Trading Update

SQS Software Quality Systems AG

("SQS" or the "Company")

Trading Update

SQS Software Quality Systems AG, the world's leading specialist in software quality services, provides an update on trading for the year ended 31 December 2012 ahead of the announcement of its preliminary results on 6 March 2013.

We can report that revenues for 2012 will be slightly ahead of consensus forecasts owing predominantly to a higher share of services delivered by contractors to assure delivery of peak demand during the year, which is typically lower margin business.

Adjusted PBT is expected to be below consensus as we saw some of the larger Managed Services clients electing to suspend their extended engagements for a period prior to the end of 2012 in order to contain their expenditures for the year. This was possible as, despite Managed Services business being contracted up-front, these clients had already significantly exceeded their minimum contracted spending commitments. While preparing the group accounts it became apparent that this resulted in approximately €1m lower revenue and PBT from services delivered by permanent consultants in the last full working week of 2012. 

Managed Services business now accounts for more than 34% of total revenues (22% at 31 December 2011) and total gross margins from this business segment have continued to improve.

Our order intake from Managed Services was also significantly up on the previous year, chiefly as the result of a number of new Managed Services contract wins and extensions. These include our largest ever contract win and largest ever contract extension (announced on 8 January 2013). Order intake during 2012 was €101m against €67m during 2011 with an order backlog (revenues still to be delivered) of €98m at the year end.

In addition, we continue to work on margin improvement as the result of a strategic move away from the provision of lower margin regular testing services, coupled with an increasing proportion of revenues coming from Managed Services and high margin Specialist Consulting business. In line with our stated strategy, SQS has now implemented a minimum margin policy for all new business and, where possible, is in the process of bringing any existing business above this minimum level if not already.

The Company is also cash generative such that the debt position is rapidly being reduced. The net debt position at 31 December 2012 was c. €7m against €12.3m as at 31 December 2011.

Dik Vos, CEO of SQS, commented: "Since becoming CEO in October last year I have seen a great deal of progress in the performance of SQS. However, in line with our strategy, there is still more to do in ensuring we move all of our business into more profitable segments. Despite a flat IT services market in Q4 2012 our order intake was in line with our internal expectations. We are confident of continued growth and an improving margin profile and look forward to further progress in 2013."

Enquiries:

About SQS Software Quality Systems

SQS is the world's leading specialist in software quality. This position stems from 30 years of successful consultancy operation. SQS consultants provide solutions for all aspects of quality throughout the whole software product lifecycle driven by a standardised methodology and deep experience in various industries. Headquartered in Cologne, Germany, the company employs approximately 2,200 staff. Along with a strong presence in Germany and the UK, SQS has further subsidiaries in Egypt, Finland, France, India, Ireland, the Netherlands, Norway, Austria, Sweden, Switzerland, South Africa and the US. In addition, SQS maintains a minority stake in a company in Portugal. In 2011, SQS generated revenues of 189.1 million Euros.

SQS is the first German company to have a primary listing on the AIM (Alternative Investment Market) in London. In addition, SQS are also traded on the open market of the German Stock Exchange in Frankfurt am Main.

With over 7,000 completed projects under its belt, SQS has a strong client base, including half of the DAX 30, nearly a third of the STOXX 50 and 20 per cent of the FTSE 100 companies. These include, among others, Allianz, Beazley, BP, Centrica, Daimler, Deutsche Post, Generali, JP Morgan, Meteor, Reuters and Volkswagen as well as companies from every other conceivable industry.

For more information, see sqs.com