5th Sep 2008 17:18
5 September 2008
SQS Software Quality Systems AG
("SQS" or "the Company")
The following amendments have been made to the 'Interim Results' announcement released on 4 September 2008 at 7.00 under RNS No 7037C.
The figures provided in the Company's Consolidated Profit and Loss Account, Consolidated Balance Sheet and Consolidated Cash Flow Statement are in €k, rather than €m.
All other details remain unchanged.
The full amended text is shown below.
Interim results for the six months ended 30 June 2008
SQS Software Quality Systems AG (AIM:SQS.L) the global leader in independent software testing and quality management services, today announces its interim results for the six months ended 30 June 2008.
Financial Highlights:
Turnover up by 23% to €68.9m (H1 2007: €56.2m), five times the European IT Services growth rate for 2008*
Gross profit up 23% to €23.9m (H1 2007 €19.4m) with gross margin increasing to 34.7% (H1 2007: 34.5%) owing to improved utilisation of staff, success of off-shoring strategy and improved pricing conditions driven by strong market demand
Adjusted profit before tax up by 45% to €6.7m (H1 2007 €4.6m) with profit margin improving to 9.7% (H1 2007: 8.1%) as a consequence of synergies and improved operational efficiencies resulting from the successful integration of acquisitions
Adjusted earnings per share grew by 21% to €0.23 (H1 2007 €0.19)
Cash inflow from operating activities improved by 12% to €4.2m (H1 2007: €3.8m)
Operational Highlights:
Gartner recognition of Independent Software Testing as a distinct sector in its own right, validating the SQS offering: "It seems that independent testing is shaping as a separate market segment." (Gartner, August 2008)
Investment in 139 new staff - mostly consultants - to support current strong demand for SQS's services and future organic growth of the business
78 new client wins against 64 in the same period last year
Long-term contracts increased to 23 (up from 14 six months ago), driven by blended off-shore solutions
Mitigated risk by expanding activity into traditionally smaller verticals with particularly strong performance in the automotive and insurance sectors
Two substantial acquisitions made post the period end expanding the European presence into the Nordic countries and the offshore operations into India
Commenting on the results, Rudolf van Megen, CEO, said:
"In the first six months of 2008 we further reinforced our position as the global leader in independent software testing and quality management services, maintaining our growth rate at five times that of the European IT services market.*
"We also recorded further increases in our gross margins as the result of improved pricing conditions driven by strong market demand for our services. Given that economic conditions are widely regarded as being difficult at present, this would suggest that our offerings constitute a non-discretionary requirement among organisations.
"Adjusted profit margins showed still greater increases, largely as a consequence of lower overheads resulting from synergies and economies of scale provided by prior acquisitions, while cash conversion remained high as the result of strong control over debtors and creditors.
"Adding to our organic growth are two successful acquisitions made post the period end. Validate, headquartered in Sweden, expands our European presence into Scandinavia and Finland while Verisoft of India is a considerable addition to our off-shore operations. We expect these acquisitions to make a positive contribution to the full year results.
"As a consequence of the above, and having made a strong start to trading in the second half, we expect to again) exceed current market forecasts for the full year and look forward to the future with confidence."
*According to IDC market study, European IT Services will grow 4.6% in 2008.
Enquiries:
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SQS Software Quality Systems AG |
Tel. +49 (0) 2203 91 54 50 |
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Rudolf van Megen, Chief Executive Officer |
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Rene Gawron, Chief Financial Officer |
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Altium Capital Limited |
Tel. +44 (0)20 7484 4040 |
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Nick Tulloch |
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ICIS Limited |
Tel. +44 (0)20 7651 8688 |
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Tom Moriarty |
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Bob Huxford |
About SQS
SQS is the global leader in independent software testing and quality management services. SQS consultants design and oversee quality management processes during software and IT systems development and test the resulting products for errors and omissions.
Headquartered in Cologne, Germany, SQS now has more than 1,400 employees across Europe, Asia, North America and Africa. The Group has a strong presence in Germany (Cologne, Munich, Frankfurt, Stuttgart, Goerlitz and Hamburg) and in the UK (London, Woking, Birmingham, Manchester, Belfast), Ireland, the Netherlands, Switzerland, Austria, Sweden, Norway, Finland, India, Egypt, the United States and South Africa. SQS also has a minor stake in an operation in Portugal and a partnership operation in Spain.
With more than 4,800 completed projects under its belt, SQS has a strong customer base including 36 FTSE-100 companies, half of the DAX 30 and nearly a third of the STOXX-50. It supports clients in a wide range of industries, including major corporations such as Deutsche Bank, Deutsche Telekom, Barclays, BP, Boots, Credit Suisse, Volkswagen, and Daimler.
www.sqs-group.com
Chief Executive's Statement
Introduction
I am pleased to present impressive interim results for the first half of 2008, in which SQS once again recorded a, chiefly organic, revenue improvement some five times that of the wider European IT services sector. According to a Market Study by IDC, the European IT Services sector is expected to grow by 4.6% in 2008. SQS recorded revenue growth of 23% to €68.9m (H1 2007: €56.2m) as we continued to experience strong market demand for our specialist independent testing services, resulting in 78 new client wins during the period.
This strong demand saw still further increases in pricing for SQS's services which was only partially reflected in wage inflation. As a result, the gross margin improved by 0.6% to 34.7% (H1 2007 34.5%) demonstrating that the markets in which we operate remain healthy and implying that software testing constitutes an essential, non-discretionary item within an organisation's IT budget.
Profit margins for the period increased materially with adjusted profit before tax up by 45% to €6.7m (H1 2007 €4.6m), translating to a PBT margin of 9.7% (H1 2007: 8.1%). Much of this improvement was achieved through synergies, efficiencies and economies of scale resulting from the successful integration of prior acquisitions.
We have continued to strengthen our client base, particularly in newer or traditionally smaller verticals, with a record 78 new clients across 22 industries signed during the period. Broadening the diversity of our client base has been a long-term strategic goal which enables us to increase potential opportunities while simultaneously reducing reliance upon a given sector and the success we have had in implementing this strategy is proof of the strength of our offering. The Company has increased its presence in the automotive, insurance, telecom and public sectors which have all performed solidly during the period.
During the period we have increased the number of long-term contracts - those greater than 12 months in duration - to 23, representing 13% of total revenue, up from 11% last year. This has resulted in a greater proportion (approximately 77%) of revenues being of a repeatable nature. Our ability to offer blended on-shore/off-shore solutions has had a particularly positive effect on this aspect of the business as clients are keen to lock-in to the economic benefits such solutions can offer.
Off-shore solutions also provide higher margin business for us and the expansion of our off-shore facilities constitutes a central part of our strategy. We were therefore pleased to acquire Verisoft, post the period end, which added an India based operation of some 150 staff members to our existing portfolio of offshore operations in Egypt and South Africa. This acquisition is of particular strategic importance as many global organisations have outsourced either all or part of their development to the region.
We continued to invest in growth, increasing the number of staff during the period by 139 (of which 134 are revenue generating consultants) to a total of 1,151. This compares to a total of 860 at the same time last year and 1,012 at the 2007 year end. Additional administration costs incurred by the hiring and training of new staff has been more than offset by improvements in pricing and staff utilisation, hence the improvements to the gross margin.
We are also pleased to report that in an independently commissioned study Gartner declared "independent testing is shaping as a separate market segment". Educating the market as to the importance of employing independent software testing specialists, distinct from any development function, in order to provide a thorough, objective and ultimately higher quality service, has been a key goal of our marketing efforts. This recognition, therefore, is testament to our success in marketing our offering, particularly through our increasingly popular conferences and events. It is also representative of the growing realisation within industry of the importance of the SQS offering.
