It determined the audit focuses for the 2016 fi nancial year and negotiated and concluded the auditor's fee agreement. The Audit Committee recommended to the Supervisory Board that KPMG AG Wirtschaftsprüfungsgesellschaft, headquartered in Berlin and with a branch off ice in Cologne, should once again be proposed to the Annual General Meeting as auditor and group auditor for the 2017 fi nancial year. Based on this recommendation, at its meeting on 16 March 2017 the Supervisory Board adopted a corresponding proposal to the Annual General Meeting. The Audit Committee dealt in detail with the requirements for QSC resulting from the audit reform, and in particular with the future tender process for appointing the auditor and the awarding of non-audit services to the auditor. The Audit Committee also for the fi rst time issued Rules of Procedure governing its activities. The Audit Committee ensured that it was kept permanently informed by the Management Board on the latest status of the sample audit of the consolidated financial statements and group management report for the 2014 fi nancial year performed by the German Financial Reporting Enforcement Panel (DPR) and informed the full Supervisory Board as appropriate. By assessment dated 19 December 2016, the audit found that the 2014 consolidated fi nancial statements contained errors in respect of the recognition of deferred tax assets on loss carryovers and goodwill at the fonial GmbH subsidiary. QSC acknowledged these errors and has corrected them in its current fi nancial reporting. The identifi cation of these errors was published in the Federal Gazette (Bundesanzeiger) and the Stock Exchange Gazette (Börsen-Zeitung) on 17 and 18 February 2017 respectively.
The task of the Nomination Committee is to submit suitable candidates to the full Supervisory Board for its nomination of candidates at any forthcoming election of shareholder representatives to the Supervisory Board at the Annual General Meeting. The members of the Nomination Committee are Gerd Eickers (Chair) and Dr.-Ing. Frank Zurlino. As no elections of shareholder representatives to the Supervisory Board were due in the 2016 fi nancial year, the Nomination Committee did not meet in the year under report.
The members of the Strategy Committee are Dr. Bernd Schlobohm (Chair) and Dr.-Ing. Frank Zurlino. The Strategy Committee has a purely advisory function and addresses the strategic, and thus long-term, development of QSC AG, and in particular the development of ideas for forward-looking products and services. This committee met three times in 2016.
Corporate governance. The Supervisory Board continuously monitors the further development in the German Corporate Governance Code and its implementation at QSC AG. Consistent with the Code, in the past financial year the Supervisory Board reviewed the efficiency of its own activities. No defi cits were identifi ed. To account for the amendments made on 18 August 2016 to the multiyear targets agreed with three Management Board members, at the same meeting the Supervisory Board and Management Board together updated the Declaration of Conformity submitted pursuant to § 161 of the German Stock Corporation Act (AktG) on 19 November 2015 and made permanently available to the public on the Company's website. At its meeting on 17 November 2016, the Supervisory Board acting together with the Management Board submitted its updated annual Declaration of Conformity pursuant to § 161 AktG. This too is permanently available on the Company's website.
The Management Board reports in detail on corporate governance, also on behalf of the Supervisory Board, in the Corporate Governance Report within the Group Management Report. Each member of the Supervisory Board discloses any confl icts of interest that may arise, taking due account of the recommendations made in the German Corporate Governance Code. No potential confl icts of interest arose in the year under report.
Audit of fi nancial statements. KPMG AG Wirtschaftsprüfungsgesellschaft, headquartered in Berlin and with a branch office in Cologne, audited both the annual financial statements of QSC AG as of 31 December 2016 prepared by the Management Board in accordance with the require ments of the German Commercial Code (HGB) and the consolidated fi nancial statements as of 31 December 2016 prepared in accordance with International Financial Reporting Standards (IFRS) as requiring application in the European Union and the supplementary provisions of German commercial law applicable pursuant to § 315a of the German Commercial Code (HGB), as well as the accompanying management and group management reports. The audit assignment had been awarded by the Audit Committee in accordance with the resolution adopted by the Annual General Meeting on 25 May 2016.
Key focuses of the 2016 audit included the audit of the goodwill impairment test, deferred taxes (particularly completeness and measurement), the measurement of the equity interest held in Ventelo GmbH/Plusnet GmbH & Co. KG, the provisions for dismantling central off ices (particularly completeness and measurement), the measurement of unfi nished services, the completeness and accuracy of the disclosures in the notes and management reports accompanying the consolidated and annual fi nancial statements, segment reporting (particularly completeness and accuracy of disclosures), the audit of the completeness and accuracy of the implementation of amendments arising due to the German Accounting Directive Implementation Act (BilRUG) and Management Board travel expenses. The auditor granted unqualifi ed audit opinions to the Company's annual fi nancial statements (HGB) and consolidated fi nancial statements (IFRS) for the 2016 fi nancial year, including the respective management reports.
Furthermore, the Management Board compiled a report on relationships with aff iliated companies for the 2016 fi nancial year (dependent company report). The auditor audited this report, reported in writing on its fi ndings and granted the following unqualifi ed opinion:
"Based on our audit and assessment performed in accordance with professional standards, we confi rm that
The aforementioned documents, including the audit reports submitted by the auditor, were provided to all Supervisory Board members in good time ahead of their review. At its meeting on 16 March 2017, the Supervisory Board discussed all of the aforementioned documents and the auditor's reports with the Management Board and the auditor, taking due account of the
fi ndings of the preliminary review conducted by the Audit Committee, and also reviewed and discussed the Management Board's proposal concerning the appropriation of profi t. The auditor reported to the meeting on the key fi ndings of its audit and in particular that no material weaknesses had been identifi ed in the internal control and risk management system in respect of the fi nancial reporting process that would have implications for the annual and consolidated fi nancial statements. The auditor also informed the Supervisory Board of services it provided in addition to the audit of the fi nancial statements and that there were no circumstances indicating that its impartiality was impaired.
Having conducted its own review, the Supervisory Board did not raise any objections to the annual fi nancial statements (HGB) of QSC AG for the 2016 fi nancial year, the consolidated fi nancial statements (IFRS), the management report of QSC AG or the group management report and concurs with the fi ndings of the audit conducted by the auditor. Consistent with the recommendation made by the Audit Committee, the Supervisory Board therefore approved the consolidated financial statements (IFRS) and the annual financial statements (HGB). The annual financial statements are therefore adopted. With due consideration of the interests of shareholders and of QSC AG, the Supervisory Board endorses the appropriation of profi t proposed by the Mana gement Board. The Management and Supervisory Boards will propose the distribution of a dividend of € 0.03 per share with corresponding entitlement for approval by the Annual General Meeting on 24 May 2017.
The respective reports from the Management Board and the auditor were available to individual Supervisory Board members in good time ahead of their review. These reports were also discussed in detail at meetings of the Audit Committee and the full Supervisory Board. The representatives of the auditor participating in these meetings reported on the key fi ndings of their audit. Following its own review, the Supervisory Board approved the Management Board's report on relationships with aff iliated companies and also concurred with the fi ndings of the audit of the report by the auditor. Based on its own review, the Supervisory Board established that no objections were to be raised against the declaration by the Management Board at the end of the report on relationships with aff iliated companies.
The Supervisory Board would like to thank all shareholders for their trust. It also extends its particular thanks to all employees and the members of the Management Board for their dedication and work in the past fi nancial year.
Cologne, 16 March 2017 On behalf of the Supervisory Board of QSC AG
Dr. Bernd Schlobohm Supervisory Board Chairman
Increase in QSC's share price in 2016
QSC shares rise 27% against a turbulent backdrop on the stock markets. After a longer period of less favourable developments, QSC's shares outperformed the most important lead indices on the German stock exchanges once again in 2016. The shares stood at € 1.92 on 31 December 2016, 27% higher than the 2015 closing price. By contrast, the DAX rose by 7% over the same period while the TecDAX even fell by 1%. Overall, capital markets witnessed substantial volatility in the course of the year. At the beginning of the year, this was principally due to the concerns sur rounding macroeconomic developments in China. The Brexit decision was then the main reason for the setback in the summer. The DAX only regained positive territory towards the end of the year.
Based on a closing price of € 1.51 at the end of 2015, QSC shares also came under further pressure in the fi rst half of 2016. Alongside the overall trend on the capital market, a further factor related to the decision taken by the German Stock Exchange on 3 March 2016 to replace QSC's shares in the TecDAX due to the decline in the Company's market capitalisation. This obliged index-based funds, for example, to sell any shares held in QSC. The share price reached its annual low of € 1.05 directly after the Brexit decision on 24 June 2016. When publishing its half-year
(indexed)
results on 8 August 2016, QSC was able to report positive consolidated net income once again for the fi rst time in eight quarters. Not only that, its Cloud revenues showed that the strategic realignment was taking eff ect. Year-on-year, the Company managed to more than double its Cloud revenues. The following weeks witnessed a rally in the share price, which subsequently reached its annual high of € 2.24 on 21 September 2016. This meant that the share price more than doubled in just three months. After this, QSC's shares were aff ected by profi t-taking, especially in October, before stabilising at a substantially higher level than at the beginning of the year.
Investors pay higher multiples. QSC's success in its Cloud business enabled it to allay investors' scepticism in 2016; over and above that, this development changed the way the Company was perceived on the capital market. Increasing numbers of investors invested in the digitiser of the German SME sector, and thus in a cloud stock, in the second half of 2016. Investors traditionally pay higher multiples for this kind of stock than for pure telecommunications stocks.
584,000 QSC shares traded per day. The scepticism shown by many investors also infl uenced trading volumes through to the summer. In the fi rst half of 2016, a mere 472,000 shares changed hands on average each day. This fi gure rose to 710,000 in the second half of the year. Regardless of this development, QSC was among the 35 most-traded technology stocks on German stock exchanges for large periods of 2016 once again. Due not least to the sharp reduction in the share price, overall trading volumes totalled € 240.6 million in the fi rst half of 2016, compared with € 489.2 million in 2015.
Shareholdings of institutional investors rise to 38%. Institutional investors played a key role in the rise in trading volumes in the second half of 2016. These investors had long indicated their interest in QSC, but had made their investments dependent on the Company achieving visible success in its Cloud business in particular. As the progress made in this respect became increasingly visible in the course of 2016, these investors became ever more willing to invest in the Company. According to the Company's share register, the percentage of free fl oat shares held by institutional investors rose to 38% at the end of 2016, up from 33% one year earlier. At midyear, this fi gure had even fallen to 30%. Accordingly, retail shareholders owned 62% of the free fl oat at the end of 2016. Overall, free fl oat shares make up 75% of QSC's total shares, while 25% of the shares are held by the two founders, Gerd Eickers and Dr. Bernd Schlobohm. Now members of QSC's Supervisory Board, these two individuals have not sold any of their shares in QSC since the Company's IPO in spring 2000. On the contrary, they have increased their shareholdings further in the intervening years.
The Dutch fund provider Kempen Capital Management was still QSC's third-largest shareholder in 2016 and continued to hold more than 5% of the shares. In September 2016, the US fund Dimensional Holdings informed QSC that it had exceeded the 3% disclosure threshold. This fund is under passive management and acts in accordance with quantitative models.
25% of QSC's shares owned by its two founders
Seven analysts covering QSC. Many institutional investors base their decisions to buy or sell shares on sector and company studies. In the past year, seven fi nancial services players regularly published reports on QSC. Metzler Equities and Landesbank Baden-Württemberg discontinued their coverage in the course of the year. All remaining analysts classifi ed the QSC stock as worth holding at the end of 2016. Given the progress made by the Company in its operating business, the analysts raised their share price targets during the year, in some cases substantially so. In one case, the analysts revised their sell recommendation.
Intensive investor relations activities pay off . The return of institutional investors and the comparatively high number of analysts for what is a second-tier stock also refl ect the success of the Company's ongoing investor relations activities. Despite the lows seen it its share price, QSC maintained its in-depth dialogue with investors, held numerous meetings to explain its strategy and thus prepared the ground for the rise in the share price seen in the second half of 2016. In the past year, the Company attended capital market conferences organized by Bankhaus Lampe, Berenberg Bank, Commerzbank, J.P. Morgan Cazenove and Oddo Seydler, among others, and also took part in road shows at leading European fi nancial centres, such as Frankfurt, London and Zurich. These activities were supplemented by numerous one-to-one talks at the Company's locations in Cologne and Hamburg and in conference calls.
Road shows at leading financial centres throughout Europe The conference calls held upon publication of the respective quarterly results attracted particular interest from institutional and retail investors alike. QSC made the relevant presentations and recordings of the comments made by members of the Management Board available without delay on its website and answered all enquiries received by phone or email. In general, the IR section of QSC's website acts as the central information platform. As well as fi nancial reports and IR press releases, this section also includes the fi nancial calendar, analysts' assessments and detailed documents relating to the Annual General Meeting. Not only that, QSC also works with a variety of social media. All of the Company's presentations are available on Slide Share, while shareholders can use Twitter to remain permanently up to date. An IR Newsletter serves the same purpose.
Annual General Meeting approves dividend proposal. Retail investors in particular take the Annual General Meeting as an opportunity to talk to the Company. The Annual General Meeting held in Cologne on 25 May 2016 was attended by around 220 shareholders. These voted with a large majority to approve, among other agenda items, the proposal submitted by the Management and Supervisory Boards to distribute a dividend of 3 cents per share for the 2015 fi nancial year. The two bodies will be proposing a dividend in the same amount for the 2016 fi nancial year for approval by this year's Annual General Meeting on 24 May 2017.
WWW.SLIDESHARE.NET/QSCAG WWW.TWITTER.COM/QSCIREN WWW.QSC.DE/EN/ INVESTOR-RELATIONS
| Securities control number | 513 700 |
|---|---|
| ISIN | DE0005137004 |
| Trading symbol | QSC |
| Bloomberg symbol | QSC GR |
| Reuters symbol | QSCG.DE |
| Market segment | Prime Standard |
| Stock exchanges | Xetra and regional German stock exchanges |
| Designated sponsorship | Oddo Seydler Bank AG |
| Shares outstanding as of 31 December 2016 | 124,172,487 |
| Share class | No-par-value registered shares of common stock |
| Xetra closing price on 30 December 2015 | € 1.51 |
| Xetra share price high in 2016 | € 2.24 |
| Xetra share price low in 2016 | € 1.05 |
| Xetra closing price on 30 December 2016 | € 1.92 |
57 Research and Development
57 Actual vs. Forecast Business Performance
QSC is digitising the German SME sector. With decades of experience and expertise in its Cloud, Internet of Things, Consulting and Telecommunications businesses, QSC accompanies its customers securely into the digital age. Today already, cloud-based procurement models off er increased speed, fl exibility and full service availability. The Company's TÜV and ISO-certifi ed data centres in Germany and its nationwide All-IP network form the basis for maximum end-to-end quality and security in the transmission of all customer data. The Company markets its products and services both directly and via partners. QSC divides its operating business into the four segments described below.
Cloud – the centrepiece of digitisation. In this, its newest and fastest growing segment, QSC pools all activities relating to its Pure Enterprise Cloud and the Internet of Things (IoT). Developed since 2015, the Pure Enterprise Cloud is based on a modular system comprising proven cloud technologies, software solutions and service components. These are accompanied by high-performance network and infrastructure services. The Pure Enterprise Cloud acts as a link between diff erent cloud worlds and also permits the eff ective use of traditional IT applications. It also already accounts for the growing interest shown by companies in multi-cloud solutions. The Pure Enterprise Cloud is thus developing into a central hub for bringing together and orchestrating very diff erent cloud worlds.
Pure Enterprise Cloud also creates opportunities for multi-cloud solutions
IoT portfolio mainly results from in-house development work
The IoT portfolio pooled at QSC's subsidiary Q-loud is also mainly the result of inhouse development work. Q-loud off ers companies a full-stack service enabling them to network appliances and implement digital business models in the Internet of Things. This end-to-end service comprises transformation consulting, software and hardware competence, standard hardware, a proprietary IoT platform, security solutions and manufacturing of so-called "smart products".
Outsourcing – migration to the Pure Enterprise Cloud underway. The Outsourcing segment comprises the traditional business in which companies outsource IT and data storage services to QSC. This is a highly individualised and thus personnel-intensive business fi eld. With the launch and ongoing development of the Pure Enterprise Cloud, QSC already performs outsourcing services for numerous new customers in a highly efficient manner by drawing on standardised cloud-based services. The option of converting to cloud-based services is highly attractive for existing customers in the traditional Outsourcing business as well and is therefore already being drawn on.
Consulting – a guide to processes in the digital world. QSC advises companies on optimising their business processes with two key focuses on SAP and Microsoft. As a full-service SAP service provider and longstanding partner to SAP, QSC has extensive experience in the fi elds of basic operations, application management, implementation, user support and maintenance, as well as in managing the necessary software licenses. QSC acted early to focus on integrating cloud-based applications, and in particular on the new S/4HANA Business Suite. The use of cloud-based programmes is also playing an ever greater role in the Company's Microsoft-based consulting. Here, the services on offer range from needs analysis via consulting, design and implementation through to operations and ongoing optimisation.
Telecommunications (TC) – voice and data services from a single source. QSC started out as a TC provider and today still off ers a broad range of voice and data transmission solutions. For their internet connections, customers can choose from asymmetric ADSL2+ lines, symmetric SDSL lines and premium internet access via wireless local loop (WLL) networks. Ever more customers are also using their internet connections for voice telephony. QSC has off ered All-IP telephony connections (Voice over IP) and corresponding telephony systems since 2006 already. The range of services off ered by the Company also includes further forms of voice telephony, including open call-by-call and preselect off erings and value added services.
Data centres and an All-IP network in Germany. All four segments work with QSC's proprietary ICT structure across the whole of Germany and are thus able to guarantee consistently high quality along the entire value chain. The centrepiece of this infrastructure consists of data centres certifi ed by both TÜV and ISO. At the end of 2016, QSC operated data centres at six locations across Germany (Frankfurt am Main, Hamburg, Cologne, Munich, Nuremberg, Oberhausen) with total fl oor space of around 20,000 square metres. The Company is thus subject at all of its locations to German data protection requirements, which are very strict by international standards.
The data centres are linked with a cutting-edge infrastructure. In 2016, QSC signifi cantly expanded its core backbone and now has what is one of Germany's most up-to-date and bestperforming core networks. A redundant infrastructure with connection capacities of 100 GBit/s is also being put into place. Furthermore, the infrastructure is based on the next-generation network (NGN), which safeguards the convergence of various voice and data transmission technologies with the IP protocol. Moreover, QSC has traditionally operated a nationwide DSL network, one of Germany's largest wireless local loop (WLL) access networks and a nationwide All-IP voice network. Unlike many competitors, QSC fully upgraded its voice-data network to IP technology in 2006 already and has therefore been able to off er nationwide IP telephony and related services for 10 years.
Focus on German SME sector. Since its foundation, QSC has primarily focused on medium-sized companies headquartered in Germany. Thanks to its own structure and character as a mediumsized company, QSC enjoys particular credibility in this environment and has successfully built up a strong position over many years.
Connection capacities
QSC works with two diff erent distribution channels to optimally address the needs of its SME target groups. In Direct Sales, a key account team targets around 16,000 medium-sized companies in Germany with 200 to 5,000 IT workplaces. Indirect Sales focuses on around 50,000 companies with 50 to 200 workplaces. Here, QSC has worked together for many years now with more than 350 sales partners, more than 150 internet service providers (ISP) and national and international carriers.
QSC's sales activities
Comprehensive range of services as key competitive advantage. QSC covers the main requirements of SME companies in the digital age with a one-stop range of proprietary services. Its Pure Enterprise Cloud sees to the transformation in IT, its full-stack IoT portfolio deals with the networking of machines and appliances, its SAP competence (especially with SAP HANA) ensures smart processing of permanently growing data volumes while its All-IP expertise ensures smooth and secure voice and data transmission. The possibility of combining various modules has proven to be a key competitive advantage and is viewed by customers as QSC's particular strength.
Innovative portfolio makes QSC "Rising Star". The competitiveness of QSC's portfolio was underlined in 2016 by several accolades received from market researchers. Within its annual "Cloud Vendor Benchmark", IT analysts at Experton Group singled out the "Workplace Services" in the Pure Enterprise Cloud as a "Rising Star". Here, they particularly praised the scope and
attractiveness, degree of innovation and future potential of the new Cloud portfolio. QSC also confi rmed its existing placements as a "Cloud Leader" with three other Software-as-a-Service and Infrastructure-as-a-Service solutions. Experton Group also viewed QSC as a "Rising Star" in an analysis of 125 IoT providers within its "Industrie 4.0/IoT Vendor Benchmarks".
QSC accompanies SMEs step by step into the digital age. QSC's strategy consistently addresses the needs of small and medium-sized enterprises (SMEs). These companies face enormous challenges as the digitisation of the overall economy gains momentum. IT-based, digital business models are supplementing and replacing conventional models, and that ever more frequently. To seize the opportunities presented by the digital age and securely manage the forthcoming process of transformation, these companies need experienced service providers. Given enormous technical advances and the crucial role played by modern technologies in determining companies' long-term success, home-grown IT solutions are increasingly reaching their limits. QSC's strategy is tailored to meet precisely these needs.
The process of turning away from proprietary IT solutions is occurring in parallel with the advance of the cloud, which is the IT architecture for the digital age. With its centralised approach, the cloud satisfi es requirements in terms of agility, security and customer orientation. Customers wish to be able to interact with a company at all times, from all locations and from all conceivable end appliances. Only very large companies have the capacity to operate this kind of cloud solution on an in-house basis. German SME players will therefore place their trust in the performance capacity, technical competence and security off ered by external providers. QSC is optimally positioned to satisfy these needs. The Company is one of only few one-stop providers in the German market. With its Pure Enterprise Cloud, it off ers a service portfolio that combines all competencies and thus makes it far easier for customers to manage their transition into the new digital age.
Cloud, Consulting and TC promoting SME digitisation. The Pure Enterprise Cloud, which comprises all ICT services small and medium-sized companies need for their digitisation, is allocated to QSC's Cloud segment. Step by step, QSC will also provide its Outsourcing customers with the opportunity of signifi cantly enhancing their IT eff iciency by working with the Pure Enterprise Cloud. The Cloud segment also includes all of QSC's IoT activities. There are three key focuses in this area: fi rstly, so-called smartifi cation, involving full-stack solutions for networking products; The cloud is the IT architecture for the digital age
secondly, solutions aimed at enhancing the energy eff iciency of companies and private households; thirdly, IoT cloud enabling, in which QSC advises companies in developing and operating their IoT cloud solutions.
Consulting also plays a decisive role in digitising SME companies. After all, key focuses of activities at this segment include integrating cloud-based applications and transforming complete IT systems. Consulting acted early to prepare for SAP's technological advance to the S/4HANA Business Suite and now helps mainly larger SME players in smartly capturing and processing large volumes of data.
With its TC services, QSC has laid the foundation for any successful digital transformation. After all, state-of-the-art voice and data transmission is a prerequisite for any digital business model. QSC is one of only few companies in Germany that is able to off er maximum end-to-end quality in the fi eld of data transmission. Here too, QSC focuses on corporate customers. The traditional business with resellers that mainly target private customers is declining in signifi cance. As a result of market and regulatory factors, the Company expects to see further reductions in its revenue and earnings contributions in this area.
Strategy as foundation for sustainable value growth. All aspects of QSC's strategy aim to assist SME companies in managing their transition to the digital age. Key contributions here are made by the Cloud and Consulting segments and the TC business with corporate customers, areas in which the Company expects to see rising revenue and earnings contributions. By contrast, revenues in the Outsourcing segment and the TC business with resellers are expected to decrease further. Looking forward, QSC will nevertheless strictly ensure adequate profi tability in these areas as well. In particular, the growth expected in the Cloud business will create a strong foundation for sustainable value growth in the years ahead.
Nationwide presence in German market. QSC AG has its legal domicile in Cologne and has a second major location in Hamburg. These two sites are supplemented by ten sales off ices across Germany. QSC has three material direct and indirect participating interests:
SEE PAGE 138 NOTES A complete overview of the scope of consolidation as of 31 December 2016 can be found in Note 39 of the Notes to the Consolidated Financial Statements.
State-of-the-art end-to-end data transmission
Management by key fi nancial performance indicators. The Company is managed via its four segments: Cloud, Consulting, Outsourcing and Telecommunications. These are based on a system of profi t, cost and service centres. The following key fi nancial performance indicators are referred to on group level: revenues, EBITDA, free cash fl ow and capital expenditure. No reference is made to non-fi nancial performance indicators for Company management purposes.
QSC works with a system of profit, cost and service centres
EBITDA is defi ned as earnings before interest, taxes, amortisation of deferred non-cash sharebased compensation and impairment losses on customer-related inventories, depreciation / amortisation of property, plant and equipment and intangible assets. The EBITDA margin presents EBITDA as a percentage of revenues. The free cash fl ow presents the change in net liquidity /debt from operating activities. QSC accounts for its capital expenditure on a timing rather than fl ow-of-funds basis. This item includes customer-related and other investments, as well as investments in infrastructure.
Monthly reports as core management instrument. The monthly reports contain all relevant key fi gures and budget /actual comparisons. They serve as a key basis for discussion at the fortnightly meetings of the Management Board, as well as for the monthly reports to the Supervisory Board. Moreover, the latest budget /actual comparisons are used as a basis for regularly updating the rolling planning. This serves as an early warning system for potential variances, thus enabling corrective measures to be taken at an early stage. One integral component of reporting is the risk management system, which is described in this Group Management Report from Page 69 onwards. This ensures that any changes in opportunities and risks are directly factored into the management system.
SEE PAGES 69 FF. RISK MANAGEMENT SYSTEM
Key focus on creating long-term value. Since its foundation, QSC has accorded great priority to high-quality, transparent corporate governance, and thus to up-to-date management and supervision aimed at long-term value creation. Open communications with shareholders, employees, customers and suppliers naturally form part of corporate governance, as does cooperation on a basis of trust between the Company's boards.
Consistent with this commitment, the Company has implemented the requirements of the German Corporate Governance Code ("Code") in virtually all points and adheres to these in its day-to-day work. In a small number of cases, QSC nevertheless deliberately deviates from the recommendations made by the Government Commission. In the following section the Management Board reports, also on behalf of the Supervisory Board, on corporate governance pursuant to Point 3.10 of the Code. This report integrates the compensation report called for by Point 4.2.5 of the Code and also includes the corporate governance disclosures required by § 289a of the German Commercial Code (HGB).
Comprehensive and timely information. QSC communicates transparently and extensively with the capital market. The Company uses its own website to report promptly on all relevant developments. Interested parties will fi nd ad-hoc and press releases there, as well as the Company's quarterly and annual reports, latest presentations and a fi nancial calendar. This website is also where QSC makes available all of the documents relevant to its Annual General Meeting.
Ongoing dialogue with capital market players. The Annual General Meeting is the most important event for the Company's dialogue with its shareholders. Just under 40% of the share capital was present at the Annual General Meeting for the 2015 fi nancial year held in Cologne on 25 May last year. Shareholders not present were able to have their voting rights exercised either by a proxy holder of their choice or by a voting proxy bound to vote in line with their instructions. The shareholders approved all agenda items with large majorities. As in previous years, the Chair of the Meeting ensured that the meeting progressed eff iciently. The Management and Supervisory Boards once again decided not to broadcast the event on the internet, as the associated costs and legal uncertainties outweigh the potential benefi t for absent shareholders. In the course of the year, QSC upheld its dialogue with shareholders above all by way of meetings held with investors and analysts at road shows and in one-to-one talks, some of which at capital market conferences organised by banks. Conference calls held on the days the quarterly
The Company lives the Corporate Governance Code in its everyday work
results are published also ensure that all target groups receive up-to-date information. QSC makes the respective presentations, as well as recordings of the comments made by members of the Management Board, available to all shareholders. Further information about the Company's investor relations activities can be found in "QSC Share Performance" on Pages 19 to 22 of this Annual Report.
CEO further increases his stake. Transparent communications clearly also involve promptly informing the public about purchases and sales of QSC shares by Management and Supervisory Board members and parties related to such. In the past fi nancial year, the CEO Jürgen Hermann further increased his shareholding, acquiring 60,000 additional shares in QSC at the beginning of July 2016. He now owns a total of 400,000 shares.
SEE PAGES 19 FF. QSC SHARE PERFORMANCE
QSC has a dual management structure. QSC AG is a publicly listed stock corporation under German law and has a dual management structure. The Management Board manages the Company under its own responsibility while the Supervisory Board appoints, supervises and advises the Management Board. Members of both boards are bound solely by the Company's interests. No confl icts of interest requiring disclosure arose in the past fi nancial year.
Management Board adopts resolutions by simple majority voting. The Rules of Procedure issued by the Supervisory Board stipulate that Management Board resolutions require a simple majority of the votes cast, with the CEO having the casting vote in the event of a parity. All resolutions relating to measures and transactions that are of major signifi cance to the Company or that involve substantial fi nancial risk are adopted by the full Management Board. A business allocation plan governs the areas of responsibility of Management Board members. Each Management Board member manages those areas under his or her own responsibility within the framework of Management Board resolutions. In the 2016 fi nancial year, the Management Board consistently comprised four members, namely Jürgen Hermann (CEO), Stefan A. Baustert (Finance), Udo Faulhaber (Sales and Consulting) and Felix Höger (Technology and Operations).
Targets for share of women on Management and Supervisory Boards met in 2016. In line with statutory requirements, in 2015 QSC published its targets for the share of female members of its Supervisory Board, Management Board and top two management tiers. In the past fi nancial year, the Company also complied with these targets. Based on a Supervisory Board resolution, the share of female members of this body should amount to at least 16.6%. In 2016, women accounted for 50% of its members. A target of 0% applied for the Management Board in 2016; this is because the terms in off ice of the Management Board members, all of whom are men, will only end after the target date set by lawmakers, namely 30 June 2017. For the two top management tiers, the Management Board aims to achieve a 5% share of women in the fi rst management tier and 10% in the second management tier by 30 June 2017. These fi gures refl ect the Company's core focus on IT and technology and the associated circumstance that in some cases all applicants for vacant positions are men. As of 31 December 2016, women made up 12% of the managers in the fi rst tier and 16% in the second tier.
Gender parity on Supervisory Board. Pursuant to the Articles of Association, QSC's Supervisory Board comprises six members. Two thirds of Supervisory Board members are elected by shareholders and one third by employees. The Supervisory Board comprises three women, of which two employee representatives, and three men. The term in off ice of all members expires upon the conclusion of the Annual General Meeting for the 2017 fi nancial year. Unless otherwise stipulated by law or the Articles of Association, the Supervisory Board and its
committees adopt resolutions by a simple majority vote. Four Committees – the Nomination,
50% Share of women on
Supervisory Board
Human Resources, Audit and Strategy Committees – were in place throughout the past fi nancial year. All committees regularly report to the full Supervisory Board and prepare draft versions of its resolutions where appropriate. Detailed information about the activities of the Supervisory Board and its committees can be found in the Supervisory Board Report on Pages 13 to 18.
Supervisory Board composition meets statutory and proprietary objectives. As recommended in Point 5.4.1 of the Code, the Supervisory Board members together possess the knowledge, ability, and expert experience required for the Board to properly perform its duties. The Supervisory Board includes at least one member who is independent in the sense of § 100 (5) of the German Stock Corporation Act (AktG) and has expert knowledge in the fi elds of accounting or auditing. As longstanding Director of the Group Tax Department at the globally active SAP Group, Ina Schlie satisfi es all aspects of this requirement. Alongside Dr. Frank Zurlino, Managing Partner at the management consultancy Horn & Company, she is an independent member of the Supervisory Board.
The number of former Management Board members on the Supervisory Board is limited to a maximum of two. At present, these relate to QSC's two founders and largest individual shareholders, Dr. Bernd Schlobohm and Gerd Eickers. Moreover, the Supervisory Board still does not include any members who hold directorships or perform advisory functions at signifi cant competitors. With a 50% share of female members, the Supervisory Board signifi cantly exceeds its own target of 16.6% in this respect. Upon the latest election, all candidates were aged below 75. Unlike recommended in the Code, the Supervisory Board has deliberately decided not to set a limit on the period of membership in the Supervisory Board. It does not believe that it would be in the Company's best interests to set an advance limit on the length of time individual members should sit on the board.
Transactions of fundamental importance require Supervisory Board approval. The Management Board informs the Supervisory Board without delay and comprehensively of issues important to the Company with regard to strategy, planning, business development, and to its risk situation, risk management and compliance. The Rules of Procedure for the Management Board require Supervisory Board approval to be obtained prior to the conclusion of any major business transactions, such as the adoption of annual planning and major investments, acquisitions and fi nancing measures. These Supervisory Board decisions are prepared in detail and discussed in the committees and by the full Supervisory Board.
Mandatory compliance principles. QSC views corporate governance as providing a framework for managing and supervising the entire Company. Its internal policies are therefore consistent with the Code. Moreover, QSC's corporate management is based on a system of shared values.
Internal guidelines consistent with Code requirements
SEE PAGES 13 FF. SUPERVISORY BOARD REPORT The main contents of this system are summarized in QSC's Compliance Guidelines. These are binding for the Management Board and for all employees and are also expected to shape business dealings with third parties.
