TIDMSQS
RNS Number : 6699N
SQS Software Quality Systems AG
06 September 2011
Embargoed until 7am
6 September 2011
SQS Software Quality Systems AG
("SQS" or the "Company")
Results for the six months ended 30 June 2011
SQS Software Quality Systems AG (AIM: SQS.L), the world's
largest pure play supplier of independent software testing and
quality management services, today announces its results for the
six months ended 30 June 2011 (the "period").
Financial Highlights:
-- Turnover increased by 29% to EUR95.3 million (H1 2010:
EUR73.9 million),
o testing services market as a whole is forecasted to grow 6.5%
in 2011 (Source: PAC market study)
-- Gross profit up by 27% to EUR28.6 million (H1 2010: EUR22.6
million)
-- Gross profit margin of 30% (H1 2010: 30.5%)
-- Adjusted* PBT up by 20% to EUR2.8 million (H1 2010: EUR2.4
million)
-- Adjusted* EPS up by 50% to EUR0.09 per share (H1 2010:
EUR0.06 per share)
-- Net debt as at 30 June 2011 was EUR13.8 million (30 June
2010: net debt of EUR6.2 million) reflecting increased receivables
due to business growth and the payment of the FY 2010 dividend
*adjusted to add back EUR0.1 million pro forma interest on
deferred payment milestones for acquisitions and amortisation on
intangible assets of acquired companies of EUR0.8 million
Operational Highlights:
-- A period of growth and continued investment into Managed
Services
-- Gross margin of "mature" Managed Services contracts now at
36.9% of revenue
-- Hired and fully trained an additional 260 new consultancy
staff during the period resulting in a billable staff net increase
of 137
o Total staff numbers of 2,032 at period end (31 December 2010:
1,875)
o Off/Nearshore staff equal to 37% of total consultancy staff at
30 June 2011 (31 Dec 2010: 37%)
-- Rapid growth in Managed Services representing 19% of total
revenues (FY 2010: 11%) with order intake of EUR35 million in the
year to date
-- Average billed days per consultant of 187 (H1 2010: 186
billed days)
-- Average managed services contract length of 2.5 years further
improving visibility
-- 163 new clients signed up during the period (H1 2010: 91)
including numerous blue-chip clients
-- Operations established in France and expanded in US
Rudolf van Megen, Chief Executive Officer of SQS, commented, "In
line with our stated strategy, we have continued to invest in our
Managed Services business. This has been a considerable success
with Managed Services revenues now accounting for 19% of total
sales, up from 11% at the end of 2010. In addition, we have
contracted a further EUR35 million of Managed Services orders in
the year to date resulting in significantly improved revenue
visibility.
"Although investments made in staff during the first half
resulted in increased costs, these consultants are fully billable
in the third quarter and are expected to continue to be so going
forward, resulting in improved margins. However, given the outlook
for the global economy we prudently forecast revenues to remain
flat in the second half and consequently expect profits to be at
the lower end of expectations."
Enquiries:
SQS Software Quality Systems AG Tel. +49 (2203) 91 54
0
Rudolf van Megen, Chief Executive Officer
Rene Gawron, Chief Financial Officer
Arbuthnot Securities Tel. +44 (0)20 7012 2000
Antonio Bossi
Paul Gillam
Walbrook PR Limited Tel. +44 (0)20 7933 8783
Bob Huxford bob.huxford@walbrookpr.com
Helen Westaway helen.westaway@walbrookpr.com
Jack Rich jack.rich@walbrookpr.com
About SQS
SQS is the world's largest pure play supplier of independent
software testing and quality management services. SQS consultants
design and oversee quality management processes during the software
and IT systems life cycle and test the resulting products for
errors and omissions.
Headquartered in Cologne, Germany, SQS has approximately 2,000
employees across Europe, Asia, North America and Africa. The Group
has a presence in Germany (Cologne, Munich, Frankfurt, Stuttgart,
Goerlitz and Hamburg), the UK (London, Woking, Birmingham,
Manchester, Belfast), Ireland, the Netherlands, Switzerland,
Austria, Sweden, Norway, Finland, France, India, Egypt, the United
States and South Africa. SQS also has a minor stake in an operation
in Portugal and a partnership operation in Spain.
With more than 5,000 completed projects, SQS has a strong
customer base including 20% of the FTSE-100 companies, more than
half of the DAX 30 and a third of the STOXX-50. It supports clients
in a wide range of industries, including major corporations such as
Allianz, Beazley, BP, Centrica, Daimler, Deutsche Post, Generali,
JP Morgan, Meteor, Reuters, SEB, Siemens and Volkswagen.
Chief Executive's Statement
Introduction
The first 6 months of 2011 has seen a considerable increase in
demand for SQS' offerings across all of its core geographies.
Revenues in the period increased to EUR95.3 million, up 29% on the
same period last year (H1 2010: EUR73.9 million), significantly
outperforming the software testing market such that we continue to
increase market share.
However, our profitability was impacted in the first half,
chiefly as a result of the increase in our managed services
business to 19% of total revenues (H1 2010: 7%) which results in
lower margins in the early phases. The gross margin was also
impacted by one new mid-sized project that required greater
resources to move it offshore than had been expected.
Of the EUR17.9 million of revenues received from managed
services contracts in the first half, EUR8.1 million was received
from engagements now in a more mature phase of their life cycle,
generating a gross margin of 36.9%. Revenues of EUR9.8 million were
received from managed services contracts in the early stages of
their life cycle, delivering a lower gross margin of 14.1%. These
developments demonstrate the success of our managed services
contracts to deliver above average gross margins once the majority
of tasks can be delivered from offsite test centres.
Profitability was also impacted by costs associated with hiring
and training the new staff required to service the growth in
managed services and other contracts, investments in the IT and
test centre office infrastructure and exchange rate losses from
inter-company invoicing.
During the period we also continued to invest in SQS PractiQ,
our unique asset based methodology. This gives us a number of
improved efficiencies including the quicker and more effective
training of new employees and higher levels of standardisation and
automation within our offshore and nearshore facilities.
All staff taken on in the first half (in total 260 new
consultants) are now fully trained and fee earning. This is
expected to result in improved profitability in the second half of
the year. In addition, SQS does not envisage any further costs
relating to new staff being incurred in the second half.
Of the 137 net increase in fee earning staff recruited in the
first half, 57 of these have been employed in our offshore and
nearshore test centres such that offshore / nearshore test centre
staff now represent 37% of total billable staff numbers (H1 2010:
37%). This increase is in line with our stated strategy and enables
us to offer solutions to our clients at a more competitive price,
enabling us to continue to build market share by using the ongoing
pricing pressure within the software testing market to our
advantage.
During the period staff utilisation continued at normal levels
with the average number of billed days per consultant rising
slightly to 187 days (31 December 2010: 186 days).
Operational developments have included increasing our sales
force in the US and expanding the market verticals to which we
provide our services in the US, beyond that of games testing. In
addition, we have won a contract to provide testing services to the
French operations of a global insurance company resulting in us
opening our first operations in France during HY2 2011. Comprising
of 25 staff members by 2012 this represents an additional
opportunity to enter the French market.