Finally, we continue to further enforce our position as market leaders with our revenues now more than three times those of our nearest independent software testing competitor. This position is predicted to strengthen still further in the second half with an expected positive contribution from the post period acquisition of Validate, which gives SQS additional operations in the mature markets of Sweden, Finland and Norway.
Dividend
SQS proposes to continue to operate a dividend policy in line with earnings. However, in accordance with German law, the Company may only pay one dividend in each financial year and therefore SQS expects to declare a dividend following the announcement of our final results for the year ending 31 December 2008.
Business strategy
Our strategy is to build upon our market position as the global leader in independent software testing and quality management services. While retaining our focus on the European market, we will continue to look at opportunities to further extend into the Asiatic and Oceanic regions, as we did with our acquisition in India, to exploit offshore as well as local business opportunities.
One aspect of this strategy involves increasing long-term outsourcing contracts to provide greater visibility of revenues. Our ability to provide blended onshore-offshore solutions has helped us to increase the number of long term contracts during the period, leading to greater levels of repeat revenues of approximately 77%. We have continued to build upon this strategy since the period end by expanding our offshore operations with the acquisition of Verisoft in India.
We plan to continue our investments into new and expanding markets and, with 32 services, we offer the largest portfolio of solutions among our competitors (as confirmed by the PAC market study on software testing 2008) in an ever greater diversity of verticals. New offerings such as management consulting are proving especially successful for SQS, helping to connect our quality services to the business departments ("Quality meets Business"). In addition, SQS is not reliant on business partners or third parties for securing contracts, instead utilising our own sales and marketing resources and existing relationships with clients. This also provides us with an excellent platform from which to cross-sell additional services into our clients.
A further aspect of our strategy is to strengthen our position in key European markets. This has been achieved through considerable organic revenue growth across all European geographies during the period and with the acquisition of Validate in Sweden, giving us access to the Nordic markets which have a mature understanding of the benefits of independence within testing services.
We will continue to look actively for acquisitions to support and accelerate our strategic goals going forward.
The Company's strategy is centred on five strategic business areas, all of which contribute to market leadership as a service company and the resulting improvements in shareholder value. These are:
Market Leadership: Extend leadership in independent quality management and testing by delivering added value to our customers in order to help them achieve their goals
Growth: Increase Group revenues significantly above the market growth rate for IT services
Financial Strength: Remain the strongest independent software testing and quality-management services company in Europe
Employment: Extend and retain a strong base of skilled and highly motivated employees
Technology Leadership: Spot and anticipate trends in business and IT with respect to software quality management and utilise what we learn for the benefit of our clients and shareholders.
Services and product lines
As the largest independent provider of software quality management services we are continuously developing our range of offerings. They are:
Professional services for business and IT: SQS offers over 32 software testing and quality management services, considerably more than any of our competitors. Newer offerings such as management consulting or licence compliancy management help the Company to forge relationships at the highest level with clients and give us greater influence over the projects on which we work creating plentiful opportunities to cross sell additional services. Many of these newer services are attaining rapid growth rates at present, though from a smaller base than our traditional testing services.
Tools, licences, and maintenance: Our tools are unique in the market and have been developed around our 26 years experience of testing software projects, resulting in a product set that provides consistent and measurable results, and where several components are integrated into other market leading tools. Software and maintenance accounts for some 1.4% of our turnover.
IT training: Revenue from training expanded in line with the Company's growth rate during the period. New offerings introduced by SQS during the first half of the year, such as Requirements Management, saw a high demand for personal certification in this field, as necessitated by the IREB (International Requirements Engineering Board). New qualifications such as QAMP (Quality Assurance Management Professional) were also introduced during the period. As well as offering training for this qualification, SQS has also chosen to be one of the first Professional Service Organisations to demand QAMP certification for its own employees.
Conferences and events: We held successful SQC conferences (Software and Systems Quality Conferences), the largest quality management and software testing events in Europe, in 5 cities during the period. Our next conference will be in London on September 29 - 30 2008 and our first conference outside Europe, in Canberra, Australia, will be held in late October 2008. These events have proved an excellent marketing tool for SQS and are helping to raise awareness among organisations of the benefits an independent body can bring in providing an impartial, and therefore more effective, level of testing to software projects.
Acquisitions
Validate, headquartered in Sweden
We announced our agreement to purchase 100% of the issued share capital of Validate Group, a software testing and quality management business headquartered in Sweden, on 11 June 2008, and completed the acquisition on 2 July 2008.
Maximum consideration for the Acquisition will be Swedish Krona (SEK) 153.3m (€16.4m) of which, 25% will be satisfied in cash and up to 75% can be satisfied by the issue of new SQS ordinary shares to the vendors. An initial consideration of SEK68.1m (€7.3m) was paid on Closing.
In addition to its headquarters in Sweden, Validate has operations in Norway and Finland, providing SQS with access to the Nordic markets with their mature understanding of the benefits of independence within testing services and in line with SQS's strategy of further expansion into European markets. The acquisition is also of high strategic importance to Validate's management who recognised the benefits of scale and off-shoring facilities in attracting larger, longer term contracts. As a result, the acquisition is expected to be immediately earnings enhancing and whilst there has been no financial effect on these interim results.
Validate is one of the leading providers of software testing in Scandinavia and Finland with approximately 70 staff and 20 customers including many of the region's blue chip corporations. In the year ended 31 December 2007 Validate generated profit before tax of €0.3m on revenues of €4.6m and is expected to generate profit before tax of €0.8m on revenues of €8.0m in the current year. As at 31 December 2007, Validate had net assets of €0.4m.
Verisoft, India
We announced the agreement to acquire 75% of the issued share capital of VeriSoft, a leading provider of software testing and quality assurance services within India, on 16 June 2008. The maximum consideration for the acquisition is €1.8m of which 44% will be satisfied in cash and 56% in shares, which includes an initial cash payment of €0.61m. We retain the option to purchase the remaining shares in the Company between April 2011 and April 2016 for a consideration determined by Verisoft's Profit after Tax performance.
The acquisition is of strategic significance to SQS as it leaves us better positioned to benefit from the increasing customer requirement for blended on and off-shore testing solutions. The acquisition considerably increases our off-shoring capacity while further improving our coverage of multiple languages and time zones. Also, it will allow SQS to provide an improved level of support to its, mainly UK, customers who have located their test management operations in India.
VeriSoft has approximately 150 staff headquartered in Pune, a major software development region in India. The Company also has a small operation in the US and brings with it our first US clients. Furthermore, as opposed to purely testing software projects, the acquisition enters SQS into the growing market for the testing of packaged software products and computer games.
The acquisition, completed on 4 July 2008, had no effect on the results for the first half of 2008. However, we expect the acquisition to have a material impact upon the sales of our blended onshoreoffshore solutions during the second half of the year.
The Company also announced the completion of the two year earn out period on 30 June 2008 associated with the acquisition of Cresta Limited. The targets set for the period were exceeded by a significant margin, demonstrating the resounding success of the acquisition. The final figures for the earn out payment are still to be confirmed.
Market drivers
Software quality management and testing is a specialised segment of the IT services market and therefore growth in the IT services market correlates closely with growth in software quality management and testing. Research conducted by IDC in 2008 showed the European growth rate for IT services to be 6.4% in 2007, with 4.6% expected for 2008. SQS reported growth of 23% for 2008 owing to our ability to successfully exploit many of the factors that drive the market for software testing.
