Analyst Conference Cologne, 6 March 2017

THE DIGITISER OF THE GERMAN SME SECTOR ("MITTELSTAND")

Disclaimer

This presentation contains forward-looking statements based on management estimates and reflects the current views of QSC AG's ("QSC") management board with respect to future events. These forwardlooking statements correspond to the situation at the time this presentation was prepared. Such statements are subject to risks and uncertainties, which often fall outside the sphere of influence of QSC. These risks and uncertainties are covered in detail within the Risk Report section in our financial statements.

Although the forward-looking statements are made with great care, their correctness cannot be guaranteed. Therefore the actual results may deviate from the expected results described herein. QSC does not intend to update or adjust any forward-looking statements after the publication of the presentation.

Jürgen Hermann, CEO

QSC in (digital) transformation

Market changes, target visions and milestones in 2016

Preliminary remarks: planned company targets for 2016

Market changes: opportunities & challenges

Market changes and disruptive trends

Disruption map: digital transformation pressure

Source: "Survival Through Digital Leadership", Deloitte, 2015

ICT players in transformation: opportunities & challenges

Entire ICT sector faces paradigm shift: "Everything is now a service!"
New customer expectations, value chains, key technologies
Great opportunity due to substantial growth in user market (Cloud first!)
Tension: transition in traditional ICT business (licence/project) vs. cloud economy
Also involves: huge standardisation and efficiency pressure (develop "IT factory")
Development of innovative market approach and sales strategies (digital visibility!)
Also: accessing promising new business fields (IoT, big data etc.)

Well prepared: QSC's crucial strengths

Customer view: consistent end-to-end responsibility

Well prepared: all-round service offering

QSC in transformation: expectations, perspectives, targets

Customer perspective: "One-stop shop pursuing a digital transformation course!"

Marketing perspective: "Highly attractive service portfolio with great market acceptance!"

Market perspective: "Leading (multi-)cloud player for German SME sector!"

Operations perspective: "Speed and stability thanks to standardised service performance!"

Employee perspective: "Innovation and trend driver with strong development prospects!"

Investor perspective: "Increasing profitability thanks to benefits of scale and new growth!"

Management perspective: we are on the right track …!

QSC in transformation: milestones in 2016

QSC in transformation: core milestones in 2016

QSC in transformation: the PEC multi-cloud strategy

The digital age requires "breathing" platforms and networked, service-oriented and well-distributed cloud scenarios!
Customers will demand absolute freedom to select their cloud strategies ... and will also make use of this freedom!
Multi-cloud as the dominant "architecture" blueprint for the next 10 years!
Yet: SME players are completely out of depth when it comes to "cloud orchestration"!
QSC with end-to-end service responsibility for customers' entire cloud-based IT!

QSC in transformation: PEC as "Rising Star of 2016"

First IT analyst assessment of entire Pure Enterprise Cloud portfolio
Awards in several disciplines
In focus: first evaluation of Enterprise Workplace Services ("Rising Star of 2016")
Quote: "QSC has rebooted itself with flying colours and now has to gradually gain fresh momentum – the prospects for a consistent upturn are very good."
But: "Awareness of QSC in its local market is still very limited."

"Thanks to the breadth and depth of its portfolio, this solution has emerged overnight as what is from customers' perspective one of the most attractive offerings in the German market." Heiko Henkes, Experton Group, July 2016

QSC in transformation: milestones with IoT/Q-loud

Milestones in 2016
Spin-off to standalone company
Management team boosted
Major new customers (such as Schüco) acquired and expansion in partner eco-system
Great market opportunities IoT not only optimises existing production and business models, but also creates new models
Q-loud's strengths

QSC AG

Full-stack service offering (consulting, hardware, software, front end, high-performing back-end technologies)
Longstanding projects/solution experience
Compliance with high security/data protection standards