New Business
We were greatly encouraged by the number of new business wins
over the period, having signed 163 new clients (H1 2010: 91) across
a wide variety of sectors. It is our strategy to diversify and
reduce risk because of the variety of business sectors in which
your customers are involved. Independent software testing continues
to outperform the overall testing market as organisations are
becoming increasingly aware of the superior degree of thoroughness
and objectivity provided by testing companies that do not have an
inherent interest in the outcome of a project.
Examples of new contract wins include:
-- A large European logistics company, to which SQS will provide
Test Management, Automation and Functional Testing services in a
contract worth EUR10 million over the next 2 years.
-- The French operations of a global insurance provider. Worth
EUR5 million over the next 3 years, SQS will provide Test
Management, Automation and Functional Testing and is in the process
of establishing its first operations in France consisting of up to
25 employees.
-- Three Public Services contracts worth EUR2.5 million over the
next 2 years
-- A leading UK headquartered supermarket chain in a contract
worth EUR0.5 million
-- A leading UK merchandise retailer in a contract worth EUR1.2
million
Our strategic focus on the sale of Managed Services projects has
again proven extremely successful with 11 Managed Services
contracts signed during the period (H1 2010: 10). The majority of
the new clients in the above list have engaged SQS to provide
Managed Services, which are contracted in advance for longer
periods than the rolling three to six month contracts typical of
our traditional project consultancy business.
As a result, the average value and length of the contracts we
are signing continues to increase, resulting in improved visibility
and, consequently, reduced exposure to the risks associated with
potential economic downturns. Our current order backlog of Managed
Services contracts currently stands at EUR56.5 million, with
delivery to take place over the next 3 years.
-- In addition to new clients we also signed a number of
contract extensions with existing clients.
Services and product lines
SQS runs and monitors the major part of its business based on
two regional business units. Within these business unit SQS offers
the following services and product lines.
Professional Services for Business and IT
SQS offers professional services for business and IT in three
major phases of the software lifecycle:
-- Business Requirements phase:
SQS provides management consulting for banking and insurance
business processes and helps to initiate resulting IT projects.
This service line accounted for 8% of total revenues in the period
(H1 2010: 8%), an increase of 30.1% compared with HY1 2010.
-- Software Implementation or Development phase:
Typically run as an IT project, SQS provides professional
testing services and quality management consulting to de-risk IT
projects and to help clients increase efficiencies. These services
are predominantly provided onsite. This service line accounted for
67% of total revenues in the period (H1 2010: 79%), an increase of
8.3% compared with HY1 2010.
-- Maintenance phase:
SQS provides Managed Testing Services under long term
engagements to provide regression testing for updates, patches and
new releases. Such services typically involve blended offshore /
onshore delivery and accounted for 19% of total revenues in the
period (H1 2010: 7%, FY 2010: 11%). This represents EUR17.8 million
over the period (an increase of 245% compared with HY1 2010) and
substantially improves visibility going forward.
Software Testing Products
Our unique suite of software testing products has been developed
from nearly 30 years' experience working on software testing
projects, culminating in a product set that is able to provide
consistent and measurable support for testing services, several
components of which can be integrated into other market leading
tools. Our products are fully integrated into our offerings and are
used by staff in onshore and offshore projects, ensuring seamless
interaction between the two.
SQS Software Testing Products are used in our consultancy
projects and Managed Services as a part of our asset based
consultancy services but they are also sold separately to clients.
Tools and Maintenance (incl. other third party tools) accounted for
4% of total revenues in the period (H1 2010: 3%), representing 93%
growth to EUR3.8m for this component of our business.
IT Training and Conferences
During the period a total of 3 iqnite(R) conferences were held
in the cities of Dusseldorf, Vienna and Geneva. Revenue from
training and conferences represented 2% of total revenues in the
period (H1 2010: 3%), representing 13% growth to EUR2.1m.
Acquisitions update
On 30 June 2011 the earn-out period for Validate (now SQS
Nordics) came to an end and no final payment was made to date and
is also not expected to be made. No further earn-out payments are
expected in relation to the Validate acquisition.
Markets
A market study published by PAC in 2010 predicted that overall
software testing services contracted as part of a development
contract will grow by 6.5% in 2011, while software testing services
contracted on a stand-alone basis will grow by 11% in 2011.
During the period we saw growth across all of the geographies in
which we are present, particularly in our core markets of the UK,
Germany and the Nordic regions.
-- Our UK/Irish business experienced strong growth recording an
excellent performance during the period and we have continued to
add to staff numbers during the period to accommodate that growth.
The Irish economy remains weak and growth has been relatively slow.
However, we have added 9 consultants at our nearshore test centre
operation in Belfast. Our total UK and Ireland based business
accounted for 25% of total revenues in the period (H1 2010:
27%).
-- Business in Germany continued to experience solid revenue
growth during the period. However, owing to the performance in the
other regions, Germany accounted for a smaller percentage of total
group revenues at 40% (H1 2010: 45%).
-- During the six months under review our Nordic business
(Sweden, Norway, Finland) recorded its fastest rate of growth since
acquisition. The Nordic business accounted for 8% of total revenues
in the period (H1 2010: 9%).
-- Our operations in Switzerland, Austria and the Netherlands
experienced the fastest growth of our core business regions during
the period. These regions accounted for 21% of total revenues in
the period (H1 2010: 17%).
-- Our overseas operations in the USA, South Africa and India
experienced the strongest increase in revenues during the period.
These regions accounted for 6% of total revenues in the period (H1
2010: 2%).
During the period we experienced high demand and strong growth
in a number of verticals including retail, logistics, insurance,
energy & utilities and banking.
Business strategy
Our core strategy is to capitalise on our leading market
position through the continued provision of independent, integrated
quality and testing solutions services at prices in line with
market trends. Through augmenting the proportion of offshore to
onshore staff we are able to offer our solutions at increasingly
competitive prices, enabling us to continue to build market share
and use the ongoing pricing pressure within the software testing
markets to our advantage.
As a traditional onshore consultancy supplier, we have the
experience and knowledge to understand our clients' requirements
regarding the optimal mix of onshore and offshore resources.
Furthermore, the multi-language and multi time-zone capabilities
afforded us by our offshore test centres has proved beneficial in
winning a number of contracts where availability and language
skills are of concern to the client.
An additional and important element of our strategy is to
increase the proportion of revenues contributed by Managed
Services. This involves contracting for a set fee for a defined set
of deliverables rather than the day-rate basis of our traditional
offerings. Such contracts do not allow clients to terminate or
postpone at short notice and tend to be over a longer-term period
than traditional project work such that the average length of our
Managed Services projects is currently 2.5 years. As a result,
these contracts afford us far greater revenue visibility and reduce
our exposure to the potential for further economic downturns. They
also allow for greater flexibility and control over project
staffing.
In 2009 we stated an intention to grow Managed Services revenues
to 50% of total revenues within five years, and our performance in
the first half of 2011 gives us confidence that this goal is
eminently achievable. Revenues from Managed Services contracts grew
rapidly during the six months under review to represent 19% of
total group revenues (12 months to 31 December 2010: 11%). In
addition, we have a considerable pipeline of Managed Services
business, such that we expect revenue contribution from this
segment to the market to continue to increase significantly going
forward. Profit contribution is also expected to increase at an
accelerating rate as the majority of costs associated with a
Managed Services project are borne at the beginning of the contract
and reduce as elements of the workload are progressively moved
offshore.
