QSC AG

Investor Presentation • Feb 24, 2015

QSC AG Company Presentation Preliminary Results 2014 / Outlook 2015 Cologne, February 23, 2015

• 1. Financial Development 2014 Stefan A. Baustert
• 1. Financial Outlook 2015 / Cost Reduction Program Stefan A. Baustert
• 1. Strategic Outlook Juergen Hermann

• Questions & Answers

2014: A YEAR BELOW EXPECTATIONS

• Revenues of € 431.4 million (2013: € 455.7 million)
• Expected and planned drop in conventional TC business
• Development in Outsourcing not satisfactory
• Disappointing Cloud product business
• EBITDA of € 35.0 million (2013: € 77.8 million)
• Positive deferred cost effect ceased on Dec. 31, 2013
• Negative regulatory impact and litigation
• Increase in personnel expenses
• Accrued restructuring provisions
• Impact of declining business
• Cost-cutting measures

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• € 18 million goodwill depreciation in the Reseller business

2014: A DIFFICULT TRANSITION YEAR PAVED THE WAY FOR IMPROVEMENT

• Free cash flow of € -13.9 million in 2014 due to lower profitability and one-off negative working capital effect of € 19.1 million
• In Q4 2014, QSC started a comprehensive program to reduce its cost base and to concentrate on sales activities
• Placement of € 150 million promissory note loan to secure solid long-term financing
• Proposal to pay a dividend of € 0.10 per share for FY 2014 is based on good liquidity
• Enlargement of strategic footprint in IT and Cloud business continues

FISCAL YEAR 2014 AT A GLANCE

(in $\epsilon$ million)	2013	2014
Revenues	455.7	431.4
Cost of revenues*	303.5	322.5
Gross profit	152.3	108.9
Sales and marketing expenses*	41.8	36.7
General and administrative expenses*	35.6	30.8
Other operating income	2.9	0.8
EBITDA	77.8	42.2
Restructuring provisions		7.2
EBITDA after restructuring provisions	77.8	35.0
Depreciation	51.3	51.0
Goodwill depreciation		18.0
EBIT	26.5	(33.9)
Financial results	(3.8)	(6.2)
Income tax	0.9	5.7
Net profit (loss)	23.6	(34.4)

• Gap between revenues and costs leads to lower profitability
• Accrued provisions of € 7.2 million in 2014 for headcount reductions
• Development in Reseller segment necessitates € 18 million impairment of goodwill

NEW SEGMENTATION REFLECTS PRODUCT-ORIENTED MANAGEMENT AND STEERING SYSTEM

• From January 1, 2015 on, segment reporting will be based on the current product portfolio:
• Telecoms
• Consulting
• Outsourcing
• Cloud

NEW SEGMENTATION HELPS TO UNDERSTAND REVENUE DEVELOPMENT IN 2014

Current Segmentation	Direct Sales		Indirect Sales		Resellers
	207.3		121.6		102.6
Derivation	Outsourcing	Consulting	TC.	Cloud	Telecoms	Telecoms
	156.5	35.2	15.6	3.9	117.7	102.6

New Segmentation	Outsourcing	Consulting	Telecoms	Cloud.
	156.5 $^{\circ}$	35.2	235.8	$\mathbf{v}$ .

DECLINING REVENUES, ESPECIALLY IN TELECOMS B-B-C

• Telecoms revenues declined as expected due to
• Stricter regulation (€ 8 million)
• Unfavorable market conditions in Telecoms B-B-C (€ 15 million)
• Outsourcing did not meet the expectations in 2014
• Consulting business showing slight revenue increase
• Cloud business still in the early stages

LARGER WORKFORCE INCREASED PERSONNEL EXPENSES

Two factors led to the increase in personnel costs in 2014:

