TIDMSQS
RNS Number : 5638Q
SQS Software Quality Systems AG
13 September 2017
13 September 2017
SQS Software Quality Systems AG
("SQS" or the "Company")
Results for the six months ended 30 June 2017
SQS Software Quality Systems AG (AIM: SQS), the leading global
provider of quality assurance services for digital business
processes, today announces its unaudited results for the six months
ended 30 June 2017.
These first half results further demonstrate progress in
implementing the Company's medium term strategy to help customers
migrate towards a more digital focused business model. In pursuing
this strategy, SQS intends to deliver sustainable improvements in
gross margin, adj. EBIT and the annual dividend distribution, which
is evidenced in the numbers presented here.
Financial Highlights
-- Total revenue decreased 3.9% to EUR160.1m (H1 2016: EUR166.6; H2 2016: EUR160.5m)
o At constant currencies, revenue would have been EUR1.7m higher
at EUR161.8m
o Decrease due to one banking client loss of EUR7.0m
-- Gross margin improved by 90bps to 32.6% reflecting more
efficient and automated service delivery
-- Adjusted* gross profit decreased 1.1% to EUR52.2m (H1 2016: EUR52.8m)
-- Adjusted* EBIT increased by 5.4% to EUR12.1m (H1 2016: EUR11.5m)
o Reflecting improved gross margin, continued focus on improved
operating profit margins and strict cost management
o Adj. EBIT margin increased to 7.5% (H1 2016: 6.9%)
-- Adjusted* PBT increased by 7.9% to EUR12.8m (H1 2016: EUR11.9m)
o Includes a net positive finance result (net interest and
realised forex results of EUR0.7m, H1 2016: EUR0.4m)
-- Adjusted EPS* increased by 18.2% to EUR0.26 (H1 2016: EUR0.22)
o Driven by better operational profitability, a lower local GAAP
tax rate and a positive effect from a lower minority profit
share
-- Operating cash outflow at EUR(6.6)m (H1 2016: EUR(1.2)m)
o Reflecting typical H1 seasonality from bonus pay outs and
deferral of larger client invoicing and payments to H2
o Full year expecting another year of strong EBITDA to operating
cash flow conversion
-- Net debt EUR32.6m (at as 31 Dec 2016: net debt EUR12.4m, as
at 30 June 2016: net debt EUR32.9m)
o Reflecting effects from operating cash outflow, normalised
capex outflow of EUR4.0m and dividend payments of EUR4.8m during
H1
(*) Notes regarding adjustments can be found in the financial
review section.
Operational Highlights
-- A number of new clients secured in H1 with further contracts
expected to begin in the second half of the year
-- Momentum within Management Consulting ("MC") continued during
the first half of 2017, now accounting for 18.8% of total revenues
in H1 (H1 2016: 17.2%)
-- Continued demand for Managed Services ("MS") offering (now at
46% of revenues, H1 2016 at 47%), including a EUR4.0m contract with
a European online payments processing business
-- More than 52% of total revenues now derived from "digital"
engagements where SQS executes on a digital strategy or
transformation to open up new business models (up from 40% of total
revenues in the year to 31 December 2016)
-- Improved operational efficiency through more consistent use
of automation in project delivery
-- Healthy pipeline including opportunities across all major industries
Diederik Vos, Chief Executive Officer of SQS, commented:
"SQS continues to deliver on its strategy to equip its clients
with best in class digital transformation services. This can be
seen in solid gross margin and EBIT growth, a clear product of our
continued focus on increasing profitability through our
consistently improving service delivery and shift to higher margin
MC projects, which will drive future growth.
We are seeing healthy demand for our service offering, with
continued good performance across all our verticals - including our
core technology and automotive sectors - and we are excited about
the increasing breadth of our addressable market, as a result of
the quality of the Company's approach, expertise and product set.
As an increasing number of businesses seek to use smarter, more
automated processes to boost operational efficiency, meet evolving
regulatory standards and remain competitive, the Company is well
positioned to capitalise on favourable industry trends over the
next few years.
Looking ahead, SQS expects H2 2017 revenues to be above H1,
despite current currency headwinds. With an exciting market, a good
pipeline and an improving EBIT margin we have a great opportunity
to continue growing the returns to shareholders."
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
Stockdale Securities - Joint Broker Tel. +44 (0) 20 7601 6100
Robert Finlay / Antonio Bossi
FTI Consulting - Financial Media and Investor Relations Tel. +44 (0)20 3727 1000
Matt Dixon / Dwight Burden sqs@fticonsulting.com
About SQS
SQS is the leading global provider of quality assurance services
for digital business processes. This position stems from over 35
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,
industrialised 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 2016, SQS generated revenues of
EUR327.1 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 10,000 completed projects, SQS has a strong client
base, including half of the DAX 30, nearly a third of the EURO
STOXX 50 and 20 per cent of the FTSE 100 companies.
For more information, see www.sqs.com
Chief Executive's Statement
Introduction
Through digitisation and exciting advances in technology, the
global business environment continues to evolve, and that shift
also includes the space that SQS occupies.
SQS is helping to make customers more agile to the challenge by
increasing the speed of new technology deployment, adding greater
process automation, ultimately helping to create new revenue
opportunities and recognise better returns on investment.
Recent high profile IT incidents have increased the pressure on
companies to ensure that digital infrastructure is robust, secure
and able to adapt to meet future business needs. Decisions around
what level of digital transformation to undertake and how to ensure
the continuous quality and integrity of those new systems therefore
become increasingly important. SQS, through its Management
Consulting and Managed Services capabilities, is well positioned to
support companies in these important areas.
At the same time, and because digital systems themselves change
more frequently, there is growing demand for more efficient,
automated and smarter processes for implementing quality assured
software.
It is this growing operational agility and intelligence that
SQS, mainly through its MC and MS offerings, but also through its
Professional Services ("PS") capabilities, is offering to customers
across all end-markets.
As outlined in the 3 July trading update, MC will become the
growth engine as customer demands shift towards solutions to deploy
new digital environments and ultimately deliver the quality
assurance for these. To respond effectively to the changing
environment, SQS continues to look to, and invest in, process
automation, which remains at a relatively early stage of reaching
its full potential, to deliver its services more efficiently and
profitably.
Our focus is on increased profitability from operations and, in
the medium term, SQS expects to be able to deliver organically an
adjusted EBIT margin of at least 9% and corresponding operating
cash flow improvements - the two key metrics we use to measure
successful progress.