It is currently the case that a significantly high proportion of IT projects (19% according to the latest Standish report) result in failure, either as a consequence of inadequate investment resulting in budget or time constraints or from a lack of impartiality during the testing process.
The reality of this situation has been demonstrated by a number of high-profile project failures in the media over recent months. Such events are helping to raise awareness within industry of the importance of independence in providing effective software testing solutions and this increased awareness was evident in a recent study by Gartner in which Independent Software Testing was described as a potential sector in its own right: "More and more companies look into independent testing as the offerings of an increasing number of service providers mature. It seems that independent testing is shaping as a separate market segment".
The ubiquity of software project failures has also prompted the imposition of many new regulations on IT systems by directives such as Basel II, SOX or MiFID Markets in Financial Instruments Directive. This provides further impetus to organisations to seek out testing providers that can supply effective, measurable and consistent solutions that are independent from the development of the project and are therefore not compromised by their vested interest in the project's success.
The Board
During the period we were pleased to announce the appointment of David Cotterell, CEO of SQS UK, Ireland and South Africa, to the Management Board of SQS. Prior to working for SQS David was Managing Director of Cresta Ltd, SQS's successful acquisition made in 2006. The appointment became effective on 1 July 2008. There were no further appointments to either the Management Board or the Board during the period. Heinz Bons left the Management Board effective as of 31 December, 2007.
Employees
On behalf of the board, I would like to take this opportunity to thank all our employees for their excellent commitment, contribution and hard work during the first half of the year. I would also like to welcome aboard the new employees who have joined SQS during the period, bringing with them skills and initiatives that I am confident will contribute positively to the Company going forward.
Outlook
We experienced robust demand for our services during the first half of 2008 and the healthy market conditions are showing no sign of abating at present. The second half has already started strongly with a number of significant contracts signed.
Furthermore, the two acquisitions made post the period end are expected to have a positive impact upon the performance in the second half. Following our previous success in integrating acquisitions, the enlarged group is well positioned to leverage growth and as a result we expect to again exceed current market forecasts for the full year and look forward to the future with confidence.
Rudolf van Megen
Chief Executive Officer
4th September 2008
Financial Review
Summary
Turnover for the Group was up by 23% to €68.9m (H1 2007: €56.2m) during the period. Geographically, we saw revenue growth across all of the countries in which we operate. In Germany, our largest market, we achieved significant top line growth of 29.9%. We also performed strongly in Switzerland with revenue growth of 15.6% and continued our penetration of the UK, Ireland and South African markets, recording an increase in sales of 6.4%. Most of the above growth rates were organic.
Other European Countries recorded a 148% increase in turnover, the bulk of which came from the successful acquisition last August of Triton in Austria, which has now been fully integrated into the Group.
Germany
Revenue in Germany, our largest market, amounted to €33.9m (H1 2007: €26.1m), a rise of 29.9%. Growth was mostly organic and the performance is a reflection of our market leading presence in the region coupled with strong market demand which was enhanced by our Homeshore centre in Goerlitz.
United Kingdom/Ireland/South Africa
We continue to make good progress within the UK based businesses market, with revenues rising 6.4% to €23.9m (H1 2007: €22.5m). Following the successful integration of the Cresta acquisition, we are now focused on continuing to drive organic growth in the region, which represented 34.7% of total revenues during the period. The solid performance included contributions from some key contract wins including that with Anglo Irish Bank, Ireland's third largest bank announced in May.
Switzerland
Operations in Switzerland generated a 15.6% rise in revenue, all of which was organic, to €6.9m (H1 2007: €6.0m), such that the region now represents 10% of total revenues.
Other Countries
We have seen the most significant revenue growth in Other European Countries, which consists primarily of Austria and the Netherlands. Revenues in these markets increased 148.0% to €4.1m (H1 2007: €1.7m), however the bulk of this growth was due to the acquisition of Triton in Austria which was made in August 2007 and therefore did not contribute to revenues in the comparable period last year.
Triton has proved a particularly successful acquisition to date. It has enhanced our management consulting business enormously, providing many cross-selling opportunities as well as enabling us to foster relationships with clients at the top level and improve our influence upon the projects on which we work.
New Geographies
Post the period end we acquired Verisoft of India which adds to our existing portfolio of offshore operations in Egypt and South Africa. Validate of Sweden was also acquired after the period end, giving us a presence in the Nordic countries where previously we had none. We expect these acquisitions to make a positive contribution to revenues for the full year.
Margins and Profitability
Gross profit continued to improve rising 23.1% to €23.9m (H1 2007: €19.4m), with gross margin now standing at 34.7% (H1 2007: 34.5%). This rise is primarily due to pricing improvements and continued high utilisation of staff.
Adjusted profit before tax for the period was €6.7m (H1 2007: €4.6m), an increase of 45.4%. We saw a significant improvement in the profit margin which grew to 9.7% (H1 2007: 8.1%) largely as the consequence of cost savings resulting from synergies and economies of scale provided by prior acquisitions.
Adjusted earnings per share grew by 21% to €0.23* (H1 2007: €0.19).
*(calculated by adjusting the profit after tax for the corporate income tax assets, deferred taxes, the pro forma interest cost of the Cresta and Triton purchase obligations and amortisation cost of the acquired customer relationship as part of a business combination Triton.)
Costs
General & Administrative expenses totalled €10.9m (H1 2007: €8.9m) falling slightly as a proportion of sales to 15.8% (H1: 2007 15.9%). Cost savings resulted chiefly from improved operational efficiencies and economies of scale brought about by the successful integration of former acquisitions.
Sales & Marketing costs for the period were €4.8m (H1 2007: €3.9m) falling to 6.9% as a proportion of sales (H1 2007: 7.0%). This proportionately lower expense resulted from economies of scale, as the growing business does not require a relative growth in marketing costs to effect the same results, while sales costs are almost the same.
Finally our Research & Development expense was reduced to €1.4m (H1 2007: €1.8m) representing 2.1% (H1 2007: 3.2%) of revenues. The reduction in spending on R&D was due to a more efficient use of research resources. Further to this, some additional work was carried out by innovation groups composed of SQS consultants, whose efforts were not expensed as R&D.
Cash Flow and Financing
Cash flow from operating activities continued to improve to €4.2m (H1 2007: €3.8m), primarily as a consequence of continuing improvements to the management of debtors and creditors. Debtor days reduced to 65 (H1 2007: 70) as a result from continued improved invoicing processes and collection.
The share capital was reduced by €4.3m during the period as the result of the dividend payment in May 2008, while the termination of leasing contracts reduced cash by a further €0.2m. The increase of finance loans returned €2.6m in cash, resulting in a net cash outflow for the first 6 months of 2008 of €1.8m.
Balance Sheet
We closed the period with €1.8m (H1 2007: €3.6m) of cash on the balance sheet with borrowings standing at €2.9m (H1 2007: €1.1m). These movements resulted chiefly from the dividend payment of €4.3m and acquisition related payments of €2.7m for Validate and €0.6m for Verisoft during the period.
Taxation
A tax charge of €1.7m includes current tax expenses of €1.8m (H1 2007: €0.9m) and deferred tax income of €0.1m (H1 2007: (€0.4m)).
For the full year, we expect an actual tax rate of 28% and a rate of 28% in 2009.
Foreign Exchange
Approximately 55% of the Company's turnover is generated in Euros. For the conversion of the local currency into Euros, the official fixed exchange rate was chosen. For the conversion of the balance sheet items from foreign currency into Euros, the official mean rate as at 30 June 2008 was used.
