SQS Software Quality Systems AG Regulatory News (SQS)

3 July 2017

SQS Software Quality Systems AG

("SQS" or "the Company")

Trading update

SQS Software Quality Systems AG (AIM: SQS), the leading global provider of quality assurance services for digital business processes, provides an update on trading for the six months ended 30 June 2017.

Trading for the first half has been in line with management's expectations and the Company continues to successfully evolve its business to support the increasing digitalisation of business processes across all its clients' industries. SQS continues to grow its consulting capacity and has established some market-leading efficiency and automation solutions which we anticipate will deliver improved EBIT margins over the medium term.

H1 2017 Trading

In the six months to 30 June 2017, the Company's adjusted EBIT margin increased to 7.5% (H1 2016: 6.9%), driven by increasingly automated and efficient ways of delivering our services, alongside a continued focus on cost management. Adjusted EBIT is expected to be approximately €12.0m in H1 2017, an increase of 4.8% on the same period last year (H1 2016: €11.45m; H2 2016: €11.15m) and reversing the downward trend in H2 2016.

Revenues for the period are expected to be at the same level as H2 2016 at approximately €160.4m, and slightly lower than the comparative period (H1 2016: €166.6m; H2 2016: €160.5m) as we absorb the last effects of one banking client loss of €7.0m.

Outlook and Medium-Term Strategy

Looking ahead, SQS expects H2 2017 revenues to be slightly above H1 with a number of known business wins starting later in the year.

The Company currently has a stronger pipeline than in 2016 and is well placed to benefit from a range of emerging growth opportunities in what is a very exciting market.

Companies are increasingly dependent on software, data and digital systems to stay competitive through more efficient, automated and smarter processes for implementing and testing software.

SQS continues to execute on its strategy to position itself at the heart of digital transformation by offering a comprehensive services portfolio. The Company is increasingly able to support clients with all aspects of their digital transformation, chiefly in:

· assessing their digital readiness;

· shaping their digital strategy and ensuring its effective deployment;

· aligning software quality with business strategy;

· ensuring the continuous quality and integrity of the software once deployed.

SQS is helping make customers more agile to the challenge by increasing the speed of new technology deployment, adding greater process automation, ultimately helping to create new revenue opportunities and recognise better returns on investment. It is this growing operational agility and intelligence that SQS, mainly through its Management Consulting (MC), Managed Services (MS) and supported by Professional Services (PS) capabilities, is offering to customers across all end-markets.

As such, our focus is on increased profitability from operations and in the medium term SQS expects to be able to deliver organically an adjusted EBIT margin of at least 9% and corresponding operating cash flow improvements - the two key metrics management we use to measure successful progress.

Dik Vos, Chief Executive Officer of SQS, commented:

"It has been a period of progress across the business as we see increasing demand for our digital change offerings. As the quality assurance market continues to evolve and seeks a more industrialised automated approach, SQS is in a sweet-spot of the evolving market dynamics. We are delighted to have added additional blue-chip brands to our customer base this year, indicating increased presence and credentials to support medium-term growth. This is across our key verticals, but is especially evident in the technology and automotive sectors.

We have been focussed on and investing in IP based industrialisation and automation for some time now and believe our agile, digitised approach has made us a key partner to a growing number of businesses across multiple sectors. We have consequently adapted our key performance indicators towards organic growth in operating profit and cash flow."

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About SQS

SQS is the leading global provider of quality assurance services for digital business processes. This position stems from over 30 years of successful consultancy operations. SQS consultants provide solutions for all aspects of quality throughout the whole software product lifecycle driven by a standardised methodology, industrialised automation processes and deep domain knowledge in various industries. Headquartered in Cologne, Germany, the company now employs approximately 4,400 staff. SQS has offices in Germany, UK, US, Australia, Austria, Egypt, Finland, France, India, Ireland, Italy, Malaysia, the Netherlands, Norway, Singapore, South Africa, Sweden, Switzerland and UAE. In addition, SQS maintains a minority stake in a company in Portugal. In 2016, SQS generated revenues of €327.1 million. 

SQS is the first German company to have a primary listing on AIM, a market operated by the London Stock Exchange. In addition, SQS shares are also traded on the German Stock Exchange in Frankfurt am Main. 

With over 10,000 completed projects under its belt, SQS has a strong client base, including half of the DAX 30, nearly a third of the EURO STOXX 50 and 20 per cent of the FTSE 100 companies.