New Business
We are seeing strong demand for MC services across a number of
sectors, and are pleased to have secured new clients that are among
some of the world's best known global technology brands, operating
at the cutting edge of digital and technology trends. Demand within
automotive and manufacturing remains particularly high as the
necessity for reliable, quality assured, cutting edge software
capable of enabling the introduction of connected and autonomous
cars is expected to grow.
MS has accounted for 45.8% of total revenues in H1 2017 (H1
2016: 46.6%). The slight decline seen in the first half was largely
due to the reduced mandate from one major banking client (as
announced previously). We continue to see good demand for our MS
offering, evidenced by the award of a EUR4.0m MS contract from a
European online payments processing business keen to optimise the
manner in which it approaches quality assurance, and by further
interest being demonstrated in the retail and logistics
sectors.
In line with our strategy PS delivered 27.8% of revenues (H1
2016: 29.2%).
Regional Performance
Europe continues to be a significant growth market. As the shift
to digital systems takes hold in Europe, this opens up particular
opportunities for growth where we already enjoy strong existing
customer relationships and brand awareness. This is particularly
the case in our core geographies of Germany, Ireland and Italy
where we have made good progress, experiencing solid net organic
growth.
The US remains a key geography for us, given its position as the
largest single addressable software quality and consulting services
market. As expected, revenue share from the US in H1 2017 was
marginally down year-on-year at 15.0% of total revenue (H1 2016:
17.0%) as some of the key industries in which SQS is active in the
US remain subdued. Following recent market uncertainty we have seen
businesses in the US delay making business decisions, particularly
in healthcare and financial services, whilst some policy and
regulatory frameworks remain uncertain under the current
government. At the same time we have won a number of initial
contracts with US technology businesses which are expected to
contribute to growth in the second half and beyond. The Company's
acquisitions have given SQS the capabilities and brand awareness
needed to drive future growth in this key geography.
Strategy
SQS continues to deliver on its strategy to remain at the centre
of digital transformation and, in doing so, support its clients
across all stages in their shift to automation and digitisation,
chiefly in:
-- assessing their digital readiness
-- shaping their digital strategy and ensuring its effective deployment
-- aligning software quality with business strategy
-- ensuring the continuous quality and integrity of the software once deployed
As we innovate and expand our services portfolio, we continue to
increase the breadth of our capabilities and grow the scale of our
service offering, to best cater to the needs of our clients. This
includes deploying faster and better performing technology, and
implementing process automation across the organisation, to open up
new revenue streams and greater operational efficiencies for the
businesses we work with.
We are focussed on continuing to drive up profitability from our
operations and believe we can achieve this organically to deliver
an improved EBIT margin and operating cash flow. Whilst we continue
to integrate our US acquisitions, new acquisition opportunities are
likely to be more focussed on Europe where they are expected to
further strengthen the Company's offering for its clients.
Dividend
In accordance with German law, SQS pays one dividend in each
financial year. We expect to declare a dividend with our final
results for the year ending 31 December 2017, in line with our
current policy of paying out approximately 30% of adjusted profit
after tax as a dividend.
Employees
Total headcount as at 30 June 2017 was 4,402 (30 June 2016:
4,612), with an additional circa 240 contractors retained during
the period. This is in line with revenue development and reflects
our continued focus on delivering an increasingly automated service
to our clients. Further operational efficiencies can be
expected.
Outlook
SQS continues to deliver on its strategy to equip its clients
with best in class digital transformation services. This can be
seen in solid gross margin and EBIT growth, a clear product of our
continued focus on increasing profitability through our
consistently improving service delivery and shift to higher margin
MC projects, which will drive future growth.
We are seeing healthy demand for our service offering, with
continued good performance across all our verticals - including our
core technology and automotive sectors - and we are excited about
the increasing breadth of our addressable market, as a result of
the quality of the Company's approach, expertise and product set.
As an increasing number of businesses seek to use smarter, more
automated processes to boost operational efficiency, meet evolving
regulatory standards and remain competitive, the Company is well
positioned to capitalise on favourable industry trends over the
next few years.
Looking ahead, SQS expects H2 2017 revenues to be above H1,
despite current currency headwinds. With an exciting market, a good
pipeline and an improving EBIT margin we have a great opportunity
to continue growing the returns to shareholders.
Diederik Vos
Chief Executive Officer
13 September 2017
Financial Review H1 2017
Summary
Revenues of EUR160.1m have remained at largely the same level as
H2 2016, which represents a decline of 3.9% to H1 2016 (H2 2016
EUR160.5m, H1 2016: EUR166.6m), including a negative revenue impact
from translational forex of EUR1.7m and the effect of one banking
client loss of EUR7.0m.
The business units, which represent the accounting segments
according to IFRS 8, are:
-- Our Managed Services (MS) business unit meets the demand of
clients seeking efficiency in long-term engagements (between twelve
months and five years) of which a substantial share is delivered
from nearshore and offshore delivery centres. This also includes
long term engagements for quality assurance services on standard
software package products. MS continues to perform well, generating
good quality of earnings for the Group;
-- Our Management Consulting (MC) business unit meets the demand
of clients seeking transformation and quality through IT Portfolio
Programme and Project Management, Digital Transformation
Consulting, Business & Enterprise Architecture, Process
Modelling and Business Analysis. Our MC services portfolio offers
strong opportunities for growth and opens broader addressable
markets;
-- Our Professional Services (PS) business unit meets the demand
of more price conscious clients in IT projects who tend to be given
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 or MC),
training & conferences and software testing tools summarised as
"Other".
Breakdown by business unit
Managed Services (MS)
Revenue in MS, our largest segment and one of our strategic
focus areas, amounted to EUR73.4m in the period (H1 2016:
EUR77.6m), a decrease of (5.4)% on the prior year, representing 46%
of Group revenue. The decrease in revenue predominantly came from
the scope reduction of a larger banking managed services contract
that had ended last year.
Management Consulting (MC)
Revenue in this segment, our other strategic focus area, saw an
increase during the period of 5.2% to EUR30.1m (H1 2016: EUR28.6m),
representing 19% of Group revenue, up from 17% at H1 2016. Growth
for this segment was mainly driven by organic growth and a build up
of MC business in the key European markets.
