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QSC Annual Report 2001: Successful transformation from broadband provider into DSL service provider - financial targets fulfilled

Cologne, March 26, 2002. During the past year, QSC AG, Cologne, was successful in completing its transformation from a pure infrastructure provider into a solution-oriented DSL service provider. QSC has largely completed the construction of its high-density network covering Germany's 40 largest cities and 20 million potential customers of which one million are business users. With its new products and dense sales network QSC has built a strong foundation to market its services even more successfully in the future. QSC will continue to rigorously pursue its strategy in 2002.

Turnover more than quintupled

In 2001, QSC generated revenues of EUR 29.4 million, increasing previous year's sales more than fivefold (2000: EUR 5.0 million). With EUR 9.2 million, QSC generated close to twice its 2000 annual revenues during the fourth quarter of 2001 alone. "This drastic increase in sales shows that the market is ready for our quality products", says CEO Bernd Schlobohm. As at December 31, 2001, QSC had sold 32,973 DSL-connections; 22,866 thereof generated revenues during 2001.

At EUR 103.5 million (2000: EUR 62.8 million), network expenses continued to be the largest cost item for QSC. The company has largely completed its investments in network infrastructure. After having spent EUR 85.8 million in the year 2000, the company spent a further EUR 41.7 million in 2001 to complete the construction of its infrastructure.

The launch of a new, QSC-proprietary product family necessitated increased sales and marketing expenses of EUR 21.3 million (2000: EUR 17.3 million). QSC's marketing efforts are supported by a network of more than 300 Q-DSL sales partners and over 120 co-operation partners selling pure broadband Internet connectivity under the brand name speedw@y-DSL.

The financial results were full on target. Having been projected at EUR -85 to -100 million, the reported EBITDA-loss of -85.4 million (2000: EUR -79.4 million) came in at the low end of the projection - a direct consequence of the company's strict cost management. Its positive effect was also felt in pre-tax losses, amounting to EUR -104.9 million for the business year 2001 and EUR -89.2 million for 2000.

As at December 31, 2001, QSC had cash and cash equivalents of EUR 153.8 million. During the fourth quarter the company was able to visibly reduce its cash outflow. At EUR 22.2 million the cash burn was approximately 37% lower than during the third quarter of 2001 (EUR 35.5 million). Compared with the first quarter of 2001, the cash burn was even cut in half (first quarter of 2001: EUR 44.2 million). Due to the steady improvement in cash flow, the QSC management has reiterated its planned expectation to possess sufficient liquid funds to reach break-even on an EBITDA-basis during the course of 2003 and to start generating a positive cash flow during 2004.

Realistic financial targets

The demand for DSL services in Germany shows a steady increase. With one of the world's most modern DSL networks and the development of innovative DSL-based solutions, QSC is poised to meet this demand. Against this backdrop, the company expects to significantly expand its business in the current year, increasing its profitability at the same time. The QSC management projects revenues of EUR 46 to 54 million. Likely EBITDA-losses are expected to come in at EUR -60 to -70 million.

QSC will launch its first combined voice and data products for business customers during 2002. At the same time the company plans to provide services to large enterprise customers, a new, fourth QSC customer group. CEO Bernd Schlobohm's emphasis is on the future: "This array of measures is geared towards QSC starting to generate operating profits before depreciation and amortisation during the year 2003 and positive cash flows during 2004."

For further information, contact:

Claudia Zimmermann
Fon: 0221/6698-235
Fax: 0221/6698-289
Mail: presse@qsc.de

Investor Relations partner of QSC AG
Schumacher's AG
Dorothee Kagelmann
Fon: 089/4892720
Fax: 089/48927212
Mail: qsc@schumachers.net

Notes :
This Adhoc annoucement 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.