Results for the six months ended 30 June 2010

RNS Number : 3178S

SQS Software Quality Systems AG

08 September 2010

 

Embargoed until 7am

8 September 2010

 

SQS Software Quality Systems AG

("SQS" or the "Company")

 

Results for the six months ended 30 June 2010

 

SQS Software Quality Systems AG (AIM: SQS.L), the world's largest pure play supplier of independent software testing and quality management services, today announces its results for the six months ended 30 June 2010 (the "period").

 

Summary:

Following the difficult economic environment of 2009, we have benefited from an improvement in market conditions during the first half of 2010, successfully growing revenues across our core geographies as well as achieving a return to normal levels of staff utilisation. We have also made identifiable progress with our previously highlighted strategy of growing our Managed Services activities with particular focus on growing our offshore capabilities at the same time as maintaining investment in our traditional business.

 

The improved market conditions have encouraged us to accelerate our investment plans in order to capitalise on the significant growth opportunities that we perceive are available. This investment - which predominantly focussed on increasing and training our consultant base and on upgrading our infrastructure - whilst impacting on profitability in the period, is expected to materially benefit performance in the second half of the current year and beyond. Pricing pressures do remain and, as usual, budgeted sales of our software testing products are weighted towards the final quarter but we expect to conclude the year in line with expectations.

 

Financial Highlights:

·; Turnover increased by 9.4% to €73.9 million (H1 2009: €67.5 million),

o testing services market as a whole is forecast to grow 2% in 2010 (Source: Nelson Hall 2010)

·; Gross profit up by 13.5% to €22.6 million (H1 2009: €19.9 million)

·; Gross profit margin of 30.5% (H1 2009: 29.4%)

·; Adjusted* PBT down to €2.4 million (H1 2009: €2.7 million) reflecting the significant investment in headcount and managed services growth during the period

·; Adjusted** EPS of €0.06 per share (H1 2009: €0.08 per share)

·; Net debt as at 30 June 2010 was €6.2 million (30 June 2009: net debt of €1.2 million) (31 December 2009: net cash of €1.6 million) reflecting increased receivables due to business growth and the payment of the FY 2009 dividend

·; Debtor days at period end steady at 62 (at 30 June 2009: 62)

 

* adjusted to add back €0.2 million pro forma interest on deferred payment milestones for acquisitions and amortisation on intangible assets of acquired companies of €0.8million.

 

** in addition to * adjusted to add back an additional €0.3 million in tax payments due under local GAAP

Operational Highlights:

·; A period of significant investment which is expected to facilitate growth during the second half of the current year and beyond

·; Hired and fully trained over 200 new staff consultants in response to improving demand for services

·; Average billed days per consultant of 186 (H1 2009: 175 billed days), back to normal levels of utilisation

·; Managed Services in the period represented 7% of total revenues (FY 2009: 3%) with order intake of €40 million in the year to date

·; Average managed services contract length of 3 years provides improved visibility

·; Continued expansion of offshore resources to meet high demand for blended onshore/offshore solutions

o offshore staff equal to 30.8% of total staff at 30 June 2010 (31 December 2009: 26.5%)

·; 91 new clients signed up during the period (H1 2009: 82) including numerous blue-chip clients

·; SQS Group reorganised into larger regional business units providing a platform for growth and for more effective management and reporting

 

 

Rudolf van Megen, Chief Executive Officer of SQS commented, "It was encouraging to see the increasing demand for SQS's services across all our core geographies during the period after the economic downturn last year. In response to the improving market outlook and in line with our stated strategy, we invested considerable resources in increasing our headcount and in growing our Managed Services business. The hiring and training of over 200 consultants, predominantly within our offshore facilities, will enable us to meet the increasing market demand for our services and to improve our positioning in a competitive market with inevitable pressures on pricing. The €40 million of Managed Services orders we have contracted in the year to date supports our decision to invest in this area and provides a significant improvement in revenue visibility going forward.

 

Whilst the investments we made increased costs during the period, we expect them to lead to improved performance during the second half of the current year and beyond. Pricing pressures do remain and, as usual, budgeted sales of our software testing products are weighted towards the final quarter but we expect to conclude the year in line with expectations and to continue to grow into 2011."

 

 

Enquiries:

 

SQS Software Quality Systems AG	Tel. +49 (2203) 91 54 0
Rudolf van Megen, Chief Executive Officer
Rene Gawron, Chief Financial Officer
Altium	Tel. +44 (0)20 7484 4040
Tim Richardson
Katie Hobbs
Walbrook PR Limited	Tel. +44 (0)20 7651 8688
Bob Huxford

 

About SQS

 

SQS is the world's largest pure play supplier of independent software testing and quality management services. SQS consultants design and oversee quality management processes during the software and IT systems life cycle and test the resulting products for errors and omissions.

 

Headquartered in Cologne, Germany, SQS has approximately 1,700 employees across Europe, Asia, North America and Africa. The Group has a presence in Germany (Cologne, Munich, Frankfurt, Stuttgart, Goerlitz and Hamburg), the UK (London, Woking, Birmingham, Manchester, Belfast), Ireland, the Netherlands, Switzerland, Austria, Sweden, Norway, Finland, India, Egypt, the United States and South Africa. SQS also has a minor stake in an operation in Portugal and a partnership operation in Spain.

 

With more than 5,000 completed projects, SQS has a strong customer base including 35 FTSE-100 companies, more than half of the DAX 30 and a third of the STOXX-50. It supports clients in a wide range of industries, including major corporations such as Allianz, Beazley, BP, Centrica, Commerzbank, Daimler, Deutsche Post, Generali, JP Morgan, Meteor, Reuters and Volkswagen.

 

 

Chief Executive's Statement

 

Introduction

During the first half of 2010, the Company experienced increases in demand for its services across all of its core geographies. As a result, revenues in the period rose by 9.4% to €73.9 million (H1 2009: €67.5 million), outperforming the software testing market as a whole, and staff utilisation rates throughout the period were maintained at an average rate of 100%.

 

However, the first six months of 2010 were also a period of investment for SQS as we positioned ourselves to capitalise on the significant growth opportunities that we perceive are available in our markets.