As Managed Services contracts attract higher costs in their
early stages our margins have inevitably been impacted by the high
growth in this part of our business during the period. These costs
relate to bidding expenses, the necessary investment in headcount
and the fact that contracts of this kind are serviced almost
entirely onshore during their initial stages.
However, margins relating to Managed Services contracts improve
significantly over time as a greater proportion of the contracts
are moved offshore. At present, Managed Services contracts in their
initial phases (currently accounting for EUR9.8 million of Managed
Services revenue) attract average margins of only 14.1%. However,
contracts in their mature phases (accounting for EUR8.1 million of
Managed Services revenue) attract average margins of 36.9%. A
Managed Services contract is considered mature once a significant
element of it is being serviced offshore. As this invariably occurs
within the first year of the term of the contract we are confident
of appreciable margin improvement from this business segment in the
near term and a beneficial impact on profitability has already been
witnessed in the third quarter.
Owing to the outlook for the European economy, on which reports
have been increasingly negative over the past two months, we have
decided to take a more prudent approach to growth during the second
half of 2011. We therefore do not envisage increasing staff numbers
during the remainder of the year, and, until we have further
evidence of an improved outlook for the economy, expect no further
costs relating to headcount investment.
Dividend
In accordance with German law, SQS can only pay one dividend in
each financial year. We expect to declare a dividend with our final
results for the year ending 31 December 2011 in line with our
current policy of paying out a fixed proportion of full year
earnings.
Employees
Significant investment was made during the period in the
continued expansion of our headcount. Staff were taken on to manage
the strong business growth we experienced during the period, in
particular the extensive Managed Services projects. The high levels
of domain and methodology experience and expertise among our
onshore consultants enabled us to hire junior consultants. This in
turn allowed us to reduce our average cost per employee and to more
effectively address our competitive market environment, with its
inevitable pressures on pricing.
The average number of permanent consultants employed during the
period was 1,618 (H1 2010: 1,249), a rise of 29.8%. At 30 June 2011
the permanent consultant headcount stood at 1,664, up 9% over the
six months (31 December 2010: 1,527).
Our permanent offshore and nearshore test centre consultant
headcount grew 10% during the period to 623 at 30 June 2011, (31
December 2010: 566). Test centre consultants now represent 37% of
total headcount unchanged from the start of the period.
By the end of the period all new staff members had been fully
trained and have been fee generating in the second half of the
current year.
In addition, approx. 180 contractors contributed to revenues in
the period representing 10.8% on top of the total number of fee
earning staff (H1 2010: 140, representing 10.5% on top of total
staff).
Given the wider economic outlook we are choosing to take a
prudent approach to growth during the second half and will be
postponing our strategy of increasing headcount during this
time.
On behalf of the Board, I would like to take this opportunity to
express our gratitude to all of our staff that contributed to SQS
during the period.
Outlook
In line with our stated strategy, we have continued to invest in
our Managed Services business. This has been a considerable success
with Managed Services revenues now accounting for 19% of total
sales, up from 11% at the end of 2010. In addition, we have
contracted a further EUR35 million of Managed Services orders in
the year to date resulting in significantly improved revenue
visibility.
Although investments made in staff during the first half
resulted in increased costs, these consultants will be fully
billable in the second half resulting in improved margins. However,
given the outlook for the global economy we prudently forecast
revenues to remain flat in the second half and consequently expect
profits to be at the lower end of expectations.
Rudolf van Megen
Chief Executive Officer
6 September 2011
Financial Review
Summary
SQS Group turnover grew by 29.0% to EUR95.3 million (H1 2010:
EUR73.9 million) during the period.
Due to a change in the internal organisation of SQS, which
became effective as of 1 January 2010, we no longer manage the
Company by individual countries. Instead we have formed two larger
regional entities, which can be roughly delineated by the language
predominantly spoken by the resident consultants.
Furthermore, by creating dedicated Managed Services units in
each of the two services business units, the new organisation
supports the implementation of more blended onshore / offshore
delivery.
These service business units form the basis for management to
monitor the operating results and to allocate resources.
The business units, which also represent the accounting segments
according to IFRS 8, are:
Central Europe Middle East (CEME), which includes the services
businesses in the markets of Germany, Switzerland, Austria,
Netherlands, Luxemburg and Egypt. Furthermore, this segment manages
all billable staff that are employed by the aforementioned
countries including the German / French-language offshore centre in
Egypt.
West Organisation North South (WONS), which includes the
services businesses in the markets of the United Kingdom, Ireland,
Sweden, Norway, Finland, USA, South Africa and India. Furthermore,
this segment manages all billable staff that are employed by the
aforementioned countries including the English-language offshore
centres in India and South Africa.
The segment "Other" includes software testing products, training
& conferences and central group activities such as research and
innovation.
Breakdown by business unit
Central Europe Middle East (CEME)
Revenue in CEME, our largest market, amounted to EUR56.5 million
(H1 2010: EUR44.8 million) in the period, an increase by 26.2%. The
improvement in revenue was entirely organic and came from new
managed services contracts and additional demand for traditional IT
project services.
West Organisation North South (WONS)
Our business in predominantly English speaking geographies saw
another strong increase during the period with a 40.4% rise in
revenues to EUR35.7 million (H1 2010: EUR25.5 million). This
occurred primarily as the result of a strong surge in demand for
our services from the UK, Nordics, USA and India. The majority of
the growth came from the utilities & energy and retail sectors
and new managed services contracts in those industries.
Other Business
This segment experienced a decline in revenues in the period of
15.8% to EUR3.1 million (H1 2010: EUR3.7 million). While the market
for training and conferences has recovered and we grew this segment
by 12.8% during the period, our direct revenues for software
testing products declined by 22.5% as they are increasingly
embedded within our managed services revenues.
Margins and Profitability
Gross profit improved by 26.6% to EUR28.6 million (H1 2010:
EUR22.6 million), with the gross margin at 30.0% (H1 2010: 30.5%).
The slight decrease in the gross margin was mainly influenced by
new managed services contracts with a gross margin of 14.1%
(revenue of EUR9.8 million), a 60.8% increase in contractor
revenues at a gross margin of 21.8% (revenue of EUR11.9 million)
and net billable staff increase of 137 resulting in EUR1.8 million
of additional salary costs (for a total of c. 260 new hires) for
induction courses and non-billable training time. We expect this
staff to be fully billable and contributing to margins in the
second half of the year. Gross margins from our traditional
consulting business were at 33.5% (incl. new consultants in
training; total revenue of EUR59.7 million) and gross margins from
managed services contracts in a more mature part of their life
cycle were at 36.9% (revenue of EUR8.0 million). The gross margin
was also impacted by one new mid-sized project that required
greater resources to it move offshore than had been expected.
Adjusted* profit before tax for the period was EUR2.8 million
(H1 2010: EUR2.4 million), an increase of 19.7%, with the adjusted
profit margin falling to 3.0% (H1 2010: 3.2%). The decline is
temporary and partly owed to the seasonality of the business which
often requires staff build up and associated costs in the first
half of the calendar year to be fully trained and in place for fee
earning work in the second half , as well as new managed services
contracts having a lower margin in their initiation phase and
higher net interest payments.
Adjusted* earnings per share increased to EUR0.09 (H1 2010:
EUR0.06).