Professional Services (PS)
Revenue in this segment decreased by (8.4)% to EUR44.5m (H1
2016: EUR48.6m) on the prior year period, representing 28% of Group
revenue. The revenue reduction has been in line with our strategy
to continue to reduce the share of this lower margin segment to a
range of around 25% of our total revenue.
Other
Revenue in the "Other" segment amounted to EUR12.1m in the
period (H1 2016: EUR11.8m), an increase of 2.5% on the prior year
and representing 7% of Group revenue. A slight increase in revenue
from contractors was the key driver for this development.
Margins and Profitability
Operating profits and margins were adjusted(*), as in all
previous reporting periods, by the following non-cash items and
acquisition costs:
-- Adjustment on gross profit:
o EUR0.33m for amortisation of order backlog of acquired
companies
-- Adjustment on G&A costs:
o EUR0.70m for amortisation of client relationship of acquired
companies
o EUR0.25 for acquisition costs
The above adjustments account for the difference between
reported EBIT of EUR10.8m and Adjusted EBIT of EUR12.1m. Further
adjustments are made to the reported finance costs and tax charge
as below, in order to derive Adjusted PBT and Adjusted Earnings
respectively:
-- Adjustment on finance result:
o EUR0.3m for pro forma interests on deferred payments for
acquisitions
-- Adjustment on taxes:
o EUR(0.6)m profit tax adjustment, as actual local GAAP profit
taxes are higher than IFRS taxes including deferred taxes
Adjusted* gross profit decreased by 1.1% to EUR52.2m (H1 2016:
EUR52.8m), with the gross margin up to 32.6% (H1 2016: 31.7%). The
improvement in gross margin was driven by an increased blended
contribution from MS and MC that deliver higher client value and
better margins in the range above 36%. Gross margins in the PS
segment also slightly improved to 27.6% (H1 2016: 27.0%).
Gross margins in the "Other" segment were at 20.1% (H1 2016:
16.7%) reflecting an improved contractor gross margin and a lower
share from tool licences re-selling.
Adjusted* earnings before interests and taxes (adj. EBIT) for
the period was EUR12.1m (H1 2016: EUR11.5m), an increase of 5.4%,
with the adjusted EBIT margin at 7.5% (H1 2016: 6.9%). The adj.
EBIT was driven by a blended gross margin of about 36% in MS, MC
and an increased share from these two strategic business lines of
65% of total revenue (H1 2016: 64% of total revenue).
Adjusted* profit before tax for the period was EUR12.8m (H1
2016: EUR11.9m), an increase of 7.9%, with the adjusted profit
margin at 8.0% (H1 2016: 7.1%). The profit before tax was driven by
the effects mentioned under EBIT above, and a slightly improved
finance result from lower net interest costs and better net
realised exchange rate gains.
Adjusted* earnings per share were EUR0.26 (H1 2016: EUR0.22)
resulting from the above outlined improvements in margins and
finance results and a positive effect from a reduced minority
profit share mainly from SQS India BFSI of EUR(0.8)m (H1 2016:
EUR(1.3)m).
Costs
Total overhead costs (adjusted for the non-finance effects under
* above) moved up to 25.1% of revenue from 24.8% in H1 2016 due to
lower revenues, but overall costs came down by EUR1.2m.
General & Administrative expenses (adjusted for the
non-finance effects under * above) for the period were EUR26.2m (H1
2016: EUR27.9m). As a percentage of revenue these costs remained
flat at 16.8% (H1 2016: 16.7%). The absolute reduction was mainly
due to better operational efficiencies and the increased global use
of shared services.
Sales & Marketing costs for the period were EUR11.7m (H1
2016: EUR11.7m), representing 7.3% of revenues (H1 2016: 7.0%).
Research & Development expenses during the period were up at
EUR2.3m (H1 2016: EUR1.7m) representing 1.4% (H1 2016: 1.0%) of
revenues. This investment was focused on the development of our
proprietary software testing tools, the PractiQ methodology and new
platforms around predictive quality analytics. Our research
technology centre in Belfast was expanded during the period to
improve the competitive positioning of SQS services with more
intellectual property. We expect to maintain this slightly
increased level of R&D spend going forward.
Finance Income and Costs
Net finance income of EUR0.4m comprises net interest costs of
EUR(0.7)m offset by foreign exchange net gains of EUR1.1m
Cash Flow and Financing
Cash outflow from operating activities was at EUR(6.6)m (H1
2016: EUR(1.2)m outflow). This profile of an operating cash outflow
during the first half is due to the typical seasonality we have
seen in previous first half year periods, reflecting payment of
staff bonuses and the usual seasonal increase in debtor days (which
increased to 81 as compared to 70 at the end of 2016 and 77 days at
mid-2016). We therefore expect an improved cash collection and full
EBITDA to operating cash conversion by the end of the full year, as
in previous years.
We have also during the period adopted a significantly
accelerated month end accounts closing timetable which results in
increased levels of work-in-progress and a corresponding decrease
in trade debtors. This has no impact on the actual billing of
customers or the timing of cash receipts.
Cash outflow from investments came down to EUR(4.0)m (H1 2016:
EUR(6.3)m outflow), as no payments for acquisitions or building
infrastructure investments were due. The current level of
investment is largely a "normalised" level for IT infrastructure
and R&D spend.
Total cash inflow from financing activities was EUR9.6m (H1
2016: EUR7.2m inflow) reflecting a net increase in finance loans of
EUR14.3m during H1 2017, mainly to fund the outflow from operating
and investment activities. Additionally dividend payments to SQS
Group shareholders resulted in an outflow of EUR(4.8)m (H1 2016:
EUR(4.1)m outflow).
Balance Sheet
We closed the period with EUR23.9m (31 Dec 2016: EUR29.8m) of
cash and cash equivalents on the balance sheet and borrowings of
EUR56.5m (31 Dec 2016: EUR42.2m). The increase in borrowings was
mainly due to fund the seasonal first half requirements from
working capital and dividend payments. Cash reserves are held in a
broader range of currencies and the transfer of funds is restricted
in some geographies, such as India. Therefore, the offset between
cash and debt positions has become less flexible as we also seek to
avoid the realisation of negative exchange rate movements. The
resulting net debt position at the period end was EUR(32.6)m (31
Dec 2016: net debt of EUR(12.4)m; 30 June 2016: net debt of
EUR(32.9)m).
