August 15, 2006
QSC sees sharp boost in EBITDA during second quarter of 2006
- EBITDA surges by 156 percent to € 4.1 million
- Gross profit advances by 59 percent to € 19.5 million
- Business with large accounts grows by 31 percent to € 15.3 million
- Strong revenue growth in all strategic segments
Cologne, August 15, 2006. According to preliminary results, Cologne-based QSC AG grew its revenues by 16 percent in the second quarter of 2006 to € 56.6 million, as opposed to € 48.7 million for the same quarter the year before. The company posted the strongest growth rates in its high-margin business with large accounts, where revenues in the second quarter of 2006 advanced by 31 percent to € 15.3 million, as opposed to € 11.7 million for the corresponding quarter the year before. QSC also recorded similarly high growth rates with business customers and resellers. Following ongoing fierce price competition, revenues declined in the comparatively low-margin and non-strategic business with residential customers; € 12.9 million revenues in the residential segment were 12 percent lower than in the previous year's quarter with € 14.7 million.
QSC's continued focus on the three strategic segments, Large Accounts, Business Customers and Resellers, and the resulting improvement of the revenue mix led to a significant increase in both gross profit and EBITDA. According to preliminary results, gross profit rose by 59 percent to € 19.5 million in the second quarter of 2006, as opposed to € 12.3 million for the same quarter the year before. Gross margin increased to 34 percent, as opposed to 25 percent for the second quarter of 2005. The company's preliminary EBITDA surged by 156 percent to € 4.1 million, as opposed to € 1.6 million for the comparable period the year before. Preliminary calculations show that QSC's consolidated net loss improved from € -4.6 million in the second quarter the year before to € -3.1 million in the second quarter of 2006 - in spite of the significantly accelerated pace of investments and the corresponding level of depreciation expense.
In the second quarter of 2006, QSC invested € 12.1 million in expanding its network and upgrading it with ADSL2+ technology in close coordination with its wholesale partners compared to € 3.4 million in the corresponding quarter the year before. This higher level of investment, as well as both the transaction costs incurred in connection with the acquisition of a majority stake in Broadnet AG and preparations for the establishment of network subsidiary Plusnet, resulted in a net cash burn. The € 50 million cash contribution of the new minority shareholder of Plusnet, TELE2, is not included in the reported group cash balance yet, as the transaction was not closed until July 10, 2006, and is still subject to antitrust approval - accordingly, the subsidiary Plusnet was not consolidated in the second quarter of 2006. As of June 30, 2006, the company's net liquid assets totaled € 58.3 million.
Following the acquisition of its majority stake in Broadnet on June 6, 2006, QSC has since consolidated its new subsidiary. The company had already raised its forecast for the current fiscal year in conjunction with this transaction, anticipating revenues of more than € 265 million and an EBITDA of between € 15 and 20 million. QSC plans to also cross the net income profitability threshold by year-end. Given the encouraging developments in the underlying business in the second quarter of 2006, QSC is reiterating this forecast.
The 6-months report of QSC AG is available starting the 29th of August 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.