Integrity plays a key role within this system of values. The Company views integrity as the guiding principle and yardstick for proper corporate management and strictly observes compliance with laws and in-house regulations. In this, QSC sets great store by the sense of responsibility and personal integrity of all its employees. QSC expects its employees to behave impeccably in legal and ethical terms in their day-to-day work. This way, the Company aims to avoid adverse consequences for itself and for the public at large.
The key focus here is on prevention – inappropriate conduct should be avoided from the outset. Practice-oriented training events help raise all employees' awareness of the importance of topics such as legal compliance and professionalism in their dealings with third parties. QSC strictly observes compliance with dual control principles and the segregation of responsibilities. Guidelines on critical points, such as insider trading law, information security, data protection, approval and signature authorisations, risk management, travel expenses, procurement and all aspects of customer relationships, provide the clarity needed to ensure appropriate conduct in everyday operations. Despite these measures, the risk of individuals acting improperly cannot be precluded entirely. Any individual infringements occurring in spite of all preventive measures are clarifi ed and penalised without regard to the individual and his or her position.
QSC views compliance as an important management task. Compliance requires the ongoing attention of the Company's directors and off icers. The Management and Supervisory Boards therefore address this topic regularly, as does the Audit Committee. In doing so, they draw on information such as the quarterly risk reports, in-house controlling and internal audit reports. The associated discussions generate major impetus for enhancing the compliance management system on an ongoing basis.
Declaration made by the Management and Supervisory Boards of QSC AG pursuant to § 161 of the German Stock Corporation Act (AktG) regarding the Company's compliance with the German Corporate Governance Code (DCGK) in the version dated 5 May 2015
Since its formation, QSC AG ("QSC") has been committed to good corporate governance and has viewed transparency and value-driven management as essential. Consequently, the Company implements nearly all recommendations set forth in the German Corporate Governance Code and adheres to them in its daily work. Since the submittal of its last Declaration of Conformity, the Company has complied and continues to comply with the recommendations of the Government Commission "German Corporate Governance Code" in the version dated 5 May 2015, with the following exceptions:
Guidelines provide clarity as to correct conduct in daily work
No exclusion of retroactive changes to the performance targets or comparison parameters for the variable compensation of Management Board members (Item 4.2.3, Paragraph 2, Sentence 8 of the Code). Management Board members receive variable compensation, the amount of which for the long-term incentive (LTI) component is based on the achievement of multiyear targets over a three-year performance period. Target agreements for multiyear targets were concluded with three Management Board members in March 2015. Upon concluding a further target agreement with a Management Board member who commenced his activity in 2016, on 18 August 2016 the Supervisory Board decided to adjust individual parameters of the target agreements concluded in March 2015. The Supervisory Board is of the opinion that external developments unforeseeable in March 2015 have made it necessary to restore the incentive eff ect of the variable compensation on a uniform basis for the Management Board members in the interests of the Company and thus boost the overall responsibility of the Management Board.
No regular limit set for length of Supervisory Board membership (Item 5.4.1, Paragraph 2, Sentence 1 of the Code). The Supervisory Board of QSC has set specifi c targets for its composition that are consistent with the recommendations made in Item 5.4.1 with the exception of the requirements to set a regular limit for the length of Supervisory Board membership. The Supervisory Board believes that it would not be in the Company's best interests to set an advance limit on the length of individual board membership. It is basically desirable that the Supervisory Board should change its composition at certain intervals; on the other hand, the Company should also be able to draw on the expertise of experienced Supervisory Board members.
Cologne, 17 November 2016
Jürgen Hermann Dr. Bernd Schlobohm
On behalf of the Management Board On behalf of the Supervisory Board
Performance-based compensation system. One major element of good corporate governance involves transparently presenting the total compensation paid to members of corporate bodies. The compensation system for members of the Management Board was adjusted, most recently as of 1 January 2015, to account for modifi ed legal requirements, with these amendments being approved by the Annual General Meeting on 27 May 2015. The Supervisory Board continues to determine the total compensation payable to individual members of the Management Board. The criteria referred to when assessing the appropriateness of compensation on the one hand include the tasks of the individual Management Board member, his or her personal performance, and the Company's economic situation and its sustainable development. On the other hand, they take account of the appropriateness of compensation by reference to peer group companies and compensation structures otherwise applicable within the Company itself and at comparable companies. Furthermore, the compensation is structured to be competitive in the market for highly qualifi ed executives.
Fixed compensation accounts for a maximum of 50% of annual target compensation for Management Board members. The compensation system for the Management Board of QSC AG consists of fi xed and variable compensation components, pension benefi ts and other fringe benefi ts. The annual non-performance-related fi xed compensation makes up a maximum of 50% of total annual target compensation (comprising fi xed and variable compensation based on 100% target achievement). It accounts for the performance of the respective member of the Management Board and the function and responsibilities assigned to him or her. Fixed compensation is paid by transfer and in 12 equal monthly instalments at the end of each calendar month. Management Board members do not receive any separate compensation for assuming further groupinternal positions.
Furthermore, Management Board members receive variable compensation (bonus), the amount of which is based on achievement of annual targets (short-term incentive) and multiyear targets (long-term incentive), with both sets of targets being agreed in a separate target agreement. These targets may be based on Company-related key fi gures and /or on individual considerations. For Company-related key fi gures, they may also include more ambitious minimum targets than those communicated in external outlooks.
The assessment period for multiyear targets covers three fi nancial years. Multiyear targets are agreed at the beginning of the assessment period and must be met by the end of such period. When defi ning target achievement, the Supervisory Board may also agree further interim targets to be met over the individual fi nancial years in the assessment period and /or further conditions. Variable compensation is payable in cash and accounts for at least 50% of the total annual target compensation (based on 100% target achievement). Target achievement is basically determined following the adoption of the consolidated fi nancial statements relevant to the targets defi ned in the target agreement. Any resultant bonus is paid out at the end of the month in which the Annual General Meeting is held following expiry of the fi nancial year, to the extent that it relates to annual targets, and at the end of the month in which the Annual General Meeting is held following expiry of the assessment period, to the extent that multiyear targets are involved. Furthermore, the Company also grants pension benefi ts to its Management Board members.
Multiyear targets stretch over three financial years
These involve defi ned contribution commitments for benefi ts provided by insurance companies and pension funds and /or commitments to pay a fi xed amount to enable the member to secure his or her own suitable provision for retirement and for surviving dependants.
The other fringe benefi ts granted to Management Board members mainly relate to the provision of a company car, payment of a car allowance and insurance provision customary to the market.
Variable compensation dependent on achievement of minimum targets. The Supervisory Board agrees lower and upper limits for the achievement of each individual annual and multiyear target. Failure to meet lower limits or any condition governing an annual target and /or multiyear target results in the complete loss of the variable compensation attributable to the respective target. In the case of the multiyear target, the variable compensation attributable to the respective target may be lost for the entire assessment period. Non-achievement of an interim target results in the partial or complete loss of the compensation dependent on achievement of such target. The upper limit serves to cap variable compensation in the event of exceptional developments at a maximum of 1.5 times the target compensation attributable to variable compensation and attainable upon 100% target achievement.
In concluding target agreements, the Supervisory Board ensures that the share of variable target compensation due to achievement of the multiyear targets basically reaches the share attributable to achievement of the annual targets. The share of variable compensation due to annual targets may nevertheless be weighted more signifi cantly to the extent that the compensation structure remains focused on the Company's sustainable development and on providing a longterm performance incentive by including other elements (such as additional bonuses by way of shares and stock options).
To recognise the achievement of multiyear targets and promote the Company's sustainable development, the Supervisory Board may commit to paying Management Board members an appropriate additional bonus in the form of shares or stock options in QSC and, if so, agree suitable waiting, holding and exercise periods. This may further increase the share of total variable compensation attributable to variable compensation of a long-term incentive nature, as well as the share of total target compensation attributable to variable compensation. Finally, to acknowledge exceptional performance, the Supervisory Board may – at its own discretion – grant Management Board members a suitable additional bonus in cash or in the form of shares or stock options in the Company. Holding and exercise periods may be agreed in this regard as well.
Management Board compensation for 2016. Total Management Board compensation for the 2016 fi nancial year came to € 1,973k, as against € 1,182k in the previous year.
The year-on-year increase was due above all to the Group being managed by four Management Board members throughout the 2016 fi nancial year, whereas for long periods of the previous 2015 fi nancial year the Management Board had only three members. Due to the higher level of target achievement compared with the previous year, the variable share of compensation for the annual target also increased. Furthermore, total compensation for 2016 also includes share- based compensation of € 217k (2015: € 92k) granted to three Management Board members in connection with the subscription of a total of 400,000 convertible bonds within the 2015 stock option plan. Individualised Management Board compensation is presented in the table on Pages 44 and 45.
Long-term components of compensation granted high priority
SEE PAGES 44 – 45 COMPENSATION OVERVIEW In the target agreements entered into for the 2016 fi nancial year, a congruent annual target and two separate, equally weighted multiyear targets were agreed for all Management Board members in off ice in the fi nancial year under report. Furthermore, the Supervisory Board granted a special bonus to one Management Board member in recognition of exceptional performance. The 2016 annual target, which was linked to consolidated EBITDA for the 2016 fi nancial year, was not fully reached. As a result, the Management Board members are only entitled to prorated shares of their bonuses. The assessment period for multi-year targets covers the fi nancial years from 2015 to 2017. Target agreements for multiyear targets were entered into with three members of the Management Board in March 2015. When entering into a further target agreement with a Management Board member who commenced his activity in the 2016 fi nancial year, the Supervisory Board resolved on 18 August 2016 to adjust individual parameters in the target agreements concluded in March 2015. The Supervisory Board believes that external developments unforeseeable in March 2015 necessitated these amendments in order to restore a uniform incentive eff ect for Management Board variable compensation in the interests of the Company and to boost collective Management Board responsibility.
The adjusted multiyear targets continue to be linked to consolidated EBITDA for the 2017 fi nancial year and to the revenues generated in the new high-growth Cloud segment in the 2017 fi nancial year.
The share of multiyear variable compensation attributable to the 2016 fi nancial year amounts to € 550k in total. This is only deemed to have been granted and is only disbursed when the targets set for the end of the assessment period have been fully met. There were no indications at the end of 2016 that the targets set for the 2017 fi nancial year would not be met. No loans were granted to Management Board members.
Benefi ts in the event of premature termination. All Management Board members have been promised settlements should their Management Board activities be prematurely terminated due to effective revocation of their appointment by the Company within the first two years covered by their employment contracts. These settlements amount to € 600k each in the case of Jürgen Hermann and Felix Höger and to € 500k each for the two other Management Board members Stefan A. Baustert and Udo Faulhaber. In the fi nal year of their employment contracts, this settlement reduces by one twelfth per month in which the employment relationship still pertained in the fi nal year of the contract. There is no entitlement to any settlement payment should the employment relationship being terminated without notice due to compelling reason (§ 626 BGB) or in the event of the employment relationship being terminated due to the respective Management Board legitimately resigning from his position. Should Management Board activity be terminated by mutual agreement and without compelling reason, the total value of the benefi ts committed by the Company in any agreement of this nature should not exceed the amounts of € 600k or € 500k respectively.
Disclosures on retired Management Board members. Compensation of former Management Board members came to € 0k in the 2016 fi nancial year (2015: € 421k). Dr. Bernd Schlobohm, a former Management Board member, was granted a direct pension commitment for a retirement, occupational disability and widow's pension in 1997. At the
Targets based on EBITDA and growth in Cloud segment
balance sheet date, the obligation amounted to € 1,884k prior to the off setting of reinsurance claims of € 1,282k. The actuarial present value of provisions for vested pension claims for other former Management Board members amounts to € 96k.
Shares and convertible bonds held by Management Board members. The following table presents individualised information about the number of shares and convertible bonds held by members of the Management Board:
| Shares | Convertible bonds | ||||
|---|---|---|---|---|---|
| 31 Dec. 2016 | 31 Dec. 2015 | 31 Dec. 2016 | 31 Dec. 2015 | ||
| Jürgen Hermann | 400,000 | 340,000 | 350,000 | 350,000 | |
| Stefan A. Baustert | 40,000 | 40,000 | 200,000 | 100,000 | |
| Udo Faulhaber (since 1 August 2015) | - | - | 150,000 | - | |
| Felix Höger (since 1 January 2016) | - | - | 150,000 | - | |
| Henning Reinecke (until 30 April 2015) | - | 1 5,000 |
- | 1 150,000 |
1 Holdings at the time of retirement from the Management Board.
Jürgen Hermann purchased shares in the Company via the stock exchange in the 2016 calendar year and thus while he was an active member of the Management Board (please also see the corresponding directors' dealings notifi cations made pursuant to § 15a of the German Securities Trading Act [WpHG] on QSC's website).
Furthermore, the Management Board members Stefan A. Baustert, Udo Faulhaber and Felix Höger subscribed convertible bonds in QSC AG. These had been allocated to them by the Supervisory Board on 20 August 2015 within the 2015 Stock Option Plan.
The following table presents information about the convertible bonds granted to Management Board members in the 2016 fi nancial year:
| Convertible bonds granted | |||||
|---|---|---|---|---|---|
| Date | Number | Conversion price | |||
| Stefan A. Baustert | 15 Jan. 2016 | 100,000 | € 1.42 | ||
| Felix Höger | 1 Apr. 2016 | 75,000 | € 1.10 | ||
| Udo Faulhaber | 5 Apr. 2016 | 150,000 | € 1.10 | ||
| Felix Höger | 6 Apr. 2016 | 75,000 | € 1.21 |
The convertible bonds may only be converted into shares in QSC AG after a four-year waiting period, i.e. options subscribed for 2016 may be converted at the earliest in the 2020 fi nancial year.
| Benefi ts granted in € 000s |
Jürgen Hermann Chief Executive Officer since 30 May 2013 |
Stefan A. Baustert since 1 January 2015 |
Member of the Management Board 2016 2016 (min.) (max.) 250 250 35 35 285 285 0 237 0 187 0 852 285 1,561 |
|||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2016 | 2016 | 2016 | 2015 | 2016 | |||
| (min.) | (max.) | |||||||
| Benefi ts granted | ||||||||
| Fixed compensation | 300 | 300 | 300 | 300 | 250 | 250 | ||
| Fringe benefi ts | 29 | 31 | 31 | 31 | 36 | 35 | ||
| Total | 329 | 331 | 331 | 331 | 286 | 285 | ||
| One-year variable compensation | 150 | 150 | 0 | 225 | 125 | 175 | ||
| Multiyear variable compensation | ||||||||
| Long-term incentive (2015 – 2017) 1 | 150 | 150 | 0 | 225 | 125 | 125 | ||
| 2015 Stock Option Plan 2 | - | - | - | - | 92 | 67 | ||
| Total compensation pursuant to DCGK | 629 | 631 | 331 | 781 | 628 | 652 | ||
| Reconciliation with total compensation pursuant to § 314 (1) No. 6a HGB in conjunction with DRS 17 |
||||||||
| Less annual variable target compensation granted | (150) | (150) | (125) | (175) | ||||
| Less Long-term incentive (2015 – 2017) 3 | (150) | (150) | (125) | (125) | ||||
| Plus annual variable actual compensation paid | 107 | 128 | 89 | 156 | ||||
| Total compensation | 436 | 459 | 467 | 508 | ||||
| Total expenses for share-based compensation | ||||||||
| recognised in reporting period | 38 | 38 | 10 | 39 |
| Benefi ts paid in € 000s |
Jürgen Hermann Chief Executive Officer since 30 May 2013 |
Stefan A. Baustert Member of the Management Board since 1 January 2015 |
|||
|---|---|---|---|---|---|
| 2015 | 2016 | 2015 | 2016 | ||
| Benefi ts paid | |||||
| Fixed compensation | 300 | 300 | 250 | 250 | |
| Fringe benefi ts | 29 | 31 | 36 | 35 | |
| Total | 329 | 331 | 286 | 285 | |
| One-year variable compensation | 107 | 128 | 89 | 106 | |
| Multiyear variable compensation | |||||
| Long-term incentive (2015 – 2017) 1 | 0 | 0 | 0 | 0 | |
| 2015 Stock Option Plan 2 | 0 | 0 | 0 | 0 | |
| Sundry | - | - | - | - | |
| Total compensation pursuant to DCGK | 436 | 459 | 375 | 391 |
> Footnote numbers are explained on Page 46.
| Udo Faulhaber | since 1 August 2015 | Member of the Management Board | Felix Höger | since 1 January 2016 | Member of the Management Board | Henning Reinecke until 30 April 2015 |
Member of the Management Board | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2016 | 2016 | 2016 | 2015 | 2016 | 2016 | 2016 | 2015 | 2016 | 2016 | 2016 |
| (min.) | (max.) | (min.) | (max.) | (min.) | (max.) | ||||||
| 104 | 250 | 250 | 250 | - | 300 | 300 | 300 | 67 | - | - | - |
| 13 | 31 | 31 | 31 | - | 42 | 42 | 42 | 16 | - | - | - |
| 117 | 281 | 281 | 281 | - | 342 | 342 | 342 | 83 | - | - | - |
| 52 | 125 | 0 | 187 | - | 150 | 0 | 225 | 42 | - | - | - |
| 52 | 125 | 0 | 187 | - | 150 | 0 | 225 | - | - | - | - |
| - | 73 | 0 | 990 | - | 77 | 0 | 1,040 | - | - | - | - |
| 221 | 604 | 281 | 1,645 | - | 719 | 342 | 1,832 | 125 | - | - | - |
| (52) | (125) | - | (150) | - | - | ||||||
| (52) | (125) | - | (150) | - | - | ||||||
| 37 | 106 | - | 128 | - | - | ||||||
| 154 | 460 | - | 547 | 125 | - | ||||||
| 0 | 14 | - | 15 | 138 | - |
| Udo Faulhaber Member of the Management Board since 1 August 2015 |
Felix Höger Member of the Management Board since 1 January 2016 |
Henning Reinecke Member of the Management Board until 30 April 2015 |
|||
|---|---|---|---|---|---|
| 2015 | 2016 | 2015 | 2016 | 2015 | 2016 |
| 104 | 250 | - | 300 | 67 | - |
| 13 | 31 | - | 42 | 16 | - |
| 117 | 281 | - | 342 | 83 | - |
| 37 | 106 | - | 128 | 42 | - |
| 0 | 0 | - | 0 | - | - |
| 0 | 0 | - | 0 | 0 | - |
| - | - | - | - | - | - |
| 154 | 387 | - | 470 | 125 | - |
| Subscription date |
Number of convertible bonds |
Conversion price in € |
Present value of conversion right on subscription date in € |
Maximum value of share-based compensation in € 000s |
|
|---|---|---|---|---|---|
| Stefan A. Baustert | 15 Jan. 2016 | 100,000 | 1.42 | 0.67 | 852 |
| Udo Faulhaber | 5 Apr. 2016 | 150,000 | 1.10 | 0.49 | 990 |
| Felix Höger | 1 Apr. 2016 | 75,000 | 1.10 | 0.49 | 495 |
| Felix Höger | 6 Apr. 2016 | 75,000 | 1.21 | 0.55 | 545 |
Conversion into shares in QSC AG is only possible after a holding period of 4 years, and at the latest 8 years after the subscription date. The minimum value of the convertible bonds granted amounts to € 0, as it would make no economic sense to exercise the conversion rights if the stock market price falls short of the conversion price determined upon subscription of the options in the period in which the subscription rights apply or should the exercise hurdles and performance targets laid down in the bond terms not be achieved. The maximum value of share-based compensation in connection with the 2015 Stock Option Plan is reached when the weighted average price of QSC AG shares in Xetra trading on the Frankfurt Stock Exchange on the 20 trading days preced ing the day on which the exercising of the conversion declaration becomes eff ective pursuant to the bond terms exceeds the conversion price by at least seven times.
This compensation does not require inclusion in total compensation pursuant to § 314 (1) No. 6a of the German Commercial Code (HGB), as non-share-based compensation is only deemed granted once any conditions precedent have been met.
Supervisory Board compensation. Consistent with the provisions in the Articles of Association of QSC AG, each member of the Supervisory Board receives fi xed annual compensation of € 35k payable after the end of the fi nancial year. The Chairman and his or her Deputy receive € 70k and € 50k respectively. In addition to compensation for their duties on the Supervisory Board, each Supervisory Board member receives separate compensation of € 5k for their activities in any Supervisory Board committee (except the Nomination Committee). Committee chairmen receive € 10k. Members sitting on several committees nevertheless receive a maximum total of € 25k for their committee activities. Supervisory Board members sitting on the Supervisory Board or a committee for only part of a given fi nancial year receive prorated compensation.
As in the previous year, for its activity in the 2016 fi nancial year the Supervisory Board received total compensation of € 315k. The table below presents individualised information about the compensation paid to Supervisory Board members, as well as about their respective holdings of shares and convertible bonds.
| Compensation as per § 15a of Articles of Association (€ 000s) 1 |
Shares | Number of convertible bonds | ||||||
|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | 31 Dec. 2016 | 31 Dec. 2015 | 31 Dec. 2016 | 31 Dec. 2015 | |||
| Dr. Bernd Schlobohm, Chairman | 95 | (25) | 95 | (25) | 15,519,910 | 15,518,372 | 132,000 | 200,000 |
| Dr. Frank Zurlino, Deputy Chairman | 60 | (10) | 60 | (10) | 10,000 | 10,000 | - | - |
| Gerd Eickers | 40 | (5) | 40 | (5) | 15,577,484 | 15,577,484 | - | - |
| Ina Schlie | 45 | (10) | 45 | (10) | - | - | - | - |
| Anne-Dore Ahlers 2 | 35 | - | 35 | - | - | - | 2,700 | 2,700 |
| Cora Hödl 2 | 40 | (5) | 40 | (5) | - | - | 4,100 | 4,100 |
| Total | 315 | (55) | 315 | (55) |
Numbers in parentheses refer to compensation
for committee activity included in total amount.
2 Employee representative.
Apart from the reimbursement of travel and other out-of-pocket expenses, no member received any further compensation or other advantages for personal services rendered over and above the compensation presented here, neither were any loans granted to Supervisory Board members. QSC AG maintains liability indemnifi cation insurance coverage for members of the Supervisory Board.
Employee totals brought in line with revenue performance. QSC had a total of 1,360 employees as of 31 December 2016, equivalent to a further reduction of 94 employees on the previous year. At the end of 2014, QSC still had 1,697 employees. Within its cost-cutting programme, the Company has in two years managed to adjust the size of its workforce in line with its revenues. Revenues per head already rose again in 2016. Including customary personnel turnover, a total of 622 employees left the Company in the past two years. QSC thus parted company with more employees than necessary to ensure suff icient capacities to hire 285 specialist and management staff , mainly cloud experts, SAP consultants and sales employees. This way, QSC has made substantial progress with its organisational restructuring.
As of 31 December 2016, most employees worked at the two main locations in Cologne and Hamburg, with 411 employees at the Company's headquarters in Cologne and 657 in Hamburg. The other employees are mostly divided between subsidiaries, sales off ices and branches in other German cities. Of the total workforce, 15% works partly or exclusively from home.
Employees are our greatest source of added value. Notwithstanding unavoidable savings measures, QSC regards its employees as its most important source of added value. The Company's success is driven by their commitment and their will to perform. The increasing pace of social and technological change presents the Personnel Department with the challenge of continually and fl exibly adapting to and helping to shape the dynamic environment in which the Company operates. QSC is therefore drawing on intensive training and development for its specialists and executives and on numerous measures aimed at promoting cooperation between the Company's locations and departments.
QSC trains young specialists. The Company granted high priority to vocational training once again in the past fi nancial year and also took on 22 young colleagues upon the completion of their work-study or training programmes. At the same time, 20 young people began their train ing in
15% Share of employees using home office
Hamburg, Cologne, Munich and Nuremberg. QSC views this ongoing commitment as a crucial lever to secure the next generation of employees in times of demographic change and far-reaching shortages of specialists.
At the end of 2016, a total of 97 young adults were in training or work-study programmes. The training ratio thus amounted to 7%. QSC off ers various ways of entering the working world – vocational training as IT specialists with specialisms in system integration and application development or as commercial, IT and IT system assistants or via work-study programmes in business IT or business administration. Here, the Company collaborates with Nordakademie in Elmshorn, the University of Applied Sciences in Wedel and FOM University of Economics & Management, Cologne. Since the fourth quarter of 2016, QSC has also drawn on a work-study programme off ered in cooperation with Wirtschaftsakademie Kiel. Like QSC, this business school focuses on small and medium-sized companies. QSC is also the major sponsor of the IT Management and Consulting master's degree course at Hamburg University.
QSC actively markets the opportunities off ered by vocational training and to this end takes part in training fairs held in Cologne, Hamburg and other towns and cities. Further opportunities for making contact at an early stage include pupil internships, school partnerships and participation in Germany's nationwide "Girls' Days" and "Boys' Days".
As a further means of securing its next generation of employees, QSC also recruits university graduates in a targeted manner. The SAP junior programme was expanded in both qualitative and quantitative terms in 2016. At the end of the year, this programme had 24 participants and thus two more than one year earlier. At the same time, the programme was extended with an all-round training and coaching concept.
High priority accorded to further training. The further training and development off ered to all employees is geared above all to the Company's strategic development and is a core task of all management staff . Managers hold regular meetings with employees to assess their individual competencies, evaluate their potential and identify their development needs. Suitable measures are then taken and employees' development situations are subsequently reassessed. The QSC Academy off ers a broad range of seminars that are competence-based and career-oriented and cover both specialist and personal skills. One key focus in the past fi nancial year involved expanding training in the fi eld of IT service management in order to further optimise internal processes and interfaces. Most of our specialists and executives in technical departments successfully completed this training programme. Specialist training and qualifi cations are also granted particular priority, thus enabling the Company to react adequately to its rapidly changing market climate. To obtain support with personal, professional and health-related issues, employees also have the possibility of seeking free advice from the Fürstenberg Institut. This organisation also off ers a separate section for managers, thus enabling them to receive one-to-one coaching at any time over and above their normal development activities. To promote its women employees in particular, QSC once again took part in PepperMINT, a cross-mentoring programme in the Rhineland metropolitan region.
Participation in state-sponsored research project. Digitisation, increasing fl exibility and demographic change – all these factors present the ICT industry with numerous challenges. They require new concepts to help companies deal with existing know-how or new learning content, thus enabling them to remain innovative and competitive. QSC is not only promoting digitisation but, by participating in FLIP, a research project dealing with dynamic personnel and competency management, is also proactively facing the challenges ahead. This three-year programme is being supported by the Federal Ministry of Education and Research (BMBF). The objective is to develop and test new eff ective and eff icient forms and methods of learnings for employees in order to facilitate dynamic competency management.
Culture of respect and mutual appreciation. QSC has had its own system of values for many years now. The key principles of this system embody a corporate culture characterised by respect and mutual appreciation and by a focus on performance and results in our daily work. The integrated management development programme available across all locations and all hierarchical levels makes an important contribution in this respect. Its objective is to detect and promote talent at an early stage and thus, despite great diversity, to create a uniform understanding of management.
Living a culture of trust. QSC believes that an understanding of the personal situation of each and every employee and consideration of their wishes within the range of possibilities available to a medium-sized employer are natural components of any value-based corporate culture. The consistent availability of fl exible working hours helps employees to combine their family and work commitments. There are no core working hours and, in agreement with their supervisors, employees are free to perform part of their work from home.
Flexible working hours help to balance work and family commitments
Market-based compensation system. QSC pays all of its employees competitive compensation. The Company is not bound by any collective bargaining agreement, but gears its compensation and benefi ts towards individual and company-specifi c needs, as well as market standards. Alongside fi xed salaries, all employees also receive variable compensation based on the achievement of corporate targets. The share of employees' total salaries attributable to variable compensation rises with increasing responsibility.
Depending on their activities, specialists and executives are also provided with company cars. Furthermore, longstanding company aff iliation is rewarded with regulations governing sick pay and termination protection. QSC reports separately on the compensation paid to its Management Board from Page 40 onwards.
SEE PAGES 40 FF. COMPENSATION REPORT
Commitment demonstrated in training and at the workplace. QSC believes that long-term business success is intrinsically linked to sustainability. In the interests of customers, investors, employees and society as a whole, it therefore attaches very great value to achieving economic and ecological sustainability, as well as to its social commitment. Activities here have traditionally focused on vocational training and on ensuring that employees can combine their family and professional obligations. As an employer, QSC also accords priority to equality of opportunity and diversity. The workplace is characterised by a corporate culture based on respect.
As an employer, QSC promotes diversity and equal opportunities
Sustainable business activity requires well-informed employees. QSC works to raise awareness of sustainability among all its employees. It is important for them, particularly when communicating with customers, to understand the extent to which ICT services can help reduce energy needs and CO2 emissions. After all, these services enable employees at our own and other companies to avoid business travel and to work from home. QSC itself supports its employees with wide-ranging home off ice policies and promotes the training of its employees as internationally recognised energy managers (Chamber of Industry and Commerce – IHK). This involves extra-occupational practice-driven training in the fi eld of energy-eff icient technology. QSC is also setting a good example when it comes to reducing business travel-related energy consumption. Employees can select from two car-sharing models when booking cars. The travel expense policies explicitly provide for the use of such schemes. Equipping those departments that have contact to customers with Microsoft-Lync solutions, which make it possible to hold video calls quickly and inexpensively, has also helped avoid business travel. Video conference rooms enable large-scale meetings to be held without any travel or associated environmental impact. Consistent with the EU-wide CSR Directive, from the 2017 fi nancial year onwards QSC will be publishing disclosures on various sustainability aspects in a report on its non-fi nancial performance indicators.
Solid growth in German economy. Like in previous years, the German market was the key focus of QSC's business activities. Gross domestic product here grew by 1.9% in 2016, and thus faster than in the previous year (1.7%). The ifo business confi dence index, one of Germany's most important economic barometers, also pointed to a robust upturn. Between December 2015 and December 2016, this index rose by 2.6 percentage points to 111.0 points.
IT market among key growth drivers. According to estimates compiled by the Bitkom industry association, IT revenues in Germany rose by 3.6% to € 84.0 billion in 2016. The IT market thus grew at almost twice the rate of the overall economy, with a particularly marked increase in the software business. By contrast, TC revenues stagnated. Based on Bitkom estimates, overall revenues in the German ICT market had a total volume of € 160.5 billion in 2016 and were thus 1.6% ahead of the previous year's fi gure.
(in € billion)
Three out of four companies expect data centres to be located in Germany. The digital transformation is rapidly changing the ICT market, with both IT and TC services increasingly being provided online from the cloud. According to Cloud-Monitor 2016 — a study carried out by KPMG on behalf of Bitkom — more than half of all companies in Germany already drew on cloud services in 2016, while almost a fi fth are planning or discussing the deployment of such services. Three out of four companies expect their cloud service provider to operate data centres exclusively in Germany. This is one aspect where QSC scores highly, as all of its data centre infrastructure is located in Germany and is thus subject to that country's strict data protection regulations at all locations. The signifi cance companies now accord to cloud-related topics is underlined by a forecast issued by the Experton Group, according to which cloud-revenues in the German corporate customer market will virtually treble from € 11.5 billion in 2016 to € 31.4 billion in 2020. The IoT market harbours even greater revenue potential. According to a Deloitte study, revenues in Germany are set to nearly quadruple from € 13.7 billion in 2016 to € 50.1 billion in 2020. With its Pure Enterprise Cloud and its IoT full-stack portfolio, QSC is superbly positioned in both high- growth markets.
> 50% Share of companies using cloud services
More than 40% of companies plan to use SAP S/4HANA
German companies turning to SAP S/4HANA. QSC's strategy is also based on ongoing growth in its Consulting business. Here too, the Company has positioned itself favourably by focusing on the technological advance to SAP S/4HANA. A study compiled by Pierre Audoin Consultants shows that more than 40% of companies already have specifi c plans to introduce the new software generation, while 14% have already begun to do so. The study underlines that companies will invest heavily in external support for the new SAP software. QSC can expect to benefi t from this development in its Consulting segment in particular.
Core sections of TC market remain regulated. The German TC market relevant to QSC is in key aspects subject to regulation by the German Federal Network Agency. This is intended to ensure fair competition. Until 1998, Deutsche Telekom operated as a monopolist in the German market. Among other factors, it still possesses a nationwide, mostly copper-based infrastructure into all households that dates back to those days. Particularly for subscriber lines (local loops), i.e. the distance between the central off ice or cable branch and the respective customer connection, alternative providers continue to be dependent on this infrastructure built during Deutsche Telekom's time as a monopoly. In the past fi nancial year, the German Federal Network Agency took the following decisions relevant to QSC's business activities that will mainly lead to lower preliminaries costs.
Preliminary approval of fi xed-network interconnection and termination fees. The German Federal Network Agency published a draft decision on 7 December 2016 concerning interconnection and termination fees at Telekom Deutschland for a two-year period from 1 January 2017. This draft decision cuts termination fees by more than 58%, while interconnection fees have only been marginally reduced. This is due to the first-time application of the EU Termination Rates Recommendation and the diff erent cost standards set out therein for termination and interconnection fees. For interconnection fees, the tariff zones have also been abolished, as have the conversion fees for connections between NGN and conventional PSTN networks. This will make the migration from PSTN to NGN more eff icient. The European consulting procedure is currently underway.