SQS has borrowing facilities with four main banks and
additionally continues to have local overdraft facilities in some
countries. In total its facilities with the four main banks are now
EUR83m and are in place until 2021. These facilities are subject to
customary covenants, are not secured and the borrowing costs are
lower than historically.
For the acquired companies Bitmedia, Trissential and Galmont,
intangible assets for client relationships and order backlog with a
fair value of EUR8.6m were recognised in the 30 June 2017 balance
sheet, reflecting a further amortisation of EUR1.0m during the
period. On average these intangible assets are amortised over a
period of up to nine years.
In total goodwill and intangible assets from the acquired
companies came down to EUR84.6m in the H1 2017 balance sheet (YE
2016: EUR89.1m) resulting from the aforementioned amortisation and
forex adjustments of recognised goodwill.
As these amortisation charges are non-cash-items and do not
impact the normal business of SQS, they are adjusted within the
Gross Profit, EBIT, PBT and EPS reporting.
Taxation
The tax charge of EUR3.1m (H1 2016: EUR2.3m) includes current
tax expenses of EUR3.7m (H1 2016: EUR3.7m) and deferred tax income
of EUR(0.6)m (H1 2016: EUR(1.4)m). The tax rate on local GAAP
results was 28.9% (H1 2016: 31.0%), the lower tax rate being a
consequence of changes in the geographic spread of profits. Going
forward, we expect an actual tax rate of c. 29%.
Foreign Exchange
Approximately 61.7% (H1 2016: 55.2%) of the Group's turnover is
generated in Euro. For the conversion of revenues and costs
generated in other currencies into Euro, the relevant official
average exchange rate for the first six-month-period of 2017 was
applied. For the conversion of the balance sheet items from other
currencies into Euro, the official exchange rate as at 30 June 2017
was used.
Foreign exchange had a EUR0.3m positive translational impact on
earnings for the period. Had the Pound Sterling/Swiss Franc/Indian
Rupee/Swedish Krona/Egyptian Pound/US-$/Euro exchange rates
remained the same as in H1 2016, our non-Euro revenues for the
period would have been EUR1.7m higher and the adj. EBIT would have
been EUR0.3m lower.
International Financial Reporting Standards (IFRS)
The Consolidated Financial Statements of SQS and its subsidiary
companies ("SQS Group") are prepared in conformity with all IFRS
(International Financial Reporting Standards) and Interpretations
of the IASB (International Accounting Standards Board) which are
mandatory at 30 June 2017.
The SQS Group Consolidated Financial Statements for the 6-month
period ended 30 June 2017 were prepared in accordance with uniform
accounting and valuation principles in Euro.
Rene Gawron
Chief Financial Officer
13 September 2017
Consolidated Income Statement
for the six months ended 30 June 2017
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Revenue 160,134 166,623 327,103
Cost of sales (3) 108,222 114,533 223,482
Gross profit 51,912 52,090 103,621
General and administrative expenses (3) 27,142 31,350 61,981
Sales and marketing expenses (3) 11,678 11,745 23,898
Research and development expenses (3) 2,306 1,745 4,154
Profit before amortisation,
tax and finance costs (EBIT) 10,786 7,250 13,588
Amortisation of goodwill 0 0 5,600
Profit before tax and finance
costs (EBIT) 10,786 7,250 7,988
Finance income 1,750 1,197 9,754
Finance costs 1,332 1,281 3,002
Net finance income (costs) (4) 418 -84 6,752
Profit before taxes (EBT) 11,204 7,166 14,740
Income tax expense (5) 3,089 2,276 4,231
Profit for the period 8,115 4,890 10,509
Attributable to:
Owners of the parent (6) 7,282 4,478 10,004
Non-controlling interests (13) 833 412 505
Consolidated profit for the
period 8,115 4,890 10,509
============ ============ ===============
Earnings per share, undiluted
(EUR) (6) 0.23 0.14 0.32
============ ============ ===============
Earnings per share, diluted
(EUR) (6) 0.22 0.13 0.30
============ ============ ===============
Adjusted earnings per share
(EUR), for comparison only (6) 0.26 0.22 0.47
============ ============ ===============
Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2017
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Profit for the period 8,115 4,890 10,509
Exchange differences on translating
foreign operations -4,259 -6,189 -6,431
Gains / losses arising from cash flow
hedges 15 63 86
Other comprehensive income to be reclassified
to profit or loss in subsequent periods -4,244 -6,126 -6,345
Re-measurement losses on defined benefit
plans 0 0 1,651
Other comprehensive income not being
reclassified
to profit or loss in subsequent periods 0 0 1,651
Other comprehensive income for the period,
net of tax -4,244 -6,126 -4,694
Total comprehensive income for the period,
net of tax 3,871 -1,236 5,815
============ ============ =================
Attributable to:
Owners of the parent 2,961 -2,086 4,907
Non-controlling interests 910 850 908
Consolidated Statement of Financial Position
as at 30 June 2017 (IFRS)
30 June 2017 30 June 2016 31 December
2016
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Current assets
Cash and cash equivalents 23,919 26,399 29,824
Trade receivables 50,292 61,360 56,424
Other receivables 10,950 6,880 7,207
Work in progress 36,812 23,546 17,207
Income tax receivables 3,172 1,931 3,261
125,145 120,116 113,923
Non-current assets
Intangible assets (7) 22,198 23,378 23,121
Goodwill (7) 75,916 87,389 78,860
Property, plant and equipment (8) 15,987 16,517 16,711
Financial assets 30 33 30
Income tax receivables 192 1,339 285
Deferred tax assets 5,689 5,443 5,615
120,012 134,099 124,622
Total Assets 245,157 254,215 238,545
Current liabilities
Bank loans and overdrafts (9) 55,215 59,062 41,119
Finance lease 0 63 0
Trade payables 7,450 6,038 9,834
Other provisions 0 0 0
Income tax accruals 3,049 5,176 2,573
Other current liabilities (10) 41,657 40,500 45,294
107,371 110,839 98,820
Non-current liabilities
Bank loans (9) 1,275 250 1,058
Finance lease 110 54 115
Other provisions 0 0 0
Pension provisions 3,793 5,927 4,034
Deferred tax liabilities 5,399 6,548 6,136
Other non-current liabilities (10) 8,288 16,077 8,845
18,865 28,856 20,188
Total Liabilities 126,236 139,695 119,008
Equity (11)
Share capital 31,676 31,676 31,676
Share premium 57,148 56,686 56,902
Statutory reserves 53 53 53
