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QSC posts strong revenue and EBITDA growth in first quarter of 2008

  • Strongest single-quarter growth in the customer base
  • Revenues advance by 27 percent to € 97.5 million
  • EBITDA grows by 28 percent to € 11.4 million
  • QSC expects revenues and EBITDA to be at the upper end of the guidance for 2008

Cologne, May 15, 2008. QSC AG got off to a very good start in fiscal year 2008, posting the strongest growth in its customer base within a single quarter in the company's history. During the first quarter of 2008, the company connected 124,700 unbundled local loops, nearly twice as many as in the fourth quarter of 2007, which increased the total to more than 370,000.

The company grew its revenues by 27 percent in the first quarter of 2008 to € 97.5 million, as opposed to € 76.8 million for the same quarter the year before. In this connection QSC generated its highest revenue growth in the Wholesale/Reseller segment, where revenues were up 90 percent to € 49.3 million. While revenues in the Products segment declined by 12 percent to € 30.5 million as a result of the sustained price war in conventional telephony, especially in connection with residential customers, revenues in the Managed Services segment rose by 9 percent to € 17.6 million.

Beginning in the first quarter of 2008, QSC realigned its segment reporting to these three segments. This means that the company's accounting now reflects the new organizational structure that has been in place since the autumn of 2007 and that QSC has swiftly implemented IFRS 8 ahead of time. The Wholesale/Reseller segment now includes all business relationships with wholesalers and resellers, which include the strong wholesale partners, as well as international carriers. The Products segment includes standardized business with voice and data products for business and residential customers, and the Managed Services segment includes the entire field of custom-tailored solutions business for enterprise customers.

Both the strong rise in revenues as well as the achievement of synergies following the merger of Broadnet and QSC led to a 28-percent rise in EBITDA to € 11.4 million in the first quarter of 2008, as opposed to € 8.9 million for the corresponding quarter the year before. QSC was thus already earning an EBITDA margin of 12 percent in the first quarter of 2008.

There were two reasons why depreciation expense rose to € 15.0 million in the first quarter of 2008, as opposed to € 8.5 million for the same quarter the year before: First, the growing customer base is resulting in growing customer-related capital expenditures for their connection, which QSC depreciates within a relatively short period of 24 months. Second, QSC has increased the number of central offices from around 1,000 to some 1,800 since the start of 2007 within the framework of the network expansion project that has now been largely concluded. Operating this significantly larger network, the net loss amounted to € -4.1 million, as opposed to net income of € 1.1 million in the first quarter of 2007.

Capital expenditures totaled € 28.6 million in the first quarter of 2008, as opposed to € 10.6 million for the same quarter the year before. Nearly 60 percent of this total was attributable to customer-related capital expenditures, of which QSC swiftly invoices some 90 percent to the respective customers. Now that the network expansion project has been largely concluded, QSC anticipates that the rise in new business will bring with it a corresponding increase in the percentage of customer-related capital expenditures in the coming quarters, along with an inflow of payments from customers for these preliminaries. With liquidity totaling € 68.8 million as of Mach 31, 2008, QSC therefore sees itself well financed for the further growth it anticipates.

Given its very good start to the 2008 fiscal year, QSC anticipates that both revenues and EBITDA for the full 2008 fiscal year will be at the upper end of the guidance that it had announced in February 2008: At that time, the company had planned revenues of between € 385 and € 405 million and an EBITDA of between € 50 and € 60 million. In spite of the further rise in depreciation expense, the company is additionally striving for a break-even after-tax net result. QSC Chief Executive Officer Dr. Bernd Schlobohm explains: "Getting off to a good start in the current fiscal year gives me every reason to be highly optimistic about achieving this planning. Because with some 550,000 connected local loops, we will be surpassing the break-even point for the significantly larger DSL network and then achieving disproportionately high profitability growth." With a total of 40,100 new local loops in April 2008, QSC has already succeeded in increasing the total number of local loops to more than 410,000 as of the end of April.

Queries to:
Arne Thull
Investor Relations
Fon: +49-221-6698-724
Fax: +49-221-6698-009

This corporate news contains forward-looking statements. 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.