Preliminary approval of mobile telephony termination fees. On 30 November 2016, the German Federal Network Agency published a preliminary approval of mobile telephony termination fees for the period from 1 December 2016 to 30 November 2019. Due to the fi rst-time application of the EU Termination Rates Recommendation, the approval provides for a graded reduction over three years: by around 34% to 1.1 cents /minute by 2017, to 1.07 cents /minute by 2018 and fi nally to 0.95 cents /minute. The European consulting procedure is complete and defi nitive approval is expected shortly.
Defi nitive approval of leased line fees. With its defi nitive resolution dated 15 December 2016, the German Federal Network Agency reapproved the license fees for leased lines for the period from 1 January 2017. As a pure Ethernet network has been used for the fi rst time as the cost basis, the fees for Ethernet-based leased lines have been reduced by around 17% on average.
Market analysis and defi nition for Market 4. Consistent with the European relevant markets recommendation issued in 2014, in its market defi nition for Market 4 published in 2016 the German Federal Network Agency newly included high level bitstream access alongside conventional and Ethernet-based leased lines. It has thus subjected bitstream access to regulation for the fi rst time. The obligations which the German Federal Network Agency will impose on Deutsche Telekom, the dominant market player in this area, and the way in which products will actually be structured in practice will be dealt with in the regulatory order due to be compiled in 2017 and the standard off ering then based on such.
Market analysis and defi nition for Market 1. According to the relevant markets recommendation, Market 1 now only comprises fi xed-network termination. The German Federal Network Agency has nevertheless taken account of specifi c national features and has also classifi ed the connection setup to added value services and operator (pre-) selection as still requiring regulation. These areas have therefore been allocated to the new Market 1. Based on the corresponding regulatory order which came into force on 1 January 2017, Deutsche Telekom is now also obliged to continue providing the preliminary service important for call-by-call services.
Growth in forward-looking business fi elds. The operating business performed largely as planned in 2016. Revenues rose in those business fi elds in which QSC – as the digitiser to the German SME segment – expected growth. Alongside the Cloud business, these included Consulting and the TC business with corporate customers. Consistent with expectations, however, revenues decreased in the TC business with resellers and the traditional Outsourcing business. Overall, the Company generated revenues of € 386.0 million in 2016 as against € 402.4 million in the previous year.
Cloud revenues rise by 148%. In Cloud, its newest segment, QSC generated revenues of € 18.1 million in 2016, compared with € 7.3 million in the previous year. This high growth was driven by the Company's success in marketing its Pure Enterprise Cloud and its IoT portfolio. QSC unveiled its innovative and new one-stop cloud-based off ering – its Pure Enterprise Cloud – to the public in February 2016. The range of services was gradually extended in subsequent months and this process was accompanied by the migration of the fi rst existing customers in the Outsourcing business to the new IT environment tailored to the requirements of the digital age. QSC also rapidly reported its first successes with new customers. In August 2016, for
example, the apt Hiller Group, a metal processing company, decided to use the Pure Enterprise Cloud at all fi ve of its locations. The company is thus standardising its previously very heterogeneous ICT landscape. The fi rst step involved providing all 400 workplaces with the one-stop cloud-based work environment "Enterprise Workplace Services".
The potential harboured by this new solution portfolio also convinced market observers. Just a few months after the marketing launch, the IT analysts' company Experton identifi ed QSC as a "Rising Star" in its "Workplace Services" category, i.e. in the provision of cloud-based turnkey virtual workplaces. QSC's IoT also met with great interest. In combination with other factors such as solution competence and customer satisfaction, it was the Company's "highly attractive range of advisory and integration services" that led Experton in autumn 2016 to identify QSC as a "Rising Star" in its "Industry 4.0/IoT Vendor Benchmark 2017" study as well.
Sharp increase in IoT project revenues in 2016
QSC's all-round IoT portfolio also convinced the fi rst customers in 2016, with a marked rise in project revenues. Among other customers, the Company worked with energy-related service providers and heating manufacturers on securely networking appliances. At the same time, the Company laid a foundation to cooperate with Schüco, one of the world's leading providers of high-quality window, door and façade systems. This cooperation is aimed at enabling these products to be centrally managed and monitored. QSC is developing and producing the new hardware, among other services, and is also operating a corresponding IoT platform.
(in € million)
Migration from traditional Outsourcing business to Pure Enterprise Cloud. Consistent with expectations, the revenues of € 117.4 million in the Outsourcing segment in 2016 fell short of the previous year's fi gure of € 138.5 million. In terms of the outsourcing and assumption of ICT services, in the past year QSC built on the cloud-based provision of corresponding services. In the interests of its Cloud business, which has the potential to generate higher returns, the Company decided not to acquire new customers in its traditional Outsourcing business. QSC is also off ering its existing customers the possibility of gradually migrating to industrialised and standardised outsourcing – and thus to the Pure Enterprise Cloud.
(in € million)
QSC continued to pay great attention to existing projects. Following a one-year transition phase, for example, since the end of May 2016 QSC has been operating all aspects of 23 SAP and other IT systems from its proprietary data centres on behalf of Gruner + Jahr, one of Europe's largest printing and publishing companies. This contract has a 60-month term.
Consulting on growth course. Consulting revenues rose to € 40.3 million in the past fi nancial year, up from € 38.0 million in the previous year. This growth was driven above all by the decision to focus from an early stage already on SAP's technological advance from the R /3 ERP product family to S/4HANA. In 2016, QSC generated 86% of its revenues with consulting services relating to SAP software and increased its sales in this area year-on-year by 12% to € 34.6 million. QSC's improved classifi cation by SAP in a recertifi cation in autumn 2016 underlines the Company's performance capacity in this core business fi eld. In its operation of the SAP HANA platform and its activities as an SAP hosting partner, QSC is now classifi ed as "excellent" rather than "advanced".
12%
Growth in revenues in SAP consulting business
(in € million)
SAP Microsoft
TC business with corporate customers grows by 4%. QSC increased its TC revenues with corporate customers by 4% to € 91.8 million in 2016. Here, it benefi ted in particular from higher demand for All-IP services from small and medium companies. QSC upgraded its network with IP technology ten years ago already. By contrast, TC revenues with resellers fell as expected in a toughly contested market. Overall, revenues in the Telecommunications segment came to € 210.2 million, as against € 218.7 million in 2015. In terms of earnings, this segment benefi ted in 2016 from a settlement reached with Deutsche Telekom for interconnection fees for the years from 2012 to 2016. All mutual lawsuits have been withdrawn in return for the one-off payment by Deutsche Telekom of a low single-digit million euro amount.
(in € million)
Savings achieved significantly exceed target of € 20 million
Organisational restructuring proceeding apace. The process of focusing on forward-looking business fi elds, and on the Cloud business in particular, necessitates a far-reaching organisational structuring process. To this end, at the beginning of 2015 QSC initiated a cost-cutting programme with a two-year timeframe. By the end of 2016, the Company had generated savings of around € 24 million in total and thus signifi cantly exceeded its self-imposed target of around € 20 million. These savings were substantially due to a scaling down in the workforce. At the end of 2016, QSC had 1,360 employees compared with 1,454 one year earlier.
QSC concludes savings programme with one-off write-downs. The cost-cutting programme supported the consistent realignment of the overall Company towards cloud-based services. With regard to the future revenue and earnings performance in the traditional Outsourcing business, in the course of preparing its 2016 consolidated fi nancial statements in December 2016 the Company recognised a one-off write-down of € 13.9 million on the goodwill and intangible assets in this segment. At the same time, it announced a one-off write-down of € 1.3 million in connection with the separation from its FTAPI subsidiary. QSC concluded the respective management buyout in January 2017.
Development focuses on Cloud products. In view of the opportunities harboured by its Cloud business, QSC is primarily dealing with innovations for this segment in its research and development (R&D) activities as well. The corresponding budget amounted to € 5.1 million in 2016, as against € 7.6 million in the previous year. Of this total, € 5.1 million was recognised as cost of revenues. In the previous year, € 7.3 million was expensed, while an amount of € 0.3 million was capitalised.
In 2016, the largest share of R&D spending was channelled into innovations relating to the IoT business fi eld, an area in which QSC is gradually building up a proprietary patent portfolio. QSC does not make a distinction between the work performed by developers and its ongoing operations either at the relevant subsidiary Q-loud or in other business fi elds. Unlike in previous years, the Company has therefore foregone any separate presentation of R&D employee totals.
QSC meets forecast. The Company's business performance in the 2016 fi nancial year was consistent with its plans. As a result, QSC met or even exceeded all of the targets published at the beginning of the year. According to the forecast presented at the end of February 2016, QSC expected revenues of between € 380 million and € 390 million, EBITDA of between € 34 million and € 38 million and a positive free cash fl ow. The Company forecast capital expenditure of
€ 30 million. In view of the moderate volume of capital expenditure in the fi rst three quarters, in November 2016 the Company raised its free cash fl ow forecast and subsequently expected its full-year free cash fl ow to exceed the previous year's fi gure of € 7.1 million. With a free cash fl ow of € 8.4 million, QSC slightly exceeded this expectation, while its full-year capital expenditure of € 28.4 million also remained moderate. With revenues of € 386.0 million and EBITDA of € 37.1 million, the Company's fi gures for these other two performance indicators were in the ranges forecast at the start of the year.
| Targets | Actual 2016 results | ||
|---|---|---|---|
| Revenues | € 380 – 390 million | € 386.0 million | |
| EBITDA | € 34 – 38 million | € 37.1 million | |
| Free cash fl ow | > € 0 / > € 7.1 million | € 8.4 million | |
| Capital expenditure | ~€ 30 million | € 28.4 million |
Revenues total € 386.0 million in 2016. QSC generated revenues of € 386.0 million in 2016, as against € 402.4 million in the previous year. Revenues grew in precisely those business fi elds in which the Company had expected growth – above all in the Cloud segment, but also in the Consulting and TC corporate customer businesses. By contrast, there was a marked reduction in revenues in the traditional Outsourcing business and in the TC business with resellers.
EBITDA amounts to € 37.1 million. QSC generated EBITDA of € 37.1 million in 2016, compared with € 42.2 million in the previous year. The Company already announced at the beginning of the year that further one-off expenses would be necessary, especially in the fourth quarter of 2016, in connection with the completion of the cost-cutting programme. Consequently, the EBITDA of € 7.3 million in the fi nal quarter of 2016 was signifi cantly lower than in the preceding quarters. Irrespective of this development, like in 2015 QSC generated a full-year EBITDA margin of 10%.
Free cash fl ow rises to € 8.4 million. The Company's free cash fl ow improved to € 8.4 million in 2016, compared with € 7.1 million in the previous year. The table below shows the amounts of all parameters at the two balance sheet dates on 31 December 2015 and 31 December 2016.
| € million | 31 Dec. 2016 | 31 Dec. 2015 |
|---|---|---|
| Liquidity * | 67.3 | 74.0 |
| Liabilities under fi nancing and fi nance lease arrangements | (1.7) | (4.5) |
| Liabilities due to banks | (149.4) | (158.0) |
| Interest-bearing fi nancing liabilities | (151.1) | (162.5) |
| Net debt | (83.8) | (88.5) |
* Cash and cash equivalents excluding liquidity of € 0.4 million included in disposal group.
It can be seen that net debt fell by € 4.7 million to € -83.8 million. QSC has long based it free cash fl ow reporting on the fi nancial strength of its operating business and therefore corrects the change in net debt to exclude the impact of extraneous measures such as acquisitions and dividends. The distribution of a dividend of € 0.03 per share for the 2015 fi nancial year led to an outfl ow of € 3.7 million in 2016. Correcting the net debt fi gure as reported to exclude this factor results in a free cash fl ow of € 8.4 million.
Capex mainly channelled into technology and infrastructure projects
Capital expenditure of € 28.4 million. QSC made capital expenditure (capex) of € 28.4 million in the past fi nancial year, as against € 26.7 million in the previous year. The Company thus remained within the target of around € 30 million published at the beginning of the year. Of capex, 56% was channelled into technology and infrastructure. Upon the market launch of the Pure Enterprise Cloud, QSC standardised the structures at its data centres, among other measures. A further 36% of capex was customer-related, while the remaining 8% involved licenses and other property, plant and equipment.
Gross margin improves by 3 percentage points. The Company-wide savings programme made a major contribution in 2016 as well to reducing the cost of revenues and thus to increasing gross profi t. Year-on-year, the cost of revenues decreased by € 25.0 million to € 312.6 million. Despite lower revenues, gross profi t grew by € 8.6 million to € 73.4 million. The gross margin improved from 16% to 19% in the year under report.
The positive eff ects of the savings programme were also refl ected in other cost items. Due above all to lower personnel expenses, sales and marketing expenses fell to € 34.7 million in 2016, down from € 37.1 million in the previous year. As a result of numerous savings within other administrative expenses, including among building and advisory expenses, overall general and administrative expenses only came to € 36.6 million, as against € 37.9 million in the previous year.
By contrast, other operating expenses rose signifi cantly to € -17.8 million in 2016, compared with € -1.7 million in the previous year. This increase was due to one-off write-downs of goodwill and intangible assets amounting to € 15.2 million in total. These items are explained on Page 57 of this Group Management Report.
Increased earnings strength in operating business. QSC's operating earnings strength can be better understood if, by analogy with the quarterly reports, depreciation, amortisation and noncash, share-based compensation components are reported separately in the income statement. Consistent with IAS 1, these fi gures are therefore a component of the individual cost items in these consolidated fi nancial statements. The following abridged income statement presents depreciation and amortisation as a separate line item.
| € million | 2016 | 2015 |
|---|---|---|
| Revenues | 386.0 | 402.4 |
| Cost of revenues* | (282.9) | (292.3) |
| Gross profi t | 103.1 | 110.1 |
| Sales and marketing expenses* | (33.0) | (34.9) |
| General and administrative expenses* | (31.8) | (32.2) |
| Other operating income | 2.8 | 0.7 |
| Other operating expenses* | (4.0) | (1.7) |
| EBITDA | 37.1 | 42.2 |
| Depreciation/amortisation | ||
| (including non-cash share-based compensation) | (50.2) | (53.3) |
| Operating earnings (EBIT) | (13.1) | (11.2) |
* Excluding depreciation /amortisation and non-cash share-based compensation.
It is apparent that, due to the development in revenues, EBITDA fell to € 37.1 million in the past fi nancial year, as against € 42.2 million in the previous year. Depreciation and amortisation totalled € 50.2 million in 2016, compared with € 53.3 million one year earlier. This fi gure includes impairment losses totalling € 15.2 million recognised on goodwill and customer relationships in the Outsourcing segment and on intangible assets in the FTAPI disposal group. As a result of these impairment losses, the operating earnings (EBIT) reported for 2016 were once again negative at € -13.1 million (2015: € -11.2 million). Excluding these impairment losses, QSC would have reported positive operating earnings of € 2.1 million.
The fi nancial result improved slightly from € -5.9 million in 2015 to € -5.8 million in 2016. Earnings before taxes came to € -18.9 million, as against € -17.1 million in 2015. Taxes on income amounted to € -6.1 million, compared with € 3.8 million in the previous year (adjusted value;
SEE PAGE 57 BUSINESS REPORT
SEE PAGES 106 FF. NOTES
Gross profit of € 2.9 million in Cloud segment
please see Note 6 in the Notes to the Consolidated Financial Statements). This change was due to the reduction in deferred tax assets recognised on losses carried forward. As a result, consolidated net income for 2016 totalled € -25.1 million, compared with € -13.3 million in 2015 (adjusted fi gure; please see Note 6 in the Notes to the Consolidated Financial Statements).
High-growth Cloud business generates gross profi t for fi rst time. As previously announced, QSC recruited numerous cloud experts in 2016 and thus laid a foundation to generate ongoing dynamic growth in this forward-looking segment. This led the cost of revenues to rise by € 7.0 million to € 15.2 million. Revenues nevertheless grew faster, rising by € 10.8 million to € 18.1 million. As a result, gross profi t improved by € 3.8 million to € 2.9 million in 2016, enabling QSC to report positive gross profi t in its newest segment for the fi rst time. Sales and marketing expenses also increased in 2016; at € -2.2 million the segment contribution was nevertheless signifi cantly ahead of the previous year's fi gure of € -5.4 million.
Personnel-intensive Consulting segment posts double-digit margin. QSC generated substantial growth in its Consulting business again in 2016, and especially in its business with SAP consulting services. In parallel, the Company further expanded its workforce and increasingly drew on external experts for individual projects. Due to this factor in particular, the cost of revenues rose by € 2.9 million to € 33.6 million in 2016. At € 6.7 million, gross profi t therefore fell short of the previous year's fi gure of € 7.3 million. As sales and marketing expenses remained virtually unchanged, this resulted in a segment contribution of € 5.2 million, as against € 5.6 million in the previous year. The corresponding margin came to 13%, compared with 15% in the previous year.
Outsourcing maintains its high margin. The migration of the fi rst Outsourcing customers to the Pure Enterprise Cloud began in the past fi nancial year. This was accompanied by a shift in the fi rst revenues to the Cloud segment. As a result, revenues and the associated cost of revenues both fell sharply in 2016. The gross margin amounted to € 31.6 million, down from € 41.0 million in the previous year. At € 24.3 million, the segment contribution also fell short of the previous year's fi gure of € 30.1 million. By contrast, the segment margin fell by just 1 percentage point to 21%, documenting the ongoing margin strength of the remaining Outsourcing business.
Attractive TC business with corporate customers. The Telecommunications segment comprises the high-margin business with corporate customers and the low-margin business with resellers. Thanks to its All-IP network, QSC generated growth with its corporate customers once again in 2016. As expected, however, its revenues in the toughly contested market with resellers declined. As the cost of revenues decreased overall at the same pace as revenues, the gross profi t of € 61.9 million remained almost unchanged on the fi gure of € 62.7 million for 2015. As in the previous year, the gross margin came to 29%. Given the opportunities harboured by the business
with corporate customers, QSC increased in sales and marketing expenses to € 19.2 million in 2016, up from € 17.7 million in the previous year. The segment contribution therefore amounted to € 42.7 million, as against € 45.0 million in 2015. At 20%, following on from 21% in 2015, the Company continued to generate an attractive margin.
Two core objectives of fi nancial management. QSC's fi nancial management serves to ensure smooth fi nancing of the operating business and upcoming capital expenditure. In this, it pursues two core objectives – maintaining and optimising fi nancing capacity and reducing fi nancial risks. QSC invests its surplus liquidity exclusively in money market and low-risk investments. As a result, like in previous years there was once again no need for capital investment write-downs in 2016. QSC deployed derivative fi nancial instruments in the form of interest swaps once again in 2016. These serve to hedge the interest rate risk on fl oating-rate tranches of the promissory note bond. As virtually all of QSC's operations are in the euro area, the Company is not exposed to any exchange rate risks. Further information about fi nancial risk management can be found in Note 46 of the Notes to the Consolidated Financial Statements.
In its fi nancing, the Company primarily depends on three sources. Firstly, it generates infl ows of cash from its operating activities. Secondly, QSC draws on the funds received from a promissory note bond taken up in 2014 with an original volume of € 150 million. Thirdly, the Company had a current credit line of € 70 million as of 31 December 2016. Apart from for guarantee facilities, the Company made no use of this credit line as of 31 December 2016.
High infl ow of funds from operating business. At € 40.3 million, the cash fl ow from operating activities for 2016 was slightly higher than the previous year's fi gure of € 39.6 million. By contrast, the cash fl ow of € -26.0 million from investing activities fell slightly short of the previous year's fi gure of € -27.4 million. The cash fl ow from fi nancing activities decreased to € -20.5 million, as against € -26.1 million in 2015. Overall, the resultant change in cash and cash equivalents came to € -6.2 million, compared with € -13.8 million in the previous year.
Congruent fi nancing terms ensured. QSC has traditionally accorded priority to ensuring matching maturities for the financing of its assets and has a solid balance sheet structure. As of 31 December 2016, shareholders' equity and long-term liabilities covered 133% of the value of long-term assets. In the previous year, this key fi gure also amounted to 133% (adjusted value; please see Note 6 in the Notes to the Consolidated Financial Statements). Long-term assets accounted for 60% of total assets. Due in particular to depreciation and amortisation, their
20% Attractive margin in TC business
SEE PAGES 151 FF. NOTES
SEE PAGES 106 FF. NOTES
value fell by € 29.3 million to € 185.0 million as of 31 December 2016. As a result of investments in data centres, the value of property, plant and equipment rose by € 0.2 million to € 62.6 million at the end of 2016. By contrast, one-off write-downs led goodwill to decrease by € 10.6 million to € 55.6 million. The value of other intangible assets fell by the same amount to € 30.8 million. This was due to both depreciation and amortisation and to impairment losses (please see Note
19 in the Notes to the Consolidated Financial Statements).
Within short-term assets, there was a reduction in the value of the two main line items. At € 45.8 million, trade receivables fell short of the previous year's fi gure of € 48.7 million, as did cash and cash equivalents, which came to € 67.3 million as against € 74.0 million as of 31 December 2015.
Shareholders' equity infl uenced by consolidated net income and dividend. Shareholders' equity totalled € 86.3 million as of 31 December 2016, compared with € 113.8 million at the end of 2015. As in the previous year, issued capital amounted to € 124.2 million, while the capital reserve rose by € 0.5 million to € 143.2 million. The accumulated defi cit amounted to € -177.2 million as of 31 December 2016, compared with € -150.0 million at the previous year's balance sheet date. This increase was attributable to the negative consolidated net income of € -25.1 million for 2016 and to the dividend payment of € 3.7 million. QSC charges this distribution directly to equity.
Long-term fi nancing provided by promissory note bond. Long-term liabilities decreased to € 159.3 million as of 31 December 2016, down from € 171.0 million at the previous year's balance sheet date. At € 145.4 million, the predominant share of this line item comprised liabilities due to banks. In 2014, QSC had taken up a promissory note bond with a term of 5 and 7 years. Short-term liabilities also declined, falling from € 63.3 million as of 31 December 2015 to € 59.2 million. This was primarily due to a reduction in trade payables to € 24.9 million, down from € 30.6 million at the previous year's balance sheet date.
Significant progress with organisational restructuring in 2016
Scheduled course of business with high Cloud growth in 2016 fi nancial year. The operating business performed in line with expectations in 2016. Revenues rose in those business fi elds in which QSC expected growth, and above all in its forward-looking Cloud segment. At the same time, the Company made substantial progress with its organisational restructuring and in this context achieved a further signifi cant reduction in its employee totals. Despite the ongoing restructuring programme and associated one-off outlays, QSC increased its free cash fl ow for 2016 by € 1.3 million to € 8.4 million.
Liquid funds in 2016
Strong growth in Cloud business. QSC will be concentrating once again in 2017 on those business fi elds in which it expects to generate growth in the years ahead – and here above all on the Cloud segment, as well as on Consulting and the TC busi-ness with corporate customers. In the Cloud business, the Company will focus on expanding its two main activities – the Pure Enterprise Cloud and IoT.
Overall, in the current fi nancial year QSC expects to generate revenues of between € 355 million and € 365 million and EBITDA of between € 36 million and € 40 million. Any stronger revenue performance will be prevented above all by the TC business with resellers. Due to market and regulatory factors, QSC expects revenues here to decline by around € 25 million. This factor will be accompanied by a planned reduction in revenues in the traditional Outsourcing business. Irrespective of these developments, the Company has budgeted a free cash fl ow fi gure slightly ahead of the previous year's fi gure of € 8.4million. The Opportunity and Risk Reports from Pages 67 and 69 respectively provide information about potential developments that from a current perspective could give rise to variances from the forecast provided here.
IT market set to grow, TC market to remain under pressure. Within the German ICT market, the growth in IT revenues has been countered for years now by TC revenues that have at best stagnated. These disparate developments will also shape the current fi nancial year. According to a forecast released by the Bitkom industry association, the overall ICT market in Germany is set to grow by a mere 1.2% to € 162.4 billion in 2017. The ICT market would thus show weaker growth than the overall economy, for which the Federal Government has forecast gross domestic product growth of 1.4% in 2017. Alongside a reduction in the IT hardware business, the factors referred to by Bitkom to explain this development relate above all to a decline in both fi xed-network and mobile TC revenues due to price competition and regulatory factors. The termination fees set by the authorities alone are set to fall by up to 58% in 2017 (please see Page 53 in the Business Re port).
SEE PAGE 53 BUSINESS REPORT
(in € billion)
Cloud business driving IT market. The IT market will once again outperform the TC market. In a Bitkom survey performed at the beginning of 2017, for example, 85% of software companies and 83% of IT service providers stated that they expected revenue growth in the current year.
The cloud business continues to act as a key growth driver. A study carried out by the management consultancy Bain & Company concludes that around 60% of all revenue growth in the global IT market over the next four years will be attributable to cloud products. The relevant market is expected to double in size. Market watchers expect to see similarly dynamic developments in the IoT business. By 2020, IoT revenues in Germany alone could almost quadruple. With its Pure Enterprise Cloud and its IoT portfolio, QSC acted early to position itself in both forward-looking markets.
(in € billion)
EBITDA margin set to improve in 2017
EBITDA margin expected to remain in double-digit territory. For the current fi nancial year, QSC has planned revenues of between € 355 million and € 365 million and EBITDA of between € 36 million and € 40 million. EBITDA should therefore remain at the previous year's level, while the EBITDA margin is set to improve compared with the previous fi nancial year. This development is the result of the progress made in terms of cost structures and of the decline in the traditional TC business. Furthermore, around 50% of the expected reduction in revenues in the current year is due to stricter regulation of the TC market. QSC traditionally treats these kinds of regulated fees as transitory items which do not have any impact on earnings. QSC will continue to implement its organisational restructuring process in the current fi nancial year. In particular, the expansion in its Cloud business will make it necessary to hire further specialists. In other areas, by contrast, the Company will press ahead with standardising processes and reduce its personnel intensity.
Further strong growth in Cloud segment. QSC expects its newest segment – Cloud – to generate the highest revenue growth once more in 2017. Key contributions here will come from the new and existing customer business with the Pure Enterprise Cloud and the IoT project business. QSC will be expanding its capacities in these forward-looking business fi elds and pooling its R&D resources and capital expenditure here as well. Thanks to the scalability of the business models, the Company expects the revenue growth to be accompanied by rising segment contributions.
Consistent revenue growth in Consulting. QSC expects the positive developments in its Consulting business to continue. This business is characterised by high personnel intensity, but the segment margin will remain in double-digit territory. In this segment, the Company benefi ts in particular from its all-round SAP competence and in particular from its extensive experience in deploying HANA technology.
Further decline in traditional Outsourcing. The traditional Outsourcing business is increasingly being replaced by cloud-based procurement models, as a result of which this business will play an ever less signifi cant role in the Company's future development. Back in 2015, QSC already decided no longer to participate in tenders in the traditional Outsourcing business involving the takeover of staff . Furthermore, existing contracts will in future only be extended if an adequate margin can be ensured on an ongoing basis. A major Outsourcing contract is expected to be terminated in the course of 2017. This is because the customer, which has global operations, would prefer to work with a global IT service provider.
IP business boosts TC revenues with corporate customers. The disparate developments seen for years now will continue to shape the Telecommunications segment in 2017. Slight growth in the business with corporate customers will be off set by a declining business with resellers due to market and regulatory factors. Stricter regulation alone will lead to a loss of revenues of around € 15 million. This factor will be exacerbated by further expected reductions of around € 10 million due to ongoing price competition. Among corporate customers, QSC will benefi t above all from increased demand from small and medium-sized companies for All-IP solutions. QSC has been operating an All-IP network for years already.
Capital expenditure of up to € 30 million planned. In the current fi nancial year, QSC expects to generate free cash fl ow ahead of the previous year's fi gure of € 8.4 million. The largest contribution will comes from the cash fl ow from operating activities. This will be countered by capital expenditure on a scale of up to € 30 million. Given its cash fl ow from operating activities and its existing liquidity, QSC is solidly fi nanced for the projects planned for the current fi nancial year.
~€ 15m Loss of revenues due
to stricter regulation
Dynamic climate offers fresh opportunities Opportunities thanks to dynamic digitisation. QSC is the digitiser to the German SME sector and one of only few providers in Germany able to off er companies all the services they need to enhance and prepare their IT for the digital age from a single source. As the market climate is highly dynamic, a continuous stream of new opportunities is expected. Responsibility for identifying and acting on such opportunities lies with the business fi elds. They are familiar with their specifi c market environments and alert to any resulting potential. In addition, the managers responsible draw on the expertise available in the Sales and Marketing department, as well as on market and competition analyses and internal studies. These managers regularly report to the Management Board on existing opportunities and the measures necessary to seize them. The Supervisory Board Strategy Committee also regularly deals with this issue. Specifi c opportunities are factored into the rolling planning, with a review being performed at an early stage to ascertain the risks involved in pursuing and implementing these opportunities. Here, the benefi ts of dovetailing risk and opportunity management are especially clear. QSC reports below on the future developments and events that could lead to a positive variance from the outlook provided in this Group Management Report. By analogy with risks, the Company classifi es these as "large" opportunities with a comparatively high probability of occurrence and a substantially positive contribution to its fi nancial position, fi nancial performance and cash fl ows.
Additional customers for the Pure Enterprise Cloud. QSC launched its cloud-based portfolio onto the market in 2016 and is continually expanding the services on off er. In 2017, the Company will be building on its initial success and addressing new and existing customers. Past experience shows that a substantial period of time generally passes between initial contacts with customers and revenue generation. To account for this, QSC has only budgeted a moderate volume of new customer revenues for the current year. However, demand could exceed our expectations as the IT in place at many small and medium-sized companies is increasingly reaching its limits given enormous technological advances and the requirements of digital business models.
More IoT projects in regular operation. QSC positioned itself at a very early stage with its fullstack approach in the forward-looking IoT market. Many SME players are still only beginning to address this topic and are initially implementing pilot projects. QSC has accounted for this in its planning for the current fi nancial year. Should one or several of these projects be transferred to regular operation, then this might trigger an additional boost to revenues. Further opportunities could arise if SME companies draw on QSC's extensive IoT expertise with regard to the production of networked appliances. This way, the Company could benefi t from growing turnover volumes with networked end appliances.
Technological advance to SAP S/4HANA. Advising customers on all aspects of SAP is traditionally one of the key focuses of the Consulting business. The software company is currently implementing the technological advance from its R/3 ERP product family to S/4HANA. As this new product family is a key to digitising business models, demand for corresponding advisory services may exceed expectations. As the digitiser for the SME sector, QSC has great credibility in this area and could simultaneously benefi t from the interplay of advisory and implementation services based on its Pure Enterprise Cloud.
Advance of All-IP connections. QSC has operated an end-to-end All-IP network in Germany for years now and is thus able to off er business customers uniform voice and data transmission based on the Internet Protocol (IP). Deutsche Telekom is now also upgrading its infrastructure and is simultaneously stopping the operation of its conventional voice network. For QSC, this results in two opportunities. Firstly, awareness of IP technology will increase noticeably among small and medium-sized companies. On the other hand, the switching off of conventional connections will oblige business customers to gain an overview of potential alternatives. QSC already benefi ted from this in 2016 and this factor could gain further momentum in 2017.
Replacement of ISDN technology in telephony systems. As a result of the upgrading in telecommunications technology to IP technology, conventional connections are now being switched off . It will then no longer be possible to simply continue operating ISDN telephony systems, which are still widely used. The more rigorously our competitors press their customers to convert to IP technology, the greater the opportunities available to QSC. After all, the Company on the one hand already off ers a broad range of IP-based telephony systems for corporate customers of all sizes. On the other hand, QSC has extensive expertise in integrating conventional telephony systems into All-IP solutions. This makes it possible for SME customers to continue using their existing systems and thus avoid having to make investments.
Shortage of specialists in SME sector. Digitisation presents German SME companies with enormous challenges, and that not only in technological terms. They are also fi nding it increasingly diff icult to press ahead with the necessary transformation with their own internal resources alone or to recruit additional specialists. This produces opportunities for broad-based service providers such as QSC.
Competitive advantage: advice and implementation from a single source
QSC identifi es risks at the earliest possible opportunity. Like all companies, QSC is permanently exposed to risks. Only by consciously addressing and assessing these risks can the Company maintain its competitiveness and achieve sustainable business success. Professional risk management therefore has to ensure that all events, actions or neglected actions that could potentially pose a threat to QSC's success, or even to its continued existence, are already identifi ed, analysed, assessed, managed and monitored at the earliest possible stage of their development. Risk management comprises coordinated procedures, measures and the necessary rules for dealing with risks. Uniform risk management serves as the basis for decisions at QSC and all its subsidiaries.
Company-wide uniform and integrated risk management system. To ensure the eff ectiveness of its risk management and facilitate the aggregation of risks and transparent reporting, QSC has implemented a Company-wide uniform integrated risk management system (RMS) and further optimised this system in the past fi nancial year. The use of a risk management software that has proven its worth for years now enables the Company to classify risks precisely and, as a result, to clearly focus on material risks.