Foreign exchange had a negative impact on earnings for the period. Had the Pound/Euro exchange rate remained the same as in H1 2007 our UK revenues for the period would have been €2.8m higher, translating to an additional €0.54m PBT. Despite this, SQS still reported EPS of €0.23 representing growth of 21% (H1 2007: €0.19m). Were there to have been no effect from the exchange of currencies on our results the earnings number would have been €7.2m and the profit growth rate 57%, demonstrating the strong underlying health of our business.
Amortisation
Amortisation of goodwill is no longer carried out due to changes in IFRS accounting rules. On account of the high amortisation of goodwill values in previous years, their book values today lie considerably below the original acquisition costs. As a result, no reduction in value was necessary as a result of the impairment tests carried out in accordance with IAS 36.
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 Standards (International Financial Reporting Standards, formerly International Accounting Standards) and Interpretations of the IASB (International Accounting Standards Board) which are mandatory at 30 June 2008, whereas the interim reports are published in an abbreviated form according to IAS 34. The same accounting and valuation method used for the 2007 annual Consolidated Financial Statements was applied. The Interim Consolidated Financial Statements have neither been audited nor reviewed.
The SQS Group Consolidated Financial Statements for the six month period ended 30 June 2008 were prepared in accordance with uniform accounting and valuation principles in Euros.
Rene Gawron
Chief Financial Officer
4 September 2008
Consolidated Profit and Loss Account
Six months ended 30 June 2008
|
Six months ended |
Six months ended |
Year ended |
||
|
30 June 2008 |
30June 2007 |
31 December 2007 |
||
|
€k |
(Notes) |
(unaudited) |
(unaudited) |
(audited) |
|
Revenue |
68,867 |
56,214 |
121,059 |
|
|
Cost of sales |
(3) |
44,966 |
36,801 |
79,307 |
|
|
|
|
||
|
Gross profit |
23,901 |
19,413 |
41,752 |
|
|
General and administrative expenses |
(3) |
11,271 |
8,943 |
19,244 |
|
Sales and marketing expenses |
(3) |
4,765 |
3,931 |
8,621 |
|
Research and development expenses |
(3) |
1,450 |
1,811 |
3,614 |
|
|
|
|
||
|
Profit before tax and financing result (EBIT) |
6,415 |
4,728 |
10,273 |
|
|
Finance income |
205 |
201 |
556 |
|
|
Finance costs |
684 |
636 |
1,163 |
|
|
Net interest |
(4) |
(479) |
(435) |
(607) |
|
|
|
|
||
|
Profit before taxes (PBT) |
5,936 |
4,293 |
9,666 |
|
|
Income tax |
(5) |
1,672 |
1,369 |
2,932 |
|
|
|
|
||
|
Profit for the year |
4,264 |
2,924 |
6,734 |
|
|
Attributable to: |
||||
|
Equity shareholders |
4,264 |
2,924 |
6,734 |
|
|
Minority interests |
(14) |
0 |
0 |
0 |
|
|
|
|
||
|
Consolidated profit for the year |
4,264 |
2,924 |
6,734 |
|
|
Earnings per share, undiluted (€) |
(6) |
0.20 |
0.16 |
0.35 |
|
Earnings per share, diluted (€) |
(6) |
0.19 |
0.16 |
0.34 |
|
Adjusted earnings per share (€), for comparison only |
(6) |
0.23 |
0.19 |
0.41 |
Consolidated Balance Sheet
Six months ended 30 June 2008
|
30 June 2008 |
30 June 2007 |
31 December 2007 |
||
|
€k |
(Notes) |
(unaudited) |
(unaudited) |
(audited) |
|
Current assets |
||||
|
Cash and cash equivalents |
(9) |
1,774 |
3,578 |
7,220 |
|
Marketable securities |
(9) |
0 |
1,020 |
0 |
|
Trade receivables |
27,958 |
25,785 |
27,173 |
|
|
Other receivables |
5,691 |
1,290 |
1,000 |
|
|
Work in progress |
2,745 |
36 |
139 |
|
|
Income tax receivables |
131 |
94 |
157 |
|
|
38,299 |
31,803 |
35,689 |
||
|
Non-current assets |
||||
|
Intangible assets |
(7) |
6,391 |
3,153 |
5,999 |
|
Goodwill |
(7) |
45,980 |
28,313 |
45,977 |
|
Property, plant and equipment |
(8) |
2,664 |
1,202 |
2,243 |
|
Income tax receivable |
1,547 |
1,464 |
1,512 |
|
|
Deferred taxes |
651 |
1,435 |
867 |
|
|
57,233 |
35,567 |
56,598 |
||
|
Total Assets |
95,532 |
67,370 |
92,287 |
|
|
Current liabilities |
||||
|
Bank loans and overdrafts |
(10) |
2,827 |
989 |
191 |
|
Finance lease |
406 |
0 |
515 |
|
|
Trade creditors |
5,010 |
3,250 |
3,547 |
|
|
Other provisions |
(12) |
78 |
109 |
102 |
|
Tax accruals |
2,161 |
1,385 |
1,668 |
|
|
Tax liabilities |
2,967 |
3,110 |
3,745 |
|
|
Other current liabilities |
(11) |
23,216 |
16,270 |
24,162 |
|
36,665 |
25,113 |
33,930 |
||
|
Non-Current liabilities |
||||
|
Bank loans |
(10) |
102 |
109 |
105 |
|
Finance lease |
183 |
0 |
279 |
|
|
Other provisions |
(12) |
241 |
112 |
92 |
|
Pension provisions |
172 |
316 |
147 |
|
|
Deferred taxes |
1,523 |
989 |
1,652 |
|
|
Other non-current liabilities |
(11) |
7,263 |
6,575 |
7,064 |
|
9,484 |
8,101 |
9,339 |
||
|
Total Liabilities |
46,149 |
33,214 |
43,269 |
|
|
Shareholders' equity |
(13) |
|||
|
Share capital |
21,599 |
18,691 |
21,546 |
|
|
Share premium |
25,204 |
16,692 |
25,029 |
|
|
Statutory reserves |
53 |
53 |
53 |
|
|
Other reserves |
(1,189) |
(1,243) |
(1,381) |
|
|
Retained earnings |
3,716 |
(37) |
3,771 |
|
|
Equity attributable to equity shareholders |
49,383 |
34,156 |
49,018 |
|
|
Minority interests |
(14) |
0 |
0 |
0 |
|
Total Equity |
49,383 |
34,156 |
49,018 |
|
|
Equity and Liabilities |
95,532 |
67,370 |
92,287 |
|
Consolidated Cash Flow Statement
Six months ended 30 June 2008
|
notes |
Six months ended 30 June 2008 |
Six months ended 30 June 2007 |
Year ended 31 December 2007 |
|
|
€k |
(unaudited) |
(unaudited) |
(audited) |
|
|
Net cash flow from operating activities |
||||
|
Profit before taxes |
5,936 |
4,292 |
9,666 |
|
|
Add back for |
||||
|
Depreciation and amortisation |
2,059 |
1,474 |
3,854 |
|
|
Profit (Loss) on the sale of fixed assets |
10 |
0 |
52 |
|
|
Other non-cash income not affecting payments |
295 |
(100) |
(554) |
|
|
Net interest income |
405 |
449 |
855 |
|
|
Operating profit before changes in the net current assets |
8,705 |
6,115 |
13,873 |
|
|
Increase in trade receivables and |
||||
|
receivables from partly completed contracts not yet billed |
(786) |
(3,555) |
(3,991) |
|
|
Increase (Decrease) in work in progress, other assets |
||||
|
and pre-paid expenses and deferred charges |
(4,030) |
47 |
518 |
|
|
Increase in trade creditors |
1,463 |
91 |
1 |
|
|
Increase in remaining accruals |
113 |
1,116 |
3,780 |
|
|
Increase (Decrease) in pension accruals |
