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QSC grows revenues and profitability in all strategic segments

Cologne, August 29, 2006. QSC AG today announced its report on the second quarter of 2006. There were no material deviations from the preliminary results that were published on August 15, 2006.

In the second quarter of 2006, QSC grew its revenues by 16 percent to €  56.6 million, as opposed to € 48.7 million for the same quarter the year before. The company posted its strongest revenue growth in solutions business with large accounts, where revenues advanced by 31 percent to € 15.3 million, as opposed to € 11.7 million for the second quarter of 2005. Business developed on a similarly encouraging note with business customers - with revenues in this segment rising by 27 percent to € 17.8 million - and with resellers, where revenues increased by 26 percent to € 10.6 million. Overall in the second quarter of 2006, QSC was already generating 77 percent of its total revenues in its three strategic segments; during the comparable period the year before, these high-margin segments had accounted for only 70 percent.

Network expenses rose by only € 0.7 million to € 37.1 million in the second quarter of 2006 on revenue growth of € 7.9 million over the comparable period the year before. QSC Chief Executive Officer Dr. Bernd Schlobohm explains: "The fact that we are able to generate strong revenue growth rates with virtually constant network expenses shows just how scalable our business model is."

Consequently, gross profit in the second quarter of 2006 advanced by 57 percent to € 19.5 million, as opposed to € 12.4 million for the same quarter the year before; and EBITDA, in fact, surged by 156 percent to € 4.1 million, as opposed to € 1.6 million for the second quarter of 2005. The high margins that are being earned in the company's three strategic segments are underscored by the rise in the respective segment EBITDAs, as well as by the fact that QSC is earning EBITDA margins of at least 50 percent with each of its strategic segments large accounts, business customers and resellers.

Targeted expansion of the QSC infrastructure is fueling further growth in these segments. Compared to € 3.4 million for the same quarter the year before, QSC stepped up its capital expenditures in the second quarter of 2006, and invested a total of € 11.7 million, in particular in expanding its DSL network as well as in swiftly upgrading this network with ADSL2+ technology. Following approval by the German Federal Cartel Office on August 21, 2006, network operating company Plusnet, founded by QSC and TELE2, will commence operations on schedule beginning on September 1, 2006, and will then expand the DSL network from more than 1,000 central offices today to nearly 2,000 central offices by year-end 2007. TELE2 will assure the financing of these capital expenditures through a € 50 million cash contribution. Since QSC will begin to consolidate its 67.5-percent subsidiary Plusnet as of September 1, 2006, this company's capital expenditures could mean that the QSC Group will be investing up to five million euros more in 2006 than the € 20 to 25 million that had thus far been forecast.

Given the positive development of its underlying business in the second quarter of 2006, QSC is reiterating its revised forecast for the full fiscal year that was increased following the acquisition of the majority interest in Broadnet AG in June of 2006. The company anticipates revenues of more than € 265 million and an EBITDA of between € 15 and 20 million for the current year. QSC plans to also cross the net income profitability threshold by year-end. Schlobohm outlines how the company intends to get there: "We will continue to focus on high-margin business with enterprise customers, thus enabling us to continue the acceleration of our profitability growth in the coming quarters."

In millions of euros (€), including
Broadnet consolidation effective
June 6, 2006Q1 2006Q1 2005H1 2006H1 2005Revenues56.648.7111.090.2Network expenses37.136.475.167.1Gross profit+19.5+12.4+35.9+23.2Other operating expenses15.410.829.420.3EBITDA+4.1+1.6+6.5+2.9Net loss-3.1-4.6-6.1-9.7Earnings per share (€)-0.03-0.04-0.05-0.09Capital expenditures11.73.419.08.1Liquid assets as of June 3059.433.8

Workforce as of June 30662446

The complete 6-months report is available at

Queries to:
Arne Thull
Investor Relations
T: +49(0)221-6698-724
F: +49(0)221-6698-009

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, whereby QSC does not necessarily intend to communicate changed expectations and projections. 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 proliferation of alternative broadband technologies and their respective prices, changes in respect of telecommunications regulation, legislation and current rulings, 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 leverage and expand existing marketing and distribution agreements and to conclude new marketing and distribution agreements, the ability to obtain additional financing in the event that management´s planned targets are not attained, the punctual and full payment of outstanding debts by sales partners and resellers of QSC AG, and the availability of sufficiently skilled personnel.