The RMS is an integral component of decision-making processes at the Company. It ensures that risk assessments are considered in all decisions and that measures to reduce risks are taken at an early stage. Quarterly reports raise awareness of risk issues among all managers with responsibility for risk management. Guidelines, procedures and work instructions are in place to fl ank the RMS and ensure its implementation in day-to-day operations. The risk analyses, such as those required for management systems under ISO 27001 (Information Security) or ISO 9001 (Quality Management), ensure uniform, eff icient reporting.
All Company departments are included in the RMS. Managers reporting directly to the Management Board ("direct reports") continually monitor and assess the risks arising. Within the RMS framework, they are responsible as risk coordinators for making sure that the risks identifi ed are always up-to-date. Heads of department report to Corporate Risk Management at least once a quarter. They also regularly check whether any risks with material implications and previously undetected have arisen in their areas of responsibility and whether there is any need to amend the assessment of risks already recognised. This process ensures that potential risks in the operating business can be detected at an early stage.
Risk management is continually being optimised further Corporate Risk Management is responsible for risk reporting to group management. It also serves as an interface to other audit and /or certification processes and ensures that, there too, the risks relevant to the Company are uniformly recorded. The Finance department is responsible for monitoring risks on the basis of key operating and fi nancial performance fi gures.
Quarterly risk reporting to the Management Board. Corporate Risk Management continuously monitors the introduction of and compliance with measures to avoid and reduce risks. It also acts as a permanent contact partner for all departments.
Corporate Risk Management is responsible for consolidating and documenting the risks assessed by the risk coordinators. Based on the risk reports submitted by departments, it compiles a compact report (using the "R2C" software) and forwards this to the Management Board on a quarterly basis. The Management Board is informed immediately of any high risks newly detected. The Management Board informs the Supervisory Board with an extensive risk report at least once a year. Furthermore, it also uses the RMS as a means of keeping the Supervisory Board informed of all material risks newly arising.
Risk Management Guidelines issued by the Management Board govern the approach to handling risks and defi ne risk management processes and organisational structures. These guidelines are reviewed and modifi ed as necessary on a regular basis, and at least once a year. In the context of their audit of the fi nancial statements, the external auditors each year review whether the RMS is suitable for the early detection of any risks to the Company's continued existence. Further information about the RMS in respect of IFRS 7 disclosure obligations for fi nancial instruments can be found in the Notes to the Consolidated Financial Statements from Page 151 onwards.
Classifi cation of risks by probability of occurrence and potential implications. The "Risk to Chance (R2C)" risk management software supports the overall risk management process throughout the Company. This tool initially uses a gross view to classify a risk in terms of its probability of occurrence and potential implications. This classifi cation cumulatively results from allocation to the respective categories. For the highest implication category ("threat to continued existence"), severe fi nancial damages have to be exacerbated by an actual or legal circumstance that would endanger QSC's continued existence. The following diagram provides an overview of the methodology used to classify risks.
Management Board informed immediately about any high risks
SEE PAGES 151 FF. NOTES
| Probability of occurrence > | Very low | Low | Medium | High | Very high |
|---|---|---|---|---|---|
| Damage class > |
|||||
| Immaterial | |||||
| Low | |||||
| Medium | |||||
| Serious | |||||
| Survival-endangering | |||||
| Low risk Assessment of probability of occurrence |
Medium risk | High risk | |||
| Very low: | Less than once in 5 years (approx. 0%) | ||||
| Low: | Not more than once in 5 years (approx. 25%) | ||||
| Medium: | Approx. once a year (approx. 50%) | ||||
| High: | More than once a year (approx. 75%) | ||||
| Very high: | Once a quarter or more (almost 100%) | ||||
| Damage class (estimated damage in the event of occurrence) | |||||
| Immaterial: | Under € 50,000 | ||||
| Low: | € 50,000 to € 250,000 | ||||
| Medium: | € 250,000 to € 1,000,000 |
General risks are analysed to assess whether and how these could specifi cally harm QSC. If this analysis concludes that relevant damages from such risks really are conceivable, then these risks are included as specifi c risks. General risks without any specifi c reference to the Company are otherwise not recorded in the RMS. General risks include developments such as global catastrophes, fi nancial system collapse, war and terrorist attacks.
Serious: Over € 1,000,000
Survival-endangering: As a result of legal or actual circumstances occurring
This risk analysis and classifi cation is followed by measures aimed at dealing with and monitoring risks. These serve to reduce existing risks by way of suitable measures, to hedge risks with provisions and insurance coverage, where this is economically expedient, and to raise awareness of existing residual risks and /or risk acceptance. This way, the gross analysis of risks is refi ned into a net analysis. The external risk report only includes those risks that still have to be deemed material for QSC's future business performance even after all risk reduction and avoidance measures have been factored in. In this status, classifi cation as "risk to continued existence"
only leads to an overall assessment of "high" if there is at least a "medium" probability of occurrence. Risks to the Company's continued existence that are assessed as having only a very low or low probability of occurrence – and that are not included in any greater detail in the net view – are therefore not classifi ed as "high" for ongoing observation purposes are not viewed overall as direct threats to the Company's continued existence.
As a result of this risk analysis, in its external risk report QSC reports risks that are either individually material or aggregates individually immaterial risks in suitable risk categories (e.g. regulatory risks). The assessments and accompanying comments and requirements are only provided in quantitative terms in cases where it is possible to quantitatively assess the extent of damages. As this is generally not possible, however, the relevant risks are usually classifi ed in terms of classes of damage.
Accounting risks permanently monitored. Risk management in respect of fi nancial reporting forms an integral component of the RMS. The risks involved in accounting and fi nancial reporting are constantly monitored, with the results being factored into Group-wide reporting. Within the audit of the annual fi nancial statements, the external auditor also reviews the fi nancial reporting process. Based on the auditor's fi ndings, both the Supervisory Board Audit Committee and the full Supervisory Board deal with the internal control system in respect of the fi nancial reporting process.
At QSC, the RMS is characterised by the following key features:
Risks classified into relevant damages class
With these measures, QSC creates the necessary transparency for its fi nancial reporting and – to the greatest extent possible and despite the enormous complexity of IFRS – prevents any potential risks arising in this process.
Focus on actual risk situation. Risk monitoring focuses not so much on the risks identifi ed by the gross evaluation as on the actual risk situation after taking relevant measures into consideration. Based on this net perspective, the following relevant risks were assessed as "high".
Decline in revenues in conventional TC business. The decline in German fi xed-network voice call volumes is continuing. Not only that, the share of the open call-by-call and preselect businesses has also consistently reduced. Rather than for these off erings, consumers are increasingly opting for fixed-network flat-rate plans or using mobile communication instead of the fi xed network. Price competition and regulation have led to further reductions in revenues. Information about the associated risks can be found in the separate "Regulatory risks" section. QSC is also exposed to price competition in the ADSL business with resellers targeting private customers. In this case, revenues are also falling due to growing demand for broadband and the resultant increase in the use of VDSL and cable connections.
By expanding its IT and cloud business, QSC has been reducing its dependency on the conventional TC business for years now. Not only that, the Company has combated the risk of revenue losses in this line of business by acting early to build up a fully IP-based NGN. At the same time, QSC has been reviewing whether and to what extent it can maintain its voice off erings on competitive terms following the potential expiry of further regulatory requirements. Irrespective of this, the Company expects the decline in revenues in the conventional TC market for private customers to continue in the years ahead as well, and for this to be accompanied by a further rise in pressure on margins. This is especially true of business with resellers, but also of business with sales partners.
QSC has long been reducing its dependency on the TC business
Lack of success in new business fi elds. QSC is pursuing a strategy of enabling small and mediumsized companies in particular to move forward to the digital age more easily and views the cloud as the IT architecture for the new age. The Company is therefore systematically extending its off ering particularly with cloud-based products and services. Such innovations represent an opportunity, but also involve risks. Delays may arise in the development process, thus leading to belated market launches. Any lack of market acceptance for the innovations may mean that the revenue and earnings contributions are only realised at a later point in time than expected. Delays may also arise when the sales organisation does not have the necessary specialist qualifi cations.
Not only that, any delays in realising the revenue and earnings contributions expected in the high-growth Cloud segment would also reduce the Company's financial scope for strategic investments and increase its vulnerability in future periods of macroeconomic weakness. QSC counters this risk by cooperating with potential partners and pilot customers at an early stage and before new products are launched onto the market. At the same time, with its Pure Enterprise Cloud it has created a modular service portfolio that integrates new cloud-based products and services, but also facilitates the extremely eff icient operation of these applications.
Operations stability. The ICT industry is undergoing structural transformation. Particularly when it comes to outsourcing IT applications, customers expect ever higher technical and operating quality at ever lower cost and, despite this, expect services to be tailored to their individual needs. Service providers such as QSC have to meet these exacting standards by ensuring stable operations accompanied by inexpensive production, while at the same time satisfying customers' wishes swiftly and eff iciently. Any lack of reliability in terms of operations stability may lead to a loss of both revenues and customers and thus impede the expansion in the business. By permanently optimising its operating organisational structure and taking measures to stabilise operations, QSC has created a basis enabling it to fully meet customers' expectations. These measures also include extensive and eff ective emergency plans, which safeguard the permanent availability of all services or their immediate restoration without any disadvantages for customers following any criminal attack.
Security. Safeguarding IT security and complying with all relevant provisions of data protection law are two crucial success factors in QSC's business activity. Any failure to do so would harm the Company's reputation. Protecting company data and personal data relating to customers and employees with all suitable means available in technological and organisational terms is therefore an absolute focus of the QSC's IT security strategy.
Regulatory risks. QSC continues to operate in the regulated German TC market. Here, there is still a tendency in the political arena, and thus indirectly on the part of the German Federal Network Agency and the European Commission, to limit or abolish access regulation in various QSC acts early to share experiences with partners and its pilot customers
markets and to restrict themselves from now on to monitoring these markets and, where ap propriate, to being able to intervene retrospectively on the basis of general fair competition law. There is a risk that the coming years will see a further reduction in the number of regulated markets. This could increase the scope of Deutsche Telekom AG (DTAG) to infl uence prices in markets already removed from regulation. Furthermore, there is the risk that specifi c regulated preliminary markets, especially bit-stream and subscriber lines (local loops) will be regionalised in such a way that specifi c preliminaries are no longer available in more competitive geographical sub-markets (e.g. metropolitan areas). The experience gained to date with the end of regulation in various markets shows that public monitoring of DTAG's competitive behaviour is insuff icient to keep this company from exploiting its newly gained room for manoeuvre. QSC nevertheless expects that ongoing public discussions and the investigation of relevant cases will promote conduct consistent with fair competition and that the German Federal Network Agency or the German Cartel Off ice will otherwise draw on their legal options.
Moreover, given its proprietary infrastructure QSC is signifi cantly less dependent than most other ICT providers on DTAG's resale prices for voice and data services. Nevertheless, margins in the German TC market could be adversely aff ected in particular by aggressive pricing policies on the part of DTAG in the preliminaries and end-customer markets outside cartel and regulatory limits or in markets no longer regulated.
The Company limits potential risks by closely monitoring the regulatory landscape and by participating on an ongoing basis in the relevant discussions and commenting on various proceedings.
Dependency on business partners. QSC generates its revenues with resellers in its Telecommunications segment with only a small number of large voice and DSL resellers. Losing one of these partners would noticeably reduce revenues at QSC. However, this would only impact to a lesser extent on its profi tability, as these revenues mainly involve lower margins. QSC counters this risk by carefully maintaining the successful business relationships that have grown over the years.
Lack of specialists. In the course of the organisational restructuring programme implemented over the past two fi nancial years, several important specialists left QSC at their own choice. Given the shortage of IT specialists on the German labour market, it was in some cases diff icult to fi nd adequate replacements within a short timeframe. This risk can be expected to continue to apply in 2017 and beyond. This may result in bottlenecks in operations and in the further development of existing and new IT applications. QSC is countering this risk above all by consistently training young specialists, cooperating with select universities and by off ering a range of targeted retention measures for especially important specialists and executives.
Wide range of measures to secure next generation of QSC employees
QSC is able to detect potential risks at an early stage and take appropriate action. Taking due account of the potential scope of damages and probabilities of occurrence of these and further potential risks, no risks that could result in any permanent and signifi cant impairment of the Company's fi nancial position, fi nancial performance or cash fl ows in the current fi nancial year are currently discernible. In organisational terms, all meaningful and reasonable prerequisites have been put in place to enable the Company to detect potential risks at an early stage and take appropriate action.
Due to these or other risks or to erroneous assumptions, QSC's future earnings may nevertheless materially deviate from the expectations of the Company and its management. All statements made in this Group Management Report that are not historical facts constitute forward-looking statements. They are based on current expectations and forecasts of future events and are regularly reviewed in a risk management context.
Customary regulations for a listed company. The following overview outlines the disclosures mandatory under § 315 (4) of the German Commercial Code (HGB). Overall, these involve regulations that are typical at listed companies. The following disclosures refl ect the circumstances at the balance sheet date.
Composition of issued capital. Issued capital amounted to € 124,172,487 as of 31 December 2016 and was divided into 124,172,487 no-par registered ordinary shares. According to the Share Register, these shares were distributed among 29,111 shareholders as of 31 December 2016.
Limitations on voting rights or transfer of shares. Each share grants one vote at the Annual General Meeting. A voting and pooling agreement is in place between the following shareholders with direct and indirect holdings in QSC: Dr. Bernd Schlobohm, Gerd Eickers and Gerd Eickers Vermögensverwaltungs GmbH & Co. KG. This agreement provides for the uniform exercising of voting rights and restrictions relating to the disposability of the pool-bound shares. The Management Board is otherwise not aware of any further limitations on voting rights or restrictions on the transfer of shares.
Direct or indirect holdings of more than 10% of capital. There are the following direct and (pursuant to § 22 of the German Securities Trading Act [WpHG]) indirect holdings in the Company's capital that exceed 10% of voting rights:
Bearers of shares with special rights conferring powers of control. There are no special rights conferring powers of control.
Voting right controls for employee holdings in capital. There are no voting right controls.
Appointment and dismissal of Management Board members. The appointment and dismissal of members of the Management Board is governed by § 84 and § 85 of the German Stock Corporation Act (AktG) and by § 7 of the Articles of Association in their version dated 30 January 2017. Pursuant to § 7 of the Articles of Association, the Management Board comprises one or more individuals. The Supervisory Board determines the number of Management Board members. Even though issued capital exceeds € 3 million, the Supervisory Board may stipulate that the Management Board should consist of only one individual. The appointment of deputy members of the Management Board is permitted.
Amendments to Articles of Association. Pursuant to § 179 of the German Stock Corporation Act (AktG), amendments to the Articles of Association require a resolution adopted by a majority of at least 75% of issued capital represented at a shareholders' meeting. Pursuant to § 15 of the Articles of Association, the Supervisory Board is authorised to adopt amendments and additions to the Articles of the Association that are of a purely formal nature and in themselves do not involve any changes to actual content.
Acquisition and buyback of treasury stock. By resolution of the Annual General Meeting on 29 May 2013, the Management Board is authorised pursuant to § 71 (1) No. 8 of the German Stock Corporation Act (AktG) until 28 May 2018 to acquire QSC shares on a scale of up to 10% of issued capital upon the adoption of the said resolution. To date, the Management Board has not acted on this authorisation.
Authorised capital. By resolution of the Annual General Meeting on 27 May 2015, the Management Board is authorised, subject to approval by the Supervisory Board, to increase the Company's issued capital by up to a total of € 50,000,000 on one or several occasions up to 26 May 2020 by issuing new no-par registered shares in return for contributions in cash and /or kind (authorised capital). When drawing on authorised capital, the Management Board may, subject to approval by the Supervisory Board, exclude shareholders' subscription rights in four cases: (1) to exclude residual amounts from shareholders' subscription rights; (2) when the new shares are issued in return for contributions in kind, particularly in the context of company acquisitions; (3) if, pursuant to § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG), the new shares are issued in return for cash contributions and if, at the time of fi nal stipulation, the issue price does not fall materially short of the stock market price of the shares already listed; and (4) to the extent necessary to issue subscription rights for new shares to the bearers or creditors of warrant and /or convertible bonds in order to avoid dilution of their respective holdings. This authorised capital is intended to enable QSC to react swiftly and fl exibly to opportunities arising on the capital market and where necessary to obtain equity capital on favourable terms. No use was made of authorised capital in the past fi nancial year.
Conditional capital. The Company had conditional capital totalling € 46,490,365 as of the balance sheet date. This was divided into Conditional Capital IV (€ 40,000,000), Conditional Capital VII (€ 750,365), Conditional Capital VIII (€ 5,000,000) and Conditional Capital IX (€ 750,000).
Conditional Capitals VII, VIII and IX serve to secure the conversion rights of bearers of convert ible bonds that QSC has issued or may issue within the framework of existing stock option plans to Management Board members (Conditional Capital IX), Management Board members, managing directors of aff iliated companies, employees of QSC and aff iliated companies (Conditional Capitals VII and VIII) and other parties contributing to the Company's success (Conditional Capital VII). Conditional Capital IV may be used by the Management Board to create tradable warrant and /or convertible bonds. The Management Board is authorised by resolution of the Annual General Meeting on 27 May 2015 to issue such instruments in order to access an additional,
low-interest fi nancing option given favourable capital market conditions. The convertible bonds may be issued in return for both cash contributions and contributions in kind. The Management Board is authorised, subject to approval by the Supervisory Board, to exclude shareholders' subscription rights to these warrant and /or convertible bonds in four cases: (1) to settle residual amounts resulting from the subscription ratio; (2) when the bonds are issued in return for contributions in kind, particularly in the context of company acquisitions; (3) if, in the case of bonds being issued in return for cash contributions pursuant to § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG), the is-sue price does not fall materially short of the market value of the bonds; and (4) to the extent necessary to issue subscription rights to the bearers or creditors of warrant and /or convertible bonds previously issued in order to avoid dilution of their respective holdings. To date, the Management Board has not acted on the authorisation to issue tradable warrant and /or convertible bonds.
The exclusion of shareholders' subscription rights pursuant to § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG) may only apply for the use of treasury stock, for the issue of new shares from authorised capital and for the issue of warrant and /or convertible bonds corresponding up to an aggregate total of no more than 10% of issued capital during the term of the respective authorisation. Apart from this, the exclusion of shareholders' subscription rights, irrespective of the legal grounds, for the use of treasury stock, for the issue of new shares from authorised capital and for the issue of warrant and /or convertible bonds (including those issued within QSC's stock option plans) may not exceed an aggregate total of 20% of issued capital during the term of the respective authorisation.
Further details apply in accordance with the underlying resolutions adopted by the Annual General Meeting for each of these measures.
Material agreements conditional on a change of control due to a takeover bid. In the 2014 fi nancial year, QSC agreed fi ve promissory note bonds with a fi nancial institution with a total volume of € 150 million (balance sheet date: € 145 million). These allow the lender to terminate the agreements prematurely should a natural person or legal entity or a group of persons and entities acting together directly or indirectly acquire more than 50% of the shares or voting rights in QSC. In the 2016 fi nancial year, QSC agreed a syndicated loan agreement with 6 fi nancial institutions which had a credit limit of € 70 million at the balance sheet date. This agreement allows the banks to terminate the loan prematurely should a natural person or legal entity, acting either alone or together with other persons or entities, gain control over QSC. In this context, control is defi ned as the de facto ability to exercise a controlling infl uence pursuant to § 17 of the German Stock Corporation Act (AktG) and "acting together" satisfi es the defi nition of this concept provided in § 2 (5) of the German Securities Takeover Act (WpÜG).
The Company has no further material agreements conditional on a change of control due to a takeover bid.
Compensation agreements in the event of a takeover bid. No compensation agreements in the event of a takeover bid have been concluded either with the Management Board or with employees.
Euro amounts in thousands (€ 000s)
| Note | 2016 | 2015 * adjusted |
|
|---|---|---|---|
| Net revenues | 7 | 385,979 | 402,436 |
| Cost of revenues | 8 | (312,598) | (337,598) |
| Gross profi t | 73,381 | 64,838 | |
| Sales and marketing expenses | 9 | (34,683) | (37,096) |
| General and administrative expenses | 10 | (36,647) | (37,910) |
| Other operating income | 12 | 2,698 | 682 |
| Other operating expenses | 12 | (17,849) | (1,653) |
| Operating profi t (loss) | (13,100) | (11,139) | |
| Financial income | 13 | 196 | 398 |
| Financial expenses | 13 | (6,030) | (6,344) |
| Net income (loss) before income taxes | (18,934) | (17,085) | |
| Income taxes | 43 | (6,120) | 3,842 |
| Net income (loss) | (25,054) | (13,243) | |
| Attribution of net income (loss) | |||
| Owners of the parent company | (24,839) | (13,121) | |
| Non-controlling interests | (215) | (122) | |
| Earnings per share (basic) in € | 14 | (0.20) | (0.11) |
| Earnings per share (diluted) in € | 14 | (0.20) | (0.11) |
Euro amounts in thousands (€ 000s)
| 2016 | 2015 * adjusted |
|
|---|---|---|
| Net income (loss) for the period | (25,054) | (13,243) |
| Other comprehensive income | ||
| Line items that are not reclassifi ed in the income statement | ||
| Actuarial gains (losses) from defi ned benefi t pension plans | (744) | 251 |
| Tax eff ect | 241 | (81) |
| Line items that are not reclassifi ed in the income statement | (503) | 170 |
| Line items that might subsequently be reclassifi ed | ||
| in the income statement | ||
| Fair value measurement of cash fl ow hedge | 8 | (149) |
| Tax eff ect | (2) | 48 |
| Line items that might subsequently be reclassifi ed | ||
| in the income statement | 6 | (101) |
| Total fair value changes (net of tax) recognised directly | (497) | 69 |
| Total comprehensive income for the period | (25,551) | (13,174) |
| Attribution of total comprehensive income | ||
| Owners of the parent company | (25,336) | (13,052) |
| Non-controlling interests | (215) | (122) |
Euro amounts in thousands (€ 000s)
| Note | 31 Dec. 2016 | 31 Dec. 2015 * adjusted |
1 Jan. 2015 * adjusted |
|---|---|---|---|
| ASSETS | |||
| Long-term assets | |||
| Property, plant and equipment 17 |
62,554 | 62,392 | 76,169 |
| Land and buildings 17 |
24,359 | 25,152 | 25,915 |
| Goodwill 18, 19 |
55,568 | 66,190 | 66,190 |
| Other intangible assets 20 |
30,779 | 41,411 | 53,684 |
| Trade receivables 21 |
2,435 | 4,583 | 7,761 |
| Prepayments 22 |
3,161 | 3,608 | 2,641 |
| Other long-term assets | 190 | 292 | 2,948 |
| Deferred tax assets 43 |
5,926 | 10,671 | 7,752 |
| Long-term assets | 184,972 | 214,299 | 243,060 |
| Short-term assets | |||
| Trade receivables 21 |
45,816 | 48,704 | 52,145 |
| Prepayments 22 |
5,107 | 3,712 | 6,493 |
| Inventories 23 |
73 | 884 | 1,278 |
| Other short-term assets 24 |
1,533 | 6,521 | 1,855 |
| Available-for-sale fi nancial assets | - | - | 343 |
| Cash and cash equivalents 25 |
67,336 | 73,982 | 87,803 |
| Subtotal for short-term assets | 119,865 | 133,803 | 149,917 |
| Assets held for sale 16 |
1,166 | - | - |
| Short-term assets | 121,031 | 133,803 | 149,917 |
| TOTAL ASSETS | 306,003 | 348,102 | 392,977 |
| Note | 31 Dec. 2016 | 31 Dec. 2015 * adjusted |
1 Jan. 2015 * adjusted |
|
|---|---|---|---|---|
| SHAREHOLDERS' EQUITY AND LIABILITIES | ||||
| Shareholders' equity | ||||
| Issued capital | 26 | 124,172 | 124,162 | 124,142 |
| Capital surplus | 27 | 143,217 | 142,702 | 142,069 |
| Other capital reserves | 29 | (3,493) | (2,996) | (3,066) |
| Accumulated defi cit | (177,223) | (149,986) | (129,157) | |
| Equity attributable to owners of the parent company | 86,673 | 113,882 | 133,988 | |
| Non-controlling interests | (325) | (110) | 12 | |
| Shareholders' equity | 86,348 | 113,772 | 134,000 | |
| Liabilities | ||||
| Long-term liabilities | ||||
| Long-term liabilities under fi nancing | ||||
| and fi nance lease arrangements | 30 | 370 | 1,722 | 4,447 |
| Liabilities due to banks | 30 | 145,412 | 155,830 | 156,550 |
| Convertible bonds | 41 | 33 | 27 | 25 |
| Accrued pensions | 31 | 7,133 | 6,693 | 7,281 |
| Other provisions | 33 | 3,050 | 1,642 | 305 |
| Other fi nancial liabilities | 35 | 2,525 | 3,879 | 8,331 |
| Deferred tax liabilities | 43 | 775 | 1,204 | 2,333 |
| Long-term liabilities | 159,298 | 170,997 | 179,272 | |
| Short-term liabilities Trade payables |
24,890 | 30,596 | 44,820 | |
| Short-term liabilities under fi nancing | 32 | |||
| and fi nance lease arrangements | 30 | 1,352 | 2,761 | 4,427 |
| Liabilities due to banks | 30 | 4,003 | 2,140 | 4,518 |
| Other provisions | 33 | 11,724 | 8,368 | 10,883 |
| Accrued taxes | 33 | 2,166 | 381 | 1,757 |
| Deferred income | 34 | 2,441 | 4,020 | 3,900 |
| Other short-term liabilities | 36 | 12,630 | 15,067 | 9,400 |
| Subtotal for short-term liabilities | 59,206 | 63,333 | 79,705 | |
| Liabilities associated with assets held for sale | 16 | 1,151 | - | - |
| Short-term liabilities Liabilities |
60,357 219,655 |
63,333 234,330 |
79,705 258,977 |
|
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 306,003 | 348,102 | 392,977 |
Euro amounts in thousands (€ 000s)
| Equity attributable to equity holders of QSC AG | |||||
|---|---|---|---|---|---|
| Other capital reserves | |||||
| Note | Issued capital | Capital surplus | Fair value of marketable securities |
Actuarial gains (losses) |
Cash fl ow hedge reserve |
| Balance as of 1 January 2015 – as originally reported – | 124,142 | 142,069 | (1) | (1,590) | (1,475) |
| Corrections pursuant to IAS 8.42 | - 6 |
- | - | - | - |
| Balance as of 1 January 2015 – adjusted – * | 124,142 | 142,069 | (1) | (1,590) | (1,475) |
| Net income (loss) for the period * | - | - | 1 | - | - |
| Other comprehensive income | |||||
| for the period, net of tax 29 |
- | - | - | 170 | (101) |
| Total comprehensive income * | - | - | 1 | 170 | (101) |
| Revaluation of fi nancial liabilities relating | |||||
| to business acquisition * | - | - | - | - | - |
| Conversion of convertible bonds 41 |
20 | 3 | - | - | - |
| Dividends | - | - | - | - | - |
| Non-cash share-based compensation 41 |
- | 630 | - | - | - |
| Balance as of 31 December 2015 – adjusted – * | 124,162 | 142,702 | - | (1,420) | (1,576) |
| Balance as of 1 January 2016 | 124,162 | 142,702 | - | (1,420) | (1,576) |
| Net income (loss) for the period | - | - | - | - | - |
| Other comprehensive income | |||||
| for the period, net of tax 29 |
- | - | - | (503) | 6 |
| Total comprehensive income | - | - | - | (503) | 6 |
| Revaluation of fi nancial liabilities relating | |||||
| to business acquisition | - | - | - | - | - |
| Conversion of convertible bonds 41 |
10 | 7 | - | - | - |
| Dividends | - | - | - | - | - |
| Non-cash share-based compensation 41 |
- | 508 | - | - | - |
| Balance as of 31 December 2016 | 124,172 | 143,217 | - | (1,923) | (1,570) |
| Accumulated defi cit |
Total | Non-controlling interests |
Total equity | |
|---|---|---|---|---|
| (117,511) | 145,634 | - | 145,634 | Balance as of 1 January 2015 – as originally reported – |
| (11,646) | (11,646) | 12 | (11,634) | Corrections persuant to IAS 8.42 |
| (129,157) | 133,988 | 12 | 134,000 | Balance as of 1 January 2015 – adjusted – * |
| (13,121) | (13,120) | (122) | (13,242) | Net income (loss) for the period * |
| Other comprehensive income | ||||
| - | 69 | - | 69 | for the period, net of tax |
| (13,121) | (13,051) | (122) | (13,173) | Total comprehensive income * |
| Revaluation of fi nancial liabilities relating | ||||
| 4,708 | 4,708 | - | 4,708 | to business acquisition * |
| - | 23 | - | 23 | Conversion of convertible bonds |
| (12,416) | (12,416) | - | (12,416) | Dividends |
| - | 630 | - | 630 | Non-cash share-based compensation |
| (149,986) | 113,882 | (110) | 113,772 | Balance as of 31 December 2015 – adjusted – * |
| (149,986) | 113,882 | (110) | 113,772 | Balance as of 1 January 2016 |
| (24,839) | (24,839) | (215) | (25,054) | Net income (loss) for the period |
| Other comprehensive income | ||||
| - | (497) | - | (497) | for the period, net of tax |
| (24,839) | (25,336) | (215) | (25,551) | Total comprehensive income |
| Revaluation of fi nancial liabilities relating | ||||
| 1,327 | 1,327 | - | 1,327 | to business acquisition |
| - | 17 | - | 17 | Conversion of convertible bonds |
| (3,725) | (3,725) | - | (3,725) | Dividends |
| - | 508 | - | 508 | Non-cash share-based compensation |
| (177,223) | 86,673 | (325) | 86,348 | Balance as of 31 December 2016 |
Euro amounts in thousands (€ 000s)
| Note | 2016 | 2015 * adjusted |
|---|---|---|
| Cash fl ow from operating activities 37 Net income (loss) before income taxes |
(18,934) | (17,085) |
| Depreciation, amortisation and impairment of long-term assets 11, 17, 20 |
39,027 | 52,688 |
| Impairment of goodwill 18, 19 |
10,622 | - |
| Other non-cash income and expenses | 1,147 | 630 |
| Loss from disposal of long-term assets | (8) | (1) |
| Income tax paid | (2,140) | (401) |
| Income tax received | 390 | 2,792 |
| Interest received | 117 | 315 |
| Changes in provisions 31, 33 |
3,212 | (2,972) |
| Changes in trade receivables 21 |
4,256 | 6,619 |
| Changes in trade payables 32 |
(6,487) | (12,868) |
| Changes in other assets and liabilities | 9,089 | 9,923 |
| Cash fl ow from operating activities 37 |
40,291 | 39,640 |
| Cash fl ow from investing activities 38 |
||
| Purchase of intangible assets | (6,561) | (9,055) |
| Purchase of property, plant and equipment | (19,525) | (18,367) |
| Proceeds from sale of property, plant and equipment | 52 | 27 |
| Cash fl ow from investing activities 38 |
(26,034) | (27,395) |
| Cash fl ow from fi nancing activities 38 |
||
| Dividends paid | (3,725) | (12,416) |
| Issuance of convertible bonds | 6 | 2 |
| Proceeds from issuance of common stock | 17 | 23 |
| Repayment of loans 30 |
(8,318) | (3,099) |
| Interest paid | (5,677) | (5,815) |
| Changes in advance payments relating to fi nancing activities | - | (370) |
| Repayment of liabilities under fi nancing | ||
| and fi nance lease arrangements 30 |
(2,761) | (4,391) |
| Cash fl ow from fi nancing activities 38 |
(20,458) | (26,066) |
| Change in cash and cash equivalents | (6,201) | (13,821) |
| Cash and cash equivalents as of 1 January | 73,982 | 87,803 |
| Cash and cash equivalents as of 31 December 25 |
67,781 | 73,982 |
QSC AG is digitising the German SME sector. With decades of experience and expertise in its Cloud, Internet of Things, Consulting, and Telecommunications businesses, QSC accompanies its customers securely into the digital age. Today already, cloud-based procurement models off er increased speed, fl exibility and full service availability. The Company's TÜV and ISO-certifi ed data centres in Germany and its nationwide All-IP network form the basis for maximum end-to-end quality and security. QSC's customers benefi t from one-stop innovative products and services that are marketed both directly and via partners.
QSC is a stock corporation registered in the Federal Republic of Germany. Its legal domicile is Mathias-Brüggen-Strasse 55, 50829 Cologne, Germany. The Company is registered in the Commercial Register of the Cologne District Court under number HRB 28281. QSC has been listed on the Deutsche Börse stock exchange since 19 April 2000 and, following the reorganisation of the stock market, in the Prime Standard since the beginning of 2003.
Pursuant to Article 4 of Regulation (EC) No. 1606 / 2002 of the European Parliament and the Council dated 19 July 2002, the Company is required to prepare consolidated fi nancial statements in accordance with International Financial Reporting Standards (IFRS). Pursuant to § 315a (1) of the German Commercial Code (HGB), it is thus exempted from preparing consolidated fi nancial statements in accordance with HGB.
