03/27/2003

QSC 2002 annual financial statements:

Focus on business customers leads to revenue jump /
EBITDA breakeven planned for current fiscal year

Cologne, March 27, 2003 - Cologne-based QSC AG successfully continued its development into a provider of integrated telecommunication solutions in 2002. With a broadened product portfolio and a new, two-tier sales and marketing structure, QSC succeeded in establishing a firm place for itself on the German DSL market for business customers. With the acquisition of voice carrier Ventelo in late 2002, QSC additionally expanded its field of business to include a broad range of voice telephony services. The developments during the first two months of the year is strengthening QSC´s expectation to reach the EBITDA breakeven point during the current fiscal year, as announced when the company went public in the spring of 2000.

Revenues up by 60 percent

In spite of the extremely weak economy in Germany during the past fiscal year, QSC grew its revenues by 60 percent to EUR 47.1 MM (2001: EUR 29.4 MM). During the fourth quarter of 2002, alone, the company generated revenues of EUR 13.5 MM, as opposed to EUR 9.2 MM for the comparable period in 2001. "Our focus on business customers has paid off," stresses Chief Executive Officer Dr. Bernd Schlobohm. "They are rewarding our technology know-how, the quality of our products and our first-class service."

Network expenses again accounted for the bulk of total expenses in 2002. However, network expenses did decline by nearly 10 percent to EUR 93.6 MM (2001: EUR 103.5 MM) - with revenue growth of 60 percent and a considerable increase in the customer base. This improvement is attributable to measures aimed at optimizing network operations and underscores the potential offered by the scalability of the QSC business model: Significantly higher revenues can be generated with constant or even declining cost for the powerful network, thus resulting in leveraged improvements in profitability.

Paralleling the strong growth in business, sales and marketing expenses rose from EUR 21.3 MM in 2001 to EUR 32.0 MM in 2002. The company specifically expanded its sales and marketing team in 2002. Today, a key account management team of 22 professionals is now winning and supporting major customers directly. On balance, the company increased its workforce from 263 to 433 people in 2002. Well over two-thirds of this growth stemmed from the acquisition of Ventelo and its 123 employees effective December 31, 2002.

QSC reduces cash burn for the seventh time in a row

At EUR -60.3 MM, the annual EBITDA loss reached at the upper end of the February 2002 forecast range (EUR -60 to -70 MM). This nearly 30-percent reduction from the EBITDA loss of EUR -85.4 MM in 2001 was essentially attributable to the growth of higher-margin business customer and project business, as well as rigorous cost management. The EBITDA loss of EUR -14.9 MM for the fourth quarter of 2002 represented a nearly 30-percent improvement year-on-year (Q4 2001: EUR -20.8 MM).

The positive development of revenues and EBITDA led to a sharp reduction in cash burn in 2002. In the fourth quarter of 2002, QSC reduced its net cash outflow from ongoing business by EUR 2.3 MM to EUR 12.8 MM. While the year-end liquidity status was burdened by an additional EUR 2.2 MM resulting from payment of the first tranche of the purchase price for Ventelo, the overall cash burn of EUR 15.0 MM in the fourth quarter of 2002 still remained below the level of the third quarter of 2002 (EUR 15.1 MM).

Focusing on solutions for business customers

The key issue for QSC during the past fiscal year consisted of broadening its solutions competence. At CeBIT 2002, the company showcased three new products: Q-VPN, QSC-Voice and the Q-Security firewall. Right from the very first day, response on the part of customers was extremely positive, especially toward Q-VPN. This solution enables enterprises to build and operate their own virtual private networks, without the need for investing in additional hardware and software. QSC-Voice enables a DSL line to be used simultaneously for voice and data services. Its successful launch in six major cities strengthened QSC in its decision to offer this digital voice product in 25 cities by mid 2003. Together with base product Q-DSLmax, all three innovations are making increasing contributions to QSC´s revenues. In addition, these products also serve as the foundation for custom-tailored telecommunication solutions for businesses of every size.

QSC is pushing sales of these solutions and products with a new, two-tier sales and marketing organization that covers the needs of business customers optimally. Today, QSC is supporting major customers directly, while strong value added resellers develop and market solutions for small and medium enterprises in their regions.

In December 2002, QSC acquired fixed-network provider Ventelo, which offers voice services specifically to business customers Germanywide. "Major customers, in particular, today expect one-stop shopping for both voice and data communication services," is the way CEO Schlobohm explains the reasoning behind the acquisition. "With Ventelo, we´re conclusively establishing ourselves as a provider of integrated telecommunication solutions - and we´re doing it on the basis of one of Germany´s most advanced networks!" Schlobohm anticipates major synergies, in particular through joint marketing of voice and data services, as well as through joint utilization of QSC´s infrastructure.

EBITDA breakeven point during the fourth quarter of 2003

In spite of the extremely weak economy, QSC plans a major rise in revenues during the current fiscal year, from EUR 105 to 115 MM, and a negative EBITDA of between EUR -25 and -30 MM. QSC plans to reach the EBITDA breakeven point in the fourth quarter of 2003 and the cash flow breakeven point during the course of 2004. QSC is forecasting a net liquidity of EUR 50 MM at year-end 2003. Reaching this goal will require that the cash burn be reduced by an average of approx. two million euros per quarter.

The course of business during the first two months of 2003 is strengthening QSC in its forecast. "We were able to make significant advances, in particular in project business with major customers, as well as in sales of our new Q-DSLmax product," explains CEO Schlobohm, "and more and more companies are interested in our combined voice and data services."
     
This Ad hoc announcement 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.

The complete annual report is available here.

For further information, please contact:

QSC AG
Claudia Zimmermann
Corporate Spokeswoman
Fon: +49(0)221/6698-235
Fax: +49(0)221/6698-289
E-Mail: presse@qsc.de

QSC AG
Arne Thull
Investor Relations
Fon: +49(0)221/6698-112
Fax: +49(0)221/6698-289
E-Mail: invest@qsc.de