QSC AG
Company Presentation
Analyst Conference, February 28, 2011
AGENDA
- • 13.30h Strategic Overview Dr. Bernd Schlobohm, Founder & CEO
- • 14.00h Preliminary Results FY 2010Jürgen Hermann, CFO
- • 14.30h Outlook 2011Dr. Bernd Schlobohm, Founder & CEO
- •14.45h Q&A
- •15.15h Coffee Break
- • 15.30h Huge opportunity in the ICT market: "Q-loud"Roland Hänel, Head of Project "Q-loud"Andreas Schmidt, Team Member "Q-loud"
Strategic OverviewDr. Bernd Schlobohm, Founder & CEO
OUR MISSION STATEMENT 2.0
QSC is the leading medium-sized provider in the telecommunications market that creates sustainable value for medium-sized companies, cooperation partners and employees through the highest quality and customer focus!
In 2010, QSC took a big step forward to becoming the leading mediumsized provider in the ICT market for medium-sized companies
2010: ONGOING TRANSFORMATION PROCESS …
… WITH ATTRACTIVE RESULTS
- • In 2010, QSC raised the share of IP-based revenues to 68%and improved its revenue mix
- • Overall, QSC generated revenues of € 422.1 million and earned an EBITDA of € 78.1 million
- • QSC more than doubled its EBITto € 20.9 million
- •QSC more than quadrupled its Net Profit to € 24.2 million
- • QSC more than doubled its Free Cash Flowto € 27.7 million
RISING SHARE OF IP-BASED REVENUES PROVES PROGRESS IN TRANSFORMATION PROCESS
WHAT'S BEHIND THE DOUBLE-DIGIT GROWTHIN IP-BASED REVENUES?
MAIN DRIVERS FOR GROWTHIN ALL IP SERVICE SOLUTIONS
•Next Generation Network
Thanks to its high cost-efficiency, the IP-based NGN has led to a significant growth in Voice Wholesale in 2010 (e.g. KPN, sipgate, Tata Communications)
•Successes in new business
As a mid-sized ICT-provider, QSC won attractive mid-sized customers like Mövenpick, DERAG and Paper Union in 2010
•Progress in upselling
QSC has managed to increase its share of wallet with existing customers by e.g. integrating VoIP to existing IP-VPN solutions (e.g. Borussia Dortmund, Deutsche Post CSC, GAGFAH)
• Product and process innovationsIn 2010, QSC launched IPfonie centraflex 3.0, and the IPfonie App
SUCCESS IN THREE NEW LINES OF BUSINESS –QSC HAS LAUNCHED ICT OUTSOURCING SERVICES
MANAGED OUTSOURCING FOR VOICE NETWORKS
- • In 2010, freenet and TELE2 each signed 10-year Managed Outsourcing partnership contracts
- • QSC integrates narrowband networks and handles the voice traffic of its telco partners; end-customers will stay with the partner
- • Managed Outsourcing will produce smaller margins than other new lines of business
- ⇒ NGN is the perfect toolbox for cost-efficient IP-based voice outsourcing services
- ⇒Approx. 6 players still run a small or outdated infrastructure in Germany
OPEN ACCESSTHE KEY TO NEXT GENERATION ACCESS
QSC has launched the first nationwide Open Access 'Integrator' platformin Germany
Preliminary Results FY 2010 –
INTEGRATION PLATFORM BASED ON OPEN ACCESS
- • The new platform will enable regional carriers to market their NGAs, mostly based on fibre optic networks, beyond regional borders and to increase utilization
- • QSC is entering an attractive market
- •More than 50 regional players are working on NGA infrastructures
- •650,000 households are already connected to FTTX lines (2007: 110,000)
- • QSC gained two partners in 2010:
- • Leipzig-based HL kommis the first infrastructure provider
- • 1&1 Internet AG is the first user of the Open Access platform and will add NGA connections of up to 100 Mbit/s to its product range in 2011
HOUSING AND HOSTINGQSC HAS ACQUIRED A FAST-GROWING PLAYER
- • In December 2010, QSC acquired 100% of IP Partner, Nuremberg, a fast-growing provider of housing and hosting services
- • The company already operates two data centers with more than 10,000servers for over 1,000 SME customers
- • In 2010, the company increased its revenues by approx. 30% to € 14 million and earned a positive EBITDA, EBIT and Net Profit
- • QSC bought "Product & Talent"with IP Partner
- ⇒Acquisition accelerates transformation into an ICT service provider
IP PARTNERACTIVE IN THREE KINDS OF BUSINESS
CORE ASSET OF IP PARTNER – DATA CENTERS
- • IP Partner today
- • Data centers in Nuremberg and Munich with 3,000 sqmand more than 10,000 serversunder management
- •Usage >90%
- • TÜV-certificates for the data center (Tier III – IV) for energy efficiency and service quality
- • In 2011, IP Partner will double its capacity
- •2,000 sqm in Nuremberg under construction
- •1,200 sqm in Munich under construction
- •CAPEX of € 7 million already part of QSC's forecast for 2011
FOCUS ON IP-BASED REVENUESDECLINE OF OTHER REVENUES LIKE CALL-BY-CALL
- • Market development: Clear trend toward using complete connectionsand VoIP for calls in Germany
- Call-by-Call: -27% for voice minutes*