*adjusted to add back EUR0.1 million pro forma interest on
deferred payment milestones for acquisitions and amortisation on
intangible assets of acquired companies of EUR0.8 million
Costs
General & Administrative expenses (before IFRS amortisation
on intangible assets of acquired companies with an amount of EUR
0.8 million ) for the period were EUR16.0 million (H1 2010: EUR12.4
million), remaining steady as a proportion of sales at 16.8% (H1:
2010 16.8%). The absolute cost increase resulted chiefly from
hiring and training costs, investment in the IT and test centre
office infrastructure and exchange rate losses from inter-company
invoices.
Sales & Marketing costs for the period were EUR7.4 million
(H1 2010: EUR6.2 million), decreasing to 7.8% as a proportion of
sales (H1 2010: 8.4%). This proportionately lower expense resulted
from a higher efficiency of the existing sales team where many new
hires had joined during the corresponding 2010 reporting period.
The investment in sales staff has paid off demonstrated by strong
top line outperformance against the overall IT market.
Research & Development expense in the period was kept
broadly flat at EUR1.7 million (H1 2010: EUR1.4 million)
representing 1.8% (H1 2010: 1.9%) of revenues. These efforts were
focused on development of software testing tools and our unique
PractiQ methodology.
Cash Flow and Financing
Cash flow from operating activities was EUR(1.3) million (H1
2010: EUR(1.5) million). The primary reason for the negative cash
flow was an increase in trade receivables of EUR5.0 million during
the period (EUR1.6 million of trade receivables plus EUR3.4 million
of work in progress) as a result of the strong growth in revenues
and the increased contribution from managed services contracts.
Debtor days (incl. work in progress) increased to 72 (H1 2010:
62).
Cash flow from investments increased to EUR(3.8) million (H1
2010 (EUR(3.0) million) due to investments in a building for our
India based offshore test centre and IT equipment to support staff
growth and future managed services business.
Cash flow from financing activities increased to EUR8.5 million
(H1 2010: EUR2.8 million) to fund the increase in trade receivables
and work in progress by EUR5.0m, the construction of the new test
centre building in India (EUR2.0m) and the planned redemption of a
EUR3.0m bonded loan in March 2012.
Balance Sheet
We closed the period with EUR6.7 million (30 June 2010: EUR2.7
million) of cash on the balance sheet and borrowings of EUR20.5
million (30 June 2010: EUR8.9 million). The resulting net debt
position at the half year end was EUR(13.8) million (30 June 2010:
EUR(6.2) million). These movements resulted principally from the
overall strong increase in revenues leading to an increase in trade
receivables incl. work in progress of EUR5.0 million during the
half year, the investment into the new test centre building in
India (EUR2.0m) and the dividend payment of EUR2.2 million (H1
2010: EUR1.9million). We typically have a net debt position at the
half year but expect to have a significantly reduced net debt
position at the full year end.
Taxation
A tax charge of EUR0.5 million includes current tax expenses of
EUR0.4 million (H1 2010: EUR0.7 million) and deferred taxes of
EUR0.1 million (H1 2010: (EUR0.5) million). For the full year, we
expect an actual tax rate of 29%.
Foreign Exchange
Approximately 55% of the Group's turnover is generated in Euros.
For the conversion of revenues and costs generated in local
currencies into Euros, the relevant official average exchange rate
for the six-month-period of 2011 was chosen. For the conversion of
the balance sheet items from local currency into Euros, the
official exchange rate as at 30 June 2011 was used.
Foreign exchange had a minimal EUR27,000 positive impact on
earnings for the period. Had the Pound/Swiss Franc/Indian
Rupee/Swedish Krona/Euro exchange rates remained the same as in H1
2010 our non Euro revenues for the period would have been EUR1.4
million lower, translating to a reduction of EUR27,000 in PBT.
International Financial Reporting Standards (IFRS)
The Interim Consolidated Financial Statements of SQS and its
subsidiary companies ("SQS Group") are prepared in conformity with
all IFRS (International Financial Reporting Standards, formerly
International Accounting Standards) and Interpretations of the IASB
(International Accounting Standards Board) which are mandatory at
30 June 2011, whereas the interim reports are published in an
abbreviated form according to IAS 34. The Interim Consolidated
Financial Statements have neither been audited nor reviewed.
The SQS Group Consolidated Financial Statements for the six
month period ended 30 June 2011 were prepared in accordance with
uniform accounting and valuation principles in Euros.
Rene Gawron Chief Financial Officer 6 September 2011
Consolidated Income Statement
for the six months ended 30 June 2011
Six months Six months Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Revenue 95,280 73,868 162,880
Cost of sales (3) 66,723 51,317 111,117
Gross profit 28,557 22,551 51,763
General and
administrative
expenses (3) 16,820 13,240 28,950
Sales and marketing
expenses (3) 7,392 6,189 12,950
Research and development
expenses (3) 1,695 1,382 2,833
Profit before tax and
financing result
(EBIT) 2,650 1,740 7,030
Finance income 157 137 495
Finance costs 850 509 1,202
Net finance costs (4) -693 -372 -707
Profit before taxes
(PBT) 1,957 1,368 6,323
Income tax expense (5) 465 260 1,537
Profit for the period 1,492 1,108 4,786
Attributable to:
Owners of the parent 1,479 1,121 4,811
Non controlling
interests (15) 13 -13 -25
Consolidated profit for
the period 1,492 1,108 4,786
============ ============ =============
Earnings per share,
undiluted (EUR) (6) 0.05 0.04 0.18
============ ============ =============
Earnings per share,
diluted (EUR) (6) 0.05 0.04 0.17
============ ============ =============
Adjusted earnings per
share (EUR), for
comparison only (6) 0.09 0.06 0.25
============ ============ =============
Consolidated Statement of Comprehensive Income
for the six months ended 30 June
2011
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2011 2010 2010
(unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Profit for the period 1,492 1,108 4,786
Exchange differences on
translating foreign operations 935 2,269 2,138
Gains arising from cash flow
hedges 0 0 8
Other comprehensive income for the
period, net of tax 935 2,269 2,146
Total comprehensive income for the
period, net of tax 2,427 3,377 6,932
Total comprehensive income
attributable to:
Owners of the parent 2,414 3,390 6,957
Non controlling interests 13 -13 -25
2,427 3,377 6,932
============ ============ =============
Consolidated Statement of Financial Position
As at 30 June 2011 (IFRS)
30 June 30 June 31 December
2011 2010 2010
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Current assets
Cash and cash equivalents (9) 6,680 2,679 4,296
Trade receivables 36,466 31,911 34,842
Other receivables 4,031 3,062 3,390
Work in progress 8,188 344 4,836
Income tax receivables 1,955 1,903 1,513
------------ ------------ ------------
57,320 39,899 48,877
Non-current assets
Intangible assets (7) 10,300 10,202 10,587
Goodwill (7) 47,500 50,060 48,471
Property, plant and
equipment (8) 4,185 3,331 3,563
Income tax receivables 1,916 1,426 1,420
Deferred tax assets 810 862 762
------------ ------------ ------------
64,711 65,881 64,803
Total Assets 122,031 105,780 113,680
