QSC starts fiscal 2014 as planned and reiterates guidance
- Revenues of € 109.1 million
- EBITDA of € 13.4 million
- Free cash flow of € 4.6 million
- Optimized financing through promissory note loan nearing conclusion
Cologne, May 12, 2014. QSC started fiscal 2014 as planned; rising revenues with ICT products and services were offset by market- and regulatory-induced declines in TC revenues in what is traditionally the rather weaker first quarter. Overall, the company generated revenues of € 109.1 million in the first quarter of 2014, in contrast to € 113.0 million for the same quarter the year before. Regulatory rulings by the German Federal Network Agency in November 2013, alone, are producing revenue shortfalls of some € 2 million per quarter and decreasing EBITDA by nearly € 1 million. Moreover, TC business was suffering from stiff pricing and shakeout competition, which, in addition to conventional voice telephony, is now increasingly reaching the ADSL2+ market. On the other hand, there was rising demand for ICT products and services, with order bookings for the quarter increasing by 16 percent year on year to € 27.3 million.
In terms of profitability, the effect of higher investments in future fields of growth and the elimination of a deferred income item in the amount of some € 5 million per quarter did, as expected, leave their mark; through year-end 2013, this deferred income item had enabled QSC to return as income the payment received in connection with the premature termination of collaboration with TELE2 in network operating company Plusnet. Consequently, EBITDA stood at € 13.4 million in the first quarter of 2014, as opposed to € 18.9 million for the same quarter one year earlier; EBIT amounted to € 1.1 million, as opposed to € 6.3 million, and consolidated net income stood at € 0.3 million, in contrast to € 5.1 million. Since the return of the deferred income item did not impact liquidity, free cash flow totaled € 4.6 million in the first quarter of 2014, in contrast to € 5.1 million for the same period the year before.
QSC doubling development budget
QSC Chief Executive Officer Jürgen Hermann: "We are increasingly investing in future growth in 2014 and focusing on the development of innovative ICT and Cloud products." QSC will be doubling its development budget to around € 10 million during the current fiscal year, and will be accelerating the innovation process through the acquisition of smaller technology companies; in February, the company already acquired a majority stake in encryption specialist FTAPI. Hermann notes: "Our sales partners are showing a very positive response to the FTAPI products, which relate to the highly secure transfer and storage of enterprise-critical data. These easy-to-handle products are coming at just the right time and opening up a new growth market for QSC." The FTAPI team headed up by its two founders plans to ready further innovations for market during the coming quarters.
QSC plans to increase free cash flow to between € 26 and € 32 million
Now that fiscal 2014 has begun as planned, QSC is reiterating the guidance for the full fiscal year that it had announced on February 26, 2014. Depending upon the progress made in bringing innovative ICT products and services to market, QSC anticipates revenues of between € 450 and E 470 million, an EBITDA of between € 60 and € 70 million, as well as a free cash flow of between € 26 and € 32 million.
Revenues are likely to continue to develop on a two-track basis: Rising ICT revenues will be offset by declining TC revenues as a result of market and regulatory effects. This decline, as well as heightened pricing competition, first and foremost in ADSL2+ business, are likely to impact EBITDA by nearly € 10 million in 2014. Moreover, in 2014 QSC will no longer be benefiting from the return as income of the deferred income item.
QSC optimizing its financing and extending terms
With a view to the sustained low level of interest rates, in late 2013 QSC had announced that it intended to optimize its outside financing this year and extend its terms. In all likelihood, the company will in the days to come be entering into a contract for a five- to seven-year € 150-million promissory note loan. Thereafter, the company would make significantly less use than before of a consortial credit facility of most recently € 140 million running through September 2016. The keen interest on the part of the banks would additionally enable QSC, contrary to what had been planned at the outset of the year, to redeem INFO AG's factoring in the amount of € 11 million, which had been in place prior to the acquisition of the majority interest in this company in 2011. This redemption would impact net debt during the further course of the year and would therefore be presented separately in calculating free cash flow, as it is based upon an obligation stemming from acquisitions and is merely a technical financial measure in which QSC is redeeming factoring liabilities through liabilities stemming from a promissory note loan. QSC Chief Executive Officer Hermann cites a further advantage of the new financing: "The promissory note loan will broaden our financing latitude for making targeted investments in future fields of growth and thus accelerate our profitable growth in ICT and Cloud business."
|In € million||Q1 2014||Q1 2013|
|Consolidated net income||0.3||5.1|
|Free cash flow||4.6||5.1|
The 3-month report is available for download at www.qsc.de/en/qsc-ag/investor-relations.html. This corporate news contains forward-looking statements. These forward-looking statements are based on current expectations and forecasts of future events by the management of QSC AG. Due to risks or mistaken assumptions, actual results may deviate substantially from those made in such forward-looking statements.