QSC prepares its consolidated fi nancial statements in accordance with the IFRSs issued by the International Accounting Standards Board (IASB) that require application in the EU as of 31 December 2016, as well as with the supplementary requirements of § 315a (1) HGB. The Company took due account of all IFRSs requiring mandatory application in the EU in the 2016 fi nancial year, as well as of the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC).
In its consolidated fi nancial statements, QSC generally makes application of the cost method. Material exceptions relate to fi nancial instruments recognised at fair value. Liabilities for cashsettled, share-based payments in the form of equity instruments and the net liability for defi ned benefi t pension plans are also recognised at fair value.
The fi nancial year of QSC AG and its subsidiaries (hereinafter also referred to as "QSC") corre s ponds to the calendar year. The consolidated fi nancial statements are presented in euros. All amounts, unless otherwise stated, are rounded up or down to the nearest thousand euro amount (€ 000s). The rounding up or down of fi gures may result in minor discrepancies on a scale of € 1k or 0.1 percent between numbers and percentages in this Annual Report.
Based on a transfer agreement dated 20 December 2016, all of the shares held in FTAPI Software GmbH, Munich, were sold on 9 January 2017. No other events or transactions which would have a material eff ect on the Group's net assets, fi nancial position and earnings performance or cash fl ows occurred between the end of the reporting period and 16 March 2017 (the date on which the consolidated fi nancial statements were approved by the Management Board for submission to the Supervisory Board).
The consolidated income statement has been prepared using the cost-of-sales method. In the interests of clarity and informational value, individual line items have been aggregated in the income statement and balance sheet. These line items are reported and commented on separately in the notes.
The consolidated fi nancial statements comprise the fi nancial statements of QSC AG and its subsidiaries as of 31 December of each fi nancial year. The fi nancial statements of subsidiaries included in consolidation have been prepared on the basis of uniform accounting policies pursuant to IFRS 10 (Consolidated Financial Statements). All subsidiaries have the same balance sheet date as the parent company QSC AG.
All intragroup transactions and balances are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, i.e. the date on which QSC obtains control. Inclusion by way of full consolidation ends upon the parent company no longer exercising control. Information on the companies included in the consolidated fi nancial statements is provided in Note 39.
Non-controlling interests are measured upon acquisition at their respective share of identifi able net assets at the company thereby acquired. Changes in the level of shareholding held by the Company in a subsidiary that do not lead to a loss of control are recognised as equity transactions.
The application of accounting policies requires the use of judgements as well as of forwardlooking assumptions and estimates. Actual outcomes may diff er from those assumptions and estimates. Signifi cant adjustments to the carrying amounts of assets and liabilities may therefore be required within the coming fi nancial year. The use of judgements, assumptions and estimates was required in particular for the accounting treatment of the following items:
Impairment of non-fi nancial assets. At each reporting date, QSC assesses whether there are any indications of impairment for non-fi nancial assets. It tests goodwill for impairment at least annually and whenever there are indications of such. Impairment is determined by calculating the recoverable amount for the group of cash-generating units (CGUs). This corresponds to the present value of the expected future cash fl ows at these units. The groups of CGUS correspond to the reporting segments. Should the recoverable amount of the group of CGUs fall short of the carrying amount of these units, then impairment losses are recognised. Goodwill of € 55,568k was recognised as of 31 December 2016 (2015: € 66,190k). Further details can be found in Notes 18 and 19.
Furthermore, customer bases acquired in return for payment are also tested for impairment upon any indication of such. Their value is determined using the multi-period excess earnings method. Customer bases of € 19,238k were recognised as of 31 December 2016 (2015: € 24,908k). Further details can be found in Note 20.
Deferred tax assets. QSC recognises deferred tax assets for all temporary diff erences and for unused tax losses to the extent that it is probable that taxable income will be available against which the tax loss carryovers can be utilised.
Estimates by management are required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profi ts together with underlying tax planning strategies. As of 31 December 2016, corporate income tax loss carry overs at QSC AG and all subsidiaries included in the consolidated fi nancial statements totalled € 529 million (2015: € 533 million), while trade tax loss carryovers came to € 518 million (2015: € 523 million). Deferred tax assets of € 5,926k (2015: € 10,671k) and deferred tax liabilities of € 775k (2015: € 1,204k) were recognised as of 31 December 2016. Further details can be found Note 43.
Trade receivables. QSC recognises trade receivables in the balance sheet net of allowances. Allowances for doubtful debts are measured on the basis of regular reviews and assessments performed in conjunction with credit monitoring. The assumptions concerning future payment behaviour and customer creditworthiness are subject to signifi cant uncertainties. As of 31 December 2016, trade receivables came to € 48,251k (2015: € 53,287k). Further details can be found in Note 21.
Provisions. A provision is recognised when QSC has a legal or constructive obligation as a result of a past event, when it is likely that an outfl ow of resources embodying economic benefi ts will be required to settle such an obligation, and when the amount of the obligation can be reliably estimated. Such estimates are subject to material uncertainties in terms of the timing and level of the obligation. Given new information concerning the costs to be incurred, an amount of € 1,889k was added to provisions for dismantling obligations. As of 31 December 2016, provisions totalling € 16,940k (2015: € 10,391k) were recognised in the balance sheet. Further details can be found in Note 33.
With regard to company pensions, individual commitments have been made that constitute defi ned benefi t obligations. Pension provisions are measured using the projected unit credit method prescribed by IAS 19 for defi ned benefi t plans and determined on the basis of actuarial surveys. Actuarial gains or losses are directly charged or credited to equity and thus recognised in other comprehensive income. Further details, particularly concerning the parameters selected, can be found in Note 31.
Leases. QSC determines whether an agreement represents a lease or lease arrangement on the basis of the economic content of the agreement at the inception of the lease. Discretion is used in determining whether an agreement grants rights to usage of an asset and the extent to which fulfi lment of the contractual agreement depends on usage of one or more specifi c assets. As of 31 December 2016, lease liabilities totalled € 1,722k (2015: € 4,483k).
Construction contracts. Receivables from construction contracts are accounted for using the percentage of completion (PoC) method in accordance with IAS 11 if there is a customer-specifi c order. Revenue and expenses are recognised by reference to the stage of completion of contract activity, which, in turn, is based upon estimated total cost. As of 31 December 2016, receivables from construction contracts totalled € 163k (2015: € 975k).
Factoring. Within a factoring agreement with NORD/LB Luxembourg S.A. Covered Bond Bank, QSC regularly sells certain short-term trade receivables with a total volume of up to € 18.5 million to the bank. A discretionary decision has to be made concerning the scope of existing risk thereby transferred. Assuming continuing involvement, QSC has recognised receivables of € 198k (2015: € 370k).
Revenue and expense recognition. QSC recognises revenue to the extent that it is probable that the economic benefi ts will fl ow to the Company and when such revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, less settlement discounts, rebates, VAT and other duties. The following specifi c recognition criteria must also be met before revenue is recognised:
− Multiple element arrangements consist of a service portion and a hardware lease, where the fair values of the two components are separable and can be reliably determined. Application of IFRIC 4 requirements to hardware leases means that the Outsourcing segment functions as lessor in certain multiple element arrangements. The lease agreements relate to identifi able assets usable exclusively by the customer. Revenue for services performed under the service contract is distributed pro rata over the contractual period. For the portion of the multiple element arrangement classifi ed as a fi nance lease, the revenues are recognized upon inception of the arrangement and the interest portion is recognized over the term of such. In these cases, amounts owed by customers (lessees) under a fi nance lease are recognised as discounted receivables. When measuring hardware leases as operating leases, the revenues are recognized on a monthly basis in accordance with the contractual terms. The total contractual performance is apportioned to the respective components using the residual value method.
− Operating expenses are recognised when the performance has been utilised or at the time they are incurred.
Foreign currency translation. QSC presents its consolidated fi nancial statements in euros. Transactions in currencies other than the euro are initially recognised using the spot exchange rate on the transaction date. Diff erences arising from changes in the exchange rate between the transaction date and the settlement or balance sheet date are recognised by QSC through profi t or loss.
Property, plant and equipment. QSC recognises property, plant and equipment at cost less accumulated depreciation and impairment losses. Repair and maintenance expenses that do not constitute material replacement investments are directly expensed in the period in which they are incurred. The estimated useful lives of assets are taken as the basis for applying straightline depreciation.
Property, plant and equipment are subject to straight-line depreciation over the following expected useful lives:
| Useful life in years | |
|---|---|
| Property, plant and equipment | |
| Building | 8 – 50 |
| Networks and technical equipment | 2 – 27 |
| Installations on third-party land | 2 – 25 |
| Plant and operating equipment | 2 – 30 |
Borrowing costs. Borrowing costs are recognised as an expense in the period in which they are incurred. There are no qualifying assets as defi ned in IAS 23.
Business combinations and goodwill. QSC accounts for business combinations using the acquisition method. This involves recognising all identifi able assets, liabilities and contingent liabilities of the acquired business at fair value. Goodwill arising in a business combination is initially measured at the amount by which the Company's interest in the fair value of the identifi able assets, liabilities and contingent liabilities exceeds the cost of the business combination. QSC applies the anticipated acquisition method for business combinations in cases where obligations are entered into with non-controlling shareholders for the subsequent acquisition of those shareholders' remaining shares (contractual call and put options). In this method, it is assumed that the call or put options have been exercised by QSC as of the acquisition date. Based on this assumption that 100 percent of the shares have been acquired, there is no disclosure of non-controlling interests in the consolidated fi nancial statements.
The estimated fair value of the call or put options is rather accounted for upon fi rst-time consolidation as additional acquisition cost and reported as a long-term fi nancial liability in the balance sheet. Subsequent fair value changes are recognised directly in equity, as is the impact of any unwinding of the discount during the terms of the call and put options. Following initial recognition, QSC measures goodwill at cost, less any accumulated impairment losses. QSC tests goodwill for impairment annually and upon any indication that the carrying amount is potentially impaired.
Other intangible assets. Intangible assets are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination corresponds to their fair value as of the date of acquisition. Internally generated intangible assets are capitalised if the IAS 38 recognition criteria are met. The costs involved relate primarily to personnel and materials. Costs not eligible for capitalisation are recognised through profi t or loss in the period in which they arise. An assessment is made initially as to whether the useful lives of intangible assets are fi nite or indefi nite. Intangible assets with fi nite lives are amortised over their useful economic lives and tested for impairment whenever there is any indication of such. For assets with fi nite useful lives, the amortisation period and method are reviewed at least at the end of each fi nancial year. Other intangible assets primarily include software, licences and similar rights as well as nonrecurring provisioning costs for activating customer connections. Moreover, brands and customer bases have been recognised as assets in conjunction with initial consolidations. Licences are amortised over periods of 3 to 10 years and software over a period of 2 to 5 years. Non-recurring provisioning costs for activating customer connections are amortised over an average contractual period of 24 months. Internally generated intangible assets (development costs) are amortised after completion of the development phase over a period of 3 to 5 years. Acquired brands are written down over a period of 3 to 10 years.
The useful lives of intangible assets identifi ed in the business combinations with IP Partner AG and INFO AG in 2011 are 10 to 20 years for customer bases and 3 to 4 years for software.
Financial assets. QSC classifi es fi nancial assets falling within the scope of IAS 39 either as fi nancial assets at fair value through profi t or loss, held-to-maturity investments, loans and receivables, or as available-for-sale fi nancial assets.
QSC determines the classifi cation of its fi nancial assets upon initial recognition and tests this designation at the end of each reporting period. Items are reclassifi ed where permitted and necessary.
Upon initial recognition, QSC measures fi nancial assets at fair value. The Company accounts for all regular way purchases and sales of fi nancial assets on the basis of the trade date, i.e. the date on which it committed to purchasing or selling the asset. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery of assets within the period established by regulation or convention in the marketplace.
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the eff ective interest method and net of impairment losses. Gains and losses are recognised through profi t or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
Payment due notices are sent out immediately when receivables become overdue. Uncollected receivables outstanding for more than six months are reviewed for default risk. When receivables are overdue by 90 days, this is deemed to represent objective evidence that impairment testing is called for pursuant to IAS 39.58. Impairment losses are only recognised if other objective evidence of impairment in accordance with IAS 39.59 is identifi ed which indicates that the receivables are uncollectible or that an impairment requirement has arisen.
Other assets in the form of reinsurance claims on life insurance policies, which are not classifi ed as plan assets pursuant to IAS 19, are measured on the basis of the actuarial coverage reserves determined by the relevant insurance company. All other assets are recognised at their nominal values and, in line with their terms, are presented in the balance sheet as "Long-term assets" and "Short-term assets".
Construction contracts. Receivables arising on construction contracts are accounted for using the percentage of completion (PoC) method in accordance with IAS 11 if there is a customerspecifi c order. Profi t is recognised by reference to the stage of completion of the contract when total contract costs and contract revenue of the relevant contract can be measured reliably in accordance with the requirements of IAS 11. The stage of completion of a contract is determined using the cost-to-cost method (IAS 11.30a).
When the above requirements are met, total contract revenue is recognised by reference to the stage of completion of the contract. Contract costs comprise costs relating directly to the contract as well as indirectly attributable production overheads. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an expense. Advance payments from customers are off set against construction contract trade receivables.
Prepayments. Transitory items involving outlays prior to the balance sheet date and relating to a specifi ed period after the balance sheet date are recognised as prepayments.
Inventories. QSC initially measures inventories at cost. As of the balance sheet date, goods for resale are stated at the lower of cost and net realisable value.
Cash and cash equivalents. Cash and cash equivalents reported in the balance sheet and statement of cash fl ows comprise cash at banks, cash on hand and short-term deposits with original maturities of three months or less.
Provisions. A provision is recognised when QSC has a legal or constructive obligation as a result of a past event, when it is likely that an outfl ow of resources embodying economic benefi ts will be required to settle such an obligation, and when the obligation's amount can be reliably estimated. Where QSC expects some or all of a recognised provision to be reimbursed, the reimbursement is recognised as a separate asset if the reimbursement is virtually certain. The expense for allocations to the provision is recognised in the income statement net of any reimbursement.
Pensions. The obligations for defi ned benefi t plans are determined separately for each plan using the projected unit credit method and on the basis of actuarial surveys. Actuarial gains and losses are recognised under other reserves within other comprehensive income. The assumptions used by the Company to measure actuarial obligations are described in Note 31. Obligations for contributions to defi ned contribution plans are expensed as soon as the associated work has been performed.
Stock option plans. QSC's employees may receive share-based compensation in the form of equity instruments in return for work performed. QSC measures the expense of issuing such equity instruments on the basis of the fair value of the equity instrument at the grant or provision date (based on the stock option plans resolved or modifi ed after 7 November 2002) and uses an appropriate option price model. Further details can be found in Note 41. The expense recognised for granting equity instruments and the corresponding increase in equity are spread over the vesting period of the options.
QSC does not recognise any expense for compensation entitlements which cannot be exercised. If the terms and conditions of a share-based compensation agreement are modifi ed, QSC recognises as a minimum the level of expense that would have arisen in the absence of such modifi cation. If a share-based compensation agreement is cancelled, QSC accounts for the agreement as if it had been exercised on the cancellation date and recognises the previously unrecognised expense immediately.
Leases. QSC determines whether an arrangement is or contains a lease on the basis of the substance of the arrangement at the inception date.
− QSC as lessee. In accordance with IAS 17, items attributable to QSC as their economic owner are recognised as assets and depreciated over their useful lives or over the lease term if shorter. The obligation arising from the leasing arrangement is recognised as a liability and reduced over the lease period by the capital portion of the lease payments. Contracts classifi ed as fi nance leases primarily relate to arrangements for IT hardware and data centre technology. Leased assets are measured at their fair value or, if lower, at the present value of the minimum lease payments during the non-cancellable period of the lease. In the case of fi nance lease arrangements, the payments are divided into their constituent elements of fi nancing expense and capital repayment using the eff ective interest rate method and in such a way that the remaining carrying amount of the lease obligation is subject to a constant interest rate. Financing expenses are charged to income. QSC's fi nance leases predominantly have remaining terms of between 2 and 3 years.
QSC classifi es lease arrangements which do not transfer substantially all the risks and rewards incidental to ownership to the lessee as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
− QSC as lessor. Based on the requirements of IFRIC 4, QSC acts as the lessor in certain multiple element arrangements. The standard customer contract is then divided into a service contract for services to be rendered and a sale transaction for the leased hardware. For fi nance leases, the leasing component is recognised as a discounted receivable within "Trade receivables", while the revenues from the sales transaction are recognised in full in the year in which the contract is concluded. Customer payments on the leasing component are divided into principal and interest portions and recognised accordingly. Service revenues are recognised on a time-apportioned basis over the contractual term. Operating lease income is recognised as income through profi t or loss on a straight-line basis over the lease term.
Financial liabilities. QSC measures all interest-bearing loans on initial recognition at fair value, less directly attributable transaction costs. Subsequently, interest-bearing loans and borrowings are measured at amortised cost using the eff ective interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well. The share tender options held by remaining shareholders are also recognised under fi nancial liabilities with application of the anticipated acquisition method.
Derivative fi nancial instruments. QSC has since 2014 been party to derivative fi nancial instruments in the form of interest rate swaps which are used to hedge the risk of fl uctuations in interest payments.
Derivative fi nancial instruments are recognised initially at the contract date and measured both then and at the end of subsequent reporting periods at their fair value. Positive and negative fair values are reported as assets and other financial liabilities respectively. The fair value of interest-rate derivatives is determined on the basis of present value models, taking account of relevant market information (interest rate curves).
Where derivatives are used to hedge cash fl ow risks (cash fl ow hedges), the hedging relationship is documented and its eff ectiveness measured at each reporting date. The change in the fair value of the hedging instrument attributable to its eff ective portion is recognised in the statement of comprehensive income as a change in value charged or credited to equity. The ineff ective portion of the hedging relationship is recognised through profi t or loss. Amounts recognised in the cash fl ow hedge reserve are reclassifi ed to the income statement in the period in which the underlying hedged transaction infl uences earnings.
Deferred income. QSC defers one-time income from the installation of customer lines on a time-apportioned basis over a contractual period of 24 months.
Taxes. QSC recognises current income tax assets and liabilities for current and prior periods at the amount expected to be reimbursed by or paid to the tax authorities. To calculate this, QSC uses the tax rates and tax laws expected to apply for the relevant assessment period. Current income taxes relating to items recognised directly in equity are also recognised in equity. Deferred taxes are recognised using the liability method on temporary diff erences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. QSC recognises deferred income tax liabilities for all taxable temporary diff erences, except
– where the deferred tax liability arises from the initial recognition of goodwill;
QSC recognises deferred tax assets for all deductible temporary diff erences, unused tax loss carryovers and unused tax credits to the extent that it is probable that taxable profi t will be available against which the deductible temporary diff erences, tax losses and tax credits can be utilised except
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suff icient taxable profi t will be available to allow all or part of the deferred income tax asset to be utilised. Previously unrecognised deferred tax assets are also reassessed at each balance sheet date and recognised to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered. QSC measures deferred tax assets and liabilities at the tax rates expected to apply to the year when the asset is realised or the liability settled based on tax rates and tax laws that have been enacted as of the balance sheet date. Future changes in tax rates have to be accounted for if enacted or substantively enacted by the end of the reporting period.
Deferred taxes in connection with items recognised directly in equity in other comprehensive income are likewise recognised directly in equity (through OCI) and not through profi t or loss. Deferred tax assets and deferred tax liabilities are off set if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same tax authority.
New standards in 2016. QSC AG has observed the following amendments in fi nancial reporting pronouncements requiring mandatory application for the fi rst time in the 2016 fi nancial year. Changes materially relevant for QSC AG's consolidated fi nancial statements are presented in the following section.
| Standard /interpretation | Title of standard /interpretation or amendment | 1 Eff ective date |
|---|---|---|
| Amendments to IFRS 10, | Investment Entities: Applying the Consolidation Exception | 1 Jan. 2016 |
| IFRS 12 and IAS 28 | ||
| Amendments to IFRS 11 | Accounting for Acquisitions of Interests in Joint Operations | 1 Jan. 2016 |
| Amendments to IAS 1 | Disclosure Initiative | 1 Jan. 2016 |
| Amendments to IAS 16 | Clarifi cation of Acceptable Methods of Depreciation | 1 Jan. 2016 |
| and IAS 38 | and Amortisation | |
| Amendment to IAS 19 | Defi ned Benefi t Plans: Employee Contributions | 1 Feb. 2015 2 |
| Improvements to IFRS | Amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, | 1 Feb. 2015 3, 4 |
| 2010 – 2012 | IAS 16, IAS 24 and IAS 38 | |
| Improvements to IFRS | Amendments to IFRS 5, IFRS 7, IAS 19, IAS 34 | 1 Jan. 2016 |
| 2012 – 2014 |
1 Financial years beginning on or after the date stated.
IASB eff ective date 1 July 2014.
3 Although the provisions only require application in fi nancial years beginning on or after 1 February 2015, the amendments to IFRS 2 and
IFRS 3 require application to transactions executed on or after 1 July 2014.
4 IASB eff ective date 1 July 2014.
Amendments to IFRS 10, IFRS 12 and IAS 28 – Applying the Consolidation Exception. The amendments clarify various issues relating to application of the consolidation exception provided for in IFRS 10 if the parent meets the definition of an "investment entity". Accordingly, parent entities are also exempt from preparing consolidated fi nancial statements if the higher-level parent entity accounts for its subsidiaries at fair value in accordance with IFRS 10 rather than consolidating them.
With regard to the accounting treatment of the subsidiaries of an investment entity, the following distinction is now made: consistent with the "investment entity exception", subsidiaries that are themselves investment entities must be recognised at fair value. By contrast, subsidiaries that are not themselves investment entities, but that perform services supporting the parent company's activities and are thus to be viewed as an extension of the parent company's activities, must be consolidated.
Finally, the amendments clarify that an investor that does not satisfy the defi nition of an investment entity and that applies the equity method to its associates or joint ventures may retain the fair value measurement that the investment entity applies to its investments in subsidiaries. Moreover, the amendments require any investment entity measuring all of its subsidiaries at fair value to provide the disclosures on investment entities called for by IFRS 12.
These amendments have no implications for the consolidated fi nancial statements of QSC AG.
Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations. IFRS 11 contains requirements governing the recognition of joint ventures and joint operations in the balance sheet and income statement. While joint ventures are recognised using the equity method, the presentation of joint operations provided for in IFRS 11 is comparable to proportionate consolidation.
With the amendment to IFRS 11, the IASB has stipulated how the acquisition of an interest in a joint operation that constitutes a business pursuant to IFRS 3 should be recognised. In such cases, the acquiring company should apply the principles governing the recognition of business combinations set out in IFRS 3. In this case, the disclosure obligations included in IFRS 3 also apply. The amendments have no implications for the consolidated fi nancial statements of QSC AG.
Amendments to IAS 1 – Disclosure Initiative. The amendments refer to diff erent reporting issues. They clarify that note disclosures are only required if their contents are not immaterial. This also explicitly applies when an IFRS requires a list of minimum disclosures. Furthermore, notes on the aggregation and disaggregation of items in the balance sheet and statement of comprehensive income have also been added as a requirements. The amendments further clarify how shares in other comprehensive income at companies recognised using the equity method should be presented in the statement of comprehensive income.
Finally, the model note structure has been deleted to enable companies to take more specifi c account of factors relevant to their individual situations.
The amendments have no material implications for the consolidated financial statements of QSC AG.
Amendments to IAS 16 and IAS 38 – Clarifi cation of Acceptable Methods of Depreciation and Amortisation. With these amendments, the IASB has provided further guidelines for determining acceptable methods of depreciation and amortization. Accordingly, revenue-based methods of depreciation and amortisation are not permitted for property, plant and equipment and only in certain exceptional cases for intangible assets (rebuttable presumption of inappropriateness). These amendments have no implications for the consolidated fi nancial statements of QSC AG.
Amendment to IAS 19 – Defi ned Benefi t Plans: Employee Contributions. The amendments have clarifi ed the requirements for dealing with the allocation of employee or third-party contributions to service periods in cases where the contributions are linked to service years. Furthermore, simplifi cations have been introduced for cases where the contributions are independent of the number of service years achieved.
These amendments have no material implications for the consolidated financial statements of QSC AG.
Improvements to IFRS 2010 – 2012. This Annual Improvement Project has introduced amendments to seven standards. By adjusting the wording of individual IFRSs, the IASB has thus clarifi ed existing requirements. In addition, some amendments have implications for note disclosures. The amendments relate to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38.
Even though the respective provisions only require application in fi nancial years beginning on or after 1 February 2015, the amendments to IFRS 2 and IFRS 3 require application for transactions occurring on or after 1 July 2014.
These amendments have no material implications for the consolidated financial statements of QSC AG.
Improvements to IFRS 2012 – 2014. This Annual Improvement Project has introduced amendments to four standards. By adjusting the wording of individual IFRSs /IASs, the IASB has thus clarifi ed existing requirements. The amendments relate to IFRS 5, IFRS 7, IAS 19 and IAS 34. These amendments have no material implications for the consolidated financial statements of QSC AG.
QSC does not plan to make premature application of the following new or amended standards and interpretations only requiring mandatory application in subsequent fi nancial years. Unless otherwise stated, their implications for the consolidated financial statements are currently being reviewed.
| Standard / Interpretation | Title of standard /interpretation or amendment | 5 Eff ective date |
|---|---|---|
| IFRS 9 | Financial Instruments | 1 Jan. 2018 |
| IFRS 15 | Revenue from Contracts with Customers | 1 Jan. 2018 |
| IFRS 16 | Leases | 1 Jan. 2019 |
| Amendments to IFRS 2 | Classifi cation and Measurement of Share-based | 1 Jan. 2018 |
| Payment Transactions | ||
| Amendments to IFRS 4 | Applying IFRS 9 Financial Instruments | 1 Jan. 2018 |
| with IFRS 4 Insurance Contracts | ||
| Amendments to IFRS 10 | Sale or Contribution of Assets between | 6 - |
| and IAS 28 | an Investor and its Associate or Joint Venture | |
| Amendment to IFRS 15 | Clarifi cations to IFRS 15 | 1 Jan. 2018 |
| Amendments to IAS 7 | Disclosure Initiative | 1 Jan. 2017 |
| Amendments to IAS 12 | Recognition of Deferred Tax Assets for Unrealised Losses | 1 Jan. 2017 |
| Amendment to IAS 40 | Transfers of Investment Property | 1 Jan. 2018 |
| IFRIC 22 | Foreign Currency Transactions and Advance Consideration | 1 Jan. 2018 |
| Improvements to IFRS | Amendments to IFRS 12 | 1 Jan. 2017 |
| 2014 – 2016 | ||
| Improvements to IFRS | Amendments to IFRS 1 and IAS 28 | 1 Jan. 2018 |
| 2014 – 2016 |
5 Financial years beginning on or after the date stated.
6 The IASB decided on 17 December 2015 to postpone the eff ective date of this amendment standard indefi nitely.
IFRS 9 Financial Instruments. The version of IFRS 9 issued in July 2014 replaces the current requirements contained in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 sets out revised requirements for the classifi cation and measurement of fi nancial instruments, including a new model for expected credit losses for the purposes of determining the impairment of fi nancial assets, as well as new general requirements for hedge accounting. It also takes over the requirements for the recognition and derecognition of fi nancial instruments contained in IAS 39. We do not expect the new model for recognising credit losses to lead to any signifi cant increase in impairments, but are not yet able to quantify the eff ects.
IFRS 9 requires fi rst-time application in fi nancial years beginning on or after 1 January 2018. Earlier application is permitted.
IFRS 15 Revenue from Contracts with Customers. IFRS 15 sets out a comprehensive framework for the amount and timing of revenue recognition. It replaces the requirements currently governing revenue recognition, including those contained in IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
IFRS 15 requires mandatory application for the fi rst time in fi nancial years beginning on or after 1 January 2018. Premature application is permitted but currently not intended.
The new standard governing revenue recognition may have implications for the net assets and earnings performance of the QSC Group, especially in respect of the possibility of recognising revenues over time and of the recognition and measurement of contract acquisition costs. Pursuant to IFRS 15.35c, the prerequisite for recognising revenues over time is that such relate to the creation of customer-specifi c assets without any alternative use. Here, QSC must at all times have the right to invoice work already performed in the event of termination by the customer. QSC creates customer-specifi c assets without any alternative use. The review as to whether QSC's individual legal agreements will have implications for the future recognition of revenues has not yet been performed in detail. Alongside general provisions of the German Civil Code (BGB), this will depend on individual contractual arrangements.
Should the review performed for these project orders conclude that the requirements for recognising the respective revenues over time are not met, then revenues in this amount would only be recognised in later periods. As a result, the respective project-based margin would only be recognised in subsequent periods.
As of the balance sheet date on 31 December 2016, QSC AG has recognised as yet incomplete project orders pursuant to IAS 11 with an order volume of € 303k to which this new requirement would apply. QSC AG also acquires orders by way of public tenders.
Pursuant to IFRS 15.91, the contract costs incurred in the context of a public tender may partly require classifi cation as assets. Pursuant to IFRS 15.93, the requirement for this classifi cation is that such costs are only incurred for a contract thereby obtained and not regardless of such. This means that most of the internal costs thereby incurred may not be capitalised as assets. As a result, this requirement is not expected to have any material implications.
Further implications may arise with regard to the recognition of customer refunds and the delineation of individual elements in multiple element arrangements. The relevant review has not been completed.
IFRS 16 Leases. IFRS 16 introduces a uniform accounting model for recognising leases in the balance sheet at lessees. The lessee recognises a right-of-use asset that embodies its right to use the underlying asset and lease liability that embodies its obligation to make lease payments. Exceptions apply for short-term leases and low-value asset leases.
The accounting treatment at lessors is comparable with the current standard, i.e. lessors are still require to classify leases as fi nance or operating leases.
IFRS 16 replaces the existing standards and interpretations on leases, including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. Subject to adoption into EU law, the standard will require first-time application in the first reporting period in fi nancial years beginning on or after 1 January 2019. Earlier application is permitted for companies that also apply IFRS 15 Revenue from Contract with Customers upon initial adoption of IFRS 16 or earlier.
QSC has not yet initiated its assessment of the potential implications of applying IFRS 16 for its consolidated fi nancial statements.
Amendments to IFRS 2 – Classifi cation and Measurement of Share-based Payment Transactions.
The amendments relate to the recognition of vesting conditions when measuring cash-settled share-based payments, the classifi cation of share-based payments that include net settlement features for tax purposes and the recognition of any modifi cation in the share-based payments from cash-settled to equity-settled.
Subject to adoption into EU law, the amendments will require application to compensation granted or amended in fi nancial years beginning on or after 1 January 2018. Earlier application is permitted. Retrospective application is only permitted if it is possible to do so without using hindsight.
Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. The amendments relate to fi rst-time application of IFRS 9 at insurers and therefore have no implications for QSC.
Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The amendments address an acknowledged inconsistency between the requirements of IFRS 10 and those of IAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture.
Pursuant to IFRS 10, parent companies are required to recognise the full amount of any gain or loss generated from the sale of a subsidiary in their income statements upon the loss of control. By contrast, the currently applicable IAS 28.28 requires that a gain on sales transactions between an investor and an investment accounted for using the equity method – whether it be an associate or a joint venture – is recognised only to the extent of the investor's interest in the associate or joint venture.
In future, the entire gain or loss arising from a transaction should only be recognised when the assets sold or contributed constitute a business pursuant to IFRS 3. This applies regardless of whether the transaction is structured as a share or asset deal. If the assets do not constitute a business, however, the gain may only be recognised on a prorated basis.
The IASB has postponed the eff ective date of the amendments indefi nitely.
Amendment to IFRS 15 – Clarifi cations to IFRS 15. The amendments on the one hand include clarifi cations to various requirements of IFRS 15 and on the other hand provide relief with regard to the transition to the new standard.
In addition to the clarifi cations, the amendments include two further transition relief provisions intended to reduce the complexity and costs of converting to the new standard. These involve options for the presentation of contracts either completed at the beginning of the earliest period presented or modifi ed before the beginning of the earliest period presented.
Subject to adoption into EU law, the amendments require fi rst-time application as of 1 January 2018.
Amendments to IAS 7 – Disclosure Initiative. The amendments are intended to improve the information provided on changes in a company's liabilities. According to the amendments, a company is required to provide disclosures on changes in those fi nancial liabilities for which the cash fl ows will be presented in the cash fl ow statement as cash fl ows from fi nancing activities. Related fi nancial assets (e.g. assets arising due to hedge transactions) also have to be included in the disclosures.
Disclosures have to be made in the following cases: cash-eff ective changes, changes resulting from the acquisition or disposal of companies, changes due to the eff ects of changes in foreign exchange rates, changes in fair values and other changes.
The IASB suggests presenting the disclosures in the form of a reconciliation between the open ing and closing balances in the balance sheet but also permits other forms of presentation. Subject to adoption into EU law, the amendments require first-time application in the first repor ting period in a fi nancial year beginning on or after 1 January 2017. Premature application is permitted.
To satisfy the new disclosure obligations, QSC intends to present a reconciliation between the opening and closing balances for liabilities that shows the relevant changes in connection with its fi nancing activities.
Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses. The amendments clarify the recognition of deferred tax assets for unrealised losses in the context of debt instruments measured at fair value.