 

In line with our stated strategy we continued to invest in expanding and improving business practises within our offshore resources and offshore headcount increased by 32.6% from 310 to 411. In addition, we invested resource into improving our unique asset based methodology, SQS PractiQ, which has led to a quicker induction of new employees as well as a higher level of standardisation, automation and improved efficiencies within our offshore facilities. Together these measures enable us to offer better solutions for our clients at a competitive price.

 

Inevitably these investments, combined with ongoing price pressure, impacted profits for the period. However, with a significant pipeline of new business and lower average costs per employee going forward, we expect these investments to have a positive impact on future revenues and profitability.

 

New Business

We were encouraged by the number of new business wins over the period, having signed 91 new clients (H1 2009: 82), most of which required traditional consultancy services to assure or de-risk IT projects. We believe that such wins indicate a growing trend towards assigning testing projects to a pure play independent testing provider which is fully able to deliver the necessary testing and quality services and products.

 

Examples of new clients wins include:

 

·; a contract with a leading European insurer to provide services on a test automation solution with low maintenance efforts;

·; a project with a leading German logistics company providing code quality management services;

·; a project in the Nordic region to test and manage an application for money laundering for a provider of a wide variety of insurances, savings and loan products; and 

·; a strategic project with performance and non-functional testing for the UK's leading home and general merchandise retailer.

 

Our increased focus on sales of blended onshore/offshore Managed Services offerings also proved highly successful, with 10 contracts won during the period (H1 2009: 4). Managed Services are contracted in advance for longer periods than the rolling three to six month contracts typical of our traditional project business. As a result we are signing some of the largest contracts in our history and in July 2010 we announced our largest ever single client contract win, a Managed Services contract with an existing client worth at least €15 million over a three and a half year period. Order intake for Managed Services contracts in the year to date currently stands at €40 million and conversion of this pipeline will take place over the next three and a half years.

 

Services and product lines

 

Professional Services for Business and IT

SQS offers professional services for business and IT in three major fields of the software lifecycle:

 

·; for the business requirements phase, SQS provides management consulting for banking and insurance business processes and helps to initiate resulting IT projects. This service line accounted for 8% of total revenues in the period (H1 2009: 10%).

·; for the software implementation or development phase, typically run as an IT project, SQS provides professional testing services and quality management consulting to help clients increase efficiencies. These services are predominantly provided onsite. This service line accounted for 79% of total revenues in the period (H1 2009: 84%) and it grew by 3% in absolute value.

 

·; for software in productive use, or 'maintenance phase', SQS provides Managed Testing Services under long term engagements to provide regression testing for updates, patches and new releases. Such services typically involve blended offshore/onshore delivery and accounted for 7% of total revenues in the period (H1 2009: 1%).

 

Software Testing Products

Our unique suite of software testing products has been developed from our experience of over 28 years' working on software testing projects, culminating in a product set that is able to provide consistent and measurable support for testing services (Test Management, Test Preparation, Test Automation, Test Execution Control, Dashboard), several components of which can be integrated into other market leading tools. Our products are fully integrated into our services and offerings and are used by staff in our onshore and offshore centres, ensuring seamless interaction between the two.

 

A recent PAC study highlighted that only 20% of the testing tools market is professional products; standard office tools and self developed solutions accounting for the balance. At the beginning of the period we established Software Testing Products as a separate unit in order to better target the testing products market and during the period we experienced a further increase in demand for our software tools. We expect further sales in the second half although these are likely to be weighted towards the final quarter. Tools and Maintenance accounted for 3% of total revenues in the period (H1 2009: 2%).

 

IT training and Conferences

During the period the Iqnite conferences in Dusseldorf (Germany) and Geneva (Switzerland) were held. Five further conferences will take place in September, October and November 2010. Training still suffered to some extent from more restrictive spending policies but we are seeing increased demand as the general economic outlook turns more positive. Revenue from training and conferences represented 3% of total revenues in the period (H1 2009: 3%).

 

Acquisitions update

On July 4, 2010 the two year earn out period with Verisoft (now SQS India) came to an end. Final earn out accounts are expected to be agreed during the second half of 2010 but it is anticipated that Verisoft will have achieved the majority of its targets. Once the earn out is finalised, SQS will have acquired 75% of the issued Verisoft shares. There is an option for SQS to acquire the remaining 25% of Verisoft which is exercisable either by SQS or the vendors until April 2016.

 

The earn-out period for Validate (now SQS Nordics) is now in its third year and will run until June 2011.

 

Markets

A market study by Nelson Hall in April 2010 provided, for the first time, third party confirmation of SQS's world leading position in independent pure play testing services. The study predicts that the overall software testing services market will grow by 2% in 2010 and that testing services contracted as part of a development contract will remain flat in 2010 and grow by 5% in 2011, while software testing services contracted on a stand-alone basis will grow by 8% in 2010 and 11% in 2011.

 

During the period we saw growth across all of the geographies in which we are present, particularly in our core markets of the UK, Germany and the Nordic regions.

 

·; Our UK business recorded an excellent performance despite residual weakness in the wider UK economy. New business demand exceeds our current resource capacity and we are further increasing staff numbers in order to accommodate it. We are very encouraged by the ongoing improvements within the UK market. The Irish economy remains weak with growth relatively slow. However, we are experiencing rising demand and are looking to add an additional 25 consultants here. Our total UK and Ireland based business accounted for 29% of total revenues in the period (H1 2009: 24%).

 

·; The robust health of the German economy is reflected in a good level of growth in our German business during the period. Germany accounted 45% of total revenues in the period (H1 2009: 48%).

 

·; Our Nordic business (Sweden, Norway, Finland) returned to growth in the period and recorded a similarly healthy performance to those of our other key geographies. The Nordic business accounted for 9% of total revenues in the period (H1 2009: 7%).

 

·; Our Swiss, Austrian and Dutch business experienced solid demand albeit they grew less than last year. These regions accounted for 17% of total revenues in the period (H1 2009: 21%).

 

We are currently witnessing positive signs of growth in a number of verticals including banking, retail & logistics and energy & utilities.

 

Business strategy

Our core strategy is to grow the Company by capitalising on its leading market position whilst maintaining costs in line with developments in pricing. Key to our growth is to utilise our full service capabilities and to exploit our clients' increasing demand for independent, integrated quality and testing solutions.

