TIDMSQS
RNS Number : 3287Y
SQS Software Quality Systems AG
08 September 2015
SQS Software Quality Systems AG
("SQS" or the "Company")
Results for the six months ended 30 June 2015
Software Quality Systems AG (AIM:SQS.L), the world's largest
specialist supplier of software quality services, today announces
its unaudited results for the six months ended 30 June 2015.
Financial Highlights
-- Total revenue increased by 16.1% to EUR150.3m (H1 2014: EUR129.4m)
o Organic revenue increased by 11.1%
-- Adjusted* Gross profit increased by 9.8% to EUR47.0m (H1 2014: EUR42.8m)
-- Adjusted** PBT increased by 5.6% to EUR9.0m (H1 2014: EUR8.5m)
-- Adjusted*** EPS decreased by 5.6% to EUR0.17 (H1 2014: EUR0.18)
o Due to higher tax rate and minority interests
-- Operating cash outflow**** increased to EUR4.6m (H1 2014: EUR2.6m)
o Reflecting H1 seasonality with increased receivable days
-- Net debt as at 30 June 2015 EUR26.5m (H1 2014: EUR8.9m)
o Reflecting investments in acquired companies, test centre
infrastructure in India and higher receivable days
* no material adjustments in H1 2015, but there were adjustments
for a non-cash amortization of SQS India BFSI acquired order
backlog of EUR1.0m in H1 2014
** adjusted to add back EUR3.1m of IFRS amortisation of client
relationship assets from the SQS India BFSI acquisition, EUR0.6m
acquisition costs for Bitmedia and Trissential and EUR0.03m pro
forma interests on pensions
*** adjusted to add back effects under ** at actual local GAAP
tax rate of 33.8%, less EUR0.8m on minority interests (mainly for
SQS India BFSI)
****incl. a re-allocation of EUR0.6m transaction costs for
acquisitions to cash flow from investment activities due to an IFRS
rule change
Operational Highlights
-- Successful acquisition and integration of Trissential (USA) and Bitmedia (now SQS Italy)
o US revenue going forward at approximately 18% of total
revenue
-- Improving visibility with Managed Services ("MS") revenue
increased 26% to EUR71.9m (H1 2014: EUR57m)
o Record MS order intake of EUR153m (H1 2014: EUR70m) and MS
book to bill ratio of 2.1
o MS revenue now 48% of total revenue with 49 clients (H1 2014:
44%) including 9 new clients
-- Gross margins in strategic segments:
o MS up to 35.9% (H1 2014: 35.7%)
o Specialist Consulting Services up to 34.5% (H1 2014:
32.8%)
o Regular Testing Services down to 26.4% (H1 2014: 33.6%)
-- Regular Testing Services saw reduced margins in some larger
engagements. We have now disengaged from those contracts or reduced
our staffing levels post the period end to cut costs
-- Continued focus on larger client engagements by increasing
annualised revenue per client to EUR769k (2014: EUR634k) and
reducing number of active clients to 385 (2014: 423)
Post Period Highlight
-- Acquisition of Galmont Consulting for up to $22m,
strengthening the Company's US operations and further diversifying
global revenue split
Diederik Vos, Chief Executive Officer of SQS, commented: "The
performance during the first half has further strengthened the
fundamentals of our business and our growth strategy, despite lower
gross margin performance in Regular Testing Services. With MS now
accounting for nearly 50% of revenues and a record order intake,
the company is well placed to continue building on the momentum
achieved to date.
"The addition of Trissential and post period acquisition of
Galmont significantly upscales our US presence in a key market for
SQS. This is expected to underpin further Managed Services and
Specialist Consultancy growth across our key verticals as well as
further diversifying global revenues.
"We are addressing our exposure to margin pressure in some
Regular Testing business by reducing client numbers, overhead costs
and headcount. We will further react, adapt and manage potential
impacts on our clients from continued global economic
uncertainties. For all these reasons we have to be more cautious
and anticipate our profits for the full year to be slightly below
the Board's previous expectations."
Enquiries:
SQS Software Quality Systems AG Tel. +49 (0) 2203 91
54 0
Diederik Vos, Chief Executive Officer
Rene Gawron, Chief Financial Officer
Numis Securities - Nomad and Joint Broker Tel +44 (0) 20 7260
1000
Simon Willis / Jamie Lillywhite / Mark Lander
Westhouse Securities - Joint Broker Tel. +44 (0) 20 7601
6100
Robert Finlay / Antonio Bossi
Walbrook PR - Financial Media and Investor Tel. +44 (0)20 7933
Relations 8780
Paul Cornelius / Sam Allen / Nick Rome sqs@walbrookpr.com
About SQS
SQS is the world's leading specialist in software quality. This
position stems from over 30 years of successful consultancy
operations. SQS consultants provide solutions for all aspects of
quality throughout the whole software product lifecycle driven by a
standardised methodology, offshore automation processes and deep
domain knowledge in various industries. Headquartered in Cologne,
Germany, the company now employs approximately 4,400 staff. SQS has
offices in Germany, UK, US, Australia, Austria, Egypt, Finland,
France, India, Ireland, Italy, Malaysia, the Netherlands, Norway,
Singapore, South Africa, Sweden, Switzerland and UAE. In addition,
SQS maintains a minority stake in a company in Portugal. In 2014,
SQS has generated revenues of EUR268.5 million.
SQS is the first German company to have a primary listing on
AIM, a market operated by the London Stock Exchange. In addition,
SQS shares are also traded on the German Stock Exchange in
Frankfurt am Main.
With over 8,000 completed projects under its belt, SQS has a
strong client base, including half of the DAX 30, nearly a third of
the STOXX 50 and 20 per cent of the FTSE 100 companies. These
include, among others, Allianz, BP, Commerzbank, Daimler, Deutsche
Post, Generali, Meteor, UBS and Volkswagen as well as other
companies from the six key industries on which SQS is focused.
For more information, see www.sqs.com
Chief Executive's Statement
Introduction
During the period under review the Company's fundamentals of
business were further strengthened whilst growing revenue and
profit. We continued to execute our strategy to win larger, longer
term contracts and further diversify the revenue base through the
expansion of our operations in the US.
During the period the Company completed the acquisition of 90%
of the issued share capital of Bit Media S.p.A ("Bitmedia") and the
acquisition of the entire issued share capital of Trissential LLC
("Trissential"). These grew total revenues by 16% to EUR150m during
the period with five months and one month's contributions from
Bitmedia and Trissential respectively. Organic revenue growth of
11% came from contract extensions across the client base assisted
by a favourable foreign exchange rate movements on translating non
Euro revenues. Furthermore, these translational exchange rate
movements helped to fully offset the negative margin impact we had
from Eurozone revenues matched against Indian and Egyptian resource
costs due to the weakening of the Euro in the first half.
As the wider market seems to have slowed down for new software
implementations and outsourcing deals, the Company has recorded the
highest ever order intake for Managed Services ("MS") and added
nine new Managed Services clients. Managed Services revenue
therefore increased by 26.1% to become the largest proportion of
total revenue, at EUR71.9m or 48% of total revenues (H1 2014: 44%).