Subject to adoption into EU law, the amendments require first-time application in the first reporting period in a fi nancial year beginning on or after 1 January 2017. Premature application is permitted.
QSC is currently assessing the potential implications of these amendments for its consolidated fi nancial statements. To date, no material implications are expected.
Amendment to IAS 40 – Transfers of Investment Property. The amendments have no implications for the consolidated fi nancial statements as QSC does not own any such property holdings. IFRIC 22 Foreign Currency Transactions and Advance Consideration. IFRIC 22 addresses an application issue relating to IAS 21 Eff ects of Changes in Foreign Exchange Rates. It clarifi es the date as of which the exchange rate used to translate transactions in foreign currencies should be determined in cases where such transactions include consideration received or paid. According to the interpretation, the underlying asset, income or expenses should be translated using the exchange rate eff ective at the time at which the asset or liability resulting from the advance consideration is fi rst recognised.
Subject to adoption into EU law, this interpretation requires fi rst-time application in the fi rst reporting period in a fi nancial year beginning on or after 1 January 2018. Earlier application is permitted.
QSC currently does not expect this interpretation to have any material implications for its consolidated fi nancial statements.
Improvements to IFRS 2014 – 2016. The Annual Improvements to IFRSs (2014-2016) have amended three IFRSs. For IFRS 12, the amendments clarify that IFRS 12 disclosures basically also apply for investments in subsidiaries, joint ventures or associates classifi ed as held for sale pursuant to IFRS 5. One exception in this respect relates to the disclosures called for in IFRS 12.B10-B16 (fi nancial information). In IAS 28, the amendments clarify that the option of measuring an investment in an associate or a joint venture that is held by a venture capital organisation or other company qualifying as such can be exercised diff erently for each such investment. Furthermore, the limited relief provided for fi rst-time IFRS adopters in IFRS 1.Appendix E (IFRS 1.E3-E7) has been deleted.
Subject to adoption into EU law, the amendments to IFRS 12 require fi rst-time application in the fi rst reporting period in a fi nancial year beginning on or after 1 January 2017, while the amendments to IFRS 1 and IAS 28 require fi rst-time application in the fi rst reporting period in a fi nancial year beginning on or after 1 January 2018. Earlier application is permitted.
QSC currently does not expect these amendments to have any material implications for its consolidated fi nancial statements.
A sample audit performed by the German Financial Reporting Enforcement Panel (DPR) pursuant to § 342b (2) Sentence 3, No. 3 of the German Commercial Code (HGB) found that in the Company's consolidated fi nancial statements as of 31 December 2014 the deferred tax assets recognised on loss carryovers and thus also consolidated net income were each € 11.6 million too high. Consistent application of the previous year's planning horizon would have resulted in annual net income that was € 11.6 million lower. The year-on-year extension in the planning horizon referred to when capitalising deferred tax assets on loss carryovers from three to four years by taking over the 2017 budget fi gures in the 2018 budget year was deemed inappropriate. In line with this assessment, the planning horizon referred to when calculating deferred tax assets was uniformly set at three years, also for the 2015 and 2016 fi nancial years, and the resultant
deferred tax assets and income tax expenses as of 31 December 2015 were adjusted accordingly. For 2015, this circumstance and the resultant correction led to deferred tax income, as the reduction in deferred tax assets as of 31 December 2015 turned out lower than as of 1 January 2015. Furthermore, in the consolidated fi nancial statements as of 31 December 2014 goodwill and the corresponding liability were each reported at amounts that were € 887k too high. The foundation of the fonial GmbH subsidiary on the basis of cash contributions did not constitute a business combination pursuant to IFRS 3, as no existing business operations were taken over. The fi nancial liabilities reported in the consolidated fi nancial statements as of 31 December 2014, of which € 900k were directly reclassifi ed to equity in the 2015 fi nancial year, had to be retired. This is because, from an economic perspective, the additional amount expected from a contrac-
tual tender option represented a compensation component for the managing director and should have been distributed over the term of the respective employment contract. Due to updated expectations, the resultant earnings item of € 22k in the 2014 fi nancial year was fully reversed in the 2015 fi nancial year.
The Company concurs with the legal assessment by the German Financial Reporting Enforcement Panel (DPR), has corrected the fi gures as appropriate and, pursuant to IAS 8.41 et seq., has retrospectively implemented these corrections in these consolidated fi nancial statements. The implications of these corrections for the previous year are presented in the following tables.
| € 000s | 1 Jan. 2015 | Correction pursuant to IAS 8 | 1 Jan. 2015 | |
|---|---|---|---|---|
| as originally | Deferred | Foundation | adjusted | |
| reported | tax assets | of subsidiary | ||
| on the basis | ||||
| of cash con - | ||||
| tributions | ||||
| ASSETS | ||||
| Long-term assets | ||||
| Property, plant and equipment | 76,169 | 76,169 | ||
| Land and buildings | 25,915 | 25,915 | ||
| Goodwill | 67,077 | (887) | 66,190 | |
| Other intangible assets | 53,684 | 53,684 | ||
| Trade receivables | 7,761 | 7,761 | ||
| Prepayments | 2,641 | 2,641 | ||
| Other long-term assets | 2,948 | 2,948 | ||
| Deferred tax assets | 19,377 | (11,625) | 7,752 | |
| Long-term assets | 255,572 | (11,625) | (887) | 243,060 |
| Short-term assets | 149,917 | 149,917 | ||
| TOTAL ASSETS | 405,489 | (11,625) | (887) | 392,977 |
| € 000s | 1 Jan. 2015 | Correction pursuant to IAS 8 | 1 Jan. 2015 | |
|---|---|---|---|---|
| as originally reported |
Deferred tax assets |
Foundation of subsidiary on the basis of cash con - tributions |
adjusted | |
| SHAREHOLDERS' EQUITY AND LIABILITIES | ||||
| Shareholders' equity | ||||
| Issued capital | 124,142 | 124,142 | ||
| Capital surplus | 142,069 | 142,069 | ||
| Other capital reserves | (3,066) | (3,066) | ||
| Accumulated defi cit | (117,511) | (11,625) | (21) | (129,157) |
| Equity attributable to owners of the parent company | 145,634 | (11,625) | (21) | 133,988 |
| Non-controlling interests | - | 12 | 12 | |
| Shareholders' equity | 145,634 | (11,625) | (9) | 134,000 |
| Liabilities | ||||
| Long-term liabilities | ||||
| Long-term liabilities under fi nancing | ||||
| and fi nance lease arrangements | 4,447 | 4,447 | ||
| Liabilities due to banks | 156,550 | 156,550 | ||
| Convertible bonds | 25 | 25 | ||
| Accrued pensions | 7,281 | 7,281 | ||
| Other provisions | 305 | 305 | ||
| Other fi nancial liabilities | 9,209 | (878) | 8,331 | |
| Deferred tax liabilities | 2,333 | 2,333 | ||
| Long-term liabilities | 180,150 | (878) | 179,272 | |
| Short-term liabilities | 79,705 | 79,705 | ||
| Liabilities | 259,855 | (878) | 258,977 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 405,489 | (11,625) | (887) | 392,977 |
| € 000s | 31 Dec. 2015 | Correction pursuant to IAS 8 | ||
|---|---|---|---|---|
| as originally reported |
Deferred tax assets |
Foundation of subsidiary on the basis of cash con - tributions |
adjusted | |
| ASSETS | ||||
| Long-term assets | ||||
| Property, plant and equipment | 62,392 | 62,392 | ||
| Land and buildings | 25,152 | 25,152 | ||
| Goodwill | 67,077 | (887) | 66,190 | |
| Other intangible assets | 41,411 | 41,411 | ||
| Trade receivables | 4,583 | 4,583 | ||
| Prepayments | 3,608 | 3,608 | ||
| Other long-term assets | 292 | 292 | ||
| Deferred tax assets | 20,207 | (9,536) | 10,671 | |
| Long-term assets | 224,722 | (9,536) | (887) | 214,299 |
| Short-term assets | 133,803 | 133,803 | ||
| TOTAL ASSETS | 358,525 | (9,536) | (887) | 348,102 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | ||||
| Shareholders' equity | ||||
| Issued capital | 124,162 | 124,162 | ||
| Capital surplus | 142,702 | 142,702 | ||
| Other capital reserves | (2,996) | (2,996) | ||
| Accumulated defi cit | (139,673) | (9,536) | (777) | (149,986) |
| Equity attributable to owners of the parent company | 124,195 | (9,536) | (777) | 113,882 |
| Non-controlling interests | - | (110) | (110) | |
| Shareholders' equity | 124,195 | (9,536) | (887) | 113,772 |
| Liabilities | ||||
| Long-term liabilities | 170,997 | 170,997 | ||
| Short-term liabilities | 63,333 | 63,333 | ||
| Liabilities | 234,330 | 234,330 | ||
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 358,525 | (9,536) | (887) | 348,102 |
| € 000s | 2015 | Correction pursuant to IAS 8 | 2015 | |
|---|---|---|---|---|
| as originally | Deferred | Foundation | adjusted | |
| reported | tax assets | of subsidiary | ||
| on the basis | ||||
| of cash con - | ||||
| tributions | ||||
| Net revenues | 402,436 | 402,436 | ||
| Cost of revenues | (337,598) | (337,598) | ||
| Gross profi t | 64,838 | 64,838 | ||
| Sales and marketing expenses | (37,096) | (37,096) | ||
| General and administrative expenses | (37,932) | 22 | (37,910) | |
| Other operating income | 682 | 682 | ||
| Other operating expenses | (1,653) | (1,653) | ||
| Operating profi t (loss) | (11,161) | 22 | (11,139) | |
| Financial income | 398 | 398 | ||
| Financial expenses | (6,344) | (6,344) | ||
| Net income (loss) before income taxes | (17,107) | 22 | (17,085) | |
| Income taxes | 1,753 | 2,089 | 3,842 | |
| Net income (loss) | (15,354) | 2,089 | 22 | (13,243) |
| Attribution of net income (loss) | ||||
| Owners of the parent company | (15,354) | (13,121) | ||
| Non-controlling interests | - | (122) | ||
| Earnings per share (basic) in € | (0.12) | (0.11) | ||
(0.12)
Earnings per share (diluted) in €
(0.11)
Revenues are generated with resellers as well as with end-user customers. The resellers off er QSC's products and services to consumers under their own name and on their own account. In this, they serve as the interface to the consumer, thus also assuming the associated default risk. Revenues from construction contracts came to € 535k in the year under report (2015: € 2,693k). These did not result in any material losses. Revenues from hardware leases in the context of new multiple element arrangements amounted to € 2,266k in 2016 (2015: € 1,849k). A breakdown of revenues can be found in the Segment Report (Note 40).
Cost of revenues include the cost of purchased services, the cost of building, operating and maintaining the network and data centres, and non-cash share-based compensation under stock option plans for employees working in technology operations. It also includes depreciation and amortisation on hardware and software used in technology operations. Moreover, this line item includes personnel expenses in the Outsourcing and Consulting lines of business. Furthermore, it also includes prorated personnel expenses for the business fi elds. Of total research and development expenses of € 5,144k (2015: € 7,593k), an amount of € 0k was capitalised as development expenses in the 2016 fi nancial year (2015: € 333k).
A settlement was reached with Deutsche Telekom in Q4 2016 with regard to the appropriateness of interconnection and termination fees. This involved the payment of a low single-digit million euro amount, leading to a one-off reduction in cost of revenues.
| € 000s | 2016 | 2015 |
|---|---|---|
| Purchased services | 161,648 | 170,652 |
| Building, operation and maintenance of infrastructure | 43,067 | 42,891 |
| Depreciation and amortisation | 29,432 | 44,985 |
| Personnel expenses | 78,196 | 78,748 |
| Non-cash share-based compensation | 255 | 322 |
| Cost of revenues | 312,598 | 337,598 |
Sales and marketing expenses particularly include advertising expenses and regular commission payments to dealers and distributors, allowances for bad debt, personnel expenses and non-cash share-based compensation related to SOPs for employees in sales and marketing, as well as depreciation and amortisation on hardware and software used in sales and marketing operations. By analogy with installation costs, upfront commission payments to dealers and distributors for each new customer line are capitalised and amortised over a contractual period of 24 months.
| € 000s | 2016 | 2015 |
|---|---|---|
| Personnel expenses | 16,996 | 20,221 |
| Commission payments | 10,894 | 10,282 |
| Other sales and marketing expenses | 2,238 | 2,735 |
| Allowances for bad debt and fair dealing payments | 539 | (125) |
| Advertising expenses | 2,298 | 1,745 |
| Depreciation and amortisation | 1,614 | 2,141 |
| Non-cash share-based compensation | 104 | 97 |
| Sales and marketing expenses | 34,683 | 37,096 |
In addition to personnel expenses and non-cash share-based compensation for Management Board members and head off ice departments, as well as for administration employees working in Finance, Human Resources, Legal Operations, and IT, general and administrative expenses also include costs for the administration buildings, legal and consulting costs, corporate communications costs (including investor relations) and depreciation and amortisation on hardware and software used in administrative operations.
| € 000s | 2016 | 2015 |
|---|---|---|
| Other general and administrative expenses | 15,083 | 16,001 |
| Personnel expenses | 16,739 | 16,136 |
| Depreciation and amortisation | 4,676 | 5,562 |
| Non-cash share-based compensation | 149 | 211 |
| General and administrative expenses | 36,647 | 37,910 |
| € 000s | 2016 | 2015 |
|---|---|---|
| Write-downs of cost of revenues | 29,432 | 44,985 |
| Write-downs of sales and marketing expenses | 1,614 | 2,141 |
| Write-downs of general and administrative expenses | 4,676 | 5,562 |
| Write-downs of other operating expenses | 13,927 | - |
| Write-downs and impairments | 49,649 | 52,688 |
| € 000s | 2016 | 2015 |
|---|---|---|
| Other operating income | 2,455 | 556 |
| Income from subsidised projects | 211 | 106 |
| Income from disposal of long-term assets | 32 | 20 |
| Other operating income | 2,698 | 682 |
| € 000s | 2016 | 2015 |
| Goodwill impairment | 10,622 | - |
| Write-downs of customer bases | 3,305 | - |
| Other operating expenses | 3,882 | 1,640 |
| Losses from disposal of long-term assets | 40 | 13 |
| Other operating expenses | 17,849 | 1,653 |
Other operating income mainly includes income of € 1,614k from third parties in connection with value added services and damages claims of € 337k.
Other operating expenses mainly comprise a goodwill impairment of € 10,622k recognised in the Outsourcing segment (further details in Notes 18 and 19), write-downs of € 3,305k on capitalised customer bases and expenses of € 1,889k for the dismantling of decommissioned technical space.
| € 000s | 2016 | 2015 |
|---|---|---|
| Financial income (interest income) | 196 | 398 |
| € 000s | 2016 | 2015 |
| Financial expenses (interest expenses) | 6,030 | 6,344 |
Interest expenses include an amount of € 96k (2015: € 253k) for financing arrangements. Borrowing costs attributable to qualifying assets were not incurred. Net interest expenses for pension provisions amount to € 135k (2015: € 114k).
When calculating diluted earnings per share, account only needs to be taken of convertible stock options resulting from the 2006 and 2012 /2015 stock option plans. For these, it has been assumed that the options subscribed as of 31 December 2016 will also be converted if the respective conversion requirements are met.
Pursuant to the bond terms relevant to the 2006, 2012 and 2015 stock option plans, conversion is only possible when one of the following conditions is met:
QSC shares closed at € 1.92 in Xetra trading on 30 December 2016, while the TecDAX was listed at 1,811.72 points.
To calculate diluted earnings, it is initially assumed that the TecDAX outperformed QSC's share price. The second condition, i.e. whether the share price has increased by 10 percent or 20 percent, is therefore investigated.
For the 2006 stock option plan, account thus has to be taken of all options with conversion prices of € 1.74 (= € 1.92 : 1.1) or lower which have not yet been converted. As of 31 December 2016, the 2006 stock option plan comprised 26,800 options.
For the 2012 and 2015 stock option plans, account has to be taken of all options with conversion prices of € 1.60 (= € 1.92 : 1.2) or lower.
As of 31 December 2016, the 2012 stock option plan comprised 112,300 options, while the 2015 stock option plan included 400,000 options.
When calculating diluted earnings, account also has to be taken of the share-based payments still to be incurred through to conversion of the exercisable options. For the 2006 stock option plan, all share-based expenses have already been considered. For the 2012 and 2015 stock option plans, an average term of up to 4 years can still be expected.
The amount of share-based compensation to be considered through to the conversion of the 539,100 options is calculated as follows:
| Number of options |
Correction value in € |
|
|---|---|---|
| SOP 2006 | 26,800 | - |
| SOP 2012 | 112,300 | 43,309 |
| SOP 2015 | 400,000 | 233,000 |
| Total | 539,100 | 276,309 |
To calculate diluted earnings per share, the numerator and the denominator therefore have to be adjusted by € 276,309 and 539,100 shares respectively.
| 2016 financial year | Basic earnings per share |
Correction | Diluted earnings per share |
|---|---|---|---|
| Consolidated net income attributable to shareholders | |||
| in the parent company (€ 000s) | (24,839) | (276) | (25,115) |
| Weighted average number of shares issued | 124,164,987 | 539,100 | 124,704,087 |
| Earnings per share (€) | (0.20) | (0.20) |
| 2015 financial year | Basic earnings per share |
Diluted earnings per share |
|---|---|---|
| Consolidated net income attributable to shareholders | ||
| in the parent company (€ 000s) | (13,121) | (13,121) |
| Weighted average number of shares issued | 124,155,820 | 124,155,820 |
| Earnings per share (€) | (0.11) | (0.11) |
| € 000s | 2016 | 2015 |
|---|---|---|
| Wages and salaries | 98,150 | 99,400 |
| Employer social security contributions (pension insurance) | 6,872 | 7,540 |
| Employer social security contributions (other) | 6,527 | 7,652 |
| Pension expenses | 382 | 513 |
| Non-cash share-based compensation | 508 | 630 |
| Personnel expenses | 112,439 | 115,735 |
Wages and salaries include expenses for the termination of employment contracts totalling € 8,699k (2015: € 1,871k).
During the 2016 fi nancial year, companies included in consolidation employed an average of 1,384 employees (2015: 1,553). The following table presents the employees' distribution by main corporate functions.
| 2016 | 2015 | |
|---|---|---|
| Sales and marketing | 198 | 247 |
| Technology and consulting | 1,055 | 1,152 |
| Administration | 121 | 141 |
| Head off ice departments | 10 | 13 |
| Number of employees by corporate function (average) | 1,384 | 1,553 |
Based on a transfer agreement dated 20 December 2016, the Company sold all of its shares in FTAPI Software GmbH, Munich, on 9 January 2017.
The fi nal measurement of the relevant CGU gave rise to impairment losses of € 2,276k. These have been recognised under cost of revenues (Note 8) and taxes on income (Note 43). Within the disposal group, the impairment losses reduced the carrying amounts of intangible assets and deferred tax assets by € 1,313k and € 963k respectively.
The recoverable amount of € 15k corresponds to the fair value (measured at Level 1 in the measurement hierarchy) less disposal costs.
Measurement of the disposal group at the lower of its carrying amount and its fair value less disposal costs as of the balance sheet date did not result in any further charge.
The assets and liabilities in the disposal group were structured as follows as of the balance sheet date and are recognised in the balance sheet as assets held for sale and as liabilities in connection with assets held for sale respectively:
| € 000s | 31 Dec. 2016 |
|---|---|
| Assets | |
| Property, plant and equipment | 39 |
| Other intangible assets | 509 |
| Trade receivables | 141 |
| Prepayments | 4 |
| Other short-term assets | 28 |
| Cash and cash equivalents | 445 |
| Assets held for sale | 1,166 |
| Liabilities | |
| Trade payables | 32 |
| Deferred income | 861 |
| Other short-term liabilities | 258 |
| Liabilities in connection with assets held for sale | 1,151 |
No accumulated income and expenses relating to the disposal group have been recognised under other comprehensive income.
| € 000s | Land and buildings |
Network and technical equipment |
Operational and off ice equipment |
Total |
|---|---|---|---|---|
| Gross value at 1 Jan. 2015 | 29,931 | 368,022 | 55,847 | 453,799 |
| Additions | 82 | 16,158 | 1,413 | 17,653 |
| Disposals | - | (3,840) | (254) | (4,094) |
| Reclassifi cations | - | (19) | 19 | - |
| Gross value at 31 Dec. 2015 | 30,012 | 380,322 | 57,024 | 467,358 |
| Additions | 37 | 20,504 | 584 | 21,125 |
| Disposals | - | (745) | (368) | (1,113) |
| Reclassifi cations | - | 107 | (107) | - |
| Reclassifi cations to assets held for sale | - | - | (108) | (108) |
| Gross value at 31 Dec. 2016 | 30,049 | 400,188 | 57,025 | 487,262 |
| Accumulated depreciation and | ||||
| impairments at 1 Jan. 2015 | 4,015 | 303,689 | 44,011 | 351,715 |
| Additions | 845 | 28,919 | 2,239 | 32,002 |
| Disposals | - | (3,650) | (253) | (3,903) |
| Reclassifi cations | - | - | - | - |
| Accumulated depreciation and | ||||
| impairments at 31 Dec. 2015 | 4,860 | 328,957 | 45,997 | 379,814 |
| Additions | 830 | 18,700 | 2,134 | 21,664 |
| Disposals | - | (790) | (270) | (1,060) |
| Reclassifi cations | - | 3 | (3) | - |
| Reclassifi cations to assets held for sale | - | - | (69) | (69) |
| Accumulated depreciation and | ||||
| impairments at 31 Dec. 2016 | 5,690 | 346,870 | 47,789 | 400,349 |
| Carrying amounts at 31 Dec. 2015 | 25,152 | 51,365 | 11,027 | 87,544 |
| Carrying amounts at 31 Dec. 2016 | 24,359 | 53,318 | 9,236 | 86,913 |
As of 31 December 2016, the carrying amount of technical equipment, plant and off ice equipment held under fi nance lease arrangements totalled € 842k (2015: € 3,042k).
Additions in the 2016 fi nancial year totalled € 21,125k (2015: € 17,653k). As of 31 December 2016, the "Network and technical equipment" line item included assets under construction amounting to € 2,366k (2015: € 3,051k). These relate to the expansion in a core network and to data centres. In the income statement, QSC recognises depreciation and amortisation within the "Cost of revenues", "Sales and marketing expenses" and "General and administrative expenses" line items. Liens have been granted on real estate as security for liabilities under loan agreements (Note 30). Moreover, loans payable are secured by a mortgage lien provided to the lending bank for property, plant and equipment at a company property.
Goodwill amounted to € 55,568k as of 31 December 2016 (2015: € 66,190k). Impairment testing led to the identifi cation of an impairment requirement of € 10,622k in the Outsourcing segment. This has been recognised under other operating expenses in the consolidated income statement. Further details can be found in Note 19.
Consistent with IFRS 8 requirements, the Company's internal organisational structure used by the management for business decisions and performance assessments has been referred to as the basis for delineating segments. Accordingly, segment report is aligned to the Company's product structure. This has resulted in the segments of Telecommunications, Outsourcing, Consulting and Cloud.
The groups of cash-generating units (CGUs) to which goodwill has been allocated correspond to the operating segments determined for the companies included in consolidation pursuant to IFRS 8.5. The operating segments represent the lowest level of reporting at the companies included in consolidation for which goodwill is systematically monitored.
Including the impairment requirements at the Outsourcing segment, the carrying amount of goodwill is allocated to the segments as follows:
| € 000s | 2016 | 2015 |
|---|---|---|
| Telecommunications | 20,844 | 20,844 |
| Outsourcing | - | 10,622 |
| Consulting | 10,409 | 10,409 |
| Cloud | 24,315 | 24,315 |
| Carrying amount of goodwill | 55,568 | 66,190 |
QSC determines the recoverable amount of the CGUs as their value in use and refers here to the cash fl ow forecasts based on the Management Board's planning for the Company for a threeyear period. This planning accounts for management expectations with respect to the future performance of individual business units and considers both external market analyses and internal assumptions concerning the market opportunities for innovative applications in the ICT market.
The Telecommunications segment comprises the two areas of corporate customers and private customers. In the private customer business, regulation and the market-related decline in the low-margin Voice and ADSL2+ business have resulted in a further marked reduction in revenues. This contrasts with the stable level of revenues in the corporate customer business. The resultant decline in the margin in this segment can only be offset in part by lower structural expenses in the detailed planning period. This will lead to a marked decrease in EBIT and slight decline in the EBIT margin. The sustainable growth rate (in perpetuity) amounts to 0 percent (2015: 0 percent).
Alongside the reduction in market prices, the migration of customers to the new Cloud platform in particular means that the sharp fall in revenues in the Outsourcing segment is set to continue during the detailed planning period. The associated loss of margin in absolute terms will be more than off set by the cost-cutting programme launched in 2015, leading to a marked rise in EBIT and the EBIT margin. Overall, the budgeting assumptions for the Outsourcing segment had to be signifi cantly scaled back compared with the previous year. This in turn resulted in an impairment requirement for all of the segment's goodwill. Consistent with the expected development in revenues, the sustainable growth rate here too will amount to 0 percent (2015: 0 percent). A value in use of € 49,532k was determined for the Outsourcing segment. Due to the migration of existing customers to the new Cloud platform, the impairment requirement for this segment amounts to € 10,622k. The impairment requirement was allocated in full to goodwill and recognised under other operating expenses.
The positive trend seen in revenues in the Consulting segment in previous years will continue. The high volume of new orders expected for subsequent years as well will lead to strong revenue growth in the years from 2017 to 2019. This revenue performance and the increasing deployment of internal rather than external staff will result in a signifi cant increase in EBIT and the EBIT margin. The sustainable growth rate has been accounted for at 0.5 percent in the corporate planning (2015: 0.5 percent).
The especially strong revenue growth in the Cloud segment, comparable with the development in revenues for innovative new product developments, is largely attributable to the new PEC platform. Alongside the acquisition of new customers, a further key growth driver results above all from migrating existing Outsourcing customers.
A further strong growth area involves activities at QSC's subsidiary Q-loud, which off ers services within the M2M communication business fi eld. Consistent with the revenue forecast, EBIT and the EBIT margin will also show correspondingly strong growth. As revenue growth is also expected beyond 2019, the sustainable growth rate has been stated at 1.0 percent (2015: 1.0 percent).
To discount the cash fl ows expected for the respective cash-generating units, the segmentspecifi c weighted average costs of capital (WACC) were determined. Segment-specifi c beta factors were derived by reference peer group data.
The segment-specifi c pre-tax discount rates come to 9.07 percent for Telecommunications (2015: 9.58 percent), 7.92 percent for Outsourcing (2015: 9.14 percent), 9.22 percent for Consulting (2015: 9.56 percent) and 12.00 percent for Cloud (2015: 16.41 percent).
The value in use of the Telecommunications, Consulting and Cloud CGUS is ahead of the carrying amount of the respective assets. The estimated recoverable amounts of the Telecommunication and Consulting cash-generating units exceed their carrying amounts by € 64,532k and € 8,984k respectively (2015: € 34,213k and € 36,580k respectively). The value in use of the Cloud CGU is € 27,181k higher than its carrying amount. There are therefore no goodwill impairment requirements at any of the listed groups of CGUs.
The calculation of the CGUs' value in use is subject to forecasting uncertainties, particularly in respect of the development in prices and market shares, with these uncertainties requiring consideration when planning revenues, gross profi t, the capex ratio and the discount rate. Various scenario analyses were performed for the impairment test. An impairment requirement would arise in the Telecommunications and Consulting CGU groups if, all other factors being equal, revenues in the fi nal planning year, and thus in perpetuity, were to fall 8.6 percent and 2.4 percent respectively short of the revenues assumed in the planning (2015: 5.1 percent and 9.8 percent respectively). The Cloud CGU group would be subject to an impairment requirement if, all other factors being equal, revenues in the fi nal planning year, and thus in perpetuity, were to fall 6.4 percent short of the planned revenues (2015: 11.3 percent).
| € 000s | Licenses | Acquired software |
Internally gene rated software |
Customer connections |
Customer bases |
Brands | Other | Total |
|---|---|---|---|---|---|---|---|---|
| Gross value | ||||||||
| at 1 Jan. 2015 | 1,968 | 30,923 | 15,677 | 135,580 | 36,223 | 2,426 | 15,564 | 238,361 |
| Additions | 91 | 1,081 | 343 | 6,595 | - | - | 307 | 8,417 |
| Disposals | - | (6) | - | - | - | - | - | (6) |
| Gross value | ||||||||
| at 31 Dec. 2015 | 2,059 | 31,999 | 16,019 | 142,175 | 36,223 | 2,426 | 15,871 | 246,772 |
| Additions | 81 | 1,471 | - | 5,582 | - | - | 106 | 7,240 |
| Disposals | - | (267) | (4,606) | - | - | - | - | (4,873) |
| Reclassifi cations to | ||||||||
| assets held for sale | - | - | (2,755) | - | - | - | (6) | (2,761) |
| Gross value | ||||||||
| at 31 Dec. 2016 | 2,140 | 33,203 | 8,659 | 147,757 | 36,223 | 2,426 | 15,971 | 246,378 |
| Accumulated amortisa- | ||||||||
| tion and impairments | ||||||||
| at 1 Jan. 2015 | 1,283 | 21,655 | 7,797 | 128,077 | 8,949 | 2,426 | 14,490 | 184,677 |
| Additions | 107 | 2,900 | 7,659 | 7,132 | 2,366 | - | 524 | 20,686 |
| Disposals | - | (3) | - | - | - | - | - | (3) |
| Accumulated amortisa- | ||||||||
| tion and impairments | ||||||||
| at 31 Dec. 2015 | 1,390 | 24,552 | 15,456 | 135,209 | 11,315 | 2,426 | 15,013 | 205,361 |
| Additions | 103 | 4,919 | 58 | 6,455 | 5,670 | - | 157 | 17,363 |
| Disposals | - | (267) | (4,606) | - | - | - | - | (4,873) |
| Reclassifi cations to | ||||||||
| assets held for sale | - | - | (2,249) | - | - | - | (2) | (2,251) |
| Accumulated amortisa- | ||||||||
| tion and impairments | ||||||||
| at 31 Dec. 2016 | 1,493 | 29,204 | 8,659 | 141,664 | 16,985 | 2,426 | 15,168 | 215,599 |
| Carrying amounts | ||||||||
| at 31 Dec. 2015 | 669 | 7,447 | 564 | 6,966 | 24,908 | - | 858 | 41,411 |
| Carrying amounts | ||||||||
| at 31 Dec. 2016 | 647 | 3,999 | - | 6,093 | 19,238 | - | 803 | 30,779 |
Impairment losses of € 3,305k have been recognised on customer bases. These relate to customer relationships recognised at INFO AG in 2011 in the context of a purchase price allocation performed upon the business combination and involving the Outsourcing, Consulting and Cloud segments. The impairment requirement arose due to falling revenues with existing customers, especially in the Outsourcing business. The value was determined using the residual value method. The discount rate was derived from the parameters used for goodwill impairment tests. Prior to the impairment loss recognised on customer bases, the carrying amount came to € 11,075k as of 31 December 2016. The recoverable amount stood at € 7,770k. This gave rise to an impairment requirement of € 3,305k.
QSC has recognised the impairment loss under other operating expenses in its income statement. Scheduled amortisation is recognised within individual line items: € 7,987k under cost of revenues (2015: € 9,898k), € 1,567k under sales and marketing expenses (2015: € 2,054k) and € 3,191k under general and administrative expenses (2015: € 2,054k).
Information about the impairment losses recognised on software can be found in Note 16.
| € 000s | 2016 | 2015 |
|---|---|---|
| Trade receivables | ||
| Long-term trade receivables | 2,435 | 4,583 |
| Short-term trade receivables | 45,816 | 48,704 |
| Trade receivables | 48,251 | 53,287 |
Long-term trade receivables are attributable to the recognition of leasing receivables in the context of multiple element arrangements. The receivables presented are not subject to any material restrictions on ownership or availability. The carrying amounts correspond to the fair values. QSC typically concludes full amortisation contacts with average rental terms of 36 to 48 months and without purchase options. Following the expiry of the basic rental period, it has the option of extending the contract or selling leased items for which no purchase options were granted. No residual values are guaranteed.
Trade receivables include receivables relating to uncompleted contracts for which the percentageof-completion (PoC) method pursuant to IAS 11 is applied. The amount reported comprises cumulative contract costs incurred up to the balance sheet date plus a proportion of profit earned on the relevant contracts based on the cost-to-cost method. Advance payments of € 107k for these contracts have been deducted (2015: € 102k). Write-downs of € 2k have been recognised due to the valuation of long-term construction contracts in the year under report (2015: € 0k). Receivables from construction contracts amounting to € 163k have been recognised under trade receivables (2015: € 975k).