25 |
22 |
(147) |
|
|
Decrease (Increase) in other liabilities and |
||||
|
deferred income |
(1,280) |
(77) |
(494) |
|
|
Cash flow from operating activities |
4,210 |
3,759 |
13,540 |
|
|
Cash effect of foreign exchange rate movements |
(29) |
(14) |
(249) |
|
|
Interest payments |
(4) |
(184) |
(216) |
(497) |
|
Tax payments |
(5) |
(1,585) |
(138) |
(1,440) |
|
Net cash flow from current business activities |
2,412 |
3,391 |
11,354 |
|
|
Cash flow from investment activities |
||||
|
Purchase of intangible assets |
(1,926) |
(1,009) |
(2,090) |
|
|
Purchase of tangible assets |
(1,078) |
(409) |
(840) |
|
|
Cashflows arising from business combinations |
0 |
0 |
(3,088) |
|
|
Transfer into an notary trust account to purchase of shares |
(3,270) |
0 |
0 |
|
|
Sale/(Purchase) of marketable securities available for sale |
(9) |
0 |
(1,020) |
0 |
|
Foreign currency result |
41 |
(1) |
249 |
|
|
Interest received |
(4) |
127 |
28 |
241 |
|
Net cash flow from investment activities |
(6,106) |
(2,411) |
(5,528) |
|
Cash flow from financing activities |
||||
|
Proceeds from the issue of share capital |
140 |
4,817 |
4,817 |
|
|
Costs for IPO |
0 |
(98) |
(100) |
|
|
Dividends paid |
(4,320) |
0 |
||
|
Repayment of finance loans |
(10) |
(182) |
(4,686) |
(5,497) |
|
Increase of finance loans |
(10) |
2,815 |
0 |
0 |
|
Redemption / termination of leasing contracts |
(205) |
0 |
(391) |
|
|
Net cash flow from financing activities |
(1,752) |
33 |
(1,171) |
|
|
Change in the level of funds affecting payments |
(5,446) |
1,013 |
4,655 |
|
|
Cash and cash equivalents |
||||
|
at the beginning of the period |
7,220 |
2,565 |
2,565 |
|
|
Cash and cash equivalents |
||||
|
at the end of the period |
1,774 |
3,578 |
7,220 |
Consolidated Development of Shareholders' Equity
Six months ended 30 June 2008 (IFRS)
|
T€ |
Minority |
Share |
Share |
Statutory |
Other |
Currency |
Retained |
Total |
|
interests |
capital |
premium |
reserves |
reserves |
translation |
earnings |
Equity |
|
|
differences |
||||||||
|
1st January 2007 |
0 |
17,191 |
13,323 |
53 |
(1,074) |
(31) |
(2,963) |
26,499 |
|
Capital increase by cash contribution |
1,500 |
3,317 |
4,817 |
|||||
|
Currency translation differences |
(79) |
(79) |
||||||
|
Stock option program |
53 |
53 |
||||||
|
Costs for Capital increase by cash contribution (net of tax) |
(60) |
(60) |
||||||
|
Effects directly recognised in equity |
|
1,500 |
3,370 |
|
(60) |
(79) |
|
4,731 |
|
Profit for the period |
|
|
|
|
|
|
2,924 |
2,924 |
|
30th June 2007 (unaudited) |
0 |
18,691 |
16,693 |
53 |
(1,134) |
(110) |
(39) |
34,154 |
|
Capital increase as consideration for business combinations |
2,855 |
8,281 |
11,136 |
|||||
|
Currency translation differences |
(137) |
|||||||
|
Stock option program |
55 |
55 |
||||||
|
Costs for Capital increase by cash contribution (net of tax) |
0 |
|||||||
|
Effects directly recognised in equity |
|
2,855 |
8,336 |
|
|
(137) |
|
11,191 |
|
Profit for the period |
|
|
|
|
|
|
3,810 |
3,810 |
|
31st December 2007 (audited) |
0 |
21,546 |
25,029 |
53 |
(1,134) |
(247) |
3,771 |
49,018 |
|
Capital increase as consideration for business combinations |
53 |
87 |
140 |
|||||
|
Dividends paid |
(4,319) |
(4,319) |
||||||
|
Currency translation differences |
192 |
192 |
||||||
|
Stock option program |
88 |
|||||||
|
Costs for IPO |
0 |
|||||||
|
Effects directly recognised in equity |
|
53 |
175 |
|
0 |
192 |
|
(3,987) |
|
Profit for the period |
|
|
|
|
|
|
4,264 |
4,264 |
|
30th June 2008 (unaudited) |
0 |
21,599 |
25,204 |
53 |
(1,134) |
(55) |
3,716 |
49,383 |
1. Summary of Significant Accounting Policies
Basis of preparation
The Interim Consolidated Financial Statements of SQS and its subsidiary companies ("SQS Group") are prepared in conformity with all IFRS Standards (International Financial Reporting Standards, formerly IAS = International Accounting Standards) and Interpretations of the IASB (International Accounting Standards Board) which are mandatory at 30 June 2008, whereas the interim reports are published in an abbreviated form according to IAS 34. The Interim Consolidated Financial Statements have neither been audited nor reviewed.
The Financial Information has been prepared on the historical cost basis. The same accounting and valuation method used for the 2007 annual Consolidated Financial Statements was applied. Further information about the Group's accounting principles and policies is contained in the SQS Consolidated Financial Statement at 31st December 2007.
The Financial Information is presented in Euros and amounts are rounded to the nearest thousand (€k) except when otherwise indicated.
The interim condensed 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 SQS Consolidated Financial Statement at 31st December 2007.
Statement of compliance
The Financial Information of SQS and its subsidiaries (together the 'SQS Group') has been prepared in accordance with IFRS as adopted for use in the EU.
Basis of consolidation
As at 30 June, the Company held interests in the share capital of more than 20 % of the following undertakings:
|
Consolidated companies |
Country of incorporation |
Six month ended 30 June 2008 |
Six month ended 30 June 2007 |
Year ended 31 December 2007 |
|
Share of capital |
Share of capital |
Share of capital |
||
|
% |
% |
% |
||
|
SQS Group (UK) Limited, Woking |
UK |
100.0 |
100.0 |
100.0 |
|
SQS Group Limited, London |
UK |
100.0 |
100.0 |
100.0 |
|
SQS Software Quality Systems (Ireland) Ltd. |
Ireland |
100.0 |
100.0 |
100.0 |
|
SQS Nederland BV, Zaltbommel |
The Netherlands |
90.5 |
90.5 |
90.5 |
|
SQS GesmbH, Vienna |
Austria |
100.0 |
100.0 |
100.0 |
|
SQS Software Quality Systems (Schweiz) AG, Zürich |
Switzerland |
97.0 |
97.0 |
97.0 |
|
SQS Group Management Consulting GmbH (formely Triton Unternehmensberatung GmbH Deutschland), Vienna |
Austria |
100.0 |
- |
100.0 |
|
PPT Unternehmensberatung GmbH, Vienna |
Austria |
100.0 |
- |
100.0 |
|
SQS Group Management Consulting GmbH (formely Triton Unternehmensberatung GmbH Deutschland), Munich |
Germany |
100.0 |
- |
100.0 |
|
SQS Egypt |
Egypt |
100.0 |
- |
- |
3 % of the shares in SQS Software Quality Systems (Schweiz) AG are held for legal reasons by members of the board of this entity in accordance with the interests of SQS.