QSC in transformation: SAP milestones

Significant increase in visibility as SAP partner
Designation as "Partner of Excellence" by SAP SE
Experton: QSC's SAP HANA portfolio stands out on account of its end-to-end approach
Consistent growth achieved
QSC now has more than 210 in-house consultants
Revenue growth of 9.6% CAGR (2013-2016)
Greater competitiveness & expanded expertise
More than 40 successful HANA projects (14 customers)
Proprietary HANA laboratory
First joint IoT projects with Q-loud subsidiary

QSC in transformation: All-IP milestones

Greatest All-IP experience in market (>10 years)
250,000 active SIP voiceover IP connections
4,000,000 active dial numbers
1,000,000,000 minutes mediated per month
"Boom" due to switching off of DTAG's ISDN network by 2018
Potential for 3 million corporate customer connections
All connections without exception have to be migrated
All-IP products already account for 30% of total new orders in Indirect Sales
Opportunities during overall market consolidation ( "easybell migrates DSL connections to QSC", 02.02.16)

QSC in transformation: visibility of growth topics

200 expert contributions
1st class partner eco-system
Top keyword rankings

Mobile Enterprise Mittelstand (1) Multi Cloud

Internet der Dinge Mittelstand (2) Cloud Anbieter Mittelstand

IoT Mittelstand (2) Private Cloud Mittelstand

Trusted advisor on path towards digital transformation

QSC in digital transformation: outlook and targets for 2017

Stefan A. Baustert, CFO

Preliminary figures for 2016 & outlook for 2017

Financial performance in 2016

QSC reaches its targets in 2016

	Goals 2016	Results 2016
Revenues	€ 380 - 390 million	€ 386.0 million
EBITDA	€ 34 - 38 million	€ 37.1 million
Free Cash Flow	> 0 / > $\epsilon$ 7.1 million	€ 8.4 million
Cost-cutting programme	€ 20 million	€ 24 million
Employees	1,350	€ 1,360

Operating business performs as planned

in $\epsilon$ million	2015	2016	Δ	$\Delta$ in %
Revenues	402.4	386.0	$-16.4$	$-4.1%$
Cost of revenues	292.3	282.9	$-9.4$	$-3.2%$
Gross profit	110.1	103.1	$-7.0$	$-6.4%$
Sales and marketing expenses	34.9	33.0	$-1.9$	$-5.4%$
General and admin. expenses	32.1	31.8	$-0.3$	$-0.9%$
Other operating income	(1.0)	(1.2)	$-0.2$	N/A
EBITDA	42.2	37.1	$-5.1$	$-12.1%$
Depreciation	53.3	35.0	$-18.3$	$-34.3%$
EBIT before one-off depreciations	(11.1)	2.1	13.2	N/A
One-off depreciations	٠	15.2	15.2	N/A
EBIT	(11.1)	(13.1)	$-2.0$	$-18.0%$
Financial Result	(6.0)	(5.8)	0.2	$+3.3%$
Income Taxes	3.8	(6.1)	$-9.9$	N/A
Net Income	(13.2)	(25.1)	$-11.9$	$-90.2%$

Revenues

High growth in Cloud business; as planned, substantial decrease in TC reseller business and in Outsourcing

Earnings

Positive impact of cost-cutting programme
Charge on earnings due to oneoff write-downs in Q4 2016

Cloud: revenues more than double

Cloud business driven by Pure Enterprise Cloud and IoT
2016 revenues rise quarter by quarter from € 2.4 million (Q1) to € 6.1 million (Q4)

Segment margin

Consulting: continued growth with SAP consulting

SAP-related revenues rise by 12% in 2016
Growing share of cloud projects (SAP HANA)
High demand necessitates deployment of external experts
Segment margin in this personnel-intensive business remains in double-digit territory
Microsoft SAP
Microsoft & SAP
Segment margin

Outsourcing: migration to Cloud business begins

Far-reaching change in traditional Outsourcing business:
Initial customers migrate to the Pure Enterprise Cloud
For new customers, QSC focuses on standardised cloud-based outsourcing
Stable segment margin thanks to focus on highmargin revenues and substantial cost savings