• A larger Outsourcing workforce
• Expansion of R&D capacities

HIGHER PERSONNEL EXPENSES AFFECTED GROSS PROFIT SIGNIFICANTLY

• Telecoms: Stricter regulation cost € 3 million
• Outsourcing: Higher personnel expenses burdened profitability
• Consulting: Utilization ratio in H1 2014 not as high as in 2013
• Cloud: Growing number of developers narrowed profitability

ONE-OFF EFFECT DUE TO IMPAIRMENT OF GOODWILL IN THE RESELLER BUSINESS

• Since 2010, revenues in Resellers (mainly TC) had declined by 57% to € 102.6 million
• Gross profit had declined by even 88% to € 7.8 million

GOODWILL DEPRECIATION INCREASED NET LOSS

One-off effect "hit" net loss with € 25.2 million

• Restructuring provisions: € 7.2 million
• Goodwill depreciation: € 18.0 million

LOWER CAPEX COMPARED TO 2013

CAPEX components:

• 43% customer-driven investments
• 32% investments in infrastructure
• 11% software and licenses
• 6% investments in R&D
• 8% other

ONE-OFF WORKING CAPITAL EFFECT IMPACTED FREE CASH FLOW

• Free cash flow is tied to profitability
• One-off-effect in Q4 2014 due to tightened accounts payable management of large suppliers

SOLID BALANCE SHEET

• Decrease in long-term assets due to ordinary depreciation and impairment
• Increase in cash in 2014 due to placement of promissory note loan
• Financing matches maturity: Long-term liabilities and equity cover 130% of long-term assets

SOLID BALANCE SHEET AND FINANCING ALLOW DIVIDEND PAYMENT ALSO FOR 2014

AGENDA

1. Financial Development 2014 Stefan A. Baustert

2. 2. Financial Outlook 2015 / Cost Reduction Program Stefan A. Baustert

3. 1. Strategic Outlook Juergen Hermann

4. Questions & Answers

QSC AIMS TO REDUCE ITS COSTS BY AT LEAST € 25 MILLION

• QSC is implementing a comprehensive program to reduce costs
• Duration: 2 years
• Short-term savings in 2015: more than € 10 million
• Savings in 2016: another € 10 to € 15 million
• Savings from 2017 onwards: at least € 25 million per year
• Program will ensure that QSC will earn sustainable profits

FOCUS: CLOSING THE GAP BETWEEN HEADCOUNT AND REVENUE DEVELOPMENT

Major actions:

• Termination of fixed-term contracts
• Natural staff attrition
• Socially responsible staff reduction

FURTHER KEY ASPECTS OF THE PROGRAM

• Reduction in number of external consultants
• Reduction in number of locations
• Streamlining administration
• Optimization of purchasing processes
• Standardization/Industrialization of IT operations

PROGRAM WILL BE IMPLEMENTED IN FOUR STAGES

• Stage 1: Analysis and concept finished
• Stage 2: Ad-hoc actions ongoing
• Stage 3: Implementation and fine-tuning Q2 2015 Q1 2016
• Stage 4: Ensuring sustainable success H2 2015 H2 2016

CURRENT PROGRAM WILL RAISE QSC'S ATTRACTIVENESS IN SEVERAL RESPECTS

• Cost focus • Cash generation • Financing power Shareholders & Employees Shareholders M&A projects

CURRENT PROGRAM HELPS TO INCREASE EBITDA AND FCF IN 2015

• H1 2015 will be characterized by the focusing and cost reduction program
• QSC aims to pay a dividend of € 0.10 per share for fiscal 2014
• Financial strength will be supported by CAPEX reduction down to € 25 million

AGENDA

• 1. Financial Development 2014 Stefan A. Baustert
• 1. Financial Outlook 2015 / Cost Reduction Program Stefan A. Baustert

• 3. Strategic Outlook Juergen Hermann

• Questions & Answers

STRATEGY – VISION

QSC uses its extensive ICT know-how to become the leading German provider with a multi-cloud portfolio