Use of estimates
The preparation of the Interim Financial Statements in compliance with the International Financial Reporting Standards requires the disclosure of assumptions and estimates made by the management, which have an effect on the amount and the presentation of the assets and liabilities shown in the balance sheet, the income and expenditure as well as any contingent items. The actual results may deviate from these estimates.
The main estimates and judgements of the management of SQS refer to:
the useful life of intangible assets and property, plant and equipment,
the valuation of the liability from the Cresta and Triton purchases
deferred taxes on losses carried forward,
the valuation of pension assets and liabilities,
the planning premises relating to the value in use of cash generating units.
2. Segmental reporting
The following tables present revenue and profit information regarding the SQS Group's business segments for the interim period ended 30 June 2008 and 30 June 2007 and for the year ended 31 December 2007.
|
Six month ended 30 June 2008 (unaudited) |
Germany |
UK based business |
Switzerland |
Other European Countries |
Total |
||||
|
€k |
€k |
€k |
€k |
€k |
|||||
|
Sales |
|||||||||
|
External sales |
33,941 |
23,905 |
6,879 |
4,142 |
68,867 |
||||
|
Internal sales between the segments |
617 |
356 |
294 |
887 |
2,154 |
||||
|
Result |
3,720 |
2,213 |
247 |
235 |
6,415 |
||||
|
Segment result Consolidation |
0 |
||||||||
|
Financial result |
(479) |
||||||||
|
Taxes on income |
(1,672) |
||||||||
|
Result for the period |
4,264 |
||||||||
|
Profit share of minority shareholders |
0 |
||||||||
|
Result of the Group for the period |
4,264 |
|
Six month ended 30 June 2007 (unaudited) |
Germany |
UK based business |
Switzerland |
Other European Countries |
Total |
||||
|
€k |
€k |
€k |
€k |
€k |
|||||
|
Sales |
|||||||||
|
External sales |
26,132 |
22,461 |
5,951 |
1,670 |
56,214 |
||||
|
Internal sales between the segments |
1,209 |
161 |
200 |
230 |
1,800 |
||||
|
Result |
|||||||||
|
Segment result Consolidation |
2,064 |
2,235 |
466 |
(37) |
4,728 0 |
||||
|
Financial result |
(435) |
||||||||
|
Taxes on income |
(1,369) |
||||||||
|
Result for the period |
2,924 |
||||||||
|
Profit share of minority shareholders |
0 |
||||||||
|
Result of the Group for the period |
2,924 |
|
Year ended 31 December 2007 (audited) |
Germany |
UK based business |
Switzerland |
Other European Countries |
Total |
||||
|
€k |
€k |
€k |
€k |
€k |
|||||
|
Sales |
|||||||||
|
External sales |
55,708 |
48,704 |
12,534 |
4,113 |
121,059 |
||||
|
Internal sales between the segments |
2,351 |
407 |
550 |
812 |
4,120 |
||||
|
Result |
|||||||||
|
Segment result |
3,533 |
5,580 |
822 |
338 |
10,273 |
||||
|
Consolidation |
0 |
||||||||
|
Financial result |
(607) |
||||||||
|
Taxes on income |
(2,932) |
||||||||
|
Result for the period |
6,734 |
||||||||
|
Profit share of minority shareholders |
0 |
||||||||
|
Result of the Group for the period |
6,734 |
3. Expenses
The Consolidated Income Statement presents expenses according to function. Additional information concerning the origin of these expenses, by type of cost, is provided below:
Cost of material
The cost of material in the interim period ended 30 June 2008 amounted to €7,378k (at mid-year 2007: €7,334k). Cost of material relates mainly to the procurement of external services such as contract software engineers. In addition, certain project-related or internally used hardware and software is shown under cost of material.
Employee benefits expenses
|
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
||||
|
€k |
€k |
€k |
||||
|
Wages and salaries |
35,389 |
28,356 |
60,072 |
|||
|
Social security contributions |
4,440 |
3,596 |
7,577 |
|||
|
Expenses for retirement benefits |
415 |
198 |
618 |
|||
|
40,244 |
32,150 |
68,267 |
The expenses for retirement benefits include the change in pension accruals and other retirement provisions such as direct insurance and provident fund costs.
Amortisation and depreciation
Amortisation and depreciation charged in the interim period ended 30 June 2008 amounted to € 2,060k (at mid-year 2007: €1,474k). Of this, €938k (at mid-year 2007: €978k) was attributable to the amortisation of development costs.
4. Financial result
The financial result is comprised as follows:
|
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
||||
|
€k |
€k |
€k |
||||
|
Interest income |
167 |
66 |
241 |
|||
|
Exchange rate gains |
38 |
12 |
315 |
|||
|
Total finance income |
205 |
78 |
556 |
|||
|
Interest payable |
(573) |
(515) |
(1.096) |
|||
|
Exchange rate gains / losses |
(111) |
2 |
(67) |
|||
|
Total finance costs |
(684) |
(513) |
(1,163) |
|||
|
Financial result |
(479) |
(435) |
(607) |
Finance income results from fixed deposit investments and investments in securities maturing in the short term which yield interest income, or securities negotiable at short notice.
Interest payable relates to interest on bank liabilities and liabilities from the Cresta purchase and from the purchase of Triton Unternehmensberatung GmbH calculated using the effective interest method.
Finance income and expenses are stated after foreign exchange rate gains and losses.
The interest income represents the interest income of €36k caused by the increase in the present value of the corporation tax receivable in accordance with § 37 KStG (German corporation tax law).
5. Taxes on earnings
The line item includes current tax expenses in the amount of €1,779k (previous interim period: €934k) and deferred tax income in the amount of €107k (previous interim period: €(435)k).
Further information about the recognition and measurement of the income tax is contained in the SQS Consolidated Financial Statements at 31 December 2007.
6. Earnings per share
The earnings per share presented in accordance with IAS 33 are shown in the following table:
|
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
||||
|
Profit for the year attributable to equity shareholders, €k |
4,264 |
2,924 |
6,734 |
|||
|
Diluted profit for the year, €k |
4,264 |
2,924 |
6,734 |
|||
|
Weighted average number of shares in issue, undiluted |
21,584,894 |
17,920,105 |
19,098,779 |
|||
|
Weighted average number of shares in issue, diluted |
22,479,324 |
18,614,683 |
19,843,595 |
|||
|
Undiluted profit per share, € |
0.20 |
0.16 |
0.35 |
|||
|
Diluted profit per share, € |
0.19 |
0.16 |
0.34 |
|||
|
Adjusted earnings per share (for comparison only), € |
0.23 |
0.19 |
0.41 |
Undiluted earnings per share are calculated by dividing the profit for the six month period attributable to equity shareholders by the weighted average number of shares in issue during the six month period ended 30 June 2008: 21,584,894 (at mid-year 2007: 17,920,105).
Diluted earnings per share are determined by dividing the profit for the year attributable to equity shareholders by the weighted average number of shares in issue plus any share equivalents which would lead to a dilution.
The adjusted earnings per share were calculated by adjusting the profit after tax for the corporate income tax assets, deferred taxes, the interest cost of the Cresta and Triton purchase obligations and amortisation cost of the acquired customer relationship as part of the business combination "Triton". Further the difference between taxes on income payable under local GAAP and IFRS has been adjusted. This adjusted profit after tax divided by the number of shares issued as at 30.6.2008 of 21,599,109 shares, (previous year 18,690,823 shares) shows adjusted earnings per share of €0.23 (at mid-year 2007: €0.19).