Segment margin

TC: revenue growth with corporate customers

Among corporate customers, QSC is benefiting from its All-IP expertise and is attracting additional customers
Ongoing tough price competition among resellers
Strong corporate customer business generates attractive segment margin
TC revenues with resellers
TC revenues with corporate customers
TC revenues (total)
Segment margin

Growth where QSC expects it

	Drivers in 2016	Revenue development in 2016

Cloud	Pure Enterprise Cloud and IoT

Consulting	SAP HANA projects

Outsourcing	Starting the migration to the Pure Enterprise
	Cloud/no new customers in 1:1 outsourcing
TC for corporates	Growing demand for All-IP solutions

TC for resellers	Fierce price competition

Marked growth in forward-looking business fields

Double-digit growth in those business fields in which QSC expects growth: organisational restructuring now bearing fruit
Since 2014, the share of total revenues generated in the three major strategic business fields has risen by 10 percentage points
Further increase expected in 2017 and beyond

Cloud

Consulting

TC business with corporate customers

Operating margins unchanged despite lower revenues

Substantial reduction in depreciation and amortisation

Depreciation and amortisation in 2016 at just € 35.0 million (2015: € 53.3 million)
One-off write-downs in Q4 2016 on:
Goodwill and intangible assets in Outsourcing business: € 13.9 million
Investment in FTAPI: € 1.3 million

EBIT affected by one-off write-downs

One-off write-downs lead to lower EBIT in 2016
Based on its operating business, QSC generated EBIT of € 2.1 million in 2016

Savings of more than € 20 million achieved

QSC launched a cost-cutting programme in February 2015
Core elements

Target by end of 2016: total savings of around € 20 million

Result by end of 2016: savings of around € 24 million in total

Workforce reaches target size

QSC succeeds in adjusting number of employees to revenues within two years
=> Rise in revenues per employee since 2015
QSC manages to downsize workforce despite hiring numerous cloud experts for operations and sales
=> Organisational restructuring progressing as planned

QSC presses ahead with organisational restructuring

Free cash flow rises for second consecutive year

FCF of € 8.4 million exceeds raised forecast of > € 7.1 million
Positive FCF enables QSC to distribute a dividend for 2016
As in the previous year, Management Board proposes a dividend of 3 cents per share

Capital expenditure remains moderate

Two key focuses

Infrastructure and technology (56%)
Customer projects (36%)

Infrastructure expansion at data centres mainly focused on market launch of Pure Enterprise Cloud

Capital expenditure within planned framework of up to € 30 million

Solid balance sheet structure

Equity and long-term debt still offer congruent cover for more than 100% of long-term assets
Equity accounts for error identified in DPR audit of deferred taxes for 2014 financial year (€ 11.6 million)

2016 at a glance: Cloud meets expectations

1. QSC is growing in those fields in which it expects to generate growth
1. Cloud and IoT business are the key growth drivers
1. Cost-cutting programme generates savings of more than € 20 million
1. QSC posts an ongoing rise in its free cash flow

Financial outlook for 2017

2017 at a glance: Cloud business remains in focus

For the current year, QSC has budgeted:

Revenues of € 355 365 million
EBITDA of € 36 40 million
Free cash flow ahead of the previous year's figure (€ 8.4 million)

Cloud to achieve substantial revenues growth in 2017 too

2017: growth where QSC expects it

	Drivers in 2017	Revenue development in 2017

Cloud	Pure Enterprise Cloud and IoT

Consulting	SAP HANA projects

Outsourcing	Starting the migration to the Pure Enterprise Cloud/no new customers in 1:1 outsourcing

TC for corporates	Growing demand for All-IP solutions

TC for resellers	Fierce price competition; tighter regulation

Contact

QSC AG Arne Thull Head of Investor Relations

T +49 221 669 -8724 M +49 221 669 -8009 [email protected] www.qsc.de

Twitter.com/QSCIRde Twitter.com/QSCIRen blog.qsc.de xing.com/companies/QSC AG slideshare.net/QSCAG

QSC AG QSC AG Mathias-Brüggen-Str. 55 50829 Cologne, Germany

AI Terminal