Trading Update

SQS Software Quality Systems AG

("SQS" or the "Company")

Trading Update

SQS Software Quality Systems AG (AIM: SQS.L), the world's largest pure play supplier of independent software testing and quality management services, provides an update on trading for the year ended 31 December 2011.

We are pleased to announce that revenues for 2011 will be slightly ahead of consensus forecasts owing, in the main, to a strong performance from our Managed Services business which accounted for more than 20% of revenues in 2011.

However, during 2011, we did not recover some additional transition costs, not expected to exceed €2 million, relating to two earlier Managed Service contracts, which are expected to result in a PBT below analysts' forecasts for the period. However, these contracts are now at an improved margin level and we have taken the full cost in 2011 of transferring these contracts to an optimised onshore/offshore delivery. We are in ongoing discussions with the clients to recover at least some of those costs in 2012. Furthermore, as a result of our ever expanding experience in the provision of Managed Services contracts, all new Managed Services contracts closed during 2011 have a better early stage margin and cash flow profile and we do not envisage incurring any further additional costs.

As stated earlier, Managed Services order intake has exceeded €62m in 2011 and is in line with our stated strategy of building the Managed Services business to account for 50% of revenues by 2014. As contracts mature and move offshore the Company would expect to deliver a far stronger margin performance in the future.

Despite Gartner recently reducing IT market growth forecasts for Western Europe for 2012 to -0.7% our strong momentum in building revenue continues. Overall, traditional project business remained strong during 2011 with particularly healthy demand in the final quarter which remained buoyant in all major geographies and business verticals. However, we will maintain a cautious outlook and not recruit additional staff unless this is essential to the business. In addition, average rates for onsite consultancy services slightly improved in the second half due to our continued shift to offshore test centres.

Rudolf van Megen, CEO of SQS, commented: "In most respects, 2011 has been a successful year for SQS in which we have again won market share and have continued to deliver on our strategy of significantly increasing the proportion of our revenues derived from Managed Services contracts. We are not satisfied that two earlier contracts have had a one off impact on profitability, which we do not anticipate to affect our expectations for the current year. With further cost saving measures implemented, increased visibility and order backlog, SQS is gaining the right momentum from its "Profitable Growth Plan 2014" for an improved future performance."

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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 2,000 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, France, 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 20% of the 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, Daimler, Deutsche Post, Generali, JP Morgan, Meteor, Reuters, SEB, Siemens and Volkswagen.