11/25/2003

QSC expects to reach the EBITDA breakeven point during Q4 2003

Cologne, November 25, 2003. Cologne-based QSC AG increased its revenues by 144 percent from EUR 12.1 million in the third quarter of 2002 to EUR 29.5 million in the third quarter of 2003. During the first nine months of the current fiscal year, revenues rose by 154 percent to EUR 85.3 million, compared to EUR 33.6 million in the same period a year before. In addition to the effect stemming from the consolidation of voice carrier Ventelo, this rise in revenues is primarily attributable to the sustained strong growth in project-related business. QSC won further prominent names as customers, including TÜV Rheinland Berlin Brandenburg and electronic retail store chain MakroMarkt. Overall, the percentage of total revenues accounted for by business customers rose to 58 percent in the third quarter of 2003, as opposed to 32 percent in 2002. In the third quarter of 2003, the rise in revenues resulting from services for business and project customers led to a disproportionate improvement in gross profit to EUR 2.9 million (Q3 2002: EUR -2.3 million). QSC earned a gross profit of EUR 5.0 million for the first nine months of the current fiscal year, as opposed to a gross loss of
EUR -12.1 million for the first nine months of 2002 - an improvement by 141 percent. "This rise in gross profit impressively underscores the scalability of our business model. Thanks to our own network infrastructure, rising revenues lead to a leveraged improvement of QSCs results", says Dr. Bernd Schlobohm, QSCs CEO.
At EUR 4.7 million, selling and marketing expenses were significantly lower year-on-year (Q3 2002: EUR 8.9 million). The fact that QSC generated profits in spite of reduced selling and marketing expenses also underscores the potential of the companys business model. Advances in QSCs operative business combined with a 144-percent year-on-year growth in third-quarter revenues lead to a dramatic improvement in EBITDA: In the third quarter of 2003, the EBITDA loss declined to EUR -5.5 million, as opposed to EUR -14.2 million for the third quarter of 2002. During the first nine months of the current fiscal year, the EBITDA loss declined by one half, from EUR -45.4 million to EUR -22.7 million.

Rapid Ventelo integration producing significantly improved results

The synergies stemming from the Ventelo acquisition, as well as the rise in high-margin services for business and project customers play a major role in QSCs significantly improved results. For the current fiscal year, QSC anticipates positive synergistic effects from the Ventelo acquisition of up to three million euros, and it anticipates positive effects of up to five million euros for 2004. However, the fourth quarter of 2003 will incur non-recurring integration expenses due to the relocation of Ventelos administration and all other operating functions to QSCs headquarters in Cologne. The non-recurring expenses will involve costs for the move itself, refitting of existing premises, the need to network all workplaces, as well as consolidation of the data and network control centers. "With Ventelos accelerated relocation to Cologne in 2003, we are concluding the integration process sooner than had originally been planned", says Dr. Schlobohm.
For the tenth time in a row, QSC reduced its quarterly cash burn from quarter to quarter, from EUR -8.6 million for the second quarter of 2003 to EUR -7.2 million for the third quarter of 2003 - an improvement by
16 percent. Including the EUR 0.7 million payment of the second tranche of the purchase price for the Ventelo acquisition, this resulted in a total cash burn of EUR -7.9 million for the third quarter of 2003. As of September 30, 2003, the companys cash and cash equivalents totaled EUR 60.2 million.

Sustained EBITDA-profits for 2004

In spite of anticipated high non-recurring expenses for the integration of Ventelo and the persistenly weak economy in Germany, QSC is maintaining the significantly higher forecast it announced in August. The company continues to plan on breaking into positive EBITDA territory during the course of the fourth quarter of this year and reaching the cash flow breakeven point during the course of the first half of 2004. Also in August of this year, QSC raised its full year guidance for revenues and EBITDA significantly from EUR 105 to 115 million planned revenues to more than EUR 115 million, and from EUR -25 to -30 million planned EBITDA loss to less than EUR -25 million. The management continues to believe that these planned targets are both ambitious and realistic. As a consequence, no overperformance relative to these increased targets should be expected.
Given new contracts with large enterprise customers - such as HypoVereinsbank for whom QSC had been integrating 75 locations into a virtual private network (VPN) over the last months - Dr. Schlobohm, QSCs CEO, is expecting a further, sustained improvement of the companys results: "We are confident to generate a positive EBITDA for the entire fiscal year 2004."

The full 9-months-report of QSC AG is available here.

Queries to:

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

Arne Thull
Investor Relations
Fon: +49(0)221-6698-112
Fax: +49(0)221-6698-009
E-Mail: invest@qsc.de

Notes :
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 managements 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.