 

As a traditional onshore consultancy supplier, SQS has worked closely with its clients and has developed the knowledge of their requirements relevant to providing the optimal mix of onshore and offshore resources. Furthermore, the multi-language capabilities of our offshore test centres has proved beneficial in winning deals where language (e.g. full German language skills in Egypt) is an important client concern.

 

An important element of our strategy is to increase the proportion of revenues contributed by Managed Services. This involves contracting for a set fee for a defined set of deliverables rather than the day-rate basis of our traditional offerings. Such contracts, which tend to be over a longer-term period than traditional project work and which do not allow clients to terminate at short notice, allow us to gain greater visibility on revenues and to reduce our exposure to potential economic downturns. They further benefit SQS by allowing greater flexibility and control over project staffing.

 

In 2009 we stated an intention to grow Managed Services revenues to 50% of total revenues within five years. Managed Services revenues in the period represented 7% of total group revenues and, with a considerable pipeline of new business, we expect revenue contribution from Managed Services to increase significantly going forward. Profit contribution is also expected to increase at an accelerating rate as the majority of costs associated with a Managed Services project are borne at the beginning of the contract and reduce as elements of the workload are progressively moved offshore.

 

Investment into headcount and the further development of the SQS PractiQ methodology, combined with bidding costs and other front-end weighted costs associated with Managed Services contracts, have inevitably impacted profitability during the first half of 2010. However, these costs were fully expensed during the period such that the expected beneficial impact on profitability is already being seen. Investment into SQS PractiQ is also leading to the increasing standardisation and automation of many of the procedures involved in software testing, which is further aiding us in reducing costs and supporting our "test factory" approach in Managed Services.

 

Dividend

In accordance with German law, SQS can only pay one dividend in each financial year. We expect to declare a dividend with our final results for the year ending 31 December 2010 in line with our current policy of paying out a fixed proportion of full year earnings.

 

Employees

Significant investment was made during the period to expand the headcount and to help facilitate business growth during the remainder of the current year and beyond. The high levels of domain and methodology experience and expertise among our onshore consultants enabled us to hire junior consultants. This in turn allowed us to reduce our average cost per employee and to more effectively address our competitive market environment, with its inevitable pressures on pricing.

 

The average number of permanent consultants employed during the period was 1,249 (H1 2009: 1,144), a rise of 9%. At 30 June 2010 the permanent consultant headcount stood at 1,332, up 14% over the six months (31 December 2009:1,168). The increase in the number of consultants can be broken down into a net increase of 63 onshore consultants and 101 offshore consultants. By the end of the period all new staff members had been fully trained and are expected to be fee generating in the second half of the current year.

 

Our permanent offshore consultant headcount grew 32.6% during the period to 411 at 30 June 2010, (31 December 2009: 310). Offshore consultants now represent 30.8% of total headcount against 26.5% at the start of the period.

In addition, 140 contractors contributed to revenues in the period (H1 2009: 80).

 

On behalf of the Board, I would like to take this opportunity to express our gratitude to all of our staff that contributed to SQS during the period.

 

Outlook

It was encouraging to see the increasing demand for SQS's services across all our core geographies during the period after the economic downturn last year. In response to the improving market outlook and in line with our stated strategy, we invested considerable resources in increasing our headcount and in growing our Managed Services business. The hiring and training of over 200 consultants, predominantly within our offshore facilities, will enable us to meet the increasing market demand for our services and to improve our positioning in a competitive market with inevitable pressures on pricing. The €40 million of Managed Services orders we have contracted in the year to date supports our decision to invest in this area and provides a significant improvement in revenue visibility going forward.

 

Whilst the investments we have made increased costs during the period, we expect them to lead to improved profitability during the second half of the current year and beyond. Pricing pressures do remain and, as usual, budgeted sales of our software testing products are weighted towards the final quarter but we expect to conclude the year in line with expectations and to continue to grow into 2011. 

 

 

Rudolf van Megen

Chief Executive Officer

8 September 2010

 

 

Financial Review

Summary

SQS Group turnover grew by 9.4% to €73.9 million (H1 2009: €67.5 million) during the period.

 

Due to a change in the internal organisation of SQS, which became effective as of 1 January 2010, we no longer manage the Company by individual countries. Instead we have formed larger regional entities, which can be roughly delineated by the language predominantly spoken by the resident consultants.

 

Furthermore, by creating dedicated Managed Services units in each of the two services business units, the new organisation supports the implementation of more blended onshore/offshore delivery.

 

The new business units, which also represent the new accounting segments according to IFRS 8, are:

·; Central Europe Middle East (CEME), which includes the services businesses in the markets of Germany, Switzerland, Austria, Netherlands, Luxemburg and Egypt. Furthermore, this segment manages all billable staff that are employed by the aforementioned countries including the German/French-language offshore centre in Egypt.

 

·; West Organisation North South (WONS), which includes the services businesses in the markets of the United Kingdom, Ireland, Sweden, Norway, Finland, USA, South Africa and India. Furthermore, this segment manages all billable staff that are employed by the aforementioned countries including the English-language offshore centres in India and South Africa.

 

·; Other, which includes software testing products, training & conferences and central group activities such as research and innovation.

Breakdown by business unit

Central Europe Middle East (CEME)

Revenue in CEME, our largest market, amounted to €44.8 million (H1 2009: €43.0 million) in the period, an increase of 4.1%. The improvement in revenue was entirely organic and came from new managed services contracts and additional demand for traditional IT project services.

West Organisation North South (WONS)

Our business in predominantly English speaking geographies saw a strong recovery during the period with a 24.7% rise in revenues to €25.5 million (H1 2009: €20.4 million). This occurred primarily as the result of a strong surge in demand for our services from the UK, Nordics and India and was especially encouraging given that our UK business had been hardest hit by recession during 2009. The majority of the growth came from the financial services, utilities & energy and retail sectors.

 

Other Business

This segment experienced a decline in revenues in the period of 10.9% to €3.7 million (H1 2009: €4.1 million). The markets for training, conferences and software testing products remained weak during the period, suffering late cycle from the 2009 recession. However, we increased our resources dedicated to the sales of these products and services during the period and have succeeded in growing the pipeline of future business.