MS revenue is expected to continue to expand to approximately 50%
of total revenue by the year end. Gross margin from MS slightly
improved to 36% due to the relatively lower costs and
industrialized delivery from our offshore/nearshore service
centres.
Specialist Consultancy Services ("SCS") revenue increased by
0.8% to EUR13.2m to account for approximately 9% of total sales (1H
2014: 10%). The revenue contribution from SCS is expected to
increase above 10% for the full year as Regular Testing Services
revenue continues to decline and we recognise the first six month
revenue contribution from the Trissential acquisition with its
focus on specialist on-site programme management.
Regular Testing Services ("RTS") revenue increased by 6.3% to
EUR50.9m, which accounted for 34% of total revenues (H1 2014: 37%).
This business saw reduced margins in some larger engagements and we
have subsequently disengaged or reduced our staffing levels post
the period end to cut associated costs, which will temporarily
impact our profitability. It is believed RTS is now better aligned
with our delivery structure and our strategic goals to further
reduce the contribution of RTS towards 30% of overall revenue.
Other revenue sources accounted for 9% of total revenue.
Overall, our global revenue mix will be more diversified going
forward. The acquisition of Bitmedia in Italy completed the
Company's expansion across all major European economies. In the US,
Trissential and the post period end acquisition of Galmont, create
a combined annual run rate of approximately $65m across the US
expected to deliver 18% of the Company's total revenues with the
potential to achieve revenues of more than $100m per annum without
further acquisitions.
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Cash of EUR18.3m, as part of a net debt position of EUR26.5m,
and net assets of EUR116m as at the period end were in-line with
expectations post exceptional cash payments of EUR15.6m relating to
the two acquisitions and EUR2.4m as a result of the final phase of
the expansion of the Pune facility in India. Receivables also
extended to 84 days (H1 2014: 82 days) reflecting normal
seasonality in the business and the extended payment terms within
the Italian business unit. However, we continue to expect
receivable days to return to more normalised levels during the
second half of the current year to deliver strong cash generation
resulting in a significantly strengthened balance sheet by the end
of the current financial year.
New Business
During the period the Company won a number of high profile
potential Managed Services clients, including one of the world's
leading US hospitality chains, a leading US financial services
group and a retailer based in Europe.
As a result of the expanded US operations, notable client
additions in the US included a tier one bank, a payment processing
company and several other manufacturing and technology
companies.
Market & Industry Overview
The 2015 Nelson Hall market report is yet to be published.
Therefore, 2014 estimates showing 9% growth in Software Testing
Services ("STS") across Europe during 2015, up from 7% in 2014, are
still the most recent. The Company estimates it has once again
achieved market share expansion during the first half of the
current financial year.
Furthermore, the 2014 Nelson Hall research also forecasts a
switch in demand from traditional testing services typically
delivered by system integrators to specialist testing service
vendors.
The 2014 report also discussed the growing delivery requirement
for STS services from India, which is estimated to reach 66% of
total STS spending by 2018. This is clearly a significant market
development, which has many implications for the testing services
industry and was one of the factors in the Company deciding to
invest further in its offshore service centres in India during the
period. The Company is therefore well positioned to capture any
increase in demand for offshore software testing services.
Acquisitions
The acquisition of 90% of the issued share capital Bitmedia for
up to EUR6.07m, announced in February, marked the first of the
recent acquisition activity for the Company. This acquisition
provides entry into the Italian market, and provides a substantial
platform from which to strengthen the Company's services to both
existing and new Italian customers.
The acquisition of Trissential for up to $30.7m, announced in
April, supports the Company's strategy of diversifying its service
portfolio within software and IT quality services and enhancing its
exposure to the significant market opportunities in the US. As
announced, the acquisition approximately quadruples SQS's existing
onsite delivery capability in the US and adds significant exposure
to the active US STS services market, particularly in the North
Central region of the US.
Given the timing of the acquisition, the expected benefits and
scale of operations in the US will only be fully reflected during
the next full year period. However, early indicators suggest
integration is successful and the broader entry into the US market
is expected to be both cost effective and timely for the Group.
Strategy
Over the period, SQS has focussed on delivering higher margin
Managed Services and developing the Company's global presence,
especially in the US.
Global price pressures on testing services, driven by the
slowdown in the global economic growth prospects and increased
competition, has proved that the Company's focus on providing
Managed Services and Specialist Testing Services was resilient for
these business lines and delivered significant growth during the
period. As such, further investment in India capacities ensures SQS
remains well placed to capture higher margin opportunities in the
future.
The Company's three primary service offerings remain MS to meet
the demand of clients seeking efficiency, SCS to meet the demand of
clients seeking transformation and quality and RTS to meet the
demand of more price conscious clients, who tend to be served on a
local basis. Due to the relative operating margins of these
services, the Company remains focussed on growing MS revenues while
managing the costs associated with delivering RTS. Furthermore, RTS
will continue targeting new clients that are likely to provide
greater future value of more than EUR1.5m per annum and to
discontinue those contracts that are not sufficiently profitable.
SCS revenues will however increase as a direct result of the
Trissential acquisition.
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 2015, in line with our
current policy of paying out approximately 30% of adjusted profit
after tax as a dividend.
Employees
Total headcount at the period end had increased by 11.6% to
4,325 (31 Dec 2014: 3,875) with an optional circa 220 contractors
retained during the period. As well as organic expansion, this
increase includes Bitmedia's and Trissential's 296 staff members,
which have been included into the total headcount following the
completion of acquisitions in February and June respectively.
Post Balance Sheet
Post the end of the first half, the Company announced the
acquisition of Galmont for up to $22m. Galmont is a leading
software testing consultancy in the North-Central region of the US,
complementing the Company's strength across the Banking, Financial
Services and Insurance and manufacturing sectors, while bringing
significant new expertise in government and healthcare.
Upon completion of the acquisition, there will be scope to
benefit from further cost synergies and capitalise on cross-selling
opportunities between Trissential's focus on on-site programme
management and Galmont's testing services capabilities.
Outlook
The performance during the first half has further strengthened
the fundamentals of our business and our growth strategy, despite
the lower gross margin performance in Regular Testing Services.
With MS now accounting for nearly 50% of revenues and a record
order intake, the company is well placed to continue building on
the momentum achieved to date.
The addition of Trissential and post period acquisition of
Galmont significantly upscales our US presence in a key market for
SQS. This is expected to underpin further Managed Services and
Specialist Consultancy Services growth across our key verticals as
well as further diversifying global revenues.
We are addressing our exposure to margin pressure in some
Regular Testing Services business by reducing client numbers,
overhead costs and headcount.
We will further react, adapt and manage potential impacts on our
clients from continued global economic uncertainties. For all these
reasons we have to be more cautious and anticipate our profits for
the full year to be slightly below the Board's previous
expectations.
Diederik Vos
Chief Executive Officer
8 September 2015
Financial Review H1 2015
Summary
Revenues grew by 16.1% to EUR150.3m (H1 2014: EUR129.4m),
including a first time consolidation effect for the full period
from new acquisitions Bitmedia (now SQS Italy, consolidated since
February 2015) of EUR4.2m and Trissential (USA, consolidated since
June 2015) of EUR2.4m. Bitmedia contributes mainly to the Managed
Services business unit, Trissential predominantly to Specialist
Consultancy Services. Organic revenue growth with these new
acquisitions was 11.1% compared to H1 2014.