Other reserves -10,790 -6,293 -6,469
Retained earnings 31,593 21,884 29,062
Equity attributable to owners
of the parent 109,680 104,006 111,224
Non-controlling interests (13) 9,241 10,514 8,313
Total Equity 118,921 114,520 119,537
Equity and Liabilities 245,157 254,215 238,545
Consolidated Statement of Cash Flows
for the six months ended 30 June 2017 (IFRS)
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(Notes) (unaudited) (unaudited) (audited)
kEUR kEUR kEUR
Net cash flow from operating activities
Profit before taxes 11,204 7,166 14,740
Add back for
Depreciation and amortisation (3) 4,384 7,708 15,824
Loss on the sale of property, plant
and equipment 110 269 309
Other non-cash income not affecting
payments 2,185 2,368 -2,455
Net finance costs (4) -418 84 -1,253
Operating profit before changes in the net
current assets 17,465 17,595 27,165
Increase / Decrease in trade receivables 6,132 -267 4,669
Increase / Decrease in work in progress and
other receivables -23,127 -8,970 -2,276
Decrease / Increase in trade payables -2,384 -4,479 -683
Decrease / Increase in pension provisions -40 215 83
Decrease / Increase in other liabilities
and deferred income -4,661 -5,261 2,279
Cash flow from operating activities -6,615 -1,167 31,237
Interest payments (4) -455 -594 -1,386
Tax payments (5) -3,713 -4,062 -8,037
Net cash flow from operating activities -10,783 -5,823 21,814
Cash flow from investment activities
Purchase of intangible assets -3,085 -3,763 -8,515
Purchase of property, plant and equipment -972 -2,602 -3,299
Purchase of net assets of acquired
companies 0 -3 0
Interest received (4) 49 112 398
Net cash flow from investment activities -4,008 -6,256 -11,416
Cash flow from financing activities
Dividends paid -4,751 -4,118 -4,118
Proceeds from non-controlling interests on
the exercise of stock options 18 330 345
Payments for the acquisition of non-controlling
interests 0 0 -10,403
Dividends paid to non controlling
interests 0 0 -2,274
Repayment of finance loans (9) -6,058 -12,618 -26,152
Increase of finance loans (9) 20,371 34,041 30,440
Payments to minority shareholders
from put option 0 -10,403 0
Redemption of finance lease contracts -25 0 -116
Net cash flow from financing activities 9,555 7,232 -12,278
Change in the level of funds affecting
payments -5,236 -4,847 -1,880
Changes in cash and cash equivalents
due to exchange rate movements -669 -743 -286
Cash and cash equivalents
at the beginning of the period 29,824 31,990 31,990
Cash and cash equivalents
at the end of the period 23,919 26,400 29,824
Consolidated Statement of Changes in Equity
for the six months ended 30 June 2017 (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
31 December 2015
(audited) 31,676 56,478 53 -1,693 -201 2,165 21,524 110,002 9,335 119,337
======== ======== ========== ========= ======== ============ ========= ======== ============= ========
Dividends paid -4,117 -4,117 -4,117
Transactions with
owners
of the parent -4,117 -4,117 -4,117
-------- -------- ---------- --------- -------- ------------ --------- -------- ------------- --------
Business
combinations 0 0
Acquisition of
subsidiary 0 0
Capital increase 0 329 329
Acquisition of
non-controlling
interests 0 0
Share-based
payments 208 208 208
Profit for the
period 4,478 4,478 412 4,890
Exchange
differences
on translating
foreign
operations -6,627 -6,627 438 -6,189
Gains arising
from cash
flow hedges 63 63 63
Total
comprehensive
income 63 -6,627 4,478 -2,086 850 -1,236
30 June 2016
(unaudited) 31,676 56,686 53 -1,693 -138 -4,462 21,885 104,007 10,514 114,521
======== ======== ========== ========= ======== ============ ========= ======== ============= ========
Dividends paid 0 -2,274 -2,274
Capital increase
out
against
contribution
in kind 0 15 15
Transactions with
owners
of the parent 0 0 -2,259 -2,259
-------- -------- ---------- --------- -------- ------------ --------- -------- ------------- --------
Business
combinations 0 0 0
Capital increase 0 0
Acquisition of
non-controlling
interests 0 0
Share-based
payments 216 216 216
Profit for the
period 5,526 5,526 93 5,619
Exchange
differences
on translating
foreign
operations -207 -207 -35 -242
Re-measurement
gains
on defined
benefit plans 1,651 1,651 1,651
Gains arising
from cash
flow hedges 23 23 23
Other changes 8 8 8
Total
comprehensive
income 23 -207 7,177 6,993 58 7,051
31 December 2016
(audited) 31,676 56,902 53 -1,685 -115 -4,669 29,062 111,224 8,313 119,537
======== ======== ========== ========= ======== ============ ========= ======== ============= ========
Dividends paid -4,751 -4,751 -4,751
Transactions with
owners
of the parent -4,751 -4,751 -4,751
-------- -------- ---------- --------- -------- ------------ --------- -------- ------------- --------
Business
combinations 0 0
Acquisition of
subsidiary 0 0
Capital increase 0 18 18
Acquisition of
non-controlling
interests 0 0
Share-based
payments 246 246 246
Profit for the
period 7,282 7,282 833 8,115
Exchange
differences
on translating
foreign
operations -4,336 -4,336 77 -4,259
Gains arising
from cash
flow hedges 15 15 15
Total
comprehensive
income 15 -4,336 7,282 2,961 910 3,871
30 June 2017
(unaudited) 31,676 57,148 53 -1,685 -100 -9,005 31,593 109,680 9,241 118,921
======== ======== ========== ========= ======== ============ ========= ======== ============= ========
Notes to the interim consolidated financial statements
(unaudited)
at 30 June 2017
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 2017. The interim
consolidated financial statements for the six months ended 30 June
2017 have been prepared in accordance with IAS 34 Interim Financial
Reporting. The Interim Consolidated Financial Statements have
neither been audited nor reviewed.
The accounting policies applied preparing the Interim
Consolidated Financial Statements 2017 are consistent with those
used for the Consolidated Financial Statements at 31 December
2016.
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
the 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 2016.
New Standards, Interpretations and Amendments
The accounting policies adopted in the preparation of the
interim consolidated financial statements are consistent with those
followed in the preparation of the Group's annual consolidated
financial statements for the year ended 31 December 2016, except
for the adoption of new standards effective as of 1 January 2017.