 

Margins and Profitability

 

Gross profit improved by 13.5% to €22.6 million (H1 2009: €19.9 million), with the gross margin at 30.5% (H1 2009: 29.4%). This improvement was driven by better utilisation of billable consultants but tempered by a 2% price decline and the additional upfront investment required for the multi-year managed service contracts of about €0.8 million (c. 1.1% gross margin).

 

Adjusted* profit before tax for the period was €2.4 million (H1 2009: €2.7 million), a decrease of 13.3% with the adjusted profit margin falling to 3.2% (H1 2009: 4.0%). The decline is temporary and is due to the build up in sales, test center infrastructure, and project and commercial management resources, all consequences of our strategic target to grow managed services business to 50% of our total business mid-term. Approximately €1.8 million of additional costs can be attributed to the build up of managed services, and a further €1.1 million to costs of hiring consultants and sales staff to support a return to the overall growth of the business. We expect these investments to begin to show a return in the second half and to contribute fully from 2011 onwards.

Adjusted* earnings per share declined to €0.06 (H1 2009: €0.08).

*adjusted to add back €0.2 million pro forma interest on deferred payment milestones for acquisitions and amortisation on intangible assets of acquired companies of €0.8 million

Costs

General & Administrative expenses (before IFRS amortisation on intangible assets of acquired companies) for the period were €12.4 million (H1 2009: €10.1 million), rising as a proportion of sales to 16.8% (H1: 2009 15.0%). Additional costs resulted chiefly from investments in managed services commercial management and infrastructure (c. €1.0 million) and staff hiring costs (c. €0.7million).

Sales & Marketing costs for the period were €6.2 million (H1 2009: €5.4 million), increasing to 8.4% as a proportion of sales (H1 2009: 7.9%). This proportionately higher expense resulted from hiring additional direct sales and telesales staff to support the managed services build out and to ensure the return to outperformance against the overall IT market.

Research & Development expense in the period was kept broadly flat at €1.4 million (H1 2009: €1.5 million) representing 1.9% (H1 2009: 2.2%) of revenues. These efforts were focused on development of software testing tools and our unique PractiQ methodology.

Cash Flow and Financing

Cash flow from operating activities fell to €(1.5) million (H1 2009: €2.2 million). The primary reason for the decrease was an increase in trade receivables of €7.7 million during the period as a result of the strong growth in revenues. However, debtor days were stable at 62 (H1 2009: 62).

Cash flow from investments increased to €(2.9) million (H1 2009 (€(1.8) million) due to investments in IT equipment and infrastructure to support staff growth and future managed services business as well as higher capitalisation of software testing products development costs.

Cash flow from financing activities fell by €1.9 million to €2.8 million (H1 2009: €(0.4) million) as the result of the dividend payment in May 2010, while the termination of leasing contracts reduced cash by a further €0.2 million. The net increase of finance loans generated €4.9 million of cash.

 

Balance Sheet

 

We closed the period with €2.7 million (30 June 2009: €2.8 million) of cash on the balance sheet and borrowings of €8.9 million (30 June 2009: €4.0 million). The resulting net debt position at the half year end was €(6.2) million (30 June 2009: €(1.2) million). These movements resulted principally from the dividend payment of €1.9 million (H1 2009: €2.9 million) and the overall strong increase in revenues leading to an increase in trade receivables of €7.7 million during the half year. We typically have a net debt position at the half year but expect to return to a small net cash position at the full year end.

 

Taxation

A tax charge of €0.3 million includes current tax expenses of €0.7 million (H1 2009: €0.7 million) and deferred tax income of €(0.5) million (H1 2009: (€0.1) million). For the full year, we expect an actual tax rate of 29%.

Foreign Exchange

Approximately 55% of the Group's turnover is generated in Euros. For the conversion of revenues and costs generated in local currencies into Euros, the relevant official average exchange rate for the six-month-period of 2010 was chosen. For the conversion of the balance sheet items from local currency into Euros, the official exchange rate as at 30 June 2010 was used.

Foreign exchange had a €0.1 million positive impact on earnings for the period. Had the Pound/Euro exchange rate remained the same as in H1 2009 our UK revenues for the period would have been €0.4 million lower, translating to a reduction of €(0.02) million in PBT.

International Financial Reporting Standards (IFRS)

The Interim Consolidated Financial Statements of SQS and its subsidiary companies ("SQS Group") are prepared in conformity with all IFRS (International Financial Reporting Standards, formerly International Accounting Standards) and Interpretations of the IASB (International Accounting Standards Board) which are mandatory at 30 June 2010, whereas the interim reports are published in an abbreviated form according to IAS 34. The Interim Consolidated Financial Statements have neither been audited nor reviewed.

The SQS Group Consolidated Financial Statements for the six month period ended 30 June 2010 were prepared in accordance with uniform accounting and valuation principles in Euros.

Rene Gawron Chief Financial Officer 8 September 2010

 

Consolidated Income Statement
Six months ended 30 June 2010
		Six months ended 30 June 2010		Six months ended 30 June 2009		Year ended 31 December 2009
	(Notes)	(unaudited)		(unaudited)		(audited)
€'000
Revenue		73,868		67,499		134,344
Cost of sales	(3)	51,317		47,627		91,798
Gross profit		22,551		19,872		42,546
General and administrative expenses	(3)	13,240		10,913		23,222
Sales and marketing expenses	(3)	6,189		5,359		11,074
Research and development expenses	(3)	1,382		1,463		2,387
Profit before tax and finance costs (EBIT)		1,740		2,137		5,863
Finance income		137		80		236
Finance costs		509		503		1,198
Net finance costs	(4)	(372)		(423)		(962)
Profit before taxes (PBT)		1,368		1,714		4,901
Income tax expense	(5)	260		612		1,262
Profit for the period		1,108		1,102		3,639
Attributable to:
Owners of the parent		1,108		1,102		3,639
Non controlling interests	(15)	13		0		0
Consolidated profit for the period		1,121		1,102		3,639
Earnings per share, undiluted (€)	(6)	0.04		0.04		0.14
Earnings per share, diluted (€)	(6)	0.04		0.04		0.13
Adjusted earnings per share (€), for comparison only	(6)	0.06		0.08		0.21

 

 

 

 

 