The business units, which represent the accounting segments
according to IFRS 8, are:
-- Managed Services (MS) to meet the demand of clients seeking
efficiency in long-term engagements (between twelve months and up
to five years) of which a growing share (in many cases) is
delivered from nearshore and offshore test centres. This also
includes long term engagements for testing standard software
package products;
-- Specialist Consultancy Services (SCS) to meet the demand of
clients seeking transformation and quality in specialized projects
with skills like SAP, PLM (Product Lifecycle Management), IT
Project and Programme Management, Process Consulting and
Improvement, and Load and Performance Testing as long as these
resources are not active in MS projects; and
-- Regular Testing Services (RTS) to meet the demand of more
price conscious clients in IT projects who tend to be served with a
smaller number of consultants on a more local basis and typically
contracted for a short term period (e.g. three months).
Alongside these major segments we conduct business with
contractors (as far as these have not been included in MS),
training & conferences and software product testing tools
summarized as "Other".
Breakdown by Business Unit
Managed Services (MS)
Revenue in MS, our largest segment and our key strategic focus,
amounted to EUR71.9m in the period (H1 2014: EUR57.0m), an increase
of 26.1% on the prior year, representing a group revenue
contribution of 48%. The increase in revenue predominantly came
from the extension of existing long term managed services
contracts.
Specialist Consultancy Services (SCS)
Our business in this segment saw a moderate increase during the
period of 0.8% to EUR13.2m (H1 2014: EUR13.1m), representing a
group revenue contribution of 9%. Last year, this segment had been
weakened by the use of these specialist consultants in MS
engagements, going forward we expect this segment to contribute
above 10% of group revenues, as the vast majority of Trissential
revenues will add to SCS in H2 2015.
Regular Testing Services (RTS)
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This segment grew by 6.3% in revenues to EUR50.9m (H1 2014:
EUR47.9m) on the prior half year period, representing a group
revenue contribution of 34%. Our strategy continues to be to reduce
the share of this segment of our total revenue below 30%, which is
evidenced by the drop of this segment's share of total revenue from
37% in H1 2014 to now 34%.
Other
Revenue in the "Other" segment amounted to EUR14.2m in the
period (H1 2014: EUR11.5m), an increase of 23.5% on the prior H1
period and representing a group revenue contribution of 9%. An
increase in revenues from contractors was the key driver of this
performance.
Margins and Profitability
***Gross profit improved by 9.8% to EUR47.0m (H1 2014:
EUR42.8m), with the gross margin at 31.3% (H1 2014: 33.1%). The
change in the gross margin was mainly influenced by a lower gross
margin from RTS with 26.4% (H1 2014: 33.6%) due to a growing
commoditization and competitive pressure in this market resulting
in lower staff utilization rates, mainly in the UK and Germany. On
the positive side gross margins in MS further improved to 35.9% (H1
2014: 35.7%) due to progress in global delivery and
industrialization, SCS margins went up to 34.5% (H1 2014: 32.8%) as
these specialist consultants were more adequately assigned to
specialist tasks.
Gross margin in the "Other" segment improved to 22.2% (H1 2014:
18.2%) as we increased margins from our contractor business.
Adjusted* profit before tax for the period was EUR9.0m (H1 2014:
EUR8.5m), an increase of 5.6%, with the adjusted profit margin at
6.0% (H1 2014: 6.6%). The profit before taxes was impacted by the
lower gross margin from RTS, only partially offset by lower
overhead costs.
Adjusted** earnings per share are at EUR0.17 (H1 2014: EUR0.18)
due to a higher tax rate under local GAAP and higher minority
interests.
* adjusted to add back EUR3.1m of IFRS amortisation of client
relationship assets from the SQS India BFSI acquisition, EUR0.6m
acquisition costs for Bitmedia and Trissential and EUR0.03m pro
forma interests on pensions
** adjusted to add back effects under * at actual local GAAP tax
rate of 33.8%, less EUR0.8m on minority interests (mainly for SQS
India BFSI)
*** no material adjustments in H1 2015, but there were
adjustments for a non-cash amortization of SQS India BFSI acquired
order backlog of EUR1.0m in H1 2014
Costs
General & Administrative expenses (before effects under *
above) for the period were EUR24.8m (H1 2014: EUR22.1m). This
represents a 0.6% decrease as a percentage of revenue to 16.5% (H1
2014: 17.1%), the absolute growth was due to the first time
consolidation effect of Bitmedia and Trissential (EUR0.9m) and
on-going investment in the build out of the US business
(EUR0.8m).
Sales & Marketing costs for the period were EUR10.9m (H1
2014: EUR10.1m), representing 7.3% of revenues (H1 2014: 7.8%). The
0.5% decrease as a percentage of revenues was due to improved
efficiencies in the sales teams.
Research & Development expense during the period was
slightly up at EUR1.7m (H1 2014: EUR1.4m) representing 1.1% (H1
2014: 1.1%) of revenues. Research and development investment was
mainly focused on the development of our proprietary software
testing tools and PractiQ methodology.
Cash Flow and Financing
Cash flow from operating activities**** was at EUR(4.6)m (H1
2014: EUR(2.6)m). The low operating cash flow results from a
typical seasonality we have seen in all previous first half year
periods, as receivable days and uninvoiced services went up by
EUR10.5m from the last year end due to certain behavioural patterns
of many large clients. Trade payables went down by EUR4.6m in the
period under review. Additionally the market in which Bitmedia
operates generates substantially higher receivable days than the
SQS Group average, an effect which added to the negative first half
operating cash flow. We therefore expect a much improved cash
collection and full profit to cash conversion by the end of the
full year.
****incl. a re-allocation of EUR0.6m transaction costs for
acquisitions to cash flow from investment activities due to an IFRS
rule change
Receivable days (including work in progress) increased by 2 days
to 84 compared with H1 2014.
Cash outflow from investments **** was up to EUR22.1m (H1 2014
EUR4.0m inflow) mainly due to the acquisition of 100% of the share
capital of Bitmedia and Trissential resulting in an outflow of EUR
15.6m and an ongoing investment in the third phase of the building
for our Pune (India) offshore test centre (investment expected to
end during H2 2015). The latter increased the cash outflow for
fixed and intangible assets to EUR6.8m (H1 2014 EUR3.6m
outflow).
Total cash inflow from financing activities was EUR21.5m (H1
2014: 3.3m outflow) reflecting a net increase of finance loans of
EUR18.9m YoY to fund the mentioned investments for acquisitions and
the Pune test centre infrastructure, as well as the increased
working capital requirements due to the seasonality effects of an
H1 period. Additionally dividend payments to SQS and minority
shareholders resulted in an outflow of EUR4.0m (H1 2014: 2.8m).
Balance Sheet
We closed the period with EUR18.3m (30 Jun 2014: EUR17.0m) of
cash and cash equivalents on the balance sheet and borrowings of
EUR44.8m (30 Jun 2014: EUR25.9m). The increase in borrowings was
mainly caused by the cash outflow for acquisitions and the Pune
test centre infrastructure. Cash reserves are increasingly held in
a higher diversity of currencies and offset between cash positions
and debt positions has become less flexible as we seek to exclude
the realization of potential exchange rate risks.