The Group has not early adopted any other standard, interpretation
or amendment that has been issued but is not yet effective.
The following changes to Standards and Interpretations published
by the IASB are effective generally since 1 January 2017. The
European Union has not endorsed the following standards and
therefore these are not yet applicable for SQS:
IAS 7 Statement of Cash Flows - Disclosure Initiative (Amendment)
IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
(Amendment)
Annual Improvements Cycle 2014 - 2016 Amendments to IFRS 12
Disclosure of Interests in Other Entities: Clarification of the
scope of disclosure requirements in IFRS 12.
The Group does not expect significant impacts on its
Consolidated Financial Statements.
Recent accounting pronouncement, not yet adopted
In July 2014, the IASB issued IFRS 9 Financial Instruments. The
new standard is effective for annual reporting periods beginning on
or after 1 January 2018, while early application is permitted. The
Group will adopt IFRS 9 for the fiscal year beginning as of 1
January 2018. The amendments and improvements will not have any
material impact on the consolidated financial statements of SQS
Group.
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with
Customers. IFRS 15 supersedes IAS 11 Construction Contracts and IAS
18 Revenue as well as related interpretations. The standard is
effective for annual periods beginning on or after 1 January 2018;
early application is permitted. The Group will adopt the standard
for the fiscal year beginning as of 1 January 2018. Currently, it
is expected that changes in the total amount of revenue to be
recognised for a customer contract will be very limited. Besides,
changes to the Statement of Financial Position are expected, e.g.
separate line items for contract assets and contract liabilities
will be required, and quantitative and qualitative disclosures will
be added. The Group does not expect significant impacts on its
Consolidated Financial Statements.
In January 2016, the IASB issued IFRS 16 Leases. IFRS 16 is
effective for annual periods beginning on or after 1 January 2019;
earlier application is permitted if IFRS 15 is already applied. The
Group is currently assessing the impact of adopting IFRS 16 on the
Group's Consolidated Financial Statements and will adopt the
standard for the fiscal year beginning as of 1 January 2019.
Basis of consolidation
As at 30 June 2017, 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 2017 June 2016 2016
----------- ----------- -------------
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, Stockholm Sweden 100.0 100.0 100.0
SQS Software Quality Systems
Sweden AB, Stockholm 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 100.0 100.0 100.0
SQS France SASU, Paris France 100.0 100.0 100.0
SQS USA Inc., Chicago (Illinois) USA 100.0 100.0 100.0
SQS India BFSI Limited,
Chennai India 53.84 53.95 53.9
SQS Software Quality Systems
Italia S.p.A., Rome Italy 90.0 90.0 90.0
Trissential LLC, Waukesha
(Wisconsin) USA 100.0 100.0 100.0
SQS North America LLC (previously:
Galmont Consulting LLC),
Chicago (Illinois) USA 100.0 100.0 100.0
------------------------------------ ----------------- ----------- ----------- -------------
SQS AG holds 15% of the shares of SQS Portugal Lda with a book
value of EUR nil (previous year EUR nil).
SQS India BFSI Ltd. is the sole shareholder of SQS BFSI Pte.
Ltd., Singapore, SQS BFSI Inc., USA, Thinksoft Global Services
(Europe) GmbH, Germany, SQS BFSI UK Ltd., UK, and SQS BFSI FZE,
United Arab Emirates. None of these companies each has a main
impact on the financial data of the group.
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
-- the assumptions regarding the fair value of assets and
liabilities from business combinations
There have been no changes in estimates compared to the year
2016.
2. Segmental reporting
Based on the organisational 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 substantial share (in many cases) is delivered
from nearshore and offshore delivery centres. This also includes
long term engagements for quality assurance services on standard
software package products;
-- Management Consulting (MC) (previously called Specialist
Consultancy Services (SCS)) to meet the demand of clients seeking
transformation and quality through IT Portfolio Programme and
Project Management, Business & Enterprise Architecture, Process
Modelling and Business Analysis;
-- Professional Services (PS) (previously called 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 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), COO (Chief Operations
Officer) and Executive Director Management Consulting 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
Portfolio Management, Marketing, Finance & Administration, IT
and Human Resources.
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.
The following tables present revenue and profit information
regarding the SQS Group's reportable segments for the interim
periods ended 30 June 2017 and 30 June 2016 and for the year ended
31 December 2016, respectively.
Six month ended MS MC PS Other Total
30 June 2017 (unaudited)
EURk EURk EURk EURk EURk
Revenues 73,438 30,094 44,505 12,097 160,134
Segment profit (gross
profit) 26,833 10,698 11,949 2,431 51,912
Non-allocated costs (41,126)
EBIT 10,786
Financial result 418
Taxes on income (3,089)
Result for the period 8,115
--------------------------- ------- ------- ------- ------- ---------
Six month ended MS MC PS Other Total
30 June 2016 (unaudited)
EURk EURk EURk EURk EURk
Revenues 77,610 28,596 48,614 11,803 166,623
Segment profit (gross
profit) 27,940 9,779 13,143 1,977 52,839
Non-allocated costs (45,589)
EBIT 7,250
Financial result (84)
Taxes on income (2,276)
Result for the period 4,890
--------------------------- ------- ------- ------- ------- ---------
Year ended 31 MS MC PS Other Total
December 2016 (audited)
EURk EURk EURk EURk EURk
Revenues 146,411 57,317 93,409 29,966 327,103
Segment profit (Gross
profit) 52,708 19,946 24,660 6,307 103,601
Non-allocated costs (90,033)
Amortisation of goodwill (5,600)
EBIT 7,988
Financial result 6,752
Taxes on income (4,231)
Result for the period 10,509
-------------------------- -------- ------- ------- ------- ---------
3. 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 2017 amounted to EUR12,948k (at mid-year 2016:
EUR12,254k). Cost of material mainly relates to the procurement of
external services such as contracted software 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 2017 June 2016 2016
(unaudited) (unaudited) (audited)
EURk EURk EURk
Wages and salaries 95,676 100,654 196,197
Social security contributions 11,570 12,106 23,681
Expenses for retirement benefits 2,644 2,194 5,120
Total 109,890 114,954 224,998
---------------------------------------- ------------- --- ------------- --- -------------
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 2017 amounted to EUR4,384k (at mid-year 2016:
EUR7,709k). Of this, EUR1,684k (at mid-year 2016: EUR1,828k) was
attributable to the amortisation of development costs and EUR1,026k
to customer relationships and order backlog regarding SQS Software
Quality Systems Italia S.p.A., Trissential LLC and SQS North
America LLC. In the interim period ended 30 Jun 2016 an amount of
EUR4,192k had been recognised as amortisation of customer
relationships and order backlog regarding SQS India BFSI, SQS
Software Quality Systems Italia S.p.A. and Trissential LLC.