Consolidated Statement of Comprehensive Income
Six months ended 30 June 2010
		Six months ended 30 June 2010		Six months ended 30 June 2009		Year ended 31 December 2009
		(unaudited)		(unaudited)		(audited)
		€'000		€'000		€'000
Profit for the period		1,121		1,102		3,639
Exchange differences on translating foreign operations		2,269		3,077		2,351
including correction of goodwill valuation
Other comprehensive income for the period, net of tax		2,269		3,077		2,351
Total comprehensive income for the period, net of tax		3,390		4,179		5,990
Total comprehensive income attributable to:
Owners of the parent		3,403		4,179		5,990
Non controlling interests		(13)		0		0
		3,390		4,179		5,990

 

 

Consolidated Statement of Financial Position
As at 30 June 2010 (IFRS)
				30 June 2010		30 June 2009		31 December 2009
		(Notes)		(unaudited)		(unaudited)		(audited)
€'000
Current assets
Cash and cash equivalents		(9)		2,679		2,814		5,351
Trade receivables				31,911		26,302		24,251
Other receivables				3,062		2,363		2,364
Work in progress				344		301		435
Income tax receivables				1,903		1,219		1,429
				39,899		32,999		33,830
Non-current assets
Intangible assets		(7)		10,202		10,746		10,402
Goodwill		(7)		50,060		47,941		47,513
Property, plant and equipment		(8)		3,331		3,061		3,352
Income tax receivables				1,426		1,387		1,264
Deferred tax assets				862		528		445
				65,881		63,663		62,976
Total Assets				105,780		96,662		96,806
Current liabilities
Bank loans and overdrafts		(10)		6,826		4,035		1,656
Finance lease				501		493		650
Trade payables				4,426		3,749		3,652
Other provisions		(12)		19		11		19
Tax accruals				1,032		1,902		672
Tax liabilities				4,253		2,968		3,531
Other current liabilities		(11)		13,197		15,583		12,991
				30,254		28,741		23,171
Non-Current liabilities
Bank loans		(10)		2,066		14		2,112
Finance lease				744		315		779
Other provisions		(12)		9		275		30
Pension provisions				120		64		120
Deferred tax liabilities				2,395		2,499		2,347
Other non-current liabilities				7,069		7,578		6,637
				12,403		10,745		12,025
Total Liabilities				42,657		39,486		35,196
Shareholders' equity		(13)
Share capital				27,263		26,185		27,263
Share premium				34,792		33,202		34,747
Statutory reserves				53		53		53
Other reserves				(5,091)		(6,634)		(7,360)
Retained earnings				6,119		4,370		6,907
Equity attributable to equity shareholders				63,136		57,176		61,610
Non controlling interests		(15)		(13)		0		0
Total Equity				63,123		57,176		61,610
Equity and Liabilities				105,780		96,662		96,806

 

 

Consolidated Statement of Cash Flows
Six months ended 30 June 2010 (IFRS)
		Six months ended 30 June 2010		Six months ended 30 June 2009		Year ended 31 December 2009
	(Notes)	(unaudited)		(unaudited)		(audited)
€'000
Net cash flow from operating activities
Profit before taxes and minority interests		1,368		1,714		4,900
Add back for
Depreciation and amortisation		3,306		2,787		6,534
Loss on the sale of property, plant and equipment		8		19		32
Other non-cash income		774		391		(1,435)
Net interest income		372		437		976
Operating profit before changes in the net current assets		5,828		5,348		11,007
Increase (Decrease) in trade receivables and
receivables from partly completed contracts not yet billed		(7,660)		(141)		1,910
Increase in work in progress, other assets
and pre-paid expenses and deferred charges		(770)		(342)		(476)
Increase (Decrease) in trade creditors		773		(524)		(621)
Increase (Decrease) in remaining accruals		677		(1,684)		(3,151)
Increase (Decrease) in pension accruals		0		25		35
Decrease in other liabilities and
deferred income		(316)		(510)		407
Cash flow from operating activities		(1,468)		2,172		9,111
Cash effect of foreign exchange rate movements		(100)		(14)		(15)
Interest payments	(4)	(260)		(254)		(642)
Tax payments	(5)	(733)		(2,672)		(1,419)
Net cash flow from current business activities		(2,561)		(768)		7,035
Cash flow from investment activities
Purchase of intangible assets		(2180)		(2,005)		(4,472)
Purchase of property, plant and equipment		(830)		(518)		(1,801)
Cashflows arising from business combinations		0		0		(1,923)
Proceeds from the sale of intangible assets		0		731		0
Foreign currency result		100		14		15
Interest received	(4)	18		18		24
Net cash flow from investment activities		(2,892)		(1,760)		(8,157)
Cash flow from financing activities
Proceeds from the issue of share capital		0		0		92
Dividends paid		(1,909)		(2,880)		(2,880)
Increase of shareholder loans		0		0		700
Repayment of bank loans	(10)	(3,040)		(175)		(212)
Increase of bank loans	(10)	8,164		3,591		3,347
Repayment of shareholder loans		(250)		(650)		(650)
Increase of finance-leasing		192		0		1,194
Repayment of lease contracts		(376)		(297)		(871)
Net cash flow from financing activities		2,781		(411)		720
Change in the level of funds affecting payments		(2,672)		(2,939)		(402)
Changes in the financial resources due to exchange rate movements		0		0		0
Cash and cash equivalents
at the beginning of the period		5,351		5,753		5,753
Cash and cash equivalents
at the end of the period		2,679		2,814		5,351

 

 

 