============ ============ ============
Current liabilities
Bank loans and overdrafts (10) 8,473 6,826 6,779
Finance lease 504 501 639
Trade payables 6,456 4,426 6,240
Other provisions (12) 10 19 10
Income tax accruals 686 1,032 618
Other Current liabilities (11) 22,282 17,450 20,767
------------ ------------ ------------
38,411 30,254 35,053
Non-Current liabilities
Bank loans (10) 12,000 2,066 2,000
Finance lease 772 744 1,131
Other provisions (12) 6 9 5
Pension provisions 228 120 228
Deferred taxes 2,517 2,395 2,366
Other non-current
liabilities 1,695 7,069 4,821
------------ ------------ ------------
17,218 12,403 10,551
Total Liabilities 55,629 42,657 45,604
============ ============ ============
Shareholders' equity (13)
Share capital 27,893 27,263 27,263
Share premium 35,559 34,791 36,189
Statutory reserves 53 53 53
Other reserves -6,149 -5,091 -5,214
Retained earnings 9,058 6,120 9,810
------------ ------------ ------------
Equity attributable to equity
shareholders 66,414 63,136 68,101
Non controlling interests (15) -12 -13 -25
------------ ------------ ------------
Total Equity 66,402 63,123 68,076
------------ ------------ ------------
Equity and Liabilities 122,031 105,780 113,680
============ ============ ============
Consolidated Statement of Cash Flows
for the six months ended 30
June 2011 (IFRS)
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Net cash flow from
operating activities
Profit before taxes and
interest 1,957 1,368 6,323
Add back for
Depreciation and
amortisation 3,371 3,306 7,077
Loss on the sale of
property, plant and
equipment 57 8 203
Other non-cash income 293 774 1,414
Net finance costs 693 372 707
------------ ------------ ----------
Operating profit before
changes in the net
current assets 6,371 5,828 15,724
Increase in trade
receivables -1,624 -7,660 -10,591
Increase in work in
progress, other
assets
and pre-paid expenses
and deferred charges -4,489 -770 -5,584
Increase in trade
creditors 216 773 2,588
Decrease (Increase) in
remaining accruals -745 677 3,403
Increase (Decrease) in
pension accruals 0 0 59
Decrease in other
liabilities and
deferred income -1,055 -316 368
------------ ------------ ----------
Cash flow from operating
activities -1,326 -1,468 5,967
Cash effect of foreign
exchange rate movements 59 -100 0
Interest payments (4) -636 -260 -794
Tax payments (5) -366 -733 -1,345
------------ ------------ ----------
Net cash flow from
current business
activities -2,269 -2,561 3,828
Cash flow from investment
activities
Purchase of intangible
assets -2,283 -2,180 -5,903
Purchase of property,
plant and equipment -1,571 -830 -2,156
Cashflows arising from
business combinations 0 0 -203
Interest received (4) 47 18 34
------------ ------------ ----------
Net cash flow from
investment activities -3,807 -2,992 -8,228
Cash flow from financing
activities
Dividends paid -2,231 -1,909 -1,908
Proceeds from the issue
of share capital 0 0 51
Repayment of finance
loans (10) -811 -3,040 -112
Repayment of shareholder
loans -450 -250 -250
Proceeds from issuing
finance loans (10) 12,505 8,164 5,122
Proceeds from issuing
finance lease
agreements 0 192 1,135
Redemption / termination
of finance lease
contracts -494 -376 -794
------------ ------------ ----------
Net cash flow from
financing activities 8,519 2,781 3,244
Change in the level of
funds affecting payments 2,443 -2,772 -1,156
Changes in cash and cash
equivalents due to exchange rate
movements -59 100 101
Cash and cash equivalents
at the beginning of the
period 4,296 5,351 5,351
------------ ------------ ----------
Cash and cash equivalents
at the end of the period 6,680 2,679 4,296
============ ============ ==========
Consolidated Statement of Changes in Equity
for the six months ended 30 June 2011 (IFRS)
Non Attributed to equity owners of the parent Total
-------------------------------------------------------------------------------------
cash
controlling Share Share Statutory Other flow Translation Retained Total equity
interest capital premium reserves reserves hedge of foreign earnings
reserve operations
EURk EURk EURk EURk EURk EURk EURk EURk EURk EURk
1st January
2010
(audited) 0 27,263 34,747 53 -1,134 0 -6,226 6,907 61,610 61,610
============ ======== ======== ========== ========= ======== ============ ========= ======= =======
Dividends paid -1,908 -1,908 -1,908
Capital
increase
Transactions
with owners
of the
parent -1,908 -1,908 -1,908
------------ -------- -------- ---------- --------- -------- ------------ --------- ------- -------
Capital
increase for
employee
participation
Stock option
program 44 44 44
Profit for the
period -13 1,121 1,121 1,108
Exchange
differences
on
translating
foreign
operations 2,269 2,269 2,269
Total
comprehensive
income -13 44 2,269 1,121 3,434 3,421
--------
30th June 2010
(unaudited) -13 27,263 34,791 53 -1,134 0 -3,957 6,120 63,136 63,123
============ ======== ======== ========== ========= ======== ============ ========= ======= =======
Dividends paid 0
Capital
increase 1,313 1,313 1,313
Transactions
with owners
of the
parent 1,313 1,313 1,313
------------ -------- -------- ---------- --------- -------- ------------ --------- ------- -------
Capital
increase for
employee
participation 64 64 64
Stock option
program 21 21 21
Profit for the
period -12 3,690 3,690 3,678
Exchange
differences
on
translating
foreign
operations -131 -131 -131
Gains arising
from cash
flow hedges 8 8 8
Total
comprehensive
income -12 85 8 -131 3,690 3,652 3,640
31st December
2010
(audited) -25 27,263 36,189 53 -1,134 8 -4,088 9,810 68,101 68,076
============ ======== ======== ========== ========= ======== ============ ========= ======= =======
Dividends paid -2,231 -2,231 -2,231
Capital
increase out
of share
premium 630 -630 0 0
Transactions
with owners
of the
parent 630 -630 -2,231 -2,231
------------ -------- -------- ---------- --------- -------- ------------ --------- ------- -------
Profit for the
period 13 1,479 1,479 1,492
Exchange
differences
on
translating
foreign
operations -935 -935 -935
Gains arising
from cash
flow hedges 0 0
Total
comprehensive
income 13 0 -935 1,479 544 557
30th June 2011
(unaudited) -12 27,893 35,559 53 -1,134 8 -5,023 9,058 66,414 66,402
============ ======== ======== ========== ========= ======== ============ ========= ======= =======
Notes to the Financial Information (unaudited)
At 30 June 2011
1. Summary of Significant Accounting Policies
Basis of preparation
The Interim Consolidated Financial Statements of SQS and its
subsidiaries ("SQS Group") are prepared in conformity with all IFRS
Standards (International Financial Reporting Standards) and
Interpretations of the IASB (International Accounting Standards
Board) which are mandatory at 30 June 2011, whereas the interim
reports are published in an abbreviated form according to IAS 34.
The Interim Consolidated Financial Statements have neither been
audited nor reviewed.
The Financial Information has been prepared on the basis of
historical costs. The same accounting and valuation method used for
the 2010 annual Consolidated Financial Statements was applied.
Further information about the Group's accounting principles and
policies is provided in the SQS Consolidated Financial Statement at
31st December 2010.
The Financial Information is presented in Euros and amounts are
rounded to the nearest thousand (EURk) except when otherwise
indicated.
Statement of compliance
The Financial Information of SQS and its subsidiaries ('SQS
Group') has been prepared in accordance with IFRS as adopted for
use in the EU.