7. Intangible assets
The item is comprised as follows:
|
Book values |
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
|||
|
€k |
€k |
€k |
||||
|
Goodwill |
45,980 |
28,313 |
45,977 |
|||
|
Development costs |
2,270 |
2,511 |
2,103 |
|||
|
Software |
1,103 |
640 |
516 |
|||
|
Customer relationships Triton (30 June 2007: Remaining intangible assets) |
3,018 |
2 |
3,380 |
|||
|
Intangible assets |
52,371 |
31,466 |
51,976 |
Development costs were capitalised in the interim period ended 30 June 2008 in the amount of €1,114k (half-year 2007 €922k) and amortised over a period of 36 months, since the conditions under IAS 38 were fulfilled.
The amortisation of development costs is contained in the costs for research and development. The amortisation of software and remaining intangible assets as well as the impairment losses under IAS 36 are spread over the functional costs in accordance with an allocation key.
8. Property, plant and equipment
The development of the tangible assets of the SQS Group is presented as follows:
|
Book values |
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
|||
|
€k |
€k |
€k |
||||
|
Freehold Land and Buildings |
578 |
228 |
251 |
|||
|
Office and Business equipment |
2,086 |
974 |
1,992 |
|||
|
Property, Plant and Equipment |
2,664 |
1,202 |
2,243 |
9. Cash and cash equivalents
Cash and cash equivalents comprise cash and credit balances at banks which can be realised in the short term and which earn commercial rates of interest. The carrying amounts are considered to be reasonable approximation of fair value.
The development of cash and cash equivalents is presented in the Consolidated Cash Flow Statement.
10. Bank loans, overdrafts and other loans
The finance liabilities are comprised as follows:
|
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
||||
|
€k |
€k |
€k |
||||
|
Bank loan and overdraft |
2,827 |
989 |
191 |
|||
|
Current finance liabilities |
2,827 |
989 |
191 |
|||
|
Bank loans |
102 |
109 |
105 |
|||
|
Non-current finance liabilities |
102 |
109 |
105 |
|||
|
Total finance liabilities |
2,929 |
1,098 |
296 |
|||
|
Of these, secured |
108 |
1,015 |
288 |
The current account liabilities exist both with SQS Software Quality Systems AG and its subsidiaries. For some subsidiaries bank overdraft agreements are in place.
11. Other liabilities
The item is comprised as follows:
|
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
||||
|
€k |
€k |
€k |
||||
|
Liabilities in regard to social security |
1,611 |
641 |
1,164 |
|||
|
Personnel liabilities (leave, bonus claims) |
6,933 |
5,860 |
8,504 |
|||
|
Obligations from Cresta purchase |
6,767 |
10,921 |
7,538 |
|||
|
Obligations from Triton purchase |
8,745 |
0 |
8,439 |
|||
|
Remaining other liabilities |
3,427 |
2,490 |
2,396 |
|||
|
Deferred income |
43 |
(9) |
237 |
|||
|
Bonded loans |
2,953 |
2,942 |
2,948 |
|||
|
30,479 |
22,845 |
31,226 |
The remaining other liabilities comprise trade accruals and other items due in the short term. The carrying amounts are considered to be reasonable approximation of fair value.
SQS has remaining liabilities from the Cresta purchase with a fair value of €6,767k (at mid-year 2007: €10,921k). The non-current liability has an amount of €0k (at mid-year 2007: €3,617k).
Further SQS has remaining liabilities from the Triton purchase with a fair value of €8,745k. The non-current liability has an amount of €4,299k. For further details see SQS Consolidated Financial Statements at 31st December 2007.
The bonded loan represents a nominal amount of €3,000k. The loan payment is reduced by a discount. The discount is set off against the loan in accordance with IAS 39.AG 65. The interest rate is agreed with 6.93% p.a. The redemption is due in 2012. The Deutsche Bank AG acts as appointed paying agent. The Deutsche Bank is entitled to assign the bond to a special purpose entity, a trustee thereof, a bank or an insurance company. The interest rate is linked to the rating of the SQS Group following a defined rating system. If the SQS Group improves the rating the interest rate will be decreased. If the rating decreases below a certain bound the creditors have the right to terminate the bonded loan immediately.
12. Other provisions
Other provisions in the amount of €319k (31 December 2007: €194k) include the warranty costs in the amount of €78k (31 December 2007: €74k) and the vacant property provision in the amount of €97k (31 December 2007 €120k).
13. Equity
SQS is listed on the AIM market in London and on the Open Market in Frankfurt (Main).
The development of the equity is presented in the Consolidated Development of Shareholders' Equity.
Subscribed Capital
The subscribed capital amounts to €21,599,109 (at 31 December 2007: €21,546,309). It is divided into 21,599,109 (at 31 December 2007: 21,546,309) individual registered shares with an arithmetical share in the share capital of €1 each. Each share entitles the holder to one right to vote. No preference shares have been issued. The capital is fully paid up.
The movements in the issued share capital are as follows:
|
Individual shares |
Nominal value |
||
|
Number |
€ |
||
|
As at 30 June 2007 |
18,690,823 |
18,690,823 |
|
|
Increase in capital against redemption of obligations from Cresta purchase (Entry of 21 September 2007) |
2,855,486 |
2,855,486 |
|
|
As at 31 December 2007 |
21,546,309 |
21,546,309 |
|
|
Increase in capital against redemption of convertible bond (Issue on 18 February 2008) |
52,800 |
52,800 |
|
|
As at 30 June 2008 |
21,599,109 |
21,599,109 |
The General Meeting of 14 September 2005 resolved the authorisation of the management board with the approval of the supervisory board to issue non-interest bearing convertible bonds in the aggregate nominal value of up to €52,800 and to offer such convertible bonds for subscription to Gresham Computing plc, UK. In accordance with this authorisation 52,800 convertible bond in the nominal amount of €1.00 each were issued to Gresham Computing plc. by the declaration of conversation and by the issue of the share certificates of 52,800 registered SQS shares of 18 February 2008.
Accordingly, SQS had no shares in its ownership as at 30. June 2008.
Conditional capital
The General Meeting of 2 June 2006 resolved a new conditional capital by an amount of up to €1,500,000 by issuance of up to 1,500,000 new individual registered shares (Conditional Capital II). The conditional capital II serves to grant up to 1,500,000 share options until 31 December 2008 as incentive compensation for SQS employees and executives. This resolution became effective with the entry of 30 June 2006.
Authorised capital
The General Meeting of 28 May 2008 resolved the authorisation of the management board with the approval of the supervisory board to increase the share capital until 30 April 2013 by issuing of up to 4,300,000 new registered non-par value shares against contributions in cash or in kind (authorised capital IV).
Thereafter, the authorised capital developed as follows:
|
€k |
|
|
As at 30 June 2007 |
4,954 |
|
Increase of authorised capital II |
4,300 |
|
Usage of authorised capital II |
(2,856) |
|
As at 31 December 2007 |
6,398 |
|
Increase of authorised capital IV |
4,300 |
|
As at 30 June 2008 |
10,698 |
Share premium
Additional paid-in capital includes any premiums received on the issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted or set off from additional paid-in capital, net of any related income tax benefits. Equity-settled share-based employee remuneration is also credited to additional paid-in capital until related stock options are exercised.
Statutory reserves
The statutory reserves in SQS AG were formed in accordance with Section 150 of the Stock Corporation Act (Germany).
Other reserves
The foreign currency translation differences arise on conversation of the opening reserves of subsidiary undertakings where the functional currency of the subsidiary is not the Euro.
14. Retained earnings
Retained earnings represent the accumulated retained profits less payments of dividend and losses of SQS Group.