The resulting net debt position at the period end was therefore
EUR26.5m (30 Jun 2014: net debt of EUR8.9m).
The final purchase price allocation with regard to the Bitmedia
and Trissential acquisitions is still pending. Therefore the full
amounts for acquired net assets for Bitmedia (EUR4.7m) and
Trissential (EUR20.2m) have been posted as "goodwill" and will be
allocated to intangible assets and goodwill once the purchase price
allocation will be finalized during H2 2015. For SQS India BFSI
intangible assets for client relationships with a fair value of
EUR9.2m were recognized in the 30 Jun 2015 balance sheet,
reflecting a further amortization of EUR3.1m during the first half
period.
As these amortization charges are non-cash-items and do not
impact the normal business of SQS they are adjusted within the PBT
und EPS reporting.
Taxation
The tax charge of EUR1.3m (H1 2014: EUR1.1m) includes current
tax expenses of EUR3.0m (H1 2014: EUR2.5m) and deferred tax
expenses of EUR(1.7)m (H1 2014: EUR(1.4)m). The tax rate on local
GAAP results was 33.8% (H1 2014: 29.5%), the higher tax rate being
a consequence of a geographically different spread of profits.
Going forward, we expect an actual tax rate of ca. 31%.
Foreign Exchange
Approximately 58% (H1 2014: 53%) 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 2015 was chosen.
For the conversion of the balance sheet items from local currency
into Euros, the official exchange rate as at 30 June 2015 was
used.
Foreign exchange had a EUR0.6m positive translational impact on
earnings for the period. Had the Pound/Swiss Franc/Indian
Rupee/Swedish Krona/US-$/Euro exchange rates remained the same as
in H1 2014, our non-Euro revenues for the period would have been
EUR8.8m lower, the EBIT would have been EUR0.6m lower. These
translational exchange rate movements helped to fully offset the
negative margin impact we had from Eurozone revenues matched
against Indian and Egyptian resource costs due to the weakening of
the Euro in the first half. Thus the net profit impact of forex was
almost nil.
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 to be applied
for those financial statements whose reporting period starts on or
after 1 January 2015.
The SQS Group Consolidated Financial Statements for the six
month period ended 30 Jun 2015 were prepared in accordance with
uniform accounting and valuation principles in Euros.
Rene Gawron
Chief Financial Officer
8 September 2015
Consolidated Income Statement
for the six months ended 30 June 2015
Six months ended 30 Six months ended 30 Year ended 31 December
June 2015 June 2014 2014
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Revenue 150,254 129,366 268,483
Cost of sales (4) 103,276 87,539 180,908
Gross profit 46,978 41,827 87,575
General and
administrative expenses (4) 28,552 25,527 51,471
Sales and marketing
expenses (4) 10,898 10,098 20,720
Research and development
expenses (4) 1,713 1,448 3,815
------------------------- -------- ----------------------- ------------------------ ------------------------
Profit before tax and
finance costs (EBIT) 5,815 4,754 11,569
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Finance income 572 133 974
Finance costs 1,191 1,164 2,417
------------------------- -------- ----------------------- ------------------------ ------------------------
Net finance costs (5) -619 -1,031 -1,443
Profit before taxes
(EBT) 5,196 3,723 10,126
Income tax expense (6) 1,316 1,118 3,266
Profit for the period 3,880 2,605 6,860
Attributable to:
Owners of the parent 3,979 3,155 7,678
Non-controlling
interests (13) -99 -550 -818
Consolidated profit for
the period 3,880 2,605 6,860
Earnings per share,
undiluted (EUR) (7) 0.13 0.10 0.25
Earnings per share,
diluted (EUR) (7) 0.12 0.10 0.24
Adjusted earnings per
share (EUR), for
comparison only (7) 0.17 0.18 0.43
========================= ======== ======================= ======================== ========================
Consolidated Statement of Financial Position
as at 30 June 2015 (IFRS)
30 June 2015 30 June 2014 31 December 2014
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Current assets
Cash and cash equivalents (14) 18,308 17,024 26,297
Trade receivables 71,319 54,391 57,995
Other receivables 6,574 5,373 3,315
Work in progress 12,089 14,799 7,736
Income tax receivables 1,692 762 730
--------------------------------------------- -------- ------------- ------------- -----------------
109,982 92,349 96,073
Non-current assets
Intangible assets (8) 18,632 20,732 18,470
Goodwill (8) 83,354 55,096 55,836
Property, plant and equipment (9) 12,100 9,807 9,947
Financial assets 32 0 0
Income tax receivables 2,002 2,013 1,483
Deferred tax assets 2,771 2,873 2,174
--------------------------------------------- -------- ------------- ------------- -----------------
118,891 90,521 87,910
Total Assets 228,873 182,870 183,983
============================================= ======== ============= ============= =================
Current liabilities
Bank loans and overdrafts (10) 34,511 14,096 5,463
Finance lease 135 567 306
Trade payables 7,883 6,197 10,763
Other provisions 0 9 0
Income tax accruals 2,768 2,723 2,195
Other current liabilities (11) 42,210 35,129 32,384
--------------------------------------------- -------- ------------- ------------- -----------------
87,507 58,721 51,111
Non-current liabilities
Bank loans (10) 10,310 11,797 11,000
Finance lease 57 147 62
Other provisions 0 5 0
Pension provisions 4,970 2,316 4,625
Deferred tax liabilities 3,759 6,460 4,793
Other non-current liabilities (11) 6,236 572 8,516
--------------------------------------------- -------- ------------- ------------- -----------------
25,332 21,297 28,996
Total Liabilities 112,839 80,018 80,107
============================================= ======== ============= ============= =================
Equity (12)
Share capital 31,301 30,563 30,563
Share premium 55,973 47,153 47,446
Statutory reserves 53 53 53
Other reserves -1,350 -4,524 -3,607
Retained earnings 18,841 18,267 19,213
--------------------------------------------- -------- ------------- ------------- -----------------
Equity attributable to owners of the parent 104,818 91,512 93,668
--------------------------------------------- -------- ------------- ------------- -----------------
Non-controlling interests (13) 11,216 11,340 10,208
--------------------------------------------- -------- ------------- ------------- -----------------
Total Equity 116,034 102,852 103,876
--------------------------------------------- -------- ------------- ------------- -----------------
Equity and Liabilities 228,873 182,870 183,983
============================================= ======== ============= ============= =================
Consolidated Statement of Cash Flows
for the six months ended 30 June 2015 (IFRS)
Six months ended 30 June Six months ended 30 June Year ended 31 December
2015 2014 2014
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Net cash flow from
operating activities
Profit before taxes 5,196 3,723 10,126
Add back for
Depreciation and
amortisation (4) 6,209 6,294 13,444
Loss on the sale of
property, plant and
equipment 28 132 394
Other non-cash income
not affecting payments 1,289 2,043 -867
Net finance costs (5) 619 1,031 1,443
------------------------- -------- ------------------------- ------------------------- -------------------------
Operating profit before
changes in the net
current assets 13,341 13,223 24,540
(Increase) Decrease in
trade receivables -5,127 1,521 -2,083
(Increase) Decrease in
work in progress and
other receivables -5,384 -9,347 989
(Decrease) Increase in
trade payables -4,643 -2,503 2,064
Decrease in other
provisions 0 0 -14
Increase (Decrease) in
pension provisions 316 -576 725
(Decrease) Increase in
other liabilities and
deferred income -3,750 -4,918 402
------------------------- -------- ------------------------- ------------------------- -------------------------