Basis of consolidation
As at 30 June, the Company held interests in the share capital
of more than 20 % of the following undertakings:
Six month Six month
ended ended Year ended
Consolidated Country of 30 June 30 June 31 December
companies incorporation 2011 2010 2010
------------ ------------ -------------
Share Share Share
of capital of capital of capital
% % %
SQS Group
Limited,
London UK 100.0 100.0 100.0
SQS Software
Quality
Systems
(Ireland)
Ltd., Dublin Ireland 100.0 100.0 100.0
SQS Nederland
BV, Houten The Netherlands 90.5 90.5 90.5
SQS GesmbH,
Vienna Austria 100.0 100.0 100.0
SQS Software
Quality
Systems
(Schweiz) AG,
Zurich Switzerland 100.0 100.0 100.0
SQS Group
Management
Consulting
GmbH, Vienna Austria 100.0 100.0 100.0
SQS Group
Management
Consulting
GmbH, Munich Germany 100.0 100.0 100.0
SQS Egypt
S.A.E., Cairo Egypt 100.0 100.0 100.0
SQS Software
Quality
Systems Nordic
AB, Kista Sweden 100.0 100.0 100.0
SQS India, Pune India 75.0 60.0 75.0
---------------- ----------------- ------------ ------------ -------------
SQS AG holds 15% of the shares of SQS Portugal Lda with a book
value of EUR nil (previous year EUR nil).
Use of estimates
The preparation of the Interim Financial Statements in
compliance with the International Financial Reporting Standards
requires the disclosure of assumptions and estimates made by
management, which have an effect on the amount and the presentation
of the assets and liabilities shown in the statement of financial
position, the income and expenditure as well as any contingent
items. The actual results may deviate from these estimates.
The main estimates and judgements of the management of SQS refer
to:
-- the useful life of intangible assets and property, plant and
equipment,
-- the future cash flows and interest rates relating to
impairment tests of goodwill,
-- the criteria regarding IAS 38.57 according the capitalisation
of development costs,
-- the recoverability of deferred taxes on losses carried
forward,
-- the valuation of pension assets and liabilities.
There have been no material changes in estimates compared to the
year 2010.
2. Segmental reporting
The SQS Group has two major business units acting as provider
for consultancy services in their regions. Both regional business
units report their financial information to the management of SQS
AG as chief decision maker. The third reporting unit includes the
Training & Conferences business as well as the Software Testing
Products. Both, Training & Conferences (T&C) as well as
Software Testing Products (STP) are operating segments according to
IFRS 8 as they are reported separately to the management of SQS AG.
However, neither T&C nor STP fulfill the quantity thresholds of
IFRS 8.13. Therefore the financial information according to T&C
and STP has been aggregated under the reporting segment
"Other".
Based on this organisational structure SQS Group reports the
following three operating segments:
-- CEME (Central Europe Middle East),
-- WONS (West Organisation North & South),
-- Other (includes STP (Software Testing Products) and T&C
(Training & Conferences)).
The segments "WONS" and "CEME" represent the business regions as
follows:
-- WONS: UKISA (UK, Ireland and South Afrika), SQS Nordic
(Sweden, Norway and Finland), SQS India (India, USA)
-- CEME: SQS Germany, SQS Switzerland, SQS Austria, SQS
Nederland, SQS Group Management Consulting, SQS Egypt.
The segment "Other" includes two important roles, namely selling
and leasing of Software Testing Products and providing Training as
well as hosting of Conferences.
2. Segmental reporting (continued)
These profit centres run all revenue and profit generating units
as market facing profit centres.
Each profit centre is reportable to the Group Management Board
(GMB) in Germany. Each segment has implemented a regional board.
The board includes three roles CEO (Chief Executive Officer), CMO
(Chief Market Officer), and COO (Chief Operations Officer).
Furthermore each segment has Managed Services linked to the
regional CEO.
The Group Management Board monitors the operating results of the
operating segments separately for the purpose of making decisions
about resource allocation and performance assessment. Segment
performance is evaluated based on operating profit or loss.
Transactions between the segments are made on an arm's length
basis. Centrally incurred external costs relating to subsidiaries
are recharged to the subsidiaries affected. Cost allocations
between the segments are not charged.
Non-profit Centres include important functions such as Portfolio
Management, Marketing Communication, Finance & Administration,
IT, Human Resources, Managed Services Support and Sales
Support.
The non-profit Centres are allocated to the segments as far as
they do direct services to the segments. As far as they provide
general services to the whole group their costs are not allocated
and shown under 'Non-allocated costs'. The assets and liabilities
relating to the operating segments are not reported because these
are not reported to the Group Management Board. Furthermore, Group
financing (including finance costs and finance income) and income
taxes are managed on a group basis and are not allocated to
operating segments.
The following tables present revenue and profit information
regarding the SQS Group's operating segments for the interim period
ended 30 June 2011 and 30 June 2010 and for the year ended 31
December 2010, respectively.
Six month ended 30 June
2011 (unaudited) CEME WONS Other Total
EURk EURk EURk EURk
Revenues from external
customers 56,470 35,721 3,089 95,280
Intersegment revenues 211 908 0 1,119
Segment profit or loss 3,727 1,591 (1,108) 4,210
Non-allocated costs (1,560)
EBIT 2,650
Financial result (693)
Taxes on income (465)
Result for the period 1,492
------------------------- ------- ------- -------- --------
2. Segmental reporting (continued)
Six month ended 30
June 2010 (unaudited) CEME WONS Other Total
EURk EURk EURk EURk
Revenues from external
customers 44,754 25,448 3,667 73,869
Intersegment revenues 384 902 0 1,286
Segment profit or loss 2,563 1,470 (1,206) 2,827
Non-allocated costs (1,087)
EBIT 1,740
Financial result (372)
Taxes on income (261)
Result for the period 1,107
------------------------ ------- ------- -------- --------
Year ended 31 December
2010 (audited) CEME WONS Other Total
EURk EURk EURk EURk
Revenues from external
customers 96,400 60,354 6,126 162,880
Intersegment revenues 877 1,532 27 2,436
Segment profit or loss 8,216 4,208 (1,981) 10,443
Non-allocated costs (3,413)
EBIT 7,030
Financial result (707)
Taxes on income (1,537)
Result for the period 4,786
------------------------ ------- ------- -------- --------
3. Expenses
The Consolidated Income Statement presents expenses according to
function. Additional information concerning the origin of these
expenses, by type of cost, is provided below:
Cost of material
The cost of material in the interim period ended 30 June 2011
amounted to EUR9,331k (at mid-year 2010: EUR5,920k). Cost of
material relates mainly to the procurement of outside services such
as contract software engineers. In addition, certain
project-related or internally used hardware and software is shown
under cost of material.
3. Expenses (continued)
Employee benefits expenses
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
(unaudited) (unaudited) (audited)
EURk EURk EURk
Wages and salaries 51,532 40,628 86,917
Social security contributions 6,900 5,357 11,399
Expenses for retirement benefits 1,118 750 1,882
59,550 46,735 100,198
--------------------------------- ------------- ------------- -------------
The expenses for retirement benefits include the change in
pension accruals and expenses for defined contribution plans such
as direct insurance and provident fund costs.
Amortisation and depreciation
Amortisation and depreciation charged in the interim period
ended 30 June 2011 amounted to EUR3,371k (at mid-year 2010:
EUR3,307k). Of this, EUR1,289k (at mid-year 2010: EUR1,190k) was
attributable to the amortisation of development costs.