Short-term trade receivables bear no interest and generally have maturities of 30 to 90 days. Allowances are recognised in the full amount of all receivables that are more than 90 days overdue, except for receivables from the project business. These are considered on an individual case basis, i.e. all receivables more than 180 days overdue are individually tested for impairment. As of 31 December 2016, trade receivables amounting to € 3,397k were impaired (2015: € 3,434k). The individual allowances schedule developed as follows:
| € 000s | 2016 | 2015 |
|---|---|---|
| Allowance at 1 January | 3,434 | 4,353 |
| Charged for the year | 210 | 187 |
| Utilised | (2) | (998) |
| Reversed | (245) | (108) |
| Allowance at 31 December | 3,397 | 3,434 |
The analysis of trade receivables as of 31 December is as follows:
| € 000s | 2016 | 2015 |
|---|---|---|
| Gross total | ||
| Impaired | 4,041 | 4,085 |
| Neither past due nor impaired | 41,301 | 45,519 |
| Past due but not impaired | ||
| < 90 days | 6,306 | 7,031 |
| 91 – 120 days | - | 85 |
| > 120 days | - | - |
| Gross total | 51,648 | 56,721 |
Within a factoring agreement with NORD/LB Luxembourg S.A. Covered Bond Bank, QSC regularly sells certain short-term trade receivables with a total volume of up to € 18.5 million to the bank. As of the balance sheet date, trade receivables with a nominal amount of € 13.2 million had been transferred (2015: € 13.5 million).
The nominal amount corresponds to the fair value of the receivables assigned. Apart from retained default risk of € 198k (2015: € 370k), the receivables thereby assigned have been retired.
The long-term prepayments of € 3,161k (2015: € 3,608k) and short-term prepayments of € 5,107k (2015: € 3,712k) chiefl y consist of prepayments for leased lines and technology premises, insu rance and maintenance agreements.
Inventories totalled € 73k as of 31 December 2016 (2015: € 884k) and comprised merchandise held in stock amounting to € 48k (2015: € 860k) and consumables of € 25k (2015: € 24k).
Other short-term financial assets amount to € 1,533k (2015: € 6,521k) and mainly comprise VAT receivables of € 521k, creditors with debit accounts of € 377k (2015: € 255) and security of € 198k (2015: € 370k) that is subject to restrictions on disposability due to the sale of the respective receivables.
Cash and cash equivalents, including the liquidity at the disposal group, amount to € 67,781k (2015: € 73,982k) and consist of cash at banks and on hand.
Each share entitles its registered bearer to cast one vote at the Annual General Meeting and enjoys full dividend entitlement. Voting rights are not subject to any restrictions. All issued shares are fully paid-in.
Issued capital at the Company amounted to € 124,162,487 as of 1 January 2016 and comprised 124,162,487 no-par shares.
Conversion rights relating to stock option plans were exercised in the fi nancial year under report, with 10,000 convertible bonds being converted into shares as a result.
The changes in ordinary shares and issued capital are as follows:
| Ordinary no-par shares |
€ | |
|---|---|---|
| Balance at 1 January 2016 Addition due to issue of ordinary no-par shares |
124,162,487 10,000 |
124,162,487 10,000 |
| Balance at 31 December 2016 | 124,172,487 | 124,172,487 |
A dividend of € 0.03 per share with dividend entitlement was distributed in the year under report (€ 3,725k).
The capital reserve amounted to € 143,217k as of 31 December 2016 (2015: € 142,702k). This amount also includes the deferred share-based compensation for the stock option plan. The year-on-year change is due on the one hand to non-cash share-based compensation of € 508k and on the other to the exercising of convertible bonds of € 7k.
Authorised capital. The Management Board is authorised by resolution of the Annual General Meeting on 27 May 2015, subject to approval by the Supervisory Board, to increase the Company's issued capital by up to a total of € 50,000,000 on one or several occasions up to 26 May 2020 by issuing new no-par registered shares in return for contributions in cash and /or kind (Authorised Capital). When drawing on authorised capital, the Management Board may, subject to approval by the Supervisory Board, exclude shareholders' subscription rights in four cases: (1) to exclude residual amounts from shareholders' subscription rights; (2) when the new shares are issued in return for contributions in kind, particularly in the context of company acquisitions; (3) if, pursuant to § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG), the new shares are issued in return for cash contributions and if, at the time of fi nal stipulation, the issue price does not fall materially short of the stock market price of the shares already listed; and (4) to the extent necessary to issue subscription rights for new shares to the bearers or creditors of warrant and /or convertible bonds in order to avoid dilution of their respective holdings. This authorised capital is intended to enable QSC to react swiftly and fl exibly to opportunities arising on the capital market and where necessary to obtain equity capital on favourable terms. No use was made of authorised capital in the past fi nancial year.
Conditional capital. The Company had conditional capital totalling € 46,490,365 as of the balance sheet date. This was divided into Conditional Capital IV (€ 40,000,000), Conditional Capital VII (€ 740,365), Conditional Capital VIII (€ 5,000,000) and Conditional Capital IX (€ 750,000).
Conditional Capitals VII, VIII and IX serve to secure the conversion rights of bearers of convertible bonds that QSC has issued or may issue within the framework of existing stock option plans to Management Board members (Conditional Capital IX), Management Board members, managing directors of aff iliated companies, employees of QSC and aff iliated companies (Conditional Capitals VII and VIII) and other parties contributing to the Company's success (Conditional Capital VII). Conditional Capital IV may be used by the Management Board to create tradable warrant and /or convertible bonds. The Management Board is authorised by resolution of the Annual General Meeting on 27 May 2015 to issue such instruments in order to access an additional, low-interest fi nancing option given favourable capital market conditions. The convertible bonds may be issued in return for both cash contributions and contributions in kind. The Management Board is authorised, subject to approval by the Supervisory Board, to exclude shareholders' subscription rights to these warrant and /or convertible bonds in four cases: (1) to settle residual amounts resulting from the subscription ratio; (2) when the bonds are issued in return for contributions in kind, particularly in the context of company acquisitions; (3) if, in the case of bonds being issued in return for cash contributions pursuant to § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG), the issue price does not fall materially short of the market value of the bonds; and (4) to the extent necessary to issue subscription rights to the bearers or creditors of warrant and /or convertible bonds previously issued in order to avoid dilution of their respective holdings. To date, the Management Board has not acted on the authorisation to issue tradable warrant and /or convertible bonds.
The exclusion of shareholders' subscription rights pursuant to § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG) may only apply for the use of treasury stock, for the issue of new shares from authorised capital and for the issue of warrant and /or convertible bonds corresponding up to an aggregate total of no more than 10 percent of issued capital during the term of the respective authorisation. Apart from this, the exclusion of shareholders' subscription rights, irrespective of the legal grounds, for the use of treasury stock, for the issue of new shares from authorised capital and for the issue of warrant and /or convertible bonds (including those issued within QSC's stock option plans) may not exceed an aggregate total of 20 percent of issued capital during the term of the respective authorisation.
The development in this item in the 2016 and 2015 fi nancial years is presented in the consolidated statement of changes in equity and under OCI in the consolidated statement of comprehensive income.
Other reserves were structured as follows as of 31 December:
| € 000s | 2016 | 2015 |
|---|---|---|
| Other reserves | ||
| Actuarial losses on pension plans | (1,923) | (1,420) |
| Change in fair value of cash fl ow hedge | (1,570) | (1,576) |
| Other reserves | (3,493) | (2,996) |
The values are stated in each case after deferred taxes.
| € 000s | Average interest rate in % in 2016 |
Maturity | 2016 | 2015 |
|---|---|---|---|---|
| Short-term liabilities | ||||
| Under fi nancing and fi nance lease | ||||
| arrangements | 4.07 | 2017 | 1,352 | 2,761 |
| Due to banks | 4.55 | 2017 | 4,003 | 2,140 |
| Short-term liabilities | 5,355 | 4,901 | ||
| Long-term liabilities | ||||
| From convertible bonds | 3.50 | from 2019 | 33 | 27 |
| Due to banks | 2.41 | 2018 – 2021 | 145,412 | 155,830 |
| Fixed-rate € 57,912k | 2.62 | |||
| Floating-rate € 87,500k | 2.27 | |||
| Under fi nancing and fi nance lease | ||||
| arrangements | 4.62 | 2018 – 2021 | 370 | 1,722 |
| Long-term liabilities | 145,815 | 157,579 | ||
| Interest-bearing liabilities | 151,170 | 162,480 |
Short-term interest-bearing liabilities. Short-term liabilities under fi nancing and fi nance lease arrangements and to banks consist of fi xed repayment obligations through to the end of 2017.
Long-term interest-bearing liabilities. As of 31 December 2016, 3,207,529 convertible bonds were outstanding in connection with the Stock Option Plans. The convertible bonds have a nominal value of € 0.01 each. Further details can be found in Note 41.
Of long-term liabilities due to banks as of the balance sheet date, an amount of € 145,000k involved liabilities from fi ve tranches of a promissory note loan taken up in May 2014. An amount of € 5 million from Tranche 4 was prematurely repaid in October 2016.
The terms of the individual tranches have been presented in the table below. Alongside the promissory note loan, QSC has further long-term loans of € 412k due to banks.
| Nominal amount in € 000s |
Term | Interest rate | |
|---|---|---|---|
| Floating-interet tranches | |||
| Tranche 1 | 56,500 | 5 years | 6-month Euribor + 1.4% |
| Tranche 2 | 20,000 | 5 years | 3-month Euribor + 1.2% |
| Tranche 3 | 11,000 | 7 years | 6-month Euribor + 1.8% |
| Floating-interest tranches | 87,500 | ||
| Fixed-interest tranches | |||
| Tranche 4 | 33,500 | 5 years | 2.29% |
| Tranche 5 | 24,000 | 7 years | 3.05% |
| Fixed-interest tranches | 57,500 |
To hedge the cash fl ow risk involved in the fl oating-interest tranches of the promissory note loan, which amount to € 87,500k, QSC has concluded three interest swaps. Of these, an amount of € 76,500k has a term running until 20 May 2019 and an amount of € 11,000k has a term running until 20 May 2021. The interest swaps meet IAS 39 hedge accounting requirements (cash fl ow hedges). In respect of their terms and fl oating interest rates, the interest swaps are congruent with the tranches of the promissory note loan thereby hedged. The underlying eff ectiveness assessment is performed as of each balance sheet date using the hypothetical derivative method. The negative fair value of the interest swaps amounted to € 2,425k as of the balance sheet date (2015: € 2,414k) and has been recognised under other long-term fi nancial liabilities (Note 35). The fair value measurement of the interest swaps was performed by the intermediary bank. This is derived either from the mid-market price or, when expressed as a bid and asked price, from the indicative price at which the bank would have terminated and concluded or bought
back and sold the fi nancial instrument on the relevant marketplace at the close of business on the respective measurement date. To account for the change in the value of the interest swap before deferred taxes an amount of € 8k (2015: € 149k) was recognised under OCI in the consolidated statement of comprehensive income in the 2016 fi nancial year (2015: € 149k). No amounts were recognised for hedge ineff ectiveness in the income statement in the period under report. The payments expected for the hedge include interest payments for the hedged item and the hedging relationship. These are incurred on an ongoing basis over the term and recognised under interest expenses.
Including interest swap hedging classifi ed as eff ective, the fl oating-rate tranches of the promissory note loan have an eff ective interest rate corresponding to that of a fi xed-interest instrument with an interest rate of 2.27 percent. For the fl oating-rate tranches, this corresponds to an annual interest payment of € 1,986k through to initial maturity in 2019 and subsequently of € 250k through to maturity in 2021.
Furthermore, QSC had committed credit lines from a syndicated loan agreement newly concluded on 11 March 2016. The borrowers here are QSC, Ventelo and Plusnet. This revolving credit facility has an amount of € 70,000k and a term running until 11 March 2021. No amounts had been drawn down from this facility as of 31 December 2016. The current interest rate amounts to Euribor plus a margin. This margin may change depending on the Company's fi nancial and earnings position.
The loan agreements serve to fi nance the Company's general working capital. Drawdowns of loan amounts are dependent on QSC complying with specifi ed key fi nancial ratios ("fi nancial covenants") during the term of the credit facility. The fi nancial covenants refer to the development in EBITDA and in the Company's debt servicing capacity. The agreed fi nancial covenants were complied with in the 2016 fi nancial year.
Loan liabilities are secured by a mortgage lien of € 23,000k on land in Hamburg. Additional security has also been provided to the lending bank in the form of a storage assignment of assets. Further loan liabilities on the level of QSC are secured by a mortgage lien of € 2,300k on a plant site. In addition, all entitlements to receive rent and lease income under the general subcontractor agreement with a customer have also been assigned as security.
Long-term liabilities under fi nancing arrangements comprise an annuity loan used to fi nance buildings and data centres. Long-term liabilities under fi nancing arrangements consist of fi xed payment obligations for the period from 2017 to 2019.
QSC operates defi ned benefi t pension plans, which are partially secured through reinsurance and classifi ed as plan assets in accordance with IAS 19.
Pension provisions cover the obligations resulting from pension commitments made to one member of the Supervisory Board during his previous activity as a member of QSC's Management Board and to two former Management Board members at the former INFO AG, as well as obligations resulting from pension commitments made to parts of QSC's and Ventelo's workforces in previous years.
The pension entitlements relate to defined benefits which depend primarily of the period of service with the company and the relevant level of pensionable salary. These defi ned benefi t plans expose QSC to various actuarial risks, including longevity and interest rate risks. The pension provision for defi ned benefi t plans is measured using the projected unit credit method in accordance with the requirements of IAS 19 and takes future developments into account. Assumptions are based on the 2005 G biometric tables issued by Prof. Dr. Klaus Heubeck. QSC recognises all actuarial gains and losses directly through OCI. In the 2016, the accumulated actuarial gains and losses of € 1,923k were recognised in OCI (2015:€ 1,420k). Total actuarial gains /losses after taxes came to € -503k in the 2016 fi nancial year (2015: € 170k).
| € 000s | 2016 | 2015 |
|---|---|---|
| Present value of defi ned benefi t obligation at 1 January | 8,044 | 8,439 |
| Service cost | - | 6 |
| Interest cost | 165 | 140 |
| Actuarial losses (gains) | 722 | (288) |
| Due to changes in demographic assumptions | - | - |
| Due to changes in fi nancial assumptions | 737 | (310) |
| Due to experience adjustments | (15) | 22 |
| Benefi ts paid | (258) | (252) |
| Present value of defi ned benefi t obligation at 31 December | 8,674 | 8,044 |
| Fair value of plan assets at 1 January | (1,352) | (1,158) |
| Interest income | (31) | (26) |
| Income from plan assets excluding amounts included | ||
| in net interest income and expenses | 23 | 37 |
| Payment from fund assets | - | - |
| Transfers | 20 | - |
| Amounts paid out | 1 | - |
| Employer contribution to plan assets | (203) | (204) |
| Fair value of plan assets at 31 December | (1,541) | (1,351) |
| Accrued pensions at 31 December | 7,133 | 6,693 |
| Discount factor | 1.51% | 2.09% |
| Rate of compensation increase | 2.00% | 2.00% |
| Pension indexation | 2.00% | 2.00% |
Actuarial gains and losses are recognised in OCI, as is income from plan assets (excluding amounts reported in net interest expenses). The income and expenses recognised in the income statement for defi ned benefi t plans are structured as follows:
| € 000s | 2016 | 2015 |
|---|---|---|
| Pension costs | ||
| Service costs | - | 6 |
| Interest costs | 165 | 140 |
| Expected return on plan assets | (31) | (26) |
| Pension costs | 136 | 120 |
Pension payments of € 258k and funding contributions to plan assets of € 205k are expected in 2017. If the aforementioned assumptions used to measure pension obligations as of the balance sheet were to change by half a percent in each case, pension obligations would increase / decrease as follows:
| € 000s | Change in pension obligations |
Pension obligations |
|---|---|---|
| Change in interest rate +0.5% | (652) | 8,022 |
| Change in interest rate -0.5% | 736 | 9,410 |
As of 31 December 2016, the weighted average term of the defi ned benefi t obligation came to 16.0 years (2015: 16.4 years).
Employer contributions to defi ned contribution plans amounted to € 6,872k in the 2016 fi nancial year (2015: € 7,540k).
All trade payables have terms of less than one year.
| 2016 | 2015 |
|---|---|
| Long-term provisions at 1 January 1,642 |
305 |
| 1,465 | 1,337 |
| (57) | - |
| Long-term provisions at 31 December 3,050 |
1,642 |
Long-term provisions comprise provisions of € 3,050k for dismantling obligations (2015: € 1,585k). The change is due to amended assessments concerning the volume of dismantling obligations. Dismantling obligations are typically incurred at the end of the rental period.
| € 000s | 2016 | 2015 |
|---|---|---|
| Other provisions at 1 January | 4,909 | 1,165 |
| Added | 2,178 | 4,664 |
| Utilised | (1,189) | (905) |
| Reversed | (1,745) | (15) |
| Other provisions at 31 December | 4,153 | 4,909 |
| Restructuring provisions at 1 January | 3,429 | 8,282 |
| Added | 5,340 | 981 |
| Utilised | (3,031) | (5,518) |
| Reversed | (322) | (316) |
| Restructuring provisions at 31 December | 5,416 | 3,429 |
| Provisions for onerous contracts at 1 January | - | - |
| Added | 798 | - |
| Utilised | - | - |
| Reversed | - | - |
| Provisions for onerous contracts at 31 December | 798 | - |
| Provisions for litigation risks at 1 January | 30 | 1,436 |
| Added | 1,346 | 1 |
| Utilised | (10) | (1,357) |
| Reversed | (9) | (50) |
| Provisions for litigation risks at 31 December | 1,357 | 30 |
Other short-term provisions mainly involve dismantling obligations of € 3,192k added due to amended assessments (2015: € 1,303k) and customer refund claims of € 379k (2015: € 2,836k). The additions to restructuring provisions primarily relate to costs of € 4,008k for the termination of employment relationships.
The additions to provisions for onerous contracts relate to rented space for central off ices that have been terminated and will no longer generate any revenues. The future payment obligations have been accounted for in the form of a provision.
The addition to litigation risks chiefl y results from expected damages obligations.
| € 000s | 2016 | 2015 |
|---|---|---|
| Tax provisions at 1 January | 381 | 1,757 |
| Added | 1,842 | 326 |
| Utilised | (57) | (1,628) |
| Reversed | - | (74) |
| Tax provisions at 31 December | 2,166 | 381 |
Tax provisions mainly include trade tax provisions of € 1,162k and corporate income tax provisions of € 464k.
QSC defers non-recurring income from the installation of customer lines on a periodic and prorated basis over a contract term of 24 months. Advance payments from customers are also deferred up to the date the service is provided.
Other long-term financial liabilities amounted to € 2,525k as of 31 December 2016 (2015: € 3,879k). These chiefl y relate to the negative fair value of derivative interest hedges (Note 30) at € 2,425k (2015: € 2,414k).
All other short-term liabilities have terms of less than one year and mainly relate to obligations in connection with employment contracts, including claims to variable compensation (€ 7,349k; 2015: € 5,448k), payroll and church tax liabilities (€ 1,553k; 2015: € 1,751k), land transfer tax liabilities (€ 1,032k; 2015: € 0k) and prepayments received (€ 800k; 2015: € 1,362k).
The cash fl ow statement is divided into three sections: operating, investing and fi nancing activities. The cash fl ow from operating activities has been calculated using the indirect method. The fi nancial liabilities included in the cash fl ow from fi nancing activities refer to all liabilities due to banks. Interest income is recognised in the cash flow from operating activities, while interest payments are accounted for in the cash fl ow from fi nancing activities. Tax payments are reported in their full amount in the cash fl ow from operating activities, as it is not possible to allocate these items to individual segments.
The cash fl ow from operating activities came to € 40,291k in the 2016 fi nancial year and thus showed a slight year-on-year increase of € 651k.
Provisions rose compared with the previous year, while trade payables decreased further. Together, these items more than off set the impact of lower trade receivables, income taxes paid and the reduction in earnings before taxes.
The cash fl ow from investing activities amounted to € -26,034k in the 2016 fi nancial year (2015: € -27,395k). Of this sum € -19,525k related to the acquisition of property, plant and equipment (2015: € -18,367k) and € -6,561k to the acquisition of intangible assets (2015: € -9,055k). The cash flow from financing activities totalled € -20,458k in the 2016 financial year (2015: € -26,066k). This outfl ow of funds mainly resulted from loan repayments of € -8,318k (2015: € 3,099k), interest paid of € -5,677k (2015: € -5,815k) and the dividend distribution of € -3,725k resolved by the Annual General Meeting (2015: € -12,416k).
The consolidated fi nancial statements include the following companies:
| € 000s | Shareholdings in % |
Equity 31 Dec. 2016 |
Net income 2016 |
|---|---|---|---|
| Subsidiaries | |||
| (disclosures as per separate fi nancial statements – HGB) | |||
| Ventelo GmbH, Cologne, Germany | 100.00 | 169,738 | - 1 |
| Plusnet GmbH & Co. KG, Cologne, Germany | 100.00 | 3,787 | - 2, 5 |
| Plusnet Verwaltungs GmbH, Cologne, Germany | 100.00 | 26 | 3 1 |
| BroadNet Deutschland GmbH, Cologne, Germany | 100.00 | 3,681 | 88 1, 4 |
| IP Colocation GmbH, Cologne, Germany | 100.00 | 2,304 | 249 |
| Q-DSL home GmbH, Cologne, Germany | 100.00 | 1,293 | 1 - |
| 010090 GmbH, Cologne, Germany | 100.00 | 156 | - 1 |
| T&Q Netzbetriebs GmbH & Co. KG, Cologne, Germany | 100.00 | 25 | 105 5 |
| T&Q Verwaltungs GmbH, Cologne, Germany | 100.00 | 38 | 6 2 |
| 01012 Telecom GmbH, Cologne, Germany | 100.00 | 27 | - 1 |
| F&Q Netzbetriebs GmbH & Co. KG, Cologne, Germany | 100.00 | 1 | - 5 |
| Broadnet Services GmbH, Cologne, Germany | 100.00 | 25 | 1 - |
| 01098 Telecom GmbH, Cologne, Germany | 100.00 | 25 | - 1 |
| 010052 Telecom GmbH, Cologne, Germany | 100.00 | 25 | - 1 |
| 010088 Telecom GmbH, Cologne, Germany | 100.00 | 25 | 1 - |
| 01052 Communication GmbH, Cologne, Germany | 100.00 | 25 | - 1 |
| Q-loud GmbH, Cologne, Germany | 100.00 | 1,245 | (134) |
| tengo GmbH, Cologne, Germany | 100.00 | 25 | 1 - |
| tengo Vermögensverwaltungs GmbH, Cologne, Germany | 100.00 | 25 | - 1 |
| Broadnet NGN GmbH, Cologne, Germany | 100.00 | 25 | - 1 |
| F&Q Netzbetriebs Verwaltungs GmbH, Cologne, Germany | 100.00 | 32 | 7 5 |
| fonial GmbH, Cologne, Germany | 74.90 | (1,297) | (858) |
| FTAPI Software GmbH, Munich, Germany | 50.93 | (1,765) | 1,049 |
Profi t transfer agreement with QSC AG – § 264 (3) HGB drawn on for this company.
Shares held by Ventelo GmbH.
3 Shares held by Plusnet GmbH & Co. KG.
4 Profi t transfer agreement not executed due to § 301 AktG.
§ 264b HGB drawn on for this company.
6 Shares held by T&Q Netzbetriebs GmbH & Co. KG.
7 Shares held by F&Q Netzbetriebs GmbH & Co. KG.
For all of its subsidiaries, the control exercised by QSC is attributable to its share of voting rights.
In accordance with the provisions of IFRS 8, the basis for identifying segments consists of the Company's internal organisational structure as used by corporate management for business administration decisions and performance assessments. This results in the following segments: Telecommunications, Outsourcing, Consulting and Cloud.
Cloud. QSC pools all activities relating to its Pure Enterprise Cloud and the Internet of Things (IoT) in its Cloud segment. The Pure Enterprise Cloud, which has been developed on an in-house basis since 2015, comprises a modular system of cloud technologies, software solutions and service components, as well as network and infrastructure services. Furthermore, the Cloud segment also includes the business activities pooled at QSC's Q-loud subsidiary. Q-loud off ers companies a full-stack service enabling them to network appliances and implement digital business models in the Internet of Things. This end-to-end range of services includes transformation consulting, software and hardware competence, standard hardware, a proprietary IoT platform, security solutions and smart product manufacturing.
Outsourcing. This segment off ers traditional outsourcing services to companies wishing to outsource their IT and data storage to QSC. As soon as cloud-based outsourcing services are provided, the respective revenues are allocated to the Cloud segment.
Consulting. QSC advises companies on how to optimise their business processes with two key focuses on SAP and Microsoft. As an SAP full-service provider, QSC performs services in the fi elds of basic operations, application management, implementation, user support and maintenance, as well as in managing the necessary software licenses. The Microsoft consulting services range from needs analysis to consulting, design and implementation services through to operations and ongoing optimisation measures.
Telecommunications (TK). Here, QSC off ers a broad range of voice and data transmission solutions. These include asymmetric ADSL2+ lines, symmetric SDSL lines and premium internet access via wireless local loop. In this segment, QSC also off ers All-IP telephony connections (Voice over IP) and corresponding telephony systems.
Furthermore, the range of services also includes further forms of voice telephony, including open call-by-call and preselect off erings and value added services.
The segment contribution is the key segment performance indicator referred to by the management. This is defi ned as EBITDA before general administration expenses and other operating income and expenses. For income statement purposes, the cost of revenues is thus allocated in full to the respective segment, as are sales and marketing expenses. The direct and indirect allocation of costs to individual segments is consistent with internal reporting and management structures.
Indirect cost allocation is primarily based on resource utilisation by the respective segments. The Management Board does not receive any regular information about segment-specific capital expenditure, assets and liabilities, general administration expenses, depreciation and amortisation and other operating income and expenses as components of the respective segment earnings fi gures.
| € 000s | Telecom munications |
Outsourcing | Consulting | Cloud | Group |
|---|---|---|---|---|---|
| 2016 fi nancial year | |||||
| Net revenues | 210,194 | 117,439 | 40,252 | 18,094 | 385,979 |
| Cost of revenues | (148,272) | (85,878) | (33,565) | (15,194) | (282,909) |
| Gross profi t | 61,922 | 31,561 | 6,687 | 2,900 | 103,070 |
| Sales and marketing expenses | (19,202) | (7,222) | (1,474) | (5,068) | (32,966) |
| Segment contribution | 42,720 | 24,339 | 5,213 | (2,168) | 70,104 |
| General and administrative expenses | (31,823) | ||||
| Depreciation and amortisation (including | |||||
| non-cash share-based compensation) | (50,157) | ||||
| Other operating income and expenses | (1,224) | ||||
| Operating earnings (EBIT) | (13,100) | ||||
| Financial income | 196 | ||||
| Financial expenses | (6,030) | ||||
| Earnings before taxes | (18,934) | ||||
| Taxes on income | (6,120) | ||||
| Net income | (25,054) |
| € 000s | Telecom munications |
Outsourcing | Consulting | Cloud | Group |
|---|---|---|---|---|---|
| 2015 fi nancial year | |||||
| Net revenues | 218,670 | 138,455 | 37,983 | 7,328 | 402,436 |
| Cost of revenues | (155,922) | (97,451) | (30,714) | (8,205) | (292,292) |
| Gross profi t | 62,748 | 41,004 | 7,269 | (877) | 110,144 |
| Sales and marketing expenses | (17,727) | (10,907) | (1,657) | (4,568) | (34,859) |
| Segment contribution | 45,021 | 30,097 | 5,612 | (5,445) | 75,285 |
| General and administrative expenses | (32,136) | ||||
| Depreciation and amortisation (including | |||||
| non-cash share-based compensation) | (53,317) | ||||
| Other operating income and expenses | (971) | ||||
| Operating earnings (EBIT) | (11,139) | ||||
| Financial income | 398 | ||||
| Financial expenses | (6,344) | ||||
| Earnings before taxes | (17,085) | ||||
| Taxes on income | 3,842 | ||||
| Net income | (13,243) |
Revenues include € 5,993k generated with non-German EU customers and € 1,243k with non-EU customers. All other revenues were generated in Germany.
Since 1999, QSC has incepted a total of eight stock option plans providing for the issue of convertible bonds with a nominal amount of € 0.01 each to employees, Management Board members, advisors and suppliers. Convertible bonds are allocated by the Management Board, which requi res the consent of the Supervisory Board for allocations to advisors and suppliers. The Supervisory Board alone decides on allocations to members of the Management Board of QSC AG.
Participants in these plans are entitled to subscribe convertible bonds in return for payment of the nominal amount of € 0.01 and to convert each convertible bond into a no-par registered share in return for payment of the exercise price.
The exercise price for the convertible bond corresponds to the stock market price of the share on the issue date. The convertible bonds have an eight-year term and are subject to a four-year lockup period following subscription.
As of the balance sheet date on 31 December 2016, the SOP 2006, SOP 2012 and SOP 2015 plans were active.
Convertible bonds outstanding within the SOP 2006 plan may only be converted until May 2019 at the latest. The conversion right provided for by the SOP 2006 plan may only be exercised if at least one of the following conditions is met: the stock market price of the share has outperformed the comparative TecDAX index in relative terms between subscription of the convertible bond and exercising of the conversion right or the stock market price of the share has risen by at least 10 percent between subscription of the convertible bond and exercising of the conversion right.
Convertible bonds allocated within the SOP 2012 and SOP 2015 plans may only be subscribed until 15 May 2017 and 26 May 2020 respectively at the latest. The convertible bonds have a maximum term of eight years from subscription. The conversion right provided for by these SOP plans may only be exercised at the earliest after the expiry of a 4-year waiting period and only if at least one of the following two conditions is met: the share price is at least 20 percent higher than the conversion price or the share has outperformed the TecDAX in relative terms since the subscription date.
No personnel expenses have been recognised pursuant to IFRS 2 for the convertible bonds resulting from the 2000, 2000A, 2001 and 2002 SOP plans, none of which is now utilisable. No option values had to be calculated in the 2015 fi nancial year for the SOP 2006 plan. The option values for the convertible bonds issued in the SOP 2012 and SOP 2015 plans were determined using the Black-Scholes option pricing model.
The following assumptions were referred to for the SOP 2012:
| 2016 | 2015 | |
|---|---|---|
| SOP 2012 | ||
| Expected average term of the SOP 2012 | 8 years | 8 years |
| Average risk-free interest rate | -0.25% | 0.28% |
| Volatility (1 year) | 41.43% | 50.06% |
| Average fair value of options in € | 0.81 | 0.95 |
| Fair value of convertible bonds granted for the year in € | 264,579 | 265,050 |
The average expected term for the SOP 2015 plan also amounts to 8 years. The risk-free interest rate for the measurements performed in the 2016 fi nancial year ranged from 0.24 percent to -0.16 percent (2015: 0.30 percent), while volatility amounted to between 41.71 percent and 44.08 percent (2015: 51.40 percent). The average option value came to € 0.54 (2015: € 0.92) while the convertible bonds granted in the SOP 2015 plan were valued at a total amount of € 217,238 (2015: € 92,041).
Volatility was determined on the basis of daily closing prices over a historical period of twelve months. The distribution of the convertible bonds outstanding under all plans as of 31 December 2015 and 31 December 2016 is as follows:
| Number of convertible bonds |
Weighted average exer cise price in € |
|
|---|---|---|
| Outstanding at 31 December 2014 | 2,514,712 | 2.72 |
| Granted in 2015 | 379,000 | 1.80 |
| Lapsed in 2015 | (214,000) | 3.34 |
| Exercised in 2015 | - | - |
| Outstanding at 31 December 2015 | 2,679,712 | 2.54 |
| Granted in 2016 | 727,000 | 1.49 |
| Lapsed in 2016 | (189,183) | 2.60 |
| Exercised in 2016 | (10,000) | 1.98 |
| Outstanding at 31 December 2016 | 3,207,529 | 2.30 |
In the 2016 financial year, convertible bonds were only subscribed from the 2012 and 2015 stock option plans.
The exercise prices of the remaining 3,207,529 convertible bonds outstanding range from € 1.10 to € 4.59, while the remaining term for exercising them ranges from directly exercisable through to 25 August 2023 at the latest. The exercise price is set upon subscription and cannot be changed subsequently.
Depending on the development in its share price, the Company expects the outstanding convertible bonds to be converted at the latest by 2023.
As of the balance sheet date, 492,029 of the outstanding convertible bonds were directly exercisable (2015: 636,812). The remaining convertible bonds were subject to the agreed lockup periods. In the fi nancial year under report, expenses of € 508k were incurred for non-cash share-based compensation (2015: € 630k).
Compensation of members of the management in key positions. Compensation of members of the management in key positions includes salaries, expense reimbursements, settlements, benefi ts in kind and expenses incurred for pension commitments and stock option plans.
| € 000s | 2016 | 2015 |
|---|---|---|
| Compensation of management members | ||
| Short-term benefi ts | 2,022 | 1,410 |
| Post-employment benefi ts | - | - |
| Other long-term benefi ts | 550 | 327 |
| Termination benefi ts | - | 421 |
| Share-based compensation | 106 | 186 |
| Compensation of management members | 2,678 | 2,344 |
Transactions with members of the management in key positions. Members of the Company's Management Board hold voting rights for 440,000 shares. Supervisory Board members have a total of 31,107,394 shares, corresponding to around 25.05 percent of voting rights. As the top-most group company, QSC AG prepares the consolidated financial statements of the eponymous consolidated group. Due to a voting right pooling agreement and accounting for the average majorities present at annual general meetings, QSC AG is dependent pursuant to § 17 of the German Stock Corporation Act (AktG) on Dr. Schlobohm and Gerd Eickers and on Gerd Eickers Vermögensverwaltungs GmbH & Co. KG.