15. Minority Interests
There is no change in this item compared to 30 June 2007.
Up to 2003 losses applicable to the minority have exceeded the minority interest in the subsidiary's equity. In accordance with IAS 27.35 the excess and any further losses applicable to the minority have been allocated against the majority interest. In the case that the subsidiary reports profits, such profits are allocated to the majority interest until the minority's share of losses previously absorbed by the majority bas been recovered. In the interim period ended 30 June 2008 no minority profits were allocated to the majority (half year 2007: €2k).
16. Notes to the Statement of Cash flows
The Cash Flow Statement shows how the funds of the Group have changed in the course of the business year through outflows and inflows of funds. The payments are arranged according to investment, financing and business activities.
The sources of funds on which the Cash Flow Statement is based consist of cash and cash equivalents (cash on hand and bank balances).
17. Related party transactions
Under IAS 24, related persons and related companies are persons and companies who have the possibility of controlling another party or exercising significant influence over their finance or business policy. In the SQS Group, these are the Management Board members as well as the members of the Supervisory Board and Mr. and Mrs. van Megen, by reason of their position as shareholders, as well as the real estate investment fund "S.T.O.L. Immobilien Verwaltung GmbH & Co. KG", Cologne, and "Am Westhover Berg GbR mbH", Cologne. Since 01 January 2008 Mr. Bons retired from the Management Board. So he and his wife are not regarded as related parties anymore.
|
Details in individual shares |
Six month ended 30 June 2008 (unaudited) |
Six month ended 30 June 2007 (unaudited) |
Year ended 31 December 2007 (audited) |
|||
|
Non-par shares |
Non-par shares |
Non-par shares |
||||
|
Rudolf van Megen, Member of Management Board |
3,268,149 |
3,657,647 |
3,251,681 |
|||
|
Ilona van Megen, née Rumsch |
932,544 |
932,544 |
932,544 |
|||
|
Children of van Megen Heinz Bons, retired Member of Management Board Maria Helene Bons, née Peters |
3,170 - - |
- 3,295,945 932,544 |
- 2,899,979 932,544 |
|||
|
René Gawron, Member of Management Board |
47,129 |
2,289 |
44,129 |
|||
|
Supervisory Board |
17,500 |
17,500 |
17,500 |
|||
|
Total |
4,268,492 |
8,838,469 |
8,068,377 |
In detail, the following transactions have taken place with these persons and companies:
As a part of the remuneration for the Management Board activities, SQS has granted a pension commitment to a Management Board member.
Mr. Gawron holds a minority stake of one share in the Swiss subsidiary on trust for SQS Software Quality Systems AG since his office as member of the administrative board of this company makes this necessary under Swiss law.
SQS uses property owned by the closed real estate investment fund "S.T.O.L. Immobilien Verwaltung GmbH & Co. KG", Cologne, and also the real estate investment fund "Am Westhover Berg GbR mbH", Cologne. The shares in the fund are held by employees and also a Management Board member of SQS AG. The contractual conditions of the lease of properties are compatible with normal market conditions. The total expenses incurred under these contracts amounted in the interim period to €691k (half year 2007: €651k).
The total emoluments of the Management Board members amounted in the interim period ended 30 June 2008 to €458k (half-year 2007: €556k). The emoluments of the Supervisory Board members amounted in total to €41k (half-year 2007: €41k) of which €41k had not been paid by the end of the interim period.
Members of the Management board held 15.3 % (half-year 2007: 37.2 %) of the shares in SQS as at 30 June 2008. The reduction is mostly due to Mr. Bons' retirement from the Management Board as at 31 December 2007.
18. Proposed Dividend
The General Meeting of 28 May 2008 resolved to pay €0.20 dividends per share for the business year 2007 in the total amount of €4,319,821.80.
19. Other Information
There is currently no litigation that might have significant impact on the earnings situation of SQS AG.
20. Post interim period events
Validate Group, Sweden
SQS has entered into an agreement to acquire 100 % of the issued share capital of the Validate Group ("Validate"), Sweden, a software testing and quality management business in Sweden, and its subsidiaries including all formerly existing minority shares. The Acquisition will be executed predominantly via the acquisition of "2020 Governance AB", the holding company. The closing is effective on the begin July 2008.
Validate is headquartered in Kista, Sweden and has subsidiaries in Finland and Norway. As one of the leading providers of software testing in Scandinavia, the Validate Group, currently has approximately 70 staff and 20 customers including many of the region's blue chip corporations. In the year ended 31 December 2007 Validate generated profit before tax of €0.3m on revenues of €4.6m and is expected to generate profit before tax of €0.8m on revenues of €8.0m in the current year. As at 31 December 2007, Validate had net assets of €0.4m.
Maximum consideration for the Acquisition (assuming the purchase of 100% of the Validate Group and subject to certain adjustments depending on the development of the SQS share price) will be Swedish Krona (SEK) 153.3m (€16.4m) of which, overall, 25% will be satisfied in cash and up to 75% can be satisfied by the issue of new SQS ordinary shares to the vendors (who include current Validate management). Of this maximum consideration, SEK68.1m (€7.3m) (the "Initial Consideration") is due on Closing and SEK85.2m (€9.1m) will be deferred and payable over the three years following Closing, dependent upon the achievement by Validate of specified growth and profit targets. Of the Initial Consideration, 37% (SEK25.2m (€2.7m)) will be satisfied in cash from internal SQS resources and 63% (SEK42.9m (€4.6m)) through the issuance of 1,221,144 new SQS ordinary shares (the "New Ordinary Shares").
VeriSoft, India
SQS has entered into an agreement to acquire 75% of the issued share capital of VeriSoft with an option to purchase the remaining shares.
VeriSoft is headquartered in Pune, India, one of the country's leading technology centres, and is a leading provider of software testing and quality assurance in the region, with subsidiaries in the US and the UK. With approximately 150 staff, VeriSoft has completed over 300 testing projects for some 100 customers of which 50% are based outside India. In the year ended 31 March 2008, VeriSoft generated profit before tax of €0.1m on revenues of €1.2m.
The maximum consideration for the acquisition of 75% of VeriSoft will be INR121m (€1.8m) of which 44% will be satisfied in cash and up to 56% can be satisfied by the issue of new SQS ordinary shares to the vendors (who include current VeriSoft management). Of this maximum consideration, INR40m (€0.61m) (the "Initial Consideration") is due as a cash payment on Closing and INR68m (€1m) will be deferred and payable (up to 100% in newly issued ordinary SQS shares) over the two years following Closing, dependent upon the achievement by VeriSoft of specified growth and profit targets. A further consideration of INR13m (€0.2m) will be paid for a 95 year lease over land that VeriSoft has been allotted in the Special Economic Zone ("SEZ") IT Technology Park in Pune. The SEZ provides a favourable tax status for new work and SQS expects that it will build its new offshore testing centre there over the next 2 years. The acquisition is completed on 1 July 2008.
There is a further option for SQS to acquire the remaining 25% of the shares in VeriSoft between April 2011 and April 2016 for a consideration which is determined by VeriSoft's achieved profit after taxes and SQS' price/earnings ratio at the time, when the option is exercised. This option is exercisable either by SQS or the vendors and 50% of the consideration for the option can be satisfied by the issue of new SQS ordinary shares to the vendors.
Cologne, 4 September 2008
SQS Software Quality Systems AG
|
(D.Cotterell) |
(R. Gawron) |
(R. van Megen) |
SQS Software Quality Systems AG
Stollwerckstrasse 11
D-51149 Cologne
Related Shares:
SQS Software Quality Systems AG