08/26/2004

QSC: 26 percent revenue growth and free cash flow in 2nd quarter of 2004

Cologne, August 26, 2004. Cologne-based QSC AG continued its profitable growth in the second quarter of 2004: The company grew its revenues to EUR 35.6 million, achieved a positive EBITDA of EUR 0.3 million and generated a free cash flow one quarter earlier than had been planned at the beginning of the year. Given this positive development, the company is reiterating its full year forecast for 2004.
In the second quarter of 2004, QSC´s revenues rose by 25.8 percent to EUR 35.6 million as opposed to EUR 28.3 million in the second quarter of 2003. At the same time, QSC further accelerated its steady revenue growth. Revenues were up by 10.6 percent from the previous quarter, after having already risen by 6.3 percent to EUR 32.2 million in the first quarter of 2004. The growth pattern is also underscored by a half-year comparison: During the first six months of the current fiscal year, QSC generated total revenues of EUR 67.8 million, as opposed to EUR 55.8 million for the comparable period the year before.
QSC posted above-average revenue growth with business customers in the second quarter of 2004. Revenues in this segment advanced by 33 percent year-on-year to EUR 19.6 million, as opposed to EUR 14.7 million in the second quarter of 2003. The percentage of total revenues accounted for by business customers reached 55 percent in the second quarter of 2004.

Strong rise in gross margin
In spite of this significant revenue growth, network expenses, which are recorded under cost of revenues, rose only moderately by 3.0 percent year-on-year in the second quarter of 2004, to EUR 27.5 million. Consequently, gross profit increased by 406 percent in the second quarter of 2004 to EUR 8.1 million, as opposed to EUR 1.6 million in the second quarter of 2003. During the first six months of the current fiscal year, QSC grew its gross profit to EUR 14.9 million, as opposed to EUR 2.1 million for the first half of 2003. "Within the space of only twelve months, QSC has succeeded in quadrupling its gross margin to nearly 23 percent," explains QSC Chief Executive Officer Dr. Bernd Schlobohm. "This growth shows the tremendous scalability of our infrastructure-based business model."

Increasingly positive EBITDA
The company´s operational progress is also documented by its increasingly positive EBITDA. In the second quarter of 2004, EBITDA totaled EUR 0.3 million, as opposed to an EBITDA loss of EUR -7.2 million the year before. During the first half of 2004, QSC earned a positive EBITDA of EUR 0.3 million, as opposed to an EBITDA loss of EUR -17.2 million for the first six months the year before. "On the way to profits after interest and taxes, during the coming quarters, we will continue to focus on businesses that will enable us to achieve profitable growth," explains QSC CEO Schlobohm. "We will continue to pay strict attention to assuring that all additional revenue also generates additional earnings."

Free cash flow
In the second quarter of 2004, QSC generated its first free cash flow in the amount of EUR 0.3 million. As a result, liquid assets increased to EUR 39.1 million as of June 30, 2004. The company anticipates generating a free cash flow, and thus continued cash surpluses, in the coming quarters of the current fiscal year as well.

QSC is reiterating its forecasts
Given the highly positive development, the company is reiterating its revenue and earnings forecasts for the current fiscal year: QSC plans on achieving revenue growth of at least 20 percent to more than EUR 138 million, as well as a sustained positive EBITDA.

The complete half-year report is available at
www.qsc.de/en/investor_relations/index.html

Queries to:
QSC AG
Arne Thull
Investor Relations
Fon: +49(0)221-6698-724
Fax: +49(0)221-6698-009
e-mail: invest@qsc.de

Claudia Zimmermann
Corporate Communications
Fon: +49(0)221-6698-235
Fax: +49(0)221-6698-289
e-mail: presse@qsc.de

This corporate news contains forward-looking statements pursuant to the US "Private Securities Litigation Act" of 1995. 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. The assumptions that may involve material deviations due to unforeseeable developments include, but are not limited to, the demand for our products and services, the competitive situation, the development, dissemination and technical performance of DSL technology and its prices, the development and dissemination of alternative broadband technologies and their respective prices, changes in respect of telecommunications regulation, legislation and adjudication, prices and timely availability of essential third-party services and products, the timely development of additional marketable value-added services, the ability to maintain and enlarge upon marketing and distribution agreements and to conclude new marketing and distribution agreements, the ability to obtain additional financing in the event that management´s planning targets are not attained, the punctual and full payment of outstanding debts by sales partners and resellers of QSC AG, and the availability of sufficient skilled personnel.