4. Net finance costs
The net finance costs are comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
(unaudited) (unaudited) (audited)
EURk EURk EURk
Interest income 47 18 98
Exchange rate gains 110 119 397
---------------------- ------------- ------------- -------------
Total finance income 157 137 495
---------------------- ------------- ------------- -------------
Interest expense (681) (490) (984)
Exchange rate losses (169) (19) (218)
---------------------- ------------- ------------- -------------
Total finance costs (850) (509) (1,202)
---------------------- ------------- ------------- -------------
Net finance costs (693) (372) (707)
---------------------- ------------- ------------- -------------
Finance income results from fixed deposit investments which
yield interest income.
Interest expense relates to interest on bank liabilities,
finance lease liabilities, bonded loan and liabilities from the
purchase of subsidiaries calculated using the effective interest
method.
Finance income and costs are stated after foreign exchange rate
gains and losses.
5. Income tax expense
The line item includes current tax expenses in the amount of
EUR366k (previous interim period: EUR733k) and deferred tax expense
in the amount of EUR99k (previous interim period: tax income of
EUR(473)k).
Further information about the recognition and measurement of
income tax is provided in the SQS Consolidated Financial Statements
at 31 December 2010.
6. Earnings per share
The earnings per share presented in accordance with IAS 33 are
shown in the following table:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
(unaudited) (unaudited) (audited)
Profit for the year attributable
to equity shareholders, EURk 1,492 1,108 4,811
--------------------------------- ------------- ------------- -------------
Diluted profit for the year,
EURk 1,492 1,108 4,811
--------------------------------- ------------- ------------- -------------
Weighted average number of
shares in issue, undiluted 27,844,245 27,263,419 27,263,419
--------------------------------- ------------- ------------- -------------
Weighted average number of
shares in issue, diluted 28,517,743 28,002,270 27,991,541
--------------------------------- ------------- ------------- -------------
Undiluted profit per share,
EUR 0.05 0.04 0.18
--------------------------------- ------------- ------------- -------------
Diluted profit per share,
EUR 0.05 0.04 0.17
--------------------------------- ------------- ------------- -------------
Adjusted profit per share,
EUR 0.09 0.06 0.25
--------------------------------- ------------- ------------- -------------
Undiluted profit per share is calculated by dividing the profit
for the six month period attributable to equity shareholders by the
weighted average number of shares in issue during the six month
period ended 30 June 2011: 27,844,245 (at mid-year 2010:
27,263,419).
Diluted profit per share is determined by dividing the profit
for the year attributable to equity shareholders by the weighted
average number of shares in issue plus any share equivalents which
would lead to a dilution.
The adjusted profit per share is calculated by adjusting the
profit after tax for deferred taxes, the interest cost of the
purchase obligations and amortisation cost of the acquired customer
relationships as part of the business combinations. This adjusted
profit after tax divided by the weighted average number of shares
in issue during the six month period ended 30 June 2011: 27,844,245
shares, (previous year 27,263,419 shares) shows adjusted earnings
per share of EUR0.09 (at mid-year 2010: EUR0.06).
7. Intangible assets
The item is comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
Book values (unaudited) (unaudited) (audited)
EURk EURk EURk
Goodwill 47,500 50,060 48,471
Development costs 3,175 3,490 3,219
Software 2,624 2,644 2,630
Other development costs 1,990 0 1,448
Customer relationships 2,511 4,068 3,290
-------------------------------- ------------- ------------- -------------
Goodwill and Intangible assets 57,800 60,262 59,058
-------------------------------- ------------- ------------- -------------
Development costs were capitalised in the interim period ended
30 June 2011 in the amount of EUR1,249k (half-year 2010: EUR1,752k)
and amortised over a period of 36 months.
The other development costs relate to the consulting product
'Software Tests as Managed Services'. The estimated useful life of
this product covers a period of five years.
The other development costs were capitalised in the interim
period in the amount of EUR542k. Amortisation has started in the
second half of 2011.
The amortisation of development costs is included in the costs
for research and development.
The amortisation of software and remaining intangible assets as
well as impairment losses under IAS 36 are spread over the
functional costs in accordance with an allocation key.
8. Property, plant and equipment
The development of property, plant and equipment of the SQS
Group is presented as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
Book values (unaudited) (unaudited) (audited)
EURk EURk EURk
Freehold land and buildings 394 490 439
Office and business equipment 2,626 2,841 3,057
Construction in progress 1,165 0 67
Property, plant and equipment 4,185 3,331 3,563
------------------------------- ------------- ------------- -------------
9. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand,
short-term deposits at banks and debt securities which can be
realised in the short term and which earn commercial rates of
interest. The carrying amounts are considered to be reasonable
approximation of fair value.
10. Bank loans, overdrafts and other loans
The finance liabilities are comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
(unaudited) (unaudited) (audited)
EURk EURk EURk
Bank overdrafts and other
short term bank loans 8,473 6,826 6,779
--------------------------------- ------------- ------------- -------------
Current finance liabilities 8,473 6,826 6,779
Bank loans 12,000 2,066 2,000
--------------------------------- ------------- ------------- -------------
Non-current finance liabilities 12,000 2,066 2,000
--------------------------------- ------------- ------------- -------------
Total finance liabilities 20,473 8,892 8,779
of these, secured 12,000 2,066 2,000
--------------------------------- ------------- ------------- -------------
For SQS AG and some subsidiaries bank overdraft agreements are
in place.
11. Other current and non-current liabilities
The item is comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
(unaudited) (unaudited) (audited)
EURk EURk EURk
Liabilities in regard to
social security 1,590 1,381 1,867
Personnel liabilities (leave,
bonus claims) 7,983 6,309 8,811
Sales tax and value-added
tax liabilities 4,593 4,253 5,263
Purchase obligations from
SQS Software Quality Systems
Nordic AB 891 2,905 874
Purchase obligations from
SQS India 1,640 2,619 1,735
Remaining other liabilities 4,066 3,926 3,704
Deferred income 219 143 344
Bonded loans 2,995 2,984 2,990
------------------------------- ------------- ------------- -------------
23,977 24,520 25,588
------------------------------- ------------- ------------- -------------
11. Other current and non-current liabilities (continued)
The remaining other liabilities comprise trade accruals and
other items due in the short term. Their carrying amounts are
considered to be reasonable approximation of fair value.
SQS has remaining liabilities from the SQS Nordic purchase as
deferred consideration with an amount of EUR891k (at 31st December
2010: EUR874k) measured at net present value of the amount
payable.
Further SQS has a liability regarding a put option granted to
the minority stakeholders of SQS India with an amount of EUR1,640k
(at 31(st) December 2010: EUR1,735k) measured on the basis of the
formula laid down in the put option contract. Hereof an amount of
EUR1,640k (at 31(st) December 2010: EUR1,735k) is non-current.
The loan represents a EUR3,000k bonded loan. The loan payment is
reduced by a discount by EUR5k. The discount is set off against the
loan in accordance with IAS 39.AG 65. The interest rate is agreed
with 6.93% p.a. The redemption is due in 2012. The Deutsche Bank AG
acts as appointed paying agent. The Deutsche Bank is entitled to
assign the bond to a special purpose entity, a trustee thereof, a
bank or an insurance company. The interest rate is linked to the
rating of the SQS Group following a defined rating system. If the
SQS Group improves the rating the interest rate will be decreased.
