Focus on actual risk situation taking due account of measures • In its risk monitoring, the Com- pany focuses on its actual risk situation after taking measures into consideration rather than on the risks identified by the gross evaluation. Based on this net perspective, the following relevant risks were assessed as “high”.
Decline in conventional voice telephony • German fixed-network voice call volumes continue to decline. Not only that, the share of this declining market attributable to the open Call-by-Call and Preselect businesses is consistently falling. Germans are increasingly opting for fixed-network fl at-rate plans or using mobile communication instead of the fi xed network. This contracting mar- ket is also characterised by tough price competition. Moreover, the stricter regulatory framework has also led to reduced revenues. Information about the associated risks can be found in the se- parate “Regulatory risks” section below.
Due to its development into an ICT provider, QSC has been reducing its dependence on the TC business for years now. Not only that, the Company has combated the risk of revenue losses in this traditional 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 offerings on competitive terms following the potential expiry of further regulatory requirements. Irrespective of this, the Company expects to see an ongoing decline in revenues in the conventional TC mar- ket in the coming years and increased pressure on margins. This is especially true of business with resellers, but also of business with sales partners. To counter this, the Company will fur- ther grow its revenues in the ICT market.
Operations stability • The ICT sector is undergoing structural transformation. In the Outsourcing business in particular, customers expect ever higher technical and operating quality at ever lower costs and, despite this, expect services to be tailored to their individual needs. These exacting standards have to be met by means of stable operations accompanied by inexpensive production, while at the same time by satisfying customers’ wishes swiftly and efficiently. By permanently optimising its operating organisational structure and by taking measures to stabilise operations, QSC has created a basis enabling it to fully meet customers’ expectations.
Dependence on TC business now been falling for years
Cross-border projects • QSC focuses on the German market. In its Direct Sales business, how- ever, there is increasing demand for cross-border services from medium-sized companies as well. International topics also play a role in many calls for tenders; this may involve data centre locations outside Germany, international links or international 24/7 services.
QSC is countering this risk in its Direct Sales business by boosting and expanding its internatio- nal activities. For larger-scale networking projects, the Company has offered cross-border solu- tions for years now and, as a result, has gained extensive experience in this field. Furthermore, the Company has developed an international networking concept. Not only that, partners in other key markets are also playing a major role. QSC is extending its network of partners and inten- sifying existing partnerships in order to be able to offer its customers the international solutions they desire, especially in Direct Sales. In return, these partners also collaborate with QSC in im- plementing ICT solutions in Germany. Even though QSC’s business activities remain focused on the German market, the Company is thus gradually extending its international competence in cross-border projects.
Licence management • In Direct Sales, QSC uses licences from other providers in the context of outsourcing and consulting projects and, with increased development activity, is at the same time steadily expanding its proprietary licence portfolio. This is placing greater demands on both internal and customer-related licence management, particularly given the ongoing evolution in licencing models. There is the risk of substantial damages and recourse claims as a result of a licencing excess or shortfall. QSC is continuing to counter this risk by permanently expanding its licence management operations, consistently monitoring all licences used and systematical ly expanding its administration and marketing of proprietary licences.
Regulatory risks • Even as an ICT provider, 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 markets and to restrict themselves from now on to monitoring these mar- kets and, where appropriate, to intervene retrospectively on the basis of general fair competition law. The implications of the amended recommendations concerning those markets to be sub- ject to preliminary regulation will make themselves felt in the coming years. There is a risk that the coming years will see a further reduction in the number of regulated markets. This could in- crease the pricing latitude of Deutsche Telekom AG (DTAG) in markets already removed from re- gulation. Furthermore, there is the risk that specific regulated preliminary markets, especially bit-stream and subscriber lines (local loops), will be regionalised in such a way that specifi c pre- liminaries are no longer available in more competitive geographical sub-markets (e.g. metro- politan areas).
The experience gained to date with the end of regulation in various markets shows that public monitoring of DTAG’s competitive behaviour is insufficient to keep this company from exploiting its newly gained room for manoeuvre. QSC nevertheless expects that sustainable public discus- sion and the investigation of relevant cases will promote conduct consistent with fair competition and the German Federal Network Agency or the German Cartel Office will otherwise draw on their legal options.
Licence management is continuously expanded
Moreover, given its proprietary infrastructure QSC is significantly 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 affected 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. This was also seen to be case in several areas in 2014. This being so, QSC relies on well-functioning supervision by the German Federal Network Agen- cy and the European Commission. 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.
New products • The development of proprietary cloud-based products represents not only an opportunity, but also a risk. Delays may arise in the development process and subsequently lead to market launches being postponed. A potential lack of initial market acceptance for innova- tions may mean that the Company can only generate revenue and earnings contributions later than expected. Delays may also arise should the sales organisation not have the necessary spe- cialist qualifications.
To account for this risk, the planning for the current financial year includes only a comparatively low volume of revenue contributions from new cloud-based products. Furthermore, QSC is coun- tering this risk by aligning its development work even more closely to current customer needs, thus minimising the risk of a lack of market acceptance for innovations. Not only that, the Com- pany is developing direct distribution channels for innovative products and training its existing sales organisation on cloud-related topics.