Cash flow from operating
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activities -5,247 -2,600 26,623
Interest payments (5) -619 -598 -1,467
Tax payments (6) -3,065 -2,480 -5,594
------------------------- -------- ------------------------- ------------------------- -------------------------
Net cash flow from
operating activities -8,931 -5,678 19,562
Cash flow from
investment activities
Purchase of intangible
assets -4,152 -2,162 -5,625
Purchase of property,
plant and equipment -2,666 -1,413 -2,331
Purchase of net assets
of acquired companies -14,603 7,524 7,524
Interest received (5) -40 21 477
------------------------- -------- ------------------------- ------------------------- -------------------------
Net cash flow from
investment activities -21,461 3,970 45
Cash flow from financing
activities
Dividends paid -3,973 -2,751 -2,751
Capital increase 0 0 0
Proceeds from
non-controlling
interests on the
exercise of stock
options 194 117 205
Payments for the
acquisition of non
controlling interests -425 0 -1,800
Dividends paid to non
controlling interests 0 0 -658
Repayment of finance
loans (10) -6,457 -6,237 -8,068
Increase of finance
loans (10) 32,291 12,530 4,930
Increase of finance
lease 0 541 0
Redemption of finance
lease contracts -176 -889 -694
------------------------- -------- ------------------------- ------------------------- -------------------------
Net cash flow from
financing activities 21,454 3,311 -8,836
Change in the level of
funds affecting
payments -8,938 1,603 10,771
Changes in cash and cash
equivalents due to
exchange rate movements 949 173 278
------------------------- -------- ------------------------- ------------------------- -------------------------
Cash and cash
equivalents
at the beginning of the
period 26,297 15,248 15,248
------------------------- -------- ------------------------- ------------------------- -------------------------
Cash and cash
equivalents
at the end of the period 18,308 17,024 26,297
========================= ======== ========================= ========================= =========================
Consolidated Statement of Changes in Equity
for the six months ended 30 June 2015 (IFRS)
Attributed to equity owners of the parent Non Total
--------------------------------------------------------------------------------------
cash
Share Share Statutory Other flow Translation Retained Total controlling equity
capital premium reserves reserves hedge of foreign earnings interest
reserve operations
EURk EURk EURk EURk EURk EURk EURk EURk EURk EURk
1 January 2014
(audited) 30,563 46,882 53 -1,693 -479 -3,905 17,863 89,284 72 89,356
================= ======== ======== ========== ========= ======== ============ ========= ======== ============ ========
Dividends paid -2,751 -2,751 -2,751
Transactions
with owners of
the parent -2,751 -2,751 -2,751
Business
combinations 11,564 11,564
Capital increase
by
non-controlling
interests 117 117
Share-based
payments 271 271 271
Profit for the
period 3,155 3,155 -550 2,605
Exchange
differences on
translating
foreign
operations 1,473 1,473 137 1,610
Gains arising
from cash flow
hedges 80 80 80
----------------- -------- -------- ---------- --------- -------- ------------ --------- -------- ------------ --------
Total
comprehensive
income 80 1,473 3,155 4,708 -413 4,295
----------------- -------- -------- ---------- --------- -------- ------------ --------- -------- ------------ --------
30 June 2014
(unaudited) 30,563 47,153 53 -1,693 -399 -2,432 18,267 91,512 11,340 102,852
================= ======== ======== ========== ========= ======== ============ ========= ======== ============ ========
Dividends paid -658 -658
Transactions
with owners of
the parent -658 -658
Capital increase
against cash 205 205
Acquisition of
non-controlling
interests -1,268 -1,268 -649 -1,917
Share-based
payments 293 293 293
Profit for the
period 4,523 4,523 -268 4,255
Exchange
differences on
translating
foreign
operations 887 887 238 1,125
Re-measurement
gains on
defined benefit
plans -2,309 -2,309 -2,309
Gains arising
from cash flow
hedges 30 30 30
----------------- -------- -------- ---------- --------- -------- ------------ --------- -------- ------------ --------
Total
comprehensive
income 30 887 2,214 3,131 -30 3,101
----------------- -------- -------- ---------- --------- -------- ------------ --------- -------- ------------ --------
31 December 2014
(audited) 30,563 47,446 53 -1,693 -369 -1,545 19,213 93,668 10,208 103,876
================= ======== ======== ========== ========= ======== ============ ========= ======== ============ ========
Dividends paid -3,973 -3,973 -3,973
Transactions
with owners of
the parent -3,973 -3,973 -3,973
Business
combinations 0 248 248
Acquisition of
subsidiary 0 0
Capital increase 738 8,088 8,826 194 9,020
Acquisition of
non-controlling
interests -378 -378 -47 -425
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Share-based
payments 439 439 439
Profit for the
period 3,979 3,979 -99 3,880
Exchange
differences on
translating
foreign
operations 2,322 2,322 712 3,034
Gains arising
from cash flow
hedges -65 -65 -65
----------------- -------- -------- ---------- --------- -------- ------------ --------- -------- ------------ --------
Total
comprehensive
income -65 2,322 3,979 6,236 613 6,849
----------------- -------- -------- ---------- --------- -------- ------------ --------- -------- ------------ --------
30 June 2015
(unaudited) 31,301 55,973 53 -1,693 -434 777 18,841 104,818 11,216 116,034
================= ======== ======== ========== ========= ======== ============ ========= ======== ============ ========
Notes to the interim consolidated financial statements
(unaudited)
1. Summary of Significant Accounting Policies
Basis of preparation and statement of compliance
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 2015. 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 accounting policies applied preparing the Interim
Consolidated Financial Statements 2015 are consistent with those
used for the Consolidated Financial Statements at 31 December
2014.
The Financial Information has been prepared on a historical cost
basis. The Financial Information is presented in Euros and amounts
are rounded to the nearest thousand (EURk) except when otherwise
indicated. Negative amounts are presented in parentheses.
The interim consolidated financial statements do not include all
information and disclosures required in the annual financial
statements, and should be read in conjunction with the Group's
annual financial statements as at 31 December 2014.
Basis of consolidation
As at 30 June 2015, the Company held interests in the share
capital of more than 50 % of the following undertakings (all of
those subsidiaries have been consolidated):
Consolidated companies Country of Six month Six month Year ended
incorporation ended 30 ended 30 31 December
June 2015 June 2014 2014
----------- ----------- -------------
Share of Share of Share of
capital capital 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, Utrecht The Netherlands 95.1 95.1 95.1
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 Software Quality Systems
Sweden AB, Kista Sweden 100.0 100.0 100.0
SQS Software Quality Systems
Norway AS, Oslo Norway 100.0 100.0 100.0
SQS Software Quality Systems
Finland OY, Espoo Finland 100.0 100.0 100.0
SQS India Infosytems Private
Limited, Pune India 75.0 75.0 75.0
SQS France SASU, Paris France 100.0 100.0 100.0
SQS USA Inc., Naperville
(Illinois) USA 100.0 100.0 100.0
Trissential LLC, Wisconsin USA 100.0 0.0 0.0
SQS India BFSI Limited
(former: Thinksoft Global
Services Limited), Chennai India 54.56 53.35 54.89
SQS Software Quality Systems
Italia S.p.A., Rome Italy 90.0 0.0 0.0
--------------------------------- ----------------- ----------- ----------- -------------
SQS AG holds 15% of the shares of SQS Portugal Lda with a book
value of EUR nil (previous year EUR nil).