Consolidated Statement of Changes in Equity
Six months ended 30 June 2010 (IFRS)
		Attributed to equity owners of the parent
	Non controlling	Share	Share	Statutory	Other	Translation	Retained	Total	Total
	interest	capital	premium	reserves	reserves	of foreign	earnings		equity
						operations
	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000
1st January 2009 (adjusted)	0	26,185	33,114	53	(1,134)	(8,577)	6,147	55,788	55,788
Dividends paid							(2,879)	(2,879)	(2,879)
Stock option program			88					88	88
Transactions with shareholders			88				(2,879)	(2,791)	(2,791)
Profit for the period							1,102	1,102	1,102
Exchange differences on translating foreign operations						3,077		3,077	3,077
Total comprehensive income						3,077	1,102	4,179	4,179
30th June 2009 (unaudited)	0	26,185	33,202	53	(1,134)	(5,500)	4,370	57,176	57,176
Dividends paid
Capital increase		1,021	1,412					2,433	2,433
Capital increase for employee participation		57	58					115	115
Stock option program			75					75	75
Transactions with shareholders		1,078	1,545					2,623	2,623
Profit for the period							2,537	2,537	2,537
Exchange differences on translating foreign operations						(726)		(726)	(726)
Total comprehensive income						(726)	2,537	1,811	1,811
31st December 2009 (audited)	0	27,263	34,747	53	(1,134)	(6,226)	6,907	61,610	61,610
Dividends paid							(1,909)	(1,909)	(1,909)
Capital increase
Capital increase for employee participation
Minority interest	(13)							(13)	(13)
Stock option program			45					45	45
Transactions with shareholders	(13)		45					32	32
Profit for the period							1,121	1,121	1,121
Exchange differences on translating foreign operations						2,269		2,269	2,269
Total comprehensive income						2,269	1,121	3,390	3,390
30th June 2010 (unaudited)	(13)	27,263	34,792	53	(1,134)	(3,957)	6,119	63,123	63,123

 

 

 

 

Notes to the Financial Information (unaudited)

at 30 June 2010

 

1. Summary of Significant Accounting Policies

Basis of preparation

The Interim Consolidated Financial Statements of SQS and its subsidiaries ("SQS Group") are prepared in conformity with all IFRS Standards (International Financial Reporting Standards) and Interpretations of the IASB (International Accounting Standards Board) which are mandatory at 30 June 2010, whereas the interim reports are published in an abbreviated form according to IAS 34. The Interim Consolidated Financial Statements have neither been audited nor reviewed.

The Financial Information has been prepared on the basis of historical costs. Apart from changes in the reporting form of operating segments and changes in the accounting for losses incurred by the minority interests, the same accounting and valuation method used for the 2009 annual Consolidated Financial Statements was applied. Further information about the Group's accounting principles and policies is provided in the SQS Consolidated Financial Statement at 31st December 2009.

The Financial Information is presented in Euros and amounts are rounded to the nearest thousand (€k) except when otherwise indicated.

Statement of compliance

The Financial Information of SQS and its subsidiaries ('SQS Group') has been prepared in accordance with IFRS as adopted for use in the EU.

Basis of consolidation

As at 30 June, the Company held interests in the share capital of more than 20 % of the following undertakings:

 

Consolidated companies	Country of incorporation	Six month ended 30 June 2010	Six month ended 30 June 2009	Year ended 31 December 2009
		Share of capital	Share of capital	Share of capital
		%	%	%
SQS Group Limited, London	UK	100.0	100.0	100.0
SQS Software Quality Systems (Ireland) Ltd., Dublin	Ireland	100.0	100.0	100.0
SQS Nederland BV, Houten	The Netherlands	90.5	90.5	90.5
SQS GesmbH, Vienna	Austria	100.0	100.0	100.0
SQS Software Quality Systems (Schweiz) AG, Zürich	Switzerland	100.0	100.0	100.0
SQS Group Management Consulting GmbH (formerly Triton Unternehmensberatung GmbH), Vienna	Austria	100.0	100.0	100.0
SQS Group Management Consulting GmbH (formerly Triton Unternehmensberatung GmbH Deutschland), Munich	Germany	100.0	100.0	100.0
SQS Egypt S.A.E., Cairo	Egypt	100.0	100.0	100.0
SQS Software Quality Systems Nordic AB, Kista	Sweden	100.0	100.0	100.0
SQS Software Quality Systems Norway AB, Oslo	Norway	100.0	100.0	100.0
SQS Software Quality Systems Finland Oy, Espoo	Finland	100.0	100.0	100.0
SQS India (formerly VeriSoft InfoSystems und VeriSoft InfoServices), Pune	India	60.0	60.0	60.0

 

In the first half of 2010 SQS AG paid in line with the SQS Indias' acquisition contract a further amount of €203k (INR13,005,000 ) as part of the purchase price obligation.

Use of estimates

The preparation of the Interim Financial Statements in compliance with the International Financial Reporting Standards requires the disclosure of assumptions and estimates made by management, which have an effect on the amount and the presentation of the assets and liabilities shown in the statement of financial position, the income and expenditure as well as any contingent items. The actual results may deviate from these estimates.

The main estimates and judgements of the management of SQS refer to:

·; the useful life of intangible assets and property, plant and equipment,

·; the future cash flows and interest rates relating to impairment tests of goodwill,

·; the valuation of the liabilities from the SQS Software Quality Systems Nordic and SQS India purchases,

·; the criteria regarding IAS 38.57 according the capitalisation of development costs,

·; the recoverability of deferred taxes on losses carried forward,

·; the valuation of pension assets and liabilities and

·; the rate of forfeitures of share-based payments.

There have been no material changes in estimates compared to the year 2009.

 

 

 

 

2. Segmental reporting

In January 2010 the SQS Group has changed its organisational structure. There are two major business units acting as provider for consultancy services in their regions. Both regional business units report their financial information to the management of SQS AG as chief decision maker. The third reporting unit includes the Training & Conferences business as well as the Software Testing Products. Both, Training & Conferences (T&C) as well as Software Testing Products (STP) are operating segments according to IFRS 8 as they are reported separately to the management of SQS AG. However, both segments are considered as small. Neither T&C nor STP fullfill the criteria of IFRS 8.12. Therefore the financial information according to T&C and STP has been aggregated under the reporting segment "Other".

Based on this organisational structure the SQS Group has established the following three reporting segments:

·; CEME (Central Europe Middle East),

·; WONS (West Organisation North & South),

·; Other (includes STP (Software Testing Products) and T&C (Training & Conferences) and Group costs).

The segments "WONS" and "CEME" administrate the existing places of business as follows:

·; WONS: UKISA (UK, Ireland and Southafrika), SQS Nordic (Sweden, Norway and Finland), SQS India (India, USA)

·; CEME: SQS Germany, SQS Switzerland, SQS Austria, SQS Nederland, SQS Group Management Consulting, SQS Egypt.

The segment "Other" includes two important roles, namely selling and leasing of Software Testing Products and providing of Trainings as well as hosting of Conferences.

These profits centres run all revenue and profit generating units as market facing profit centres.