- Preselect: -42% for voice minutes*
- •Ongoing fierce price competition
* Source: DIALOG CONSULT / VATM, October 2010
FOCUS ON IP-BASED REVENUESDECLINE OF ADSL2+ BUSINESS
- • Number of DSL lines has declined from 588,800 to 512,400
- •Ongoing price competition
- • Growing competition from cableoperators
- • HanseNet has shifted new business to new parent company Telefónica
ADSL2+ REVENUES DECLINED QUARTER BY QUARTERIN 2010 AND WILL CONTINUE TO DECLINE IN 2011
FURTHER HIGHLIGHT OF 2010 AGREEMENTS WITH TELE2
- • Premature termination of the Plusnet collaboration TELE2 paid € 66.2 million for the premature termination of the collaboration agreement, which would otherwise have run through December 31, 2013
- • QSC acquired 32.5% of Plusnet QSC paid € 36.7 million to acquire the 32.5%-stake of TELE2 in Plusnet, equivalent to the current book value of the stake
- •10-year Managed Outsourcing contract
- •10-year DSL wholesale partnership
- ⇒ 100% Plusnet ownership makes it much easier to grasp network synergies
- •Optimizing DSL infrastructure
- •Expanding Managed Outsourcing business
Preliminary Results FY 2010 –
… AND TOOK A BIG STEP FORWARD TO BECOMING AN ICT SERVICE PROVIDER
- • QSC has raised the share of IP-based revenues to 68%from 62% in 2009
- • QSC has managed to offset the decline in ADSL2+ and CbC/Preselect with an increase of 11% in IP-basedlines of businesses
- • QSC has developed three new lines of business:
- •Managed Outsourcing
- •Open Access
- •Housing and Hosting
Preliminary Results FY 2010Jürgen Hermann, CFO
QSC IMPROVED PROFITABILITY IN 2010
Preliminary Results FY 2010 –
QSC MORE THAN QUADRUPLED ITS NET PROFIT
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(1) Excluding depreciation and non-cash share-based payments
NETWORK COSTS ARE DECLINING….
- • Focus on high-margin products is paying off
- • Ongoing optimization of infrastructure has led tocost reductions
Preliminary Results FY 2010 –
!
… AND WILL DECLINE OVER THE COMING YEARS
Main Drivers
- • Optimization in COs and backbone by
- •Renegotiation of contracts
- •Streamlining of Metropolitan Service Centers (MSC)
- •Streamlining of COs
- •Cooperation with other network operators
- • Ongoing optimizationof network capacities to lower costs per unit
STRICT COST DISCLIPLINE HAS LEAD TO HIGHER PRODUCTIVITY
\$%
QSC NOW HAS AN EBITDA MARGIN OF 19%
-
- • Focus on high-margin products and services
- • Strict cost discipline andimproved efficiency
- • One-off effect in Q4 2010 due to acquisition of IP
- Partner and new
- partnership with TELE2
\$&
DEPRECIATION STARTED TO DECLINE IN 2010
- • Growth of ADSL2+ businessin 2007 – 2009 is over
- Network rollout has been
… AND WILL DECLINE OVER THE COMING YEARS
- • QSC expects depreciation expense to decline over the comingyears for three main reasons
- • As an ICT service provider, QSC will invest much less than asa pure Telco network player=> QSC will not invest in fibre access infrastructure
- • QSC will focus on mid-sized business customers, avoiding huge investments in customer connections
- •More and more long-term assets have fully depreciated
QSC HAS DOUBLED ITS EBIT
Preliminary Results FY 2010 –
*+
QSC IS EARNING A SUSTAINABLE NET PROFIT
**
THE INVESTMENT PERIOD IS OVER – ICT SERVICE PROVIDER QSC INVESTS JUST 7-8% OF REVENUES
- • QSC will invest approx. 8% of its revenues in 2011incl. IP Partner
- • From 2012 onwards, CAPEX will be
- approx. 7-8% of revenues
- at least 50% customerdriven
Preliminary Results FY 2010 –
*,
SHARP INCREASE IN FREE CASH FLOW
-.
QSC IS BUILDING UP A NET CASH POSITION
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SOLID FINANCING
QSC ACHIEVED ITS GOALS IN 2010
| Free Cash Flow $> \epsilon$ 25 million |
Free Cash Flow: € 27.7 million |
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| Net Profit $> \epsilon$ 16 million |
Net Profit: $\epsilon$ 24.2 million |
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| Revenues > $\epsilon$ 420.5 million |
Revenues: € 422.1 million |
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| EBITDA > $\epsilon$ 76.9 million |
EBITDA: $\epsilon$ 78.1 million |
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… AND MANAGED TO OUTPERFORM THE STOCK MARKET SIGNIFICANTLY
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IN FEBRUARY 2011, LONG-TERM INVESTOR BAKER CAPITAL TRANSFERRED QSC SHARES
- •In 1999, closed-end funds of Baker Capital invested in QSC
- •1999 – 2011, neither Baker Capital nor the founders sold a single QSC share
- • In 2011, Baker Capital transferred some 8.3 million QSC shares to its mainly institutional investors in conjunction with a distribution
- ⇒QSC has enlarged its investor base in the U.S.