SQS-Group applied the amendment to IAS 19 retrospectively since
1 January 2015. This amendment had no significant impact on the
interim consolidated financial statements of the SQS Group. For
more information, see Note 2 'Summary of Significant Accounting
Policies' to the annual Consolidated Financial Statements for the
year 2014.
Use of estimates
The preparation of the Interim Financial Statements requires the
disclosure of assumptions and estimates made by management, which
have an effect on the amount and the presentation of revenues,
expenses, assets and liabilities shown in the other comprehensive
income or profit or loss, in the statement of financial position as
well as any contingent items.
The main estimates and judgements of the management of SQS refer
to:
-- the useful life of intangible assets and property, plant and equipment,
-- the criteria regarding the capitalisation of development costs,
-- the recoverability of deferred taxes on tax losses carried forward,
-- the stage of completion of work in progress regarding fixed price contracts,
-- the discount rate, future salary increases, mortality rates,
future pension increases and future employee contributions
regarding the valuation of defined benefit obligations,
-- the inputs such as risk free rate, expected share volatility
and expected dividends as well as expected forfeiture rate for the
measurement of the share-based-payments.
There have been no changes in estimates compared to the year
2014.
2. Segmental reporting
Based on the organizational structure and the different services
rendered, SQS Group operates the following segments:
-- Managed Services (MS) to meet the demand of clients seeking
efficiency in long-term engagements (between six months up to five
years) of which a growing share (in many cases) is delivered from
nearshore and offshore test centres. This also includes long term
engagements for testing standard software package products,
-- Specialist Consultancy Services (SCS) to meet the demand of
clients seeking transformation and quality in specialized projects
with skills like SAP, PLM (Product Lifecycle Management), Process
Consulting and Improvement, and Load and Performance Testing as
long as these resources are not active in MS projects,
-- Regular Testing Services (RTS) to meet the demand of more
price conscious clients who tend to be served on a more local basis
and are typically contracted for a short term (e.g. three
months).
Beside these major business activities there is the business
with contractors (as far as these have not been included in MS),
training & conferences and software testing tools. Each of
these minor operating segments represents less than 10 % of the
Group's revenues and the Group's profit. Thus, all these other
segments are presented as "Other".
The group management board consisting of CEO (Chief Executive
Officer), CFO (Chief Financial Officer) and CMO (Chief Market
Officer) monitors the results of the operating segments separately
in order to allocate resources and to assess the performance of
each segment. Segment performance is evaluated based on gross
profit.
Non-profit centres represent important functions such as Project
Management, Marketing, Finance & Administration, IT, Human
Resources and Sales Support.
The non-profit centres are not allocated to the operating
segments as they provide general services to the whole group. Their
costs are shown under 'Non-allocated costs'.
The assets and liabilities relating to the operating segments
are not reported separately to the Group Management Board. Finance
costs and income taxes are managed on a group basis. Therefore they
are not allocated to operating segments.
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The following tables present revenue and profit information
regarding the SQS Group's reportable segments for the interim
periods ended 30 June 2015 and 30 June 2014 and for the year ended
31 December 2014, respectively.
Six month ended MS SCS RTS Other Total
30 June 2015 (unaudited)
EURk EURk EURk EURk EURk
Revenues 71,948 13,209 50,895 14,202 150,254
Segment profit (gross
profit) 25,830 4,558 13,437 3,153 46,978
Non-allocated costs (41,163)
EBIT 5,815
Financial result (619)
Taxes on income (1,316)
Result for the period 3,880
--------------------------- ------- ------- ------- ------- ---------
Six month ended MS SCS RTS Other Total
30 June 2014 (unaudited)
EURk EURk EURk EURk EURk
Revenues 56,958 13,099 47,852 11,457 129,366
Segment profit 20,325 4,291 16,094 2,081 42,791
Amortisation of order
backlog (964)
Gross profit 41,827
Non-allocated costs (37,073)
EBIT 4,754
Financial result (1,031)
Taxes on income (1,118)
Result for the period 2,605
--------------------------- ------- ------- ------- ------- ---------
Year ended 31 MS SCS RTS Other Total
December 2014 (audited)
EURk EURk EURk EURk EURk
Revenues 120,527 20,673 102,055 25,228 268,483
Segment profit (Gross
profit) 44,354 7,277 32,964 4,960 89,555
Non-allocated costs (77,986)
EBIT 11,569
Financial result (1,443)
Taxes on income (3,266)
Result for the period 6,860
-------------------------- -------- ------- -------- ------- ---------
3. Business combinations
SQS Group acquired in the reporting period shares of SQS Italia
and Trissential.
SQS Italia
On 30 January 2015 SQS acquired 90% of the voting rights and
shares of SQS Italia (SQS Italia SpA, formerly Bit Media SpA), for
a cash consideration of EUR6.07m. The Managing Director of SQS
Italia has retained 10% of the shares and stays with SQS as
managing Director of SQS Italia. With regard to the remaining 10%
of shares the parties have agreed a call option in favour of SQS
and a put option in favour of the vendor. Any party may exercise
its respective option at any time between the 3rd and 5th
anniversary of completion of the acquisition. The value of the
remaining shares will be determined with reference to Bit Media's
latest audited profit after tax at that time.
SQS Italia is an Italian joint stock company, based in Rome. The
acquisition of SQS Italy gives SQS entry into the Italian market,
and provides a solid and substantial platform from which to
strengthen our service to the existing Italian customers of SQS
Italia and to expand further into the region through the cross
selling of services. SQS Italia had been focused on the public
sector. In addition, SQS expect to develop the Banking, Financial
Services and Insurance ("BFSI") business. There are also a number
of synergies across the two organisations that may result in cost
savings and improved efficiencies including providing the existing
SQS Italia business with access to SQS's lower cost offshore
testing resources.
The acquisition has been accounted for using the acquisition
method at the acquisition date of 1 February 2015. With regard to
the put option SQS Group accounted for 100% of the shares of SQS
Italia.
Trissential
On 30 April 2015 SQS Group acquired the entire voting rights and
the entire issued share capital of Trissential LLC, Wisconsin USA
(Trissential) for a maximum consideration of US$30.7m. The purchase
price is partly due in cash and partly in new SQS shares. Pursuant
to the terms of the Acquisition, SQS has paid to the vendors of
Trissential a cash component of the initial consideration of
US$11m, funded by new credit facility. The share component of the
initial consideration comprising 737,804 new Ordinary Shares,
equating to US$6.7m, are issued in line with German law on 15 June
2015. A further US$3mof consideration will be payable, subject to
any indemnity claims, in 330,361 SQS shares, between 18 and 24
months from this date, being the completion date of the
Acquisition, and an earn-out consideration to be satisfied in cash
and shares of SQS AG of up to US$10m, payable subject to the
achievement of certain performance-related targets over next three
years.