The profit centre is reportable to the Group Management Board (GMB) in Germany. The segments CEME and WONS each have a regional board. The board includes three roles CEO (Chief Executive Officer), CMO (Chief Market Officer), and COO (Chief Operations Officer). Furthermore each segment has Managed Services linked to the regional CEO.

The Group Management Board monitors the operating results of the operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss.

The assets and liabilities have not been reported because these are not used by the segment managers and by the Group Management Board. Furthermore, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.

The non-profit Centres include important functions such as Services & Product Portfolio Management, Marketing Communication, Finance & Administration, IT, Human Resources, Managed Services Support and Sales Support.

The non-profit Centres costs are allocated to the segments as far as they do direct services to the segments. As far as they provide general services to the whole group their costs are not allocated and shown under 'Non-allocated costs'.

In fiscal year 2009 the Company had four reportable segments namely Germany, UK based business (including Ireland, South Africa and India as those countries are organised as a unit "UKISA"), Switzerland, and other countries. The segment "Other countries" included Austria, Nordic, Egypt, and the Netherlands.

Previous year information has been reclassified to correspond to the new reporting format.

The following tables present revenue and profit information regarding the SQS Group's operating segments for the interim period ended 30 June 2010 and 30 June 2009 and for the year ended 31 December 2009, respectively.

 

Six month ended 30 June 2010 (unaudited)	CEME		WONS		Other		Total
	€'000		€'000		€'000		€'000
Revenues from external customers	44,754		25,448		3,667		73,869
Intersegment revenues	384		902		0		1,286
Segment profit or loss	2,563		1,470		(1,206)		2,827
Non-allocated costs							(1,087)
EBIT							1,740
Finance costs							(372)
Income tax expense							(261)
Profit for the period							1,107

 

Six month ended 30 June 2009 (unaudited)	CEME		WONS		Other		Total
	€'000		€'000		€'000		€'000
Revenues from external customers	42,983		20,401		4,115		67,499
Intersegment revenues	412		1,001		0		1,413
Segment profit or loss	3,406		(150)		204		3,460
Non-allocated costs							(1,323)
EBIT							2,137
Finance costs							(423)
Income Tax expense							(612)
Profit for the period							1,102

 

 

 

2. Segmental reporting (continued)

 

Year ended 31 December 2009 (audited)	CEME		WONS		Other		Total
	€'000		€'000		€'000		€'000
Revenues from external customers	84,653		42,949		6,742		134,344
Intersegment revenues	859		2,043		0		2,902
Segment profit or loss	7,368		1,760		(61)		9,067
Non-allocated costs							(3,204)
EBIT							5,863
Finance costs							(962)
Income tax expense							(1,262)
Profit for the period							3,639

 

 

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 2010 amounted to €5,920k (at mid-year 2009: €3,313k). Cost of material relates mainly to the procurement of outside services such as contract software engineers. In addition, certain project-related or internally used hardware and software is shown under cost of material.

Employee benefits expenses

		Six month ended 30 June 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		€'000		€'000		€'000
Wages and salaries		40,628		37,956		72,619
Social security contributions		5,357		5,423		10,124
Expenses for retirement benefits		750		537		1,826
		46,735		43,916		84,569

 

The expenses for retirement benefits include the change in pension accruals and expenses for defined contribution plans such as direct insurance and provident fund costs.

Amortisation and depreciation

Amortisation and depreciation charged in the interim period ended 30 June 2010 amounted to € 3,307k (at mid-year 2009: €2,787k). Of this, €1,190k (at mid-year 2009: €879k) was attributable to the amortisation of development costs.

 

4. Net finance costs

The net finance costs are comprised as follows:

 

		Six month ended 30 June 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		€'000		€'000		€'000
Interest income		18		18		98
Exchange rate gains		119		62		138
Total finance income		137		80		236
Interest payable		(490)		(455)		(1,080)
Exchange rate gains / losses		(19)		(48)		(118)
Total finance costs		(509)		(503)		(1,198)
Net finance costs		(372)		(423)		(962)

 

Finance income results from fixed deposit investments and investments in securities maturing in short term which yield interest income, or securities negotiable at short notice.

Interest payable relates to interest on bank liabilities and liabilities from purchase of SQS Software Quality Systems Nordic AB, SQS India and SQS Group Management Consulting GmbH (in 2009) calculated by using the effective interest method.

 

5. Income tax expense

The line item includes current tax expenses in the amount of €733k (previous interim period: €746k) and deferred tax income in the amount of €(473)k (previous interim period: €(134)k).

Further information about the recognition and measurement of the income tax is provided in the SQS Consolidated Financial Statements at 31 December 2009.

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 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
Profit for the year attributable to equity shareholders, €'000		1,108		1,102		3,639
Diluted profit for the year, €'000		1,108		1,102		3,639
Weighted average number of shares in issue, undiluted		27,263,419		26,185,075		26,242,287
Weighted average number of shares in issue, diluted		28,002,270		26,972,614		27,018,779
Undiluted profit per share, €		0.04		0.04		0.14
Diluted profit per share, €		0.04		0.04		0.13
Adjusted earnings per share (for comparison only), €		0.06		0.08		0.21

 

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 2010: 27,263,419 (at mid-year 2009: 26,185,075).

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 are calculated by adjusting the profit after tax for deferred taxes, the interest cost of the SQS Quality Systems Nordic AB and SQS India purchase obligations, pension interest, expenses in terms of the employee participation program (the difference between the market share price and the selling price of share) and amortisation cost of the acquired customer relationships as part of the business combinations. 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 June.2010 of 27,263,419 shares, (previous year 26,185,075 shares) shows adjusted earnings per share of €0.06 (at mid-year 2009: €0.08).

7. Intangible assets

The item is comprised as follows:

Book values		Six month ended 30 June 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		€'000		€'000		€'000
Goodwill		50,060		47,941		47,513
Development costs		3,490		2,499		2,921
Software		2,644		2,638		2,634
Customer relationships		4,068		5,609		4,847
Intangible assets		60,262		58,687		57,915

 

Development costs were capitalised in the interim period ended 30 June 2010 in the amount of €1,752k (half-year 2009: €1,388k) and amortised over a period of 36 months.

The amortisation of development costs is included in the costs for research and development. The amortisation of software and remaining intangible assets as well as impairment losses under IAS 36 are spread over the functional costs in accordance with an allocation key.