- ⇒ QSC has proven again its ability to manage major changes in ownership of shares without large fluctuations in price
- ⇒QSC has enlarged its free float
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QSC RAISED ITS FREE FLOAT TO 61.3%
Outlook 2011Dr. Bernd Schlobohm, Founder & CEO
OUTLOOK 2011FOCUS ON FINANCIAL STRENGTH
Preliminary Results FY 2010 –
52
QSC WILL START TO PAY A DIVIDEND FOR FY 2011
- • Rising Free Cash Flow and net liquidity have paved the way for paying a dividend
- •FY 2011 will be the starting point for regular dividend payments
- • Depending on operative development and the development of capital markets, QSC does not exclude a share-buyback program as well
ONGOING TRANSFORMATION PROCESS
- • Split development of QSC's markets
- (-) Ongoing price pressure in legacy voice
- (-) Market saturation and price pressure in ADSL2+
- (-/+) Lower mobile termination fees
versus
- (+) Rising market share of VoIP services & applications
- (+) Stronger demand for IP-VPN and value-added services
- (+) Growing interest in ICT services (e.g. Housing, Hosting, Cloud Services)
FOCUS ON HOUSING AND HOSTING –QSC WILL LEVERAGE IP PARTNER
TWO PLANNED INNOVATIONS IN 2011
- • QSC is focusing on two planned innovations
- •Fixed mobile integration
- •Unified communications "Q-loud"
- • QSC is working on fixed Mobile Productsfor business customers
- • QSC will extend the NGN by launching the "Q-loud service platform"=> first application: unified communications
- ⇒QSC's NGN becomes a "Cloud"
TRANSFORMATION PROCESS WILL INCREASE QSC'S MARKET BY…
… 100% AS QSC WILL OFFER MORE INNOVATIVE ICT SERVICES AND BENEFIT FROM THE "CLOUD"
?A
ACCELERATION OF TRANSFORMATION PROCESS THROUGH DEDICATED ACQUISTION STRATEGY
- • QSC is considering acquiring further ICT players who
- •Fit into QSC's strategy and corporate culture
- •Accelerate transformation => moving up the value chain in the "Cloud"
- •Are reasonably priced
- • QSC is in a good position for acquisitions – it has:
- •One of the healthiest balance sheets in the European telco industry
- •Net liquidity of € 28.4 million as of December 31, 2010
- • A proven track record of successful integration of new subsidiariessince IPO
QSC's TRANSFORMATION WILL CONTINUE IN 2011
Preliminary Results FY 2010 –
DE
Questions & Answers
FINANCIAL CALENDAR
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CONTACT
QSC AGArne ThullHead of Investor RelationsMathias-Brüggen-Strasse 55 50829 Cologne
Phone +49-221-6698-724 Fax +49-221-6698-009 E-mail [email protected] Web www.qsc.de
twitter.com/QSCIRdetwitter.com/QSCIRenblog.qsc.dexing.com/companies/QSCAGslideshare.net/QSCAG
paulrobertloyd.com/2009/06/social_media_icons
SAFE HARBOR STATEMENT
This presentation includes forward-looking statements as such term is defined in the U.S. Private Securities Litigation Act of 1995. These forward-looking statements are based on management's current expectations and projections of future events and are subject to risks and uncertainties. Many factors could cause actual results to vary materially from future results expressed or implied by such forward-looking statements, including, but not limited to, changes in the competitive environment, changes in the rate of development and expansion of the technical capabilities of DSL technology, changes in prices of DSL technology and market share of our competitors, changes in the rate of development and expansion of alternative broadband technologies and changes in prices of such alternative broadband technologies, changes in government regulation, legal precedents or court decisions relating, among other things, to line sharing, rent for colocation and unbundled local loops, the pricing and timely availability of leased lines, and other matters that might have an effect on our business, the timely development of value-added services, our ability to maintain and expand current marketing and distribution agreements and enter into new marketing and distribution agreements, our ability to receive additional financing if management planning targets are not met, the timely and complete payment of outstanding receivables from our distribution partners and resellers of QSC services and products, as well as the availability of sufficiently qualified employees.
A complete list of the risks, uncertainties and other factors facing us can be found in our public reports and filings with the U.S. Securities and Exchange Commission.
DISCLAIMER
- • This document has been produced by QSC AG (the "Company") and is furnished to you solely for your information and may not be reproduced or redistributed, in whole or in part, to any other person
- • No representation or warranty (express or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, none of the Company or any of its parent or subsidiary undertakings or any of such person's officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document
- • The information contained in this document does not constitute or form a part of, and should not be construed as, an offer of securities for sale or invitation to subscribe for or purchase any securities and neither this document nor any information contained herein shall form the basis of, or be relied on in connection with, any offer of securities for sale or commitment whatsoever