Trissential is a leading IT project, programme and portfolio
management consultancy in the Mid-West region of the United States,
with a presence in Minneapolis, Milwaukee and Chicago. Trissential
operates across four principal sectors, with a strong alignment to
SQS's existing strength in manufacturing, while adding significant
expertise in retail, energy and healthcare. The Acquisition
provides SQS with a substantial and stable revenue platform,
supporting SQS's strategy of diversifying its geographic revenue
split by materially enhancing its operations in the US.
The acquisition has been accounted for using the acquisition
method at the acquisition date of 1 June 2015.
Assets acquired and liabilities assumed
The fair value of the identifiable assets and liabilities of SQS
Italia and Trissential as at the acquisition date were
provisionally determined as follows:
Provisional fair value recognised SQS Italia Trissential
on acquisition date
---------------------------------------------- ------------ -------------------------------
EURk EURk
Cash 992 488
Trade receivables - current 5,149 3,048
Other receivables- current 647 196
Work-in-Process 1,995 305
Tax receivables 445 0
---------------------------------------------- ------------ -------------------------------
Total current assets 9,228 4,037
---------------------------------------------- ------------ -------------------------------
Intangible assets 176 1
Tangible fixed assets 137 113
Financial assets 32 0
Other non-current receivables 0 10
---------------------------------------------- ------------ -------------------------------
Total non-current assets 345 124
---------------------------------------------- ------------ -------------------------------
TOTAL ASSETS 9,573 4,161
---------------------------------------------- ------------ -------------------------------
Bank loans and overdrafts 2,211 0
Other provisions 1,273 1,094
Trade payables 1,401 361
Other current liabilities 1,022 184
Deferred income 30 0
---------------------------------------------- ------------ -------------------------------
Total current liabilities 5,937 1,639
---------------------------------------------- ------------ -------------------------------
Bank loans 310 0
Other non-current liabilities 1,092 0
Non-current liabilities 1,402 0
---------------------------------------------- ------------ -------------------------------
TOTAL LIABILITIES 7,339 1,639
---------------------------------------------- ------------ -------------------------------
Total identifiable net assets at
fair value 2,234 2,522
---------------------------------------------- ------------ -------------------------------
Provisional Goodwill arising on acquisition 4,734 20,195
---------------------------------------------- ------------ -------------------------------
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Purchase consideration transferred 6,968 23,127
---------------------------------------------- ------------ -------------------------------
Analysis of cash flows on acquisition:
SQS Italia Trissential
----------------------------------- ----------- ------------
EURk EURk
----------------------------------- ----------- ------------
Cash acquired with the subsidiary 992 488
----------------------------------- ----------- ------------
Cash paid 6,074 10,009
----------------------------------- ----------- ------------
Net cash outflow on acquisition 5,082 9,521
----------------------------------- ----------- ------------
Further considerations
SQS Italia Trissential
-------------------------------------- ----------- ------------
EURk EURk
-------------------------------------- ----------- ------------
Capital increase (737,804 shares) 6,096
-------------------------------------- ----------- ------------
Consideration subject to indemnity
claims 2,828
-------------------------------------- ----------- ------------
Conditional liability
SQS Italia: option
Trissential: Earn out consideration 894 4,195
-------------------------------------- ----------- ------------
The value of the SQS Italia put-option is calculated based on
the expected profit after taxes of SQS Italia for the year
preceding the option exercise.
The capital increase regarding Trissential has been done based
on an agreed share price by transferring 737,804 new SQS AG
shares.
The consideration subject to indemnity claims regarding
Trissential is due after a period of two years. The fulfilment
shall be done by transferring a maximum 330,361 new shares of SQS
AG.
The Earn out consideration regarding Trissential is calculated
based on the expected profit of the acquired company for the 36
months following the closing date. This consideration will consist
of cash and an equity portion. The parties agreed a minimum payment
of zero and a maximum payment of US$10m. This amount will be
determined by a minimum and a maximum 36months result.
The provisional goodwills of EUR4,734k and EUR20,195k reflect
the acquired work force as well as expected synergies arising from
the acquisition. The Goodwill is allocated to each of the acquired
entities which are considered to be separate cash generating units.
As the purchase price allocations are not completed yet, the
goodwills are expected to be reduced after having identified and
valued the intangible assets and order backlog of the acquired
entities.
None of the provisional goodwill recognised are expected to be
deductible for income tax purposes.
With regard to the acquired receivables Management expects that
all of the amount will be collected.
SQS Italia has been fully consolidated since 1 February 2015.
Trissential has been fully consolidated since 1 June 2015. For both
acquisitions the fair value of SQS' equity interest in the two
acquired companies has been provisionally recognised.
For the period beginning with the acquisition date until 30 June
2015 the acquired companies recognised the following amounts:
SQS Italia Trissential
------------ ----------- ------------
EURk EURk
------------ ----------- ------------
Revenue 4,207 2,355
------------ ----------- ------------
Net profit 278 197
------------ ----------- ------------
If the acquisition had taken place at the beginning of the year,
revenue and the profit from continuing operations would have
recognised the following amounts:
SQS Italia Trissential
------------ ----------- ------------
EURk EURk
------------ ----------- ------------
Revenue 5,011 14,052
------------ ----------- ------------
Net profit 285 463
------------ ----------- ------------
Transaction costs of EUR599k have been recognised in the
administrative expenses as well as the operating cash flow.
4. Expenses
The Consolidated Income Statement presents expenses according to
function. Additional information regarding the origin of these
expenses by type of cost is provided below:
Cost of material
Cost of material included in the cost of sales in the interim
period ended 30 June 2015 amounted to EUR12,069k (at mid-year 2014:
EUR10,135k). Cost of material mainly relates to the procurement of
external services such as contracted software test engineers. In
addition, certain project-related or internally used hardware and
software is shown under cost of material.
Employee benefits expenses
Six month Six month Year ended
ended 30 ended 30 31 December
June 2015 June 2014 2014
(unaudited) (unaudited) (audited)
EURk EURk EURk
Wages and salaries 87,921 74,199 149,501
Social security contributions 11,409 9,353 18,497
Expenses for retirement benefits 1,871 1,214 2,950
Total 101,201 84,766 170,948
---------------------------------------- ------------- --- ------------- --- -------------
The expenses for retirement benefits include current service
costs from defined benefit plans and expenses for defined
contribution plans.
Amortisation and depreciation
Amortisation and depreciation charged in the interim period
ended 30 June 2015 amounted to EUR6,209k (at mid-year 2014:
EUR6,294k). Of this, EUR1,204k (at mid-year 2014: EUR1,039k) was
attributable to the amortisation of development costs and EUR3,138k
to customer relationships regarding SQS India BFSI.