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 2017 June 2016 2016
(unaudited) (unaudited) (audited)
EURk EURk EURk
Interest income 49 112 397
Exchange rate gains 1,701 1,085 3,857
---------------------------------- ------------- --- ------------- --- -------------
Total finance income 1,750 1,197 4,254
---------------------------------- ------------- --- ------------- --- -------------
Interest expense (761) (1,081) (1,966)
Exchange rate losses (571) (200) (1,036)
---------------------------------- ------------- --- ------------- --- -------------
Total finance costs (1,332) (1,281) (3,002)
---------------------------------- ------------- --- ------------- --- -------------
Effects from the valuation
of financial liabilities
at fair value 0 0 5,500
---------------------------------- ------------- --- ------------- --- -------------
Net finance costs 418 (84) 6,752
---------------------------------- ------------- --- ------------- --- -------------
Interest expense relates to interest on bank loans, finance
lease liabilities and pension obligations.
5. Taxes on earnings
The line item includes current tax expenses in the amount of
EUR3,693k (at mid-year 2016: EUR4,065k) and deferred tax income in
the amount of EUR(604)k (at mid-year 2016 deferred tax income:
EUR(1,789)k).
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 2017 June 2016 2016
(unaudited) (unaudited) (audited)
Profit for the year attributable
to owners of the parent,
EURk 7,282 4,478 10,004
---------------------------------------- ------------- --- ------------- --- -------------
Diluted profit for the year,
EURk 7,282 4,478 10,004
---------------------------------------- ------------- --- ------------- --- -------------
Weighted average number of
shares in issue, undiluted 31,675,617 31,675,617 31,675,617
---------------------------------------- ------------- --- ------------- --- -------------
Weighted average number of
shares in issue, diluted 33,760,617 33,697,343 33,749,900
---------------------------------------- ------------- --- ------------- --- -------------
Undiluted profit per share,
EUR 0.23 0.14 0.32
---------------------------------------- ------------- --- ------------- --- -------------
Diluted profit per share,
EUR 0.22 0.13 0.30
---------------------------------------- ------------- --- ------------- --- -------------
Adjusted profit per share
(optional), EUR 0.26 0.22 0.47
---------------------------------------- ------------- --- ------------- --- -------------
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 2017: 31,675,617 (at mid-year 2016:
31,675,617).
Diluted profit per share is determined by dividing the profit
for the six month period attributable to equity shareholders 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, amortised costs of acquired customer
relationships and order backlog as part of the business combination
SQS Italia S.p.A., SQS North America LLC and Trissential LLC,
valuation differences and non-controlling interest effects. This
adjusted profit after tax divided by the weighted average number of
shares in issue during the six month period ended 30 June 2017:
31,675,617 shares, (at mid-year 2016: 31,675,617 shares) shows
adjusted earnings per share of EUR0.26 (at mid-year 2016:
EUR0.22).
7. 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 2017 June 2016 2016
(unaudited) (unaudited) (audited)
EURk EURk EURk
Goodwill 75,916 87,389 78,860
------------------------------------- ------------- --- ------------- --- -------------
Development costs of software 3,221 2,832 2,473
Other development costs 3,628 3,236 3,762
Acquired Software 6,705 4,529 6,242
Customer relationships 7,678 11,163 8,950
Order backlog 966 1,618 1,292
Right to a design method 0 - 402
Intangible assets 22,198 23,378 23,121
------------------------------------- ------------- --- ------------- --- -------------
Total 98,114 110,768 101,981
------------------------------------- ------------- --- ------------- --- -------------
Development costs were capitalised in the interim period ended
30 June 2017 in the amount of EUR2,316k (at mid-year 2016:
EUR1,540k). Development cost of software are amortised over a
period of 36 months. 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 Software Quality Systems Italia S.p.A.,
Trissential LLC and SQS North America LLC (previously Galmont
Consulting LLC). The order backlog was acquired within the business
combination of SQS Software Quality Systems Italia S.p.A.
Amortisation over the expected Customer relationship Order backlog
useful life in years
-------------------------------- ---------------------- --------------
SQS Software Quality Systems
Italia S.p.A. 6 3,9
Trissential LLC 10 -
SQS North America LLC 4 -
--------------------------------- ---------------------- --------------
The amortisation of software and remaining intangible assets is
allocated to the functional costs by an allocation key. The
amortisation of development costs is shown in the research and
development expenses.
8. 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 2017 June 2016 2016
(unaudited) (unaudited) (audited)
EURk EURk EURk
Freehold land and buildings 9,261 5,355 9,655
Office and business equipment 5,972 4,236 6,283
Construction in progress 754 6,926 773
Total 15,987 16,517 16,711
------------------------------------- ------------- --- ------------- --- -------------
9. Bank loans and overdrafts
The finance liabilities are comprised as follows:
Six month Six month Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
(unaudited) (unaudited) (audited)
EURk EURk EURk
Bank overdrafts and other
short-term bank loans 55,215 59,062 41,119
----------------------------------- ------------- --- ------------- --- -------------
Bank loans with maturity
between one and five years 1,275 250 1,058
----------------------------------- ------------- --- ------------- --- -------------
Total bank liabilities 56,490 59,312 42,177
of these, secured 0 114 0
----------------------------------- ------------- --- ------------- --- -------------
For SQS AG and some subsidiaries bank overdraft agreements are
in place.
