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QSC Report for Q1/2005: Strong dynamics in large enterprise business

Cologne, May 31, 2005. Cologne-based QSC AG has published its quarterly report for the first quarter of 2005. There were no material changes from the preliminary numbers announced on May 9, 2005.
In the first three months of the current fiscal year, revenues grew by 29 percent to € 41.5 million, as opposed to € 32.2 million in the same quarter the year before. Solutions business with large enterprise customers developed at a significantly faster pace, with revenues advancing by 75 percent to € 12.6 million. This growth made the segment that traditionally generates the highest margins QSC´s highest-revenue segment, as well.

The fast-growing solutions business necessitates considerable upfront expenses for connecting large enterprises to QSC´s own network. Consequently, network expenses rose to € 31.0 million in the first quarter of 2005, as opposed to € 25.4 million in the first three months of 2004. Nevertheless, QSC was able to continue to grow its gross profit particularly strongly by 54 percent to € 10.5 million, as opposed to € 6.8 million for the same quarter the year before.

As planned, sales and administrative expenses increased. Since the beginning of the year, for example, QSC has hired some 40 new employees, predominantly in sales and marketing, in order to continue the optimal use of growth opportunities that present themselves with large enterprises, and increasingly with small and medium enterprises, as well. At the same time, though, the company also grew its EBITDA: In the first quarter of 2005, operating profit before depreciation rose to € 0.5 million, as opposed to € 0.1 million for the first three months of 2004.

QSC drove the expansion of its own infrastructure in the first quarter of 2005, doubling its capital expenditures to € 3.8 million. The company connected further cities to its own DSL network, while simultaneously upgrading the network to a Voice over IP-capable Next Generation Network. In addition, as a result of the acquisition of Bonn-based celox Telekommunikationsdienste GmbH in mid May, QSC is now present with its own infrastructure in more than 100 cities.
As a result of the positive trend of business development in the first quarter of 2005 and the celox acquisition, QSC increased its forecast for the current fiscal year in mid May. The company now anticipates revenue growth of at least 25 percent to more than € 183 million. At the same time, QSC is expecting a positive EBITDA of between € 4 to 8 million, as well as an operating cash flow of at least € 10 million.

In millions of euros (€)Q1 2005Q1 2004
Net revenues41.532.2
Network expenses31.025.4
Gross profit10.56.8
Other operating expenses10.06.7
Net loss-5.1-5.5
Earnings per share (in €)-0.05-0.05
Capital investments3.81.8
Liquid assets as of March 3131.338.8
Workforce as of March 31389364

The complete 3-months report is available at

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