OVERALL SUMMARY
No material risks discernible • Taking due account of the potential scope of damages and pro- babilities 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 flows 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, the future earnings of QSC may never- theless materially deviate from the expectations of the Company and its management. All state- ments made in the Consolidated Financial Statements that are not historical facts constitute for ward-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 publicly listed company • The following overview outlines the dis- closures mandatory under § 315 (4) of the German Commercial Code (HGB). Overall, these involve regulations that are typical at publicly listed companies. The following disclosures refl ect the cir- cumstances at the balance sheet date.
Composition of issued capital • Issued capital amounted to € 124,142,487 as of 31 December 2014 and was divided into 124,142,487 no-par registered ordinary shares. According to the Share Register, these shares were divided among 28,757 shareholders as of 31 December 2014.
Limitations on voting rights or transfer of shares • Each share grants one vote at the Annual Share holders’ Meeting. A voting and pooling agreement is in place between the following share- holders 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 exer- cising 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 restric- tions on the transfer of shares.
Direct or indirect holdings of more than 10 percent of capital • Gerd Eickers and Dr. Bernd Schlo- bohm each notifi ed us pursuant to § 21 of the German Securities Trading Act (WpHG) that, by vir- tue of attribution pursuant to § 22 (2) Sentence 1 WpHG, their direct and indirect share of the voting rights in QSC AG on 4 March 2013 amounted to 25.09 percent (31,045,856 voting rights). Of this total, 12.52 percent (15,493,372 voting rights) was attributable to Mr. Eickers from Dr. Schlobohm and 12.57 percent (15,552,484 voting rights) was attributable to Dr. Schlobohm from Mr. Eickers. Gerd Eickers Vermögensverwaltungs GmbH & Co. KG, Cologne, most recently notified us pursu- ant to § 21 WpHG that, by virtue of attribution pursuant to § 22 (2) Sentence 1 WpHG, its indirect share of the voting rights QSC AG on 10 June 2013 amounted to 25.09 percent (31,045,856 voting rights). These voting rights were attributable to Gerd Eickers Vermögensverwaltungs GmbH & Co. KG from Mr. Eickers and Dr. Schlobohm.
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 Corpo- ration Act (AktG) and by § 7 of the Articles of Association in their version dated 21 January 2015. Pursuant to § 7 of the Articles of Association, the Management Board comprises one or more in- dividuals. The Supervisory Board determines the number of Management Board members. Even though issued capital exceeds € 3 million, the Supervisory Board may stipulate that the Mana- gement Board should consist of only one individual. The appointment of deputy members of the Management Board is permitted.
Amendments to the Articles of Association • Pursuant to § 179 of the German Stock Corporati- on Act (AktG), amendments to the Articles of Association require a resolution adopted by a ma- jority of at least 75 percent 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 them- selves do not involve any changes to actual content.
Acquisition and buyback of treasury stock • By resolution of the Annual Shareholders’ 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 per- cent 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 Shareholders’ Meeting on 20 May 2010, the Ma nagement Board is authorised, subject to approval by the Supervisory Board, to increase the Com pany’s issued capital by up to a total of € 65,000,000 on one or several occasions up to 19 May 2015 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 final 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 flexible 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 financial year.
Conditional capital • The Company had conditional capital totalling € 30,770,365 as of the ba- lance sheet date. This was divided into Conditional Capital IV (€ 25,000,000), Conditional Capital VII (€ 770,365) and Conditional Capital VIII (€ 5,000,000).
Conditional Capitals VII and VIII 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, managing directors of affi liated companies, employees of QSC and affiliated companies and other parties contributing to the Company’s success. Conditional Capi- tal 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 Shareholders’ Meeting on 20 May 2010 to issue such instruments in order to access an additional, low-interest fi nancing option given favourable capital market conditions. The Management Board is authorised, subject to ap- proval by the Supervisory Board, to exclude shareholders’ subscription rights to these warrant and /or convertible bonds in only three cases: (1) to settle residual amounts resulting from the sub- scription ratio; (2) to grant subscription rights to the bearers /creditors of conversion or warrant rights already issued to avoid any dilution of their respective holdings; and (3) if, 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. To date, the Management Board has not acted on the authorisation to issue tradable warrant and /or convertible bonds.
The exclusion of shareholders’ subscription and purchase rights, which pursuant to § 186 (3) Sen- tence 4 of the German Stock Corporation Act (AktG) is justified only when the respective issue price is close to the stock market price, may apply only to an aggregate total of no more than 10 percent of issued capital for treasury stock, authorised capital and warrant and convertible bonds during the term of the respective authorisation.
Material agreements conditional on a change of control due to a takeover bid • In the 2011 fi nan- cial year, QSC entered into a syndicated loan agreement with seven financial institutions with an agreed credit facility of € 130 million as of the balance sheet date. This agreement provides the financial institutions with the option of terminating the credit line prematurely should a natural person or legal entity, acting either alone or together with other persons or entities, gain control over QSC. In the 2014 financial year, QSC agreed five promissory note loans with a financial ins- titution with a total volume of € 150 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 to- gether directly or indirectly acquire more than 50 percent of the shares or voting rights in QSC. The Company has no further 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.