If the rating decreases below a certain bound the creditors have
the right to terminate the bonded loan immediately.
12. Other provisions
Other provisions include warranty costs in the amount of EUR10k
(31 December 2010: EUR11k) and a vacant property provision in the
amount of EUR6k (31 December 2010 EUR5k).
13. Equity
SQS is listed on the AIM market in London and on the Open Market
in Frankfurt (Main).
The development of the equity is presented in the Consolidated
Statement of Changes in Equity.
Subscribed Capital
The subscribed capital amounts to EUR27,893,289 (at 31st
December 2010: EUR27,263,419). This is divided into 27,893,289 (at
31(st) December 2010: 27,263,419) individual registered shares with
an arithmetical share in the share capital of EUR1 each. Each share
entitles the holder to one right to vote. No preference shares have
been issued. The capital is fully paid up.
The movements in the issued share capital are as follows:
13. Equity (continued)
Individual Nominal
shares value
Number EUR
As at 30 June 2010 27,263,419 27,263,419
----------------------------------------------- ----------- -----------
As at 31 December 2010 27,263,419 27,263,419
----------------------------------------------- ----------- -----------
Capital increase against contribution
in kind for the acquisition of the SQS
Nordic (2nd tranche) (Entry of 7 January
2011) 367,053 367,053
----------------------------------------------- ----------- -----------
Capital increase against cash from authorised
capital II for employee participation
(Entry of 24 January 2011) 28,265 28,265
----------------------------------------------- ----------- -----------
Capital increase against contribution
in kind for the acquisition of the SQS
India (2nd tranche) (Entry of 24 January
2011) 234,552 234,552
----------------------------------------------- ----------- -----------
As at 30 June 2011 27,893,289 27,893,289
----------------------------------------------- ----------- -----------
SQS had no shares in its ownership as at 30 June 2011.
Authorised capital
The authorised capital developed as follows:
EUR
-------------------------------- -----------
As at 30 June 2010 11,921,656
-------------------------------- -----------
As at 31 December 2010 11,921,656
-------------------------------- -----------
Usage of Authorised Capital I (601,605)
-------------------------------- -----------
Usage of Authorised Capital II (28,265)
-------------------------------- -----------
As at 30 June 2011 11,291,786
-------------------------------- -----------
Share premium
Additional paid-in capital includes any premiums received on the
issuing of the share capital. Any transaction costs associated with
the issuing of shares are deducted or set off from additional
paid-in capital, net of any related income tax benefits.
Equity-settled share-based employee remuneration is also credited
to additional paid-in capital until related stock options are
exercised.
Statutory reserves
The statutory reserves in SQS AG were created in accordance with
Section 150 of the Stock Corporation Act (Germany). Statutory
reserves must not be used for dividends.
Other reserves
Other reserves comprise differences from the translation of
foreign operations, IPO costs from former years and a cash flow
hedge reserve.
14. Retained earnings
Retained earnings represent the accumulated retained profits
less payments of dividend and losses of SQS Group.
The General Meeting of 24 May 2011 resolved to pay EUR0.08
dividends per share for the business year 2010 in the total amount
of EUR2,231,463.12.
15. Non-Controlling Interests
The pro rata profit or loss and each component of other
comprehensive income have attributed to the minority interests even
if those results have a deficit balance.
16. Notes to the Consolidated Statement of Cash flows
The Consolidated Statement of Cash flows shows how the funds of
the Group have changed in the course of the business year through
outflows and inflows of funds. The payments are arranged according
to investment, financing and business activities.
The sources of funds on which the Consolidated Statement of Cash
Flows is based consist of cash and cash equivalents (cash on hand
and bank balances).
17. Related party transactions
Under IAS 24, related persons and related companies are persons
and companies who have the possibility of controlling another party
or exercising significant influence over their finance or business
policy. In the SQS Group, these are the Management Board members as
well as the members of the Supervisory Board, Mr. and Mrs. van
Megen, by reason of their position as shareholders, as well as the
real estate investment fund "S.T.O.L. Immobilien Verwaltung GmbH
& Co. KG", Cologne, "S.T.O.L. Verwaltungs GmbH", Cologne, and
"Am Westhover Berg GbR mbH", Cologne.
In detail, the following transactions have taken place with
these individuals and companies:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2011 June 2010 2010
Details in individual shares (unaudited) (unaudited) (audited)
--------------------------------- ------------- ------------- -------------
Non-par Non-par Non-par
shares shares shares
--------------------------------- ------------- ------------- -------------
Rudolf van Megen, Member
of Management Board 3,158,149 3,283,149 3,158,149
Ilona van Megen, nee Rumsch 807,544 932,544 807,544
Rene Gawron, Member of
Management Board 47,129 47,129 47,129
Diederik (Dik) Vos, Member
of Management Board (since
7 March 2011) - - -
David Cotterell, Member of
Management Board (until 19.
Mai 2011) 259,297 259,297 259,297
Supervisory Board 17,500 17,500 17,500
--------------------------------- ------------- ------------- -------------
Total 4,289,619 4,539,619 4,289,619
--------------------------------- ------------- ------------- -------------
17. Related party transactions (continued)
All of these persons received dividends as shareholders of SQS
(see Note 14).
The Management Board members received following emoluments as
members of the management board:
As a part of the remuneration for the Management Board
activities, SQS has granted a pension commitment as post-employment
benefit to one actual Management Board member and one former
Management Board member.
In 2009 Mr. van Megen has granted to SQS AG shareholder loan at
normal market conditions. As at 30 June 2011, this loan was
completely repaid (at 31 December 2010: EUR450k).
Furthermore Mr. Gawron holds 50,000 stock options granted in
2006.
SQS uses property owned by the closed real estate investment
fund "S.T.O.L. Immobilien Verwaltung GmbH & Co. KG", Cologne,
and also the real estate investment fund "Am Westhover Berg GbR
mbH", Cologne. The general partner of these, "S.T.O.L. Immobilien
Verwaltungs GmbH", assumes the administration of the funds. The
shares in all these companies are held by employees and also
Management Board member of SQS AG. The contractual conditions of
the lease of properties are comparable with normal market
conditions. The total expenses incurred under these contracts
amounted in the interim period to EUR525k (half-year 2010:
EUR694k).
The total emoluments of the Management Board members amounted in
the interim period ended 30 June 2011 to EUR554k (half-year 2010:
EUR412k). In comparison with the previous half-year the SQS Group
had four management board members at the same time (during 73 days)
(half year 2010: three management board members continuously).
The emoluments of the Supervisory Board members amounted in
total to EUR50k (half-year 2010: EUR41k) of which EUR50k had not
been paid by the end of the interim period.
Members of the Management board held 11.5 % of the shares in SQS
as at 30 June 2011 (half-year 2010: 13.2 %).
18. Dividends
The General Meeting of 24 May 2011 resolved to pay EUR0.08
dividends per share amounted to EUR2,231,463.12 for the business
year 2010.
19. Post interim period events
No events have occurred after the end of the interim period
which have affected the Interim Financial Statements.
Cologne, 06 September 2011
SQS Software Quality Systems AG
(R. van Megen) (R. Gawron) (D. Vos)
SQS Software Quality Systems AG
Stollwerckstrasse 11
D-51149 Cologne
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UGUMWBUPGGMA
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