5. Net finance costs
The net finance costs are comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2015 June 2014 2014
(unaudited) (unaudited) (audited)
EURk EURk EURk
Interest income 100 21 477
Exchange rate gains 472 112 497
---------------------------- ------------- --- ------------- --- -------------
Total finance income 572 133 974
---------------------------- ------------- --- ------------- --- -------------
Interest expense (649) (628) (1,527)
Exchange rate losses (542) (536) (890)
---------------------------- ------------- --- ------------- --- -------------
Total finance costs (1,191) (1,164) (2,417)
---------------------------- ------------- --- ------------- --- -------------
Net finance costs (619) (1,031) (1,443)
---------------------------- ------------- --- ------------- --- -------------
Finance income mainly results from fixed deposit
investments.
Interest expense relates to interest on bank liabilities and
finance lease liabilities.
Finance income and costs are stated after foreign exchange rate
gains and losses.
6. Taxes on earnings
The line item includes current tax expenses in the amount of
EUR3,009k (at mid-year 2014: EUR2,483k) and deferred tax income in
the amount of EUR(1,693)k (at mid-year 2014 deferred tax income:
EUR(1,365)k).
7. 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 2015 June 2014 2014
(unaudited) (unaudited) (audited)
Profit for the year attributable
to owners of the parent,
EURk 3,979 3,155 7,678
---------------------------------------- ------------- --- ------------- --- -------------
Diluted profit for the year,
EURk 3,979 3,155 7,678
---------------------------------------- ------------- --- ------------- --- -------------
Weighted average number of
shares in issue, undiluted 30,623,823 30,562,679 30,562,679
---------------------------------------- ------------- --- ------------- --- -------------
Weighted average number of
shares in issue, diluted 32,975,701 32,564,115 32,662,295
---------------------------------------- ------------- --- ------------- --- -------------
Undiluted profit per share,
EUR 0.13 0.10 0.25
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---------------------------------------- ------------- --- ------------- --- -------------
Diluted profit per share,
EUR 0.12 0.10 0.24
---------------------------------------- ------------- --- ------------- --- -------------
Adjusted profit per share
(optional), EUR 0.17 0.18 0.43
---------------------------------------- ------------- --- ------------- --- -------------
Undiluted profit per share is calculated by dividing the profit
for the six month period attributable to owners of the parent by
the weighted average number of shares in issue during the six month
period ended 30 June 2015: 30,623,823 (at mid-year 2014:
30,562,679).
Diluted profit per share is determined by dividing the profit
for the six month period attributable to owners of the parent by
the weighted average number of shares in issue plus any share
equivalents which would lead to a dilution.
Adjusted profit per share is calculated by adjusting the profit
before tax for current taxes, transaction costs regarding the
acquisitions of SQS Italia and Trissential, amortised costs of
acquired customer relationships as part of the business combination
SQS India BFSI, interest expenses on pensions and minority effects.
This adjusted profit after tax divided by the weighted average
number of shares in issue during the six month period ended 30 June
2015: 30,623,823 shares, (at mid-year 2014: 30,562,679 shares)
shows adjusted earnings per share of EUR0.17 (at mid-year 2014:
EUR0.18).
8. Intangible assets
The composition of this item is as follows:
Book values Six month Six month Year ended
ended 30 ended 30 31 December
June 2015 June 2014 2014
(unaudited) (unaudited) (audited)
EURk EURk EURk
Goodwill 83,354 55,096 55,836
Development costs of software 4,005 2,761 3,408
Acquired Software 3,148 1,266 1,325
Other development costs 2,260 2,175 2,365
Acquired customer relationships 9,220 13,548 11,372
Order backlog 0 982 0
Total 101,986 75,828 74,306
--------------------------------------- ------------- --- ------------- --- -------------
Development costs were capitalised in the interim period ended
30 June 2015 in the amount of EUR1,627k (at mid-year 2014:
EUR1,290k). They are amortised over a period of 36 months. The
other development costs mainly relate to the methodology 'PractiQ',
used by SQS to provide Managed Services. The estimated useful life
of these intangible assets covers a period of five years.
The customer relationships were acquired within the business
combination of SQS India BFSI. The customer relationships will be
amortised over the expected useful life of three years.
The amortisation of development costs is shown in the research
and development expenses. The amortisation of software and
remaining intangible assets is allocated to the functional costs by
an allocation key.
9. Property, plant and equipment
The development of property, plant and equipment of the SQS
Group is presented as follows:
Book values Six month Six month Year ended
ended 30 ended 30 31 December
June 2015 June 2014 2014
(unaudited) (unaudited) (audited)
EURk EURk EURk
Freehold land and buildings 5,548 5,422 5,418
Office and business equipment 4,151 4,349 3,783
Construction in progress 2,401 36 746
Total 12,100 9,807 9,947
------------------------------------- ------------- --- ------------- --- -------------
10. Bank loans and overdrafts
The finance liabilities are comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2015 June 2014 2014
(unaudited) (unaudited) (audited)
EURk EURk EURk
Bank overdrafts and other
short-term bank loans 34,511 14,096 5,463
----------------------------------- ------------- --- ------------- --- -------------
Bank loans with maturity
between one and five years 10,310 11,797 11,000
----------------------------------- ------------- --- ------------- --- -------------
Total bank liabilities 44,821 25,893 16,463
of these, secured 28,147 22,073 12,256
----------------------------------- ------------- --- ------------- --- -------------
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 2015 June 2014 2014
(unaudited) (unaudited) (audited)
EURk EURk EURk
Personnel liabilities (leave,
bonus claims) 12,905 12,122 15,616
Purchase obligations from
SQS India 10,613 6,812 7,978
Purchase obligations from
SQS USA 4,111 0 0
Sales tax and value-added
tax liabilities 7,234 5,330 7,959
Liabilities in regard to
social security 3,418 2,290 2,918
Outstanding invoices 3,416 2,330 2,407
Put Option SQS Italia 894 0 0
Grated rebates and discounts 415 1,135 208
Liabilities for employees'
travelling expenses 870 618 766
Liabilities against former
shareholders of SQS Italia 683 0 0
Interest swap (fair value) 390 572 538
Deferred income 783 915 457
Remaining other liabilities 2,714 3,577 2,053
Total 48,446 35,701 40,900
------------------------------------- ------------- --- ------------- --- -------------
The remaining other liabilities comprise trade accruals and
other items due in short term. Their carrying amounts are
considered to be reasonable approximation of fair value.
12. Equity
SQS is listed on the AIM market in London and traded on the Open
Market in Frankfurt (Main).
The development of equity is presented in the Consolidated
Statement of Changes in Equity.
Subscribed Capital
The subscribed capital amounts to EUR31,300,483 (at 31 December
2014: EUR30,562,679) and is divided into 31,300,483 (at 31 December
2014: 30,562,679) 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 subscribed capital are as follows:
Individual Nominal value
shares
--------------------------------------------- ----------- --------------
Number EUR
--------------------------------------------- ----------- --------------
As at 31 December 2014 30,562,679 30,592,679
--------------------------------------------- ----------- --------------
Capital increase against contribution
in kind for the acquisition of Trissential
LLC (Entry of 30 April 2015) 737,804 737,804
--------------------------------------------- ----------- --------------
As at 30 June 2015 31,300,483 31,300,483
--------------------------------------------- ----------- --------------
SQS had no shares in its ownership as at 30 June 2015.
Conditional Capital
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