STRATEGY – KEY TRENDS

• Mega-trends such as mobility and consumerization are increasing the pressure on business and IT executives ("shadow IT")
• Internet of Things (IoT)-solutions will revolutionize all areas of industry and push Industry 4.0 approaches
• Requirements for compliance, security and process complexity will increase the use of hybrid cloud solutions significantly
• Medium-sized enterprises (200 to 5,000 employees) lack the expertise required to implement such solutions (integration of data, application and process level)
• More than 90% of medium-sized enterprises view it as important that data centers are located in Germany and that German certifications and labels exist

STRATEGY – TRANSFORMATION INTO A MULTI-CLOUD PROVIDER

QSC is becoming a multi-cloud service provider for German medium-sized companies:

• Using in-house developed cloud products and solutions (Intellectual Property)
• Shifting traditional ICT services to the Cloud

STRATEGY – TELECOMS

• B-B-C declining significantly due to the development in the ADSL2+ Wholesale business
• B-B-B in the Telecoms segment is and will remain stable
• High level of standardization and efficient network operations ensure profitability

STRATEGY – TELECOMMUNICATIONS NETWORKS

STRATEGY – CONSULTING

• SAP und Microsoft are central applications for German business customers
• Consulting shows stable growth and is strategically important for setting up a customer-centric ecosystem of cloud services
• The relevance of industry-specific know-how is growing fast

STRATEGY – OUTSOURCING 1.0 (TRADITIONAL)

• Traditional 1-to-1 Outsourcing segment is highly competitive and putting high pressure on margins
• Conflict between customization and standardization (IT factory)
• Shift in application landscapes (desktop versus web applications)
• Customers expect innovative and agile services and fear "vendor lock-in"

STRATEGY – OUTSOURCING 2.0 (PURE ENTERPRISE CLOUD)

• Hybrid clouds will be the prevailing IT deployment model
• Challenges for CIOs:
• Integration of legacy systems and cloud services into business processes
• Aggregation of all services to reduce complexity for the user
• Integration and Application Layer will be outsourced by medium-sized companies
• Pure Enterprise Cloud as "IT Factory"

END-TO-END SOLUTIONS

STRATEGY – OUTSOURCING 2.0 (PARADIGM SHIFT)

• Medium-sized companies (200 – 5,000 employees):
• → Standardization through 1-to-1 Outsourcing through Pure Enterprise Cloud
• Large Enterprises (> 5,000 employees):
• → Focus on specific ICT solutions
• Consulting is essential for Cloud onboarding

STRATEGY – OUTSOURCING 2.0 MARKET POTENTIAL

STRATEGY – CLOUD

• Revenues from Cloud services are increasing but have not met expectations yet
• Growth in Cloud will be supported by:
• Cloud solutions
• Cloud products
• Industry-specific Cloud solutions

STRATEGY – MULTI-CLOUD PORTFOLIO

Cloud solutions

• Outsourcing 2.0 (Pure Enterprise Cloud)

Cloud products

• FTAPI -> Security as a Service
• fonial -> PBX as a Service

• centraflex -> PBX as a Service

• tengo -> Workplace as a Service

• cospace -> UC as a Service

Industryspecific Cloud solutions

• IoT solutions based on solucon platform

AGENDA

• 1. Financial Development 2014 Stefan A. Baustert
• 1. Financial Outlook 2015 / Cost Reduction Program Stefan A. Baustert
• 1. Strategic Outlook Juergen Hermann

4. Questions & Answers

FINANCIAL CALENDAR

March 31, 2015 Publication of Annual Report 2014

May 11, 2015 Publication of Quarterly Report I/2015

May 27, 2015 Annual Shareholders' Meeting

August 10, 2015 Publication of Quarterly Report II/2015

November 9, 2015 Publication of Quarterly Report III/2015

CONTACT

QSC AG Arne Thull Head of Investor Relations Mathias-Brüggen-Strasse 55 50829 Cologne

Phone +49-221-669-8724 Fax +49-221-669-8009 E-mail invest@qsc.de Web www.qsc.de

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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 co-location 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