In 2016, QSC maintained business relations with companies in which members of its own Management and Supervisory Boards act as shareholders. IAS 24 states that individuals or companies constitute related parties when one of the parties has the possibility of controlling or exercising significant influence over the other party. All contracts with these companies require Supervisory Board approval and are concluded on customary market terms.
| € 000s | Net revenues | Expenses | Payments received |
Payments made |
|---|---|---|---|---|
| 2016 fi nancial year | ||||
| IN-telegence GmbH | 422 | 170 | 498 | 203 |
| Teleport Köln GmbH | 25 | 1 | 32 | 1 |
| QS Communication Verwaltungs | ||||
| Service GmbH | - | 170 | - | 169 |
| 2015 fi nancial year | ||||
| IN-telegence GmbH | 551 | 159 | 659 | 204 |
| Teleport Köln GmbH | 33 | 3 | 41 | 4 |
| QS Communication Verwaltungs | ||||
| Service GmbH | - | 153 | - | 182 |
| € 000s | Receivables | Payables |
|---|---|---|
| 31 December 2016 | ||
| IN-telegence GmbH | 73 | - |
| Teleport Köln GmbH | 4 | - |
| QS Communication Verwaltungs Service GmbH | - | 31 |
| 31 December 2015 | ||
| IN-telegence GmbH | 69 | - |
| Teleport Köln GmbH | 6 | - |
| QS Communication Verwaltungs Service GmbH | - | - |
IN-telegence GmbH is a provider of value added services in the telecommunications industry. QSC draws on carrier services from the company and itself provides the company with network services.
The business activities at Teleport Köln GmbH involve managing telecommunications services, managed services and outsourcing services. This company draws on QSC's telecommunications services and itself provides QSC with a low volume of telecommunications services. QS Communication Verwaltungs Service GmbH advises QSC in the development of concepts and software for cloud-based services. The expenses incurred relate to advisory services.
QSC used an aggregate tax rate of 32.32 percent (2015: 32.30 percent) to calculate deferred taxes. The deferred tax expenses and income for the period and the allocation of temporary differences are presented below:
| € 000s | Assets | Liabilities | Assets | Liabilities | Consolidated income statement |
|
|---|---|---|---|---|---|---|
| 2016 | 2016 | 2015 | 2015 | 2016 | 2015 | |
| Deferred tax assets and liabilities | ||||||
| Intangible assets | 859 | 7,996 | 123 | 10,285 | 3,024 | 4,961 |
| Property, plant and equipment | 2,119 | 1,920 | 3,378 | 2,866 | (313) | 1,342 |
| Other assets | 448 | - | 382 | - | 66 | 72 |
| Other receivables | 2,896 | 494 | 2,372 | 1,480 | 1,510 | 6,247 |
| Inventories | 74 | - | 272 | - | (198) | (455) |
| Deferred income | 6 | 358 | 171 | 170 | (354) | (543) |
| Accrued pensions and other provisions | ||||||
| Change in market price of derivatives | 1,162 | - | 944 | 34 | 11 | (1,695) |
| Other liabilities | 784 | - | 780 | - | 6 | 1 |
| Total deferred taxes on | 205 | 4,201 | 451 | 4,244 | (203) | (4,853) |
| temporary diff erences | 8,553 | 14,970 | 8,872 | 19,079 | 3,550 | 5,076 |
| Total deferred taxes | ||||||
| on loss carryovers | 11,568 | - | 19,673 | - | (8,105) | (995) |
| Total deferred taxes | ||||||
| before netting | 20,121 | 14,970 | 28,546 | 19,079 | ||
| Netting | 14,195 | 14,195 | 17,875 | 17,875 | ||
| Total deferred taxes | 5,926 | 775 | 10,671 | 1,204 |
The temporary diff erences in conjunction with interests in subsidiaries for which no deferred tax liabilities are recognised amounted to € 5,926k in the 2016 fi nancial year (2015: € 22,230k). The following table presents the reconciliation of the expected income tax expenses to the actual income tax expenses. The expected income tax expenses are calculated by multiplying earnings before taxes with the assumed tax rate.
| € 000s | 2016 | 2015 |
|---|---|---|
| Reconciliation | ||
| Earnings before taxes | (18,934) | (17,085) * |
| Tax rate | 32.32% | 32.30% |
| Expected tax expenses | (6,119) | (5,518) |
| Tax eff ects of | ||
| Changes in allowances on deferred taxes recognised for loss carryovers | 6,739 | 1,034 |
| Changes in permanent diff erences | 3,433 | - |
| Non-deductible operating expenses in connection | ||
| with investments in corporations | 1,202 | - |
| Non-deductible operating expenses | 713 | 768 |
| Tax-exempt income | (196) | - |
| Non-period income (expenses) | 322 | (292) |
| Changes in tax rates | (21) | 8 |
| Other items | 47 | 158 |
| Reconciled tax expenses | 6,120 | (3,842) |
* Adjusted.
Reconciled tax expenses consist of € 1,565k for current income tax expenses (of which: € 322k for current expenses relating to previous years) and € 4,555k for deferred tax expenses (2015: deferred tax income of € 4,081k). Tax income of € 239k was recognised directly in equity in the 2016 fi nancial year in connection with actuarial gains and losses and the fair value measurement of cash fl ow hedges (2015: tax expenses of € 33k).
As of 31 December 2016, corporate income tax loss carryovers at QSC AG came to € 374 million (2015: € 378 million), while trade tax loss carryovers totalled € 362 million (2015: € 368 million). As of 31 December 2016, corporate income tax loss carryovers at FTAPI Software GmbH totalled € 3.8 million (2015: € 4.8 million), while trade tax loss carryovers also came to € 3.8 million (2015: € 4.8 million).
These tax losses can basically be off set to an unlimited extent against future taxable income at the companies at which deferred tax assets totalling € 11.6 million (QSC AG: € 11.5 million; FTAPI Software GmbH: € 0.1 million) have been recognised on loss carryovers (2015: QSC AG: € 18.1 million; FTAPI Software GmbH: € 1.6 million). In recognising and measuring deferred tax assets on loss carryovers, it is assumed that tax loss carryovers totalling € 33.8 million (QSC AG: € 33.6 million; FTAPI Software GmbH: € 0.2 million) can be used in the medium term (2015: QSC AG: € 53.3 million; FTAPI Software GmbH: € 4.8 million).
For trade tax purposes, it is assumed that trade tax loss carryovers totalling € 37.6 million (QSC AG: € 37.4 million; FTAPI Software GmbH: € 0.2 million) can be used in the medium term (2015: QSC AG: € 58.7 million; FTAPI Software GmbH: € 4.8 million).
The Company's long-term planning provides for the sustainable generation of taxable income. Given historical developments and the planning uncertainties resulting from the transformation process at the group of companies, however, only that portion of taxable income expected in a foreseeable period of three years has been accounted for (2015: three years). No deferred tax assets have been recognised in the balance sheet for remaining corporate income tax and trade tax loss carryovers not yet used.
Neither QSC AG nor its group companies are involved in any court or arbitration proceedings that could materially impact on their economic position.
Obligations under operating leases. The companies included in consolidation are party to various long-term operating lease arrangements as lessee, mostly for technical rooms and off ices, fi bre optic connections, PC and vehicles. The Company concludes partial amortisation agreements without purchase options or price indexing clauses but with extension options in some cases and an average lease term of two to fi ve years. The items concerned are not subleased to customers. As of 31 December, future minimum lease payments under non-cancellable operating leases were as follows:
| € 000s | 2016 | 2015 |
|---|---|---|
| Operating lease arrangements | ||
| Up to 1 year | 30,071 | 26,298 |
| 1 to 5 years | 28,359 | 43,730 |
| Over 5 years | - | 130 |
| Operating lease arrangements | 58,430 | 70,159 |
In the 2016 fi nancial year, QSC recognised expenses of € 26,588k for operating leases (2015: € 26,587k). These have been reported under cost of revenues.
Obligations under fi nancing and hire purchase arrangements. QSC has entered into fi nancing and hire purchase arrangements and fi nance leases as lessor for various items of technical equipment and plant and operating equipment. Future payment obligations under these arrangements can be reconciled to their present values as follows:
| € 000s | 2016 | 2015 |
|---|---|---|
| Financing and hire-purchase arrangements | ||
| Up to 1 year | 1,377 | 2,821 |
| 1 to 5 years | 382 | 1,758 |
| Over 5 years | - | - |
| Total payment obligations | 1,759 | 4,579 |
| Less interest component | (37) | (132) |
| Present value of payment obligations | 1,722 | 4,447 |
These obligations are presented in line with their maturities as short or long-term liabilities.
Rights under operating lease arrangements – QSC as lessor. Arrangements similar to operating leases are in place with customers, mainly for the rental of computer centre space, disk storage devices and shared hardware resources. The Company concludes partial amortisation agreements without purchase options or price indexing clauses but with extension options in some cases and an average lease term of three to fi ve years. The Company will receive the following future minimum lease payments under non-cancellable operating lease arrangements:
| € 000s | 2016 | 2015 |
|---|---|---|
| Operating lease arrangements | ||
| Up to 1 year | 24,071 | 24,143 |
| 1 to 5 years | 32,858 | 34,429 |
| Over 5 years | 5,978 | 8,358 |
| Operating lease arrangements | 62,907 | 66,930 |
To measure future minimum lease payments, all major customers were taken into account to whom services were already provided at the reporting date and from whom payments were contractually agreed at the balance sheet date. In 2016, € 29,176k (2015: € 27,543k) were recognised under revenues as rental payments.
Rights under fi nance lease arrangements – QSC as lessor. Pursuant to IFRIC 4 requirements, QSC is also deemed to be the lessor in specific multiple element arrangements. Future minimum lease payments from customers under fi nance lease arrangements can be reconciled to their net present value as follows:
| € 000s | 2017 | 2018 – 2021 | from 2022 | Total |
|---|---|---|---|---|
| Future minimum lease payments | ||||
| Lease payments | 3,948 | 2,451 | - | 6,399 |
| Discounted amounts | (34) | (16) | - | (50) |
| Present values | 3,914 | 2,435 | - | 6,349 |
Lease payments received in 2016 totalled € 5,129k (2015: € 5,956k).
Other fi nancial obligations. Other fi nancial obligations amount to € 14,729k (2015: € 17,090k). This total comprises obligations of € 11,626k due in 2017 and obligations of € 3,103k due in the years 2018 to 2020. Purchase commitments for future investments amounted to € 2,070k in the past fi nancial year (2015: € 739k) and mainly involved purchase orders for property, plant and equipment.
In connection with its business activities, QSC is subject to a number of fi nancial risks that are inseparably linked with its entrepreneurial actions. QSC combats these risks with a comprehensive risk management system, which is an integral component of its business processes and corporate decisions. The key elements of this system are a Group-wide planning and controlling process, Group-wide policies and reporting systems, as well as Group-wide risk reporting. The Management Board lays down the principles of the Company's fi nancial policies annually and monitors the risk management system. Further information about risk management can be found in the Group Management Report.
Financial liabilities mainly comprise fi nancing and fi nance lease arrangements, trade payables and liabilities due to banks.
The main purpose of these financial liabilities is to finance the Company's operating activities. Financial assets directly resulting from business activities relate in particular to trade receivables and cash and cash equivalents. No derivatives were traded in the 2016 fi nancial year. The main risks to which QSC is exposed due to its use of fi nancial instruments include interest rate risk, credit risk and liquidity risks. Since no material transactions are executed in foreign currencies, there are no material foreign currency risks. There were no material risk clusters in the past fi nancial year. The strategies and procedures used to manage these risks are presented below.
Market interest risk. QSC is exposed to the risk of changes in market interest rates. This risk primarily results from the Company's fl oating-interest short-term liabilities due to banks, as well as from fl oating-interest liquidity. Short and long-term liabilities under fi nancing arrangements and fi nance leases, on the other hand, have fixed interest rates. As of 31 December 2016, fl oating-rate fi nancial liabilities accounted for 57.9 percent of total fi nancial liabilities. The promissory note loan taken up in the second quarter of 2014 with a total volume now amounting to € 145,000k (an amount of € 5,000k was repaid in 2016) comprises fi ve tranches with terms of 5 and 7 years and is subject to fl oating (€ 87,500k in three tranches) and fi xed (€ 57,500k in two tranches) interest rates. To hedge the interest rate risk, in parallel with the placement of the promissory note loan QSC also concluded three interest swaps with nominal volumes totalling € 87,500k and identical terms running until 20 May 2019 (nominal: € 76,500k) and 20 May 2021 (nominal: € 11,000k).
The interest swaps enable the cash fl ows from those tranches of the hedged item with fl oating interest rates to be fully hedged throughout the respective term with regard to interest rate risk. Accounting for the hedge, QSC thus de facto pays fi xed interest of 2.27 percent on those tranches of the promissory note loan with fl oating interest rates, as a result of which any changes in market interest rates will not have any net impact on the Company's interest expenses. However, any change in the level of interest rates by +/-100 base points would change the fair value of the hedging instruments by € 403k and € -4,533k respectively. In the statement of comprehensive income, this would impact on the volume of income off set against equity and thus on shareholders' equity.
The following table presents the sensitivity of consolidated earnings before taxes to any reasonably possible change in interest rates in respect of fl oating-rate liquidity as of 31 December 2016:
| Increase/decrease in base points |
Impact on earnings before taxes € 000s |
|
|---|---|---|
| 2016 | + 100 | 542 |
| 2016 | - 100 | (10) |
| 2015 | + 100 | 200 |
| 2015 | - 100 | (154) |
Credit risk. QSC is exposed to the risk of payment defaults on the part of customers and issuers. The Company makes eff orts to ensure that it only enters into business dealings with creditworthy customers and thus attempts to exclude this risk from the outset. To this end, creditworthiness checks are performed before the respective contract is concluded. Once business relations have been initiated, receivable balances are monitored to reduce potential default risks. Maximum default risks are limited to the carrying amounts of the receivables disclosed in Note 21. QSC expects non-impaired receivables to be collectible.
Liquidity risk. QSC monitors its risk of a liquidity shortfall with monthly liquidity planning. This accounts for the remaining terms of available fi nancial assets and the expected future cash flows from operating activities. The Company aims to maintain a balance between ensuring permanent availability of liquidity and safeguarding its fl exibility by drawing on short and longterm liabilities and fi nancing arrangements.
With regard to the promissory note loan, due to the full hedging of interest rate risks with opposing interest swaps (cash flow hedge; Note 30), QSC has to pay de facto fixed interest of € 3,477k per annum for the periods through to 2019 and € 981k per annum thereafter. QSC intends to uphold the hedge relationship through to the maturity of the respective hedged items and hedging instruments. The expected cash fl ows for the hedged promissory note loan therefore involve ongoing interest payments and repayment of the liabilities for the underlying instruments upon their respective maturities. The cash fl ows for the underlying and hedge transactions have therefore been presented jointly in the chart below.
As of 31 December 2016, short-term and long-term fi nancial liabilities had the following maturities. These disclosures are based on the expected undiscounted payments.
| € 000s | Carrying amount |
Due by end of 2017 |
Due by end of 2018 |
Due by end of 2019 |
Due by end of 2020 |
Due by end of 2021 |
Due after 2021 |
Total |
|---|---|---|---|---|---|---|---|---|
| Liabilities under fi nancing | ||||||||
| arrangements | 1,722 | 1,377 | 306 | 76 | - | - | - | 1,758 |
| Trade payables | 24,890 | 24,890 | - | - | - | - | - | 24,890 |
| Liabilities due to banks | 149,415 | 6,393 | 3,770 | 112,052 | 982 | 35,367 | - | 158,564 |
| Interest swaps* | 2,425 | - | - | - | - | - | - | - |
| Other short-term and | ||||||||
| long-term liabilities | 1,994 | 1,867 | 100 | 10 | 8 | - | 9 | 1,994 |
| At 31 December 2016 | 180,446 | 34,527 | 4,175 | 112,138 | 990 | 35,367 | 9 | 187,206 |
| € 000s | Carrying amount |
Due by end of 2016 |
Due by end of 2017 |
Due by end of 2018 |
Due by end of 2019 |
Due by end of 2020 |
Due after 2020 |
Total |
|---|---|---|---|---|---|---|---|---|
| Liabilities under fi nancing | ||||||||
| arrangements | 4,483 | 2,821 | 1,377 | 306 | 76 | 76 | - | 4,655 |
| Trade payables | 30,596 | 30,596 | - | - | - | - | - | 30,596 |
| Liabilities due to banks | 157,970 | 5,980 | 7,699 | 3,884 | 117,125 | 981 | 35,381 | 171,051 |
| Interest swaps* | 2,414 | - | - | - | - | - | - | - |
| Liabilities for phantom stock, | ||||||||
| put option | 1,095 | - | - | - | 1,283 | - | - | 1,283 |
| Other short-term and | ||||||||
| long-term liabilities | 2,147 | 1,756 | 377 | - | 10 | 8 | 3 | 2,154 |
| At 31 December 2015 | 198,705 | 41,154 | 9,453 | 4,190 | 118,494 | 1,065 | 35,384 | 209,740 |
* As well as the corresponding balance sheet line items, "Liabilities due to banks" also includes interest swaps.
Capital management. The primary objective of QSC's capital management is to ensure sufficient equity, a strong credit rating and the ability to maintain its business operations in an independent and flexible manner. Capital is monitored by reference to the following key fi gures: equity ratio and net liquidity. The equity ratio is calculated by dividing equity by total assets. Net liquidity corresponds to interest-bearing liabilities less cash and cash equivalents (excluding cash and cash equivalents at the disposal group).
| € 000s | 2016 | 2015 |
|---|---|---|
| Capital management | ||
| Liabilities under fi nancing and fi nance lease arrangements | (1,722) | (4,483) |
| Liabilities due to banks | (149,415) | (157,970) |
| Interest-bearing liabilities | (151,137) | (162,453) |
| Plus cash and cash equivalents | 67,336 | 73,982 |
| Net liquidity | (83,801) | (88,471) |
| Shareholders' equity | 86,348 | 113,772 |
| Total assets | 306,003 | 348,102 |
| Equity ratio | 28% | 33% |
Disclosures on the balance sheet. Given that the carrying amounts largely correspond to fair values, no separate disclosures have been made on the respective fair values.
| € 000s | Carrying amount | IFRS 7.8 category | ||
|---|---|---|---|---|
| 31 December 2016 | Loans and receivables |
Fair value – hedging instruments |
Other fi nancial liabilities |
|
| Assets not measured at fair value | ||||
| Cash and cash equivalents | 67,336 | x | ||
| Long-term trade receivables | 2,435 | x | ||
| Short-term trade receivables | 45,816 | x | ||
| Liabilities measured at fair value | ||||
| Interest swaps – hedge accounting | 2,425 | x | ||
| Liabilities not measured at fair value | ||||
| Trade payables | 24,890 | x | ||
| Liabilities due to banks | 149,415 | x | ||
| Liabilities for fi nancing and fi nance lease arrangements | 1,722 | x | ||
| Other short-term and long-term liabilities | 1,994 | x |
| € 000s | Carrying amount | IFRS 7.8 category | |||
|---|---|---|---|---|---|
| 31 December 2015 | Loans and receivables |
Fair value – hedging instruments |
Other fi nancial liabilities |
Designated at Fair Value |
|
| Assets not measured at fair value | |||||
| Cash and cash equivalents | 73,982 | x | |||
| Long-term trade receivables | 4,583 | x | |||
| Short-term trade receivables | 48,704 | x | |||
| Liabilities measured at fair value | |||||
| Interest swaps – hedge accounting | 2,414 | x | |||
| Minority shareholder put options | 1,095 | x | |||
| Liabilities not measured at fair value | |||||
| Trade payables | 30,596 | x | |||
| Liabilities due to banks | 157,970 | x | |||
| Liabilities for fi nancing and fi nance lease arrangements | 4,483 | x | |||
| Other short-term and long-term liabilities | 2,147 | x |
Fair value disclosures for instruments with recurring measurement. At the end of each reporting period, QSC AG ascertains whether any reclassifi cations are required between the levels of the measurement hierarchy. No reclassifications were made in the reporting period from 1 January 2016 to 31 December 2016.
| Class | Measurement hierarchy level |
Fair value in € 000s at 31 Dec. 2016 |
Description of measurement method |
|---|---|---|---|
| Interest | 2 | 2,425 | The fair value of interest derivatives is determined on the basis |
| swaps – | of present value models including market information (interest | ||
| hedge ac | structure curves). The fair value measurement of interest | ||
| counting | swaps was performed by the intermediary bank; the fair value | ||
| is derived either from the mid-market price or, if expressed as | |||
| a bid and ask price, from the indicative price at which the bank | |||
| would have bought back and sold the fi nancial instrument | |||
| at the close of business on the relevant marketplace on the | |||
| respective measurement date. |
Disclosures on the consolidated income statement. The following interest income and expenses and the following net gains and losses on fi nancial instruments are included in the consolidated income statement.
| € 000s | Interest in com /interest expenses |
Impairments | Payments received on retired receivables |
Net result 2016 |
|---|---|---|---|---|
| Loans and Receivables (LaR) | 147 | 37 | 30 | 67 |
| Financial Liabilities measured | ||||
| at Amortised Cost (FLAC) | (4,234) | - | - | - |
| € 000s | Interest in com /interest expenses |
Impairments | Payments received on retired receivables |
Net result 2015 |
|---|---|---|---|---|
| Loans and Receivables (LaR) | 362 | 919 | 204 | 1,123 |
| Financial Liabilities measured | ||||
| at Amortised Cost (FLAC) | (5,197) | - | - | - |
The declaration pursuant to § 161 of the German Stock Corporation Act (AktG) regarding QSC's conformity with the German Corporate Governance Code in the version dated 5 May 2015 has been issued by the Management and Supervisory Boards and is permanently and publicly available to the shareholders on the Company's website. Future amendments to the rules relevant for conformity with the German Corporate Governance Code will be posted on the QSC website without delay. Further information is provided in the separate Corporate Governance and Compensation Report.
At the Annual General Meeting on 25 May 2016, the shareholders of QSC AG appointed KPMG AG Wirtschaftsprüfungsgesellschaft, headquartered in Berlin and with a branch in Cologne, as auditor and group auditor of QSC AG for the 2016 fi nancial year.
The following fees have been recognised as expenses for services provided by the auditor for the 2016 fi nancial year.
| € 000s | 2016 | 2015 |
|---|---|---|
| Auditor's fees | ||
| Audit of fi nancial statements (of which for previous years) | 494 (150) | 473 (96) |
| Other certifi cation services | 10 | 34 |
| Tax advisory services | 45 | - |
| Other services | 24 | 20 |
| Auditor's fees | 573 | 527 |
Audit fees comprise the fees charged by KPMG for auditing the consolidated financial statements and the annual fi nancial statements of QSC AG and its subsidiaries and for its activities in connection with an audit by the German Financial Reporting Enforcement Panel (DPR). Other certifi cation services mainly involve a business management certifi cation. Other services relate to audit-related advisory services.
Total Management Board compensation for the 2016 fi nancial year came to € 1,973k, as against € 1,182k in the previous year. This comprises fi xed compensation of € 1,100k (2015: € 721k), ancillary benefi ts of € 138k (2015: € 93k), variable compensation of € 518k (2015: € 276k) and share-based compensation of € 217k (2015: € 92k).
The breakdown of total compensation by individual Management Board member can be found in the compensation tables included in the Compensation Report within the Group Management Report. This report also includes extensive information about the compensation system and about payments committed to active Management Board members in the event of the premature termination of their activities.
Compensation of former Management Board members came to € 0k in the 2016 fi nancial year (2015: € 421k).
The following table presents individualised information about the number of shares and convertible bonds held by members of the Management Board:
| Shares | Convertible bonds | ||||
|---|---|---|---|---|---|
| 31 Dec. 2016 | 31 Dec. 2015 | 31 Dec. 2016 | 31 Dec. 2015 | ||
| Jürgen Hermann | 400,000 | 340,000 | 350,000 | 350,000 | |
| Stefan A. Baustert | 40,000 | 40,000 | 200,000 | 100,000 | |
| Udo Faulhaber (since 1 August 2015) | - | - | 150,000 | - | |
| Felix Höger (since 1 January 2016) | - | - | 150,000 | - | |
| Henning Reinecke (until 30 April 2015) | - | 1 5,000 |
- | 1 150,000 |
1 Holdings at the time of retirement from the Management Board.
Jürgen Hermann purchased shares in the Company via the stock exchange in the 2016 calendar year and thus while he was an active member of the Management Board (please also see the corresponding directors' dealings notifi cations made pursuant to § 15a of the German Securities Trading Act [WpHG]).
Furthermore, the Management Board members Stefan A. Baustert, Udo Faulhaber and Felix Höger subscribed convertible bonds in QSC AG. These had been allocated to them by the Supervisory Board on 20 August 2015 within the 2015 Stock Option Plan.
The following table summarises the convertible bonds granted to Management Board members in the 2016 fi nancial year:
| Convertible bonds | ||||
|---|---|---|---|---|
| Date | Number | Conversion price |
Fair value per bond on grant date |
|
| Stefan A. Baustert | 15 Jan. 2016 | 100,000 | 1.42 | 0.67 |
| Felix Höger | 1 Apr. 2016 | 75,000 | 1.10 | 0.49 |
| Udo Faulhaber | 5 Apr. 2016 | 150,000 | 1.10 | 0.49 |
| Felix Höger | 6 Apr. 2016 | 75,000 | 1.21 | 0.55 |
The convertible bonds may only be converted into shares in QSC AG after a four-year waiting period, i.e. options subscribed for the 2016 fi nancial year may be converted at the earliest in the 2020 fi nancial year.
As in the previous year, the Supervisory Board received compensation totalling € 315k for its activity in the 2016 fi nancial year. The breakdown of overall compensation by individual Supervisory Board member and further details can be found in the Compensation Report within the Group Management Report. This report also includes information about the compensation system and an overview of the shares and convertible bonds held by Supervisory Board members. The actuarial present value of provisions for vested claims to pensions for former Management Board members amounts to € 1,980k prior to the off setting of an asset value of € 1,282k for a reinsurance policy.
Risks are presented in detail in the Risk Report within the Group Management Report.
The Management and Supervisory Boards have decided to propose to the Annual General Meeting that a dividend of € 0.03 per share be paid to shareholders.
Management Board. The members of the Management Board in the 2016 fi nancial year were as follows:
| Management Board member | |
|---|---|
| Jürgen Hermann | Chief Executive Off icer |
| Stefan A. Baustert | Chief Financial Off icer |
| Udo Faulhaber | Chief Sales and Consulting Off icer |
| Felix Höger | Chief Technology and Operations Off icer |
Supervisory Board. The members of the Supervisory Board in the 2016 fi nancial year were as follows:
| Supervisory Board member | |
|---|---|
| Dr. Bernd Schlobohm | Businessman, Chairman |
| Dr. Frank Zurlino | Managing Partner at Horn & Company, Deputy Chairman |
| Ina Schlie | Economist |
| Gerd Eickers | Businessman |
| Anne-Dore Ahlers | Chairman of Works Council, Employee Representative |
| Cora Hödl | Head of TC Voice Services at TC Technology Department, |
| Employee Representative |
The term in off ice of the Supervisory Board ends upon the conclusion of the Annual General Meeting approving the actions of the Company's directors and off icers for the 2017 fi nancial year.
Cologne, 15 March 2017
QSC AG The Management Board
Jürgen Hermann Stefan A. Baustert Udo Faulhaber Felix Höger Chief Executive Off icer
To the best of our knowledge, and in accordance with the applicable reporting principles, the Consolidated Financial Statements give a true and fair view of the assets, liabilities, fi nancial po sition and profi t or loss of the Group, and the Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.
Cologne, 15 March 2017
QSC AG The Management Board
Jürgen Hermann Stefan A. Baustert Udo Faulhaber Felix Höger Chief Executive Off icer
We have audited the consolidated fi nancial statements prepared by QSC AG, Cologne, comprising the consolidated statement of profi t and loss, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash fl ows and the notes to the consolidated fi nancial statements together with the group management report for the business year from 1 January 2016 to 31 December 2016. The preparation of the consolidated fi nancial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB [Handelsgesetzbuch "German Commercial Code"] (and supplementary provisions of the shareholder agreement /articles of incorporation) are the responsibility of the parent company's management. Our responsibility is to express an opinion on the consolidated fi nancial statements and on the group management report based on our audit. We conducted our audit of the consolidated fi nancial statements in accordance with § 317 HGB [Handelsgesetzbuch "German Commercial Code"] and German generally accepted standards for the audit of fi nancial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially aff ecting the presentation of the net assets, fi nancial position and results of operations in the consolidated fi nancial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal envi ronment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The eff ectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated fi nancial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual fi nancial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and signifi cant estimates made by management, as well as evaluating the overall presentation of the consolidated fi nancial statements and group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations.
In our opinion, based on the fi ndings of our audit, the consolidated fi nancial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB (and supplementary provisions of the shareholder agreement /articles of incorporation) and give a true and fair view of the net assets, fi nancial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated fi nancial statements, complies with the German statutory requirements, and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Cologne, 15 March 2017
KPMG AG Wirtschaftsprüfungsgesellschaft
Pütz Klaaßen Wirtschaftsprüfer Wirtschaftsprüfer
| B | |
|---|---|
| Balance sheet | 62 – 63, 84 – 85, 118 ff . |
| Capital expenditure | 59 |
|---|---|
| Cloud computing | 26 –27, 30 – 31, |
| 52, 54 – 55, 64 – 65 | |
| Compensation report | 40 ff . |
| Consolidated net income | 61 |
| Corporate governance | 33 ff . |
| Cost-cutting programme | 57 |
| Data centres | 27– 28 |
|---|---|
| Debt | 63, 129 ff . |
| Dividend | 22, 161 |
| Earnings per share | 115 ff . |
|---|---|
| EBIT | 60 |
| EBITDA | 58, 60 |
| Employees | 48 ff . |
| Free cash fl ow | 58 – 59 |
|---|---|
| ----------------- | --------- |
| ICT market | 52, 64 |
|---|---|
| Internet of Things | 26 – 27, 30 – 31, 52, |
| 54 – 55, 64 – 65 | |
| L | |
|---|---|
| Liquidity | 59, 63 |
| M |
Management Board 10 – 11, 35 – 36, 160 – 161
| Opportunities | 67– 68 |
|---|---|
| Outlook | 64 ff . |
| Performance indicators | 32, 58 – 59 |
|---|---|
| Pure Enterprise Cloud | 26, 30 – 31, 54 – 55 |
| Regulation | 53 – 54, 75 |
|---|---|
| Research and development | 57 |
| Segment reporting | 61– 62, 139 ff . |
|---|---|
| Shareholders | 20–21 |
| Shareholders' equity | 63, 86 – 87, 127 – 128 |
| Shares | 19 ff . |
| Statement of cash fl ows | 62, 88, 137 |
| Statement of income | 59 ff ., 82, 112 ff . |
| Strategy | 30 – 31 |
| Supervisory Board | 12 ff ., 35 – 36 |
| Training | 48 – 49 |
|---|---|
Reports, news, highlights: Our newsletter keeps you up-to-date on all key developments. Register at: www.qsc.de/go/en-ir-newsletter
Be the fi rst to hear the news, read interesting contributions and keep track of daily closing prices at twitter.com/QSCIRen. All QSC news at twitter.com/QSCAGPresse
Our blog off ers an informative overview of the latest topics and events in our sector. QSC's experts allow you to peek behind the scenes. blog.qsc.de
butions and expert opinions: digitales-wirtschaftswunder.de
You can also fi nd our presentations on our quarterly results and other com pany topics at the world's largest platform for this kind of information: www.slideshare.net/QSCAG
QSC has long been present and active in the world's largest social network. Visit us at: www.facebook.com/QSCAG
Shareholders can also connect to QSC on this business platform and fi nd out more about their company: www.xing.com/companies/QSCAG
Short fi lms off er insights into QSC's strategy and day-to-day work. Find out more about our customers, employees and Management Board at: www.youtube.com/QSCGermany
Arne Thull Head of Investor Relations Mathias-Brüggen-Strasse 55 50829 Cologne T +49 221 669 – 8724 F +49 221 669 – 8009 [email protected] www.qsc.de
Annual General Meeting 24 May 2017
Quarterly reports 8 May 2017 7 August 2017 6 November 2017
Editorial responsibility QSC AG, Cologne
Design sitzgruppe, Düsseldorf
Photography Marcus Pietrek, Düsseldorf Nils Hendrik Müller, Braunschweig
Print das druckhaus, Korschenbroich
This translation is provided as a convenience only. Please note that the German-language original of this Annual Report is defi nitive.
For further information: www.qsc.de
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.