 

8. Property, plant and equipment

The development of property, plant and equipment of the SQS Group is presented as follows:

Book values		Six month ended 30 June 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		€'000		€'000		€'000
Freehold land and buildings		490		297		454
Office and business equipment		2,841		2,764		2,898
Property, plant and equipment		3,331		3,061		3,352

 

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 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		€'000		€'000		€'000
Bank loan and overdraft		6,826		4,035		1,656
Current bank liabilities		6,826		4,035		1,656
Bank loans		2,066		14		2,112
Non-current bank liabilities		2,066		14		2,112
Total bank liabilities		8,892		4,049		3,768
Of these, secured		2,066		14		2,112

 

For SQS AG and some subsidiaries bank overdraft agreements are in place.

 

11. Other current and non-current liabilities

The item is comprised as follows:

		Six month ended 30 June 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		€'000		€'000		€'000
Liabilities in regard to social security		1,381		1,546		1,458
Personnel liabilities (leave, bonus claims)		6,309		5,957		6,328
Purchase obligations from SQS Group Management Consulting GmbH		0		4,580		0
Purchase obligations from SQS Software Quality Systems Nordic AB		2,905		2,502		2,696
Purchase obligations from SQS India		2,619		2,283		2,366
Remaining other liabilities		3,926		3,252		3,649
Deferred income		143		65		152
Bonded loans		2,984		2,976		2,979
		20,267		23,161		19,628

 

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.

Further SQS has remaining liabilities from the purchase of SQS Software Quality Systems Nordic AB with a fair value of €2,905k (at 31 December 2009: €2,696k) and from the purchase of SQS India with a fair value of 2,619k (at 31 December 2009: 2,366). Hereof an amount of €2,560k and an amount of €1,425k is non-current (at 31 December 2009: €2,377k and €1,181k, respectively).

The loan represents a €3,000k bonded loan. The loan payment is reduced by a discount by €16k. 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 €28k (31 December 2009: €49k) include the warranty costs in the amount of €19k (31 December 2009: €19k) and the vacant property provision in the amount of €9k (31 December 2009 €30k).

13. Equity

SQS is listed on the AIM market in London and on the Open Market in Frankfurt (Main).

The development of the equity is presented in the Consolidated Statement of Changes in Equity.

 

Subscribed Capital

The subscribed capital amounts to €27,263,419 (at 31st December 2009: €27,263,419). It is divided into 27,263,419 (at 31st December 2009: 27,263,419) 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 2009	26,185,075		26,185,075
Capital increase against contribution in kind for the acquisition of the Triton Unternehmensberatung GmbH (3rd tranche) (Entry of 11 December 2009)	1,021,299		1,021,299
Capital increase against cash from authorized capital for employee participation (Entry of 23 December 2009)	57,045		57,045
As at 31 December 2009	27,263,419		27,263,419
As at 30 June 2010	27,263,419		27,263,419

 

SQS had no shares in its ownership as at 30 June 2010.

13. Equity (continued)

Authorised capital

The authorised capital developed as follows:

	€'000
As at 30 June 2009	13,000
Usage of Authorised Capital I	(1,021)
Usage of Authorised Capital II	(57)
As at 31 December 2009	11,922
As at 30 June 2010	11,922

 

Share premium

Additional paid-in capital includes any premiums received on the issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted or set off from additional paid-in capital, net of any related income tax benefits. Equity-settled share-based employee remuneration is also credited to additional paid-in capital until related stock options are exercised.

Statutory reserves

The statutory reserves in SQS AG were created in accordance with Section 150 of the Stock Corporation Act (Germany). Statutory reserves must not be used for dividends.

Other reserves

Foreign currency translation differences arise on conversation of the opening reserves of subsidiaries which functional currencies are not the Euro.

 

14. Retained earnings

Retained earnings represent the accumulated retained profits less payments of dividend and losses of SQS Group.

The General Meeting of 26 May 2010 resolved to pay €0.07 dividends per share for the business year 2009 in the total amount of €1,908,439.33.

 

15. Non Controlling Interests

Up to 2010 the excess and any further losses applicable to minorities have been allocated against the majority interest. In the case that the subsidiary reported profits, such profits were allocated to the majority interest until the minority's share of losses previously absorbed by the majority had been recovered.

Since beginning of 2010 the pro rata profit or loss and each component of other comprehensive income are attributed to the minority interests even if those results have a deficit balance. According to IAS 27 the profit or loss attribution for previous periods has not been restated.

 

16. Notes to the Consolidated Statement of Cash flows

The Consolidated Statement of Cash flows shows how the funds of the Group have changed in the course of the business year through outflows and inflows of funds. The payments are arranged according to investment, financing and business activities.

The sources of funds on which the Consolidated Statement of Cash Flows is based consist of cash and cash equivalents (cash on hand and bank balances).

 

17. Related party transactions

Under IAS 24, related persons and related companies are persons and companies who have the possibility of controlling another party or exercising significant influence over their finance or business policy. In the SQS Group, these are the Management Board members as well as the members of the Supervisory Board, Mr. and Mrs. van Megen, by reason of their position as shareholders, as well as the real estate investment fund "S.T.O.L. Immobilien Verwaltung GmbH & Co. KG", Cologne, and "Am Westhover Berg GbR mbH", Cologne.

 

Details in individual shares		Six month ended 30 June 2010 (unaudited)		Six month ended 30 June 2009 (unaudited)		Year ended 31 December 2009 (audited)
		Non-par shares		Non-par shares		Non-par shares
Rudolf van Megen, Member of Management Board		3,283,149		3,283,149		3,283,149
Ilona van Megen, née Rumsch		932,544		932,544		932,544
René Gawron, Member of Management Board David Cotterell, Member of Management Board		47,129   259,297		47,129   259,297		47,129   259,297
Supervisory Board		17,500		17,500		17,500
Total		4,539,619		4,539,619		4,539,619

 

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 as post-employment benefit to one actual Management Board member and one former Management Board member.

On 4 August 2009 Mr. van Megen has granted to SQS AG shareholder loan at normal market conditions with an amount of €700k. This loan is unsecured and amounted to €450k at 30 June 2010 (at 31 December 2009: €700k).