10. 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 2017 June 2016 2016
(unaudited) (unaudited) (audited)
EURk EURk EURk
Personnel liabilities (holiday,
leave, bonus claims) 14,233 15,594 18,846
Put Option SQS Italia 1,039 994 1,017
Purchase obligation from
Trissential 7,291 7,240 7,798
Purchase obligation from
SQS North America LLC (previously
Galmont Consulting LLC) 2,090 10,251 1,599
Sales tax and value-added
tax liabilities 6,237 6,709 7,923
Liabilities in regard to
social security 3,556 3,515 3,799
Outstanding invoices 6,823 5,628 4,922
Granted rebates and discounts 1,144 521 863
Liabilities for employees'
travelling expenses 893 1,129 1,071
Interest swap (fair value) 123 312 166
Deferred income 4,025 1,081 1,701
Remaining other liabilities 2,491 3,602 4,434
Total 49,945 56,576 54,139
------------------------------------------ ------------- --- ------------- --- -------------
The remaining other liabilities comprise trade accruals and
other items due in short term. Their carrying amounts are
considered to be reasonable approximation of their fair value.
11. 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 EUR31,675,617 (at 31 December
2016: EUR31,675,617) and is divided into 31,675,617 (at 31 December
2016: 31,675,617) 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.
SQS had no shares in its ownership as at 30 June 2017.
Conditional Capital
The conditional capital is to be composed as follows:
- the Conditional Capital 3 amounts to EUR1,300,000;
- the Conditional Capital 4 amounts to EUR1,050,000;
- the Conditional Capital 5 amounts to EUR700,000.
The Conditional Capital 3, 4 and 5 serve to grant share options
to the management board members and employees respectively.
There are no changes in the Conditional Capital compared to 31
December 2016.
Authorised Capital
The Authorised Capital amounts to EUR13,887,062 (at 31 December
2016: EUR13,887,062).
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 regarding the fair values of interest and currency
swaps.
Retained earnings
Retained earnings represent the accumulated retained profits of
SQS Group less dividend payments.
The General Meeting of 24 May 2017 resolved to pay a EUR0.15
dividend per share for the business year 2016 in the total amount
of EUR4,751,342.55, the dividends have been paid to the
shareholders of SQS AG in 2017.
12. Employee participation programme
Share-based Payment
SQS policy is to offer management and key employees share-based
payments. Therefore SQS has decided and granted the share-based
payment programmes 2013, 2014 and 2015.
The number and weighted-average exercise prices of share option
granted in 2013 and 2014 were as follows:
Granted in 2013 Granted in 2014
--------------- ---------------------------------------------------------------- -------------------------------
For management For key employees For key employees
board (Tranche I) (Tranche II)
--------------- ------------------------------- ------------------------------- -------------------------------
Number Weighted-average Number Weighted-average Number Weighted-average
of options price of options price of options price
--------------- ------------ ----------------- ------------ ----------------- ------------ -----------------
Outstanding
at beginning
of period 1,145,000 3.07 430,000 3.59 230,000 5.79
--------------- ------------ ----------------- ------------ ----------------- ------------ -----------------
Outstanding
at end
of half
period 1,145,000 3.07 430,000 3.59 230,000 5.79
--------------- ------------ ----------------- ------------ ----------------- ------------ -----------------
Exercisable --- --- --- --- --- ---
at end
of period
--------------- ------------ ----------------- ------------ ----------------- ------------ -----------------
The number and weighted-average exercise prices of the 2015
share option programme were as follows:
Granted in 2016
------------------- ------------------------------------------------------------
For key employees & For key employees &
management board management board
(Tranche I) (Tranche II)
------------------- ----------------------------- -----------------------------
Number of Weighted-average Number of Weighted-average
options price options price
------------------- ---------- ----------------- ---------- -----------------
Outstanding
at beginning
of period 180,000 5.65 100,000 5.27
------------------- ---------- ----------------- ---------- -----------------
Outstanding
at end of half
period 180,000 5.65 100,000 5.27
------------------- ---------- ----------------- ---------- -----------------
Exercisable --- --- --- ---
at end of period
------------------- ---------- ----------------- ---------- -----------------
13. Non-controlling Interests
SQS attributes the profit or loss and each component of
comprehensive income to the owners of the parent and to the
non-controlling interests applying the relevant percentage of share
on the contribution of profit or loss of each entity to the
consolidated comprehensive income of the period. Non-controlling
interests participate in the net assets recognised in the financial
statement of SQS Group. Share-based payments relating to
non-controlling interests are attributed exclusively to those
non-controlling interests.
14. Notes to the 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 investing, financing and operating activities.
The sources of funds on which the statement of cash flows is
based consist of cash and cash equivalents (cash on hand and bank
balances).
15. Related party transactions
Under IAS 24, related persons and related companies are persons
and companies who are able to control or to exercise a significant
influence over their finance or business policy on the reporting
entity. Regarding SQS Group, these are the management board and the
supervisory board members. Further, two real estate investment
funds who are landlords of SQS offices at Cologne are considered to
be related parties as these entities are controlled by one
supervisory board member and employees of SQS AG.
The following related party transactions have taken place:
Mr. Vos, Mr. Gawron and part of the members of the supervisory
board and their relatives received dividends as shareholders of SQS
AG. At the date the dividends were paid Mr. Vos and Mr. Gawron held
0.2% and the members of the supervisory board and their relatives
held 12.0% of the shares in SQS AG.
SQS uses property owned by the closed real estate investment
fund "S.T.O.L. Immobilien Verwaltung GmbH & Co. KG", Cologne,
and the real estate investment fund "Immobilienfond Am Westhofer
Berg GbR mbH", Cologne. The shares in these companies are held by
supervisory board members, employees and former management board
members of SQS AG. The contractual conditions of the lease terms
are based on market prices. The total expenses incurred under these
contracts amounted in the interim period to EUR345k (at mid-year
2016: EUR345k).
The total emoluments of the management board members in the
interim period ended 30 June 2017 amounted to EUR1,088k (at
mid-year 2016: EUR798k).
The emoluments of the supervisory board members amounted in
total to EUR168k (at mid-year 2016: EUR168k), of which EUR168k have
not yet been paid by the end of the interim period.
16. Events after the interim period
On May 24, 2017 the Management Board of SQS decided to increase
the share capital of SQS AG by partially using the Authorised
Capital in the amount of 330,360 by issuing new registered non-par
value shares against contribution in kind. These new shares were
used to fulfil remaining obligations from the purchase of
Trissential LLC, Minnesota, USA. This resolution became effective
by its registration in the commercial register of SQS AG on August
1, 2017.
Cologne, 12 September 2017
SQS Software
Quality Systems
AG
----------------- ---------- ------------- -----------
D. Vos R. Gawron R. Gillessen M. Hodgson
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 BRGDCSBBBGRD
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September 13, 2017 02:00 ET (06:00 GMT)
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