11/23/2004

QSC posts strong growth: 29-percent revenue increase in the 3rd quarter of 2004

Cologne, November 23, 2004. In spite of the persistently weak economy, Cologne-based QSC AG sustained its strong and profitable growth in the third quarter of 2004. Revenues rose by 29 percent to EUR 38.1 million, as opposed to EUR 29.5 million for the same quarter the year before. During the first nine months of the current fiscal year, revenues grew by 24 percent to EUR 105.8 million, as opposed to EUR 85.3 million during the comparable period the year before.
Accounting for 54 percent of total revenues in the third quarter of 2004, business customers were the focus of the company's activities, in particular project business with Large Enterprises. The latter, alone, accounted for 19 percent of total revenues during the past quarter. QSC's network-related services, managed services, are enjoying a growing response among this customer segment, as was recently demonstrated by the contract with Tchibo GmbH.
However, the growing size of the company's project business contracts also necessitated growing up-front expenses. These up-front expenses, as well as those involved in building the company' s new carrier-to-carrier line of business - since October 2004, AOL in Germany has been the first customer - manifested themselves in the form of higher network expenses. Overall, network expenses in the third quarter of 2004 totaled EUR 30.1 million, as opposed to EUR 26.6 million in the third quarter of 2003. During the first nine months of the current fiscal year, network expenses rose moderately by 3 percent to EUR 83.0 million, as opposed to EUR 80.3 million for the comparable period the year before - while revenues grew by 24 percent.

QSC is growing profitably
In the third quarter of 2004, gross profit rose by 172 percent to EUR 7.9 million, as opposed to EUR 2.9 million for the same quarter the year before. During the first nine months of 2004, QSC succeeded in more than quadrupling its gross profit to EUR 22.8 million, as opposed to EUR 5.0 million for the comparable period the year before.
QSC also recorded a positive EBITDA, for the third time in a row, of EUR 0.4 million during the past quarter. The company' s nine-month EBITDA now stands at EUR 0.7 million, as opposed to an EBITDA loss of
EUR -22.7 million for the first nine months of 2003. "With revenue growth of some EUR 30 million, we were able to improve our gross profit by nearly EUR 18 million and our net result by a strong EUR 30 million year-on-year," explains QSC CEO Dr. Bernd Schlobohm: "This comparison demonstrates the high scalability of our business model."

QSC generates positive free cash flow
Although QSC incurred up-front expenses for new major project business contracts and built a new line of business during the third quarter of 2004, the company generated a free cash flow of EUR 0.6 million. As a result, liquid assets increased to EUR 39.7 million as of September 30, 2004.

QSC reiterates forecasts
Given the highly positive development of its underlying business, QSC is reiterating the forecast it announced in March 2004 for the full fiscal year. The company anticipates revenue growth of at least 20 percent to more than EUR 138 million, as well as a positive EBITDA. With a view to coming years, CEO Schlobohm adds:
"As an integrated nationwide telecommunication provider, tremendous growth opportunities will continue to open up to QSC in the coming quarters. We intend to - and will - use these opportunities for the benefit of our shareholders."

In millions of EUR

Q3
2004

Q3
2003

Q1-Q3
2004

Q1-Q3
2003

38.1

29.5

105.8

85.3

30.1

26.6

83.0

80.3

7.9

2.9

22.8

5.0

7.5

8.4

22.1

27.7

0.4

-5.5

0.7

-22.7

-5.5

-12.3

-16.5

-46.3

Queries to:
QSC AG
Arne Thull
Investor Relations
Fon: +49(0)221-6698-112
Fax: +49(0)221-6698-109
Email: invest@qsc.de

The 9-months report of QSC AG is available starting the 23rd of November at www.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.