2013 fy-preliminary-results

sqs.com

SQS – the world’s leading specialist in software quality

Please copy a slide with a suitable picture from the file „Title Slides_EN.pptx“ (change to presentation mode to download)

and paste it here. If necessary, apply the correct formatting by right‐clicking and choosing “Layout Title Slide“.

sqs.com

SQS – the world’s leading specialist in software quality

5 March 2014 Diederik Vos – CEORené Gawron – CFO

SQS 2013 Full Year Results

Substantial progress in profitability and cash generation.Key Highlights 2013

© SQS Software Quality Systems AG | Results for the 12 months ended 31 December 2013 | March 2014 | 2

+ 7.5% organic growth in line with market rate /

Managed Services revenues up by 24%Growth

adj. PBT + 34.5% driven by European markets and Ireland

Cash/Net Debt+ 62% higher operating cash flow /

net debt reduced to €(2.9)m

Order IntakeManaged Services € 112.5m mainly from contract renewals and extensions

Transition of business model

Managed Services now largest segment at

41% of total revenues

With the acquisition of Thinksoft SQS has become a truly global company.

Global Delivery


SQS Locations • Australia• Austria• Belgium• Egypt

Partnership• Spain• Finland

• France• Germany• India

• Ireland• Malaysia• Netherlands• Norway

• Portugal• Singapore• South Africa• Sweden

• Switzerland• UAE• UK• USA

The leading services portfolio in software quality.Portfolio


Truly global business line support across industries by distinguished test centres, based on excellent domain & technology delivery

Managed Services

Proven QM & test methodology to manage an ever increasing complexity of all SW & process development stages across business processes

Digital Transformation

Work with key industries to provide full Quality Circle and root cause analysis

Telematics & Cloud solutions

gy

• Banking• Insurance• Logistics• Manufacturing• Telco• Energy

Domain Expertise

Solutions for converging indus‐tries through product testing strategy

Mobile applications support by industrialized QM & testing on new business models and process frameworks

Mobility

Industry leading technology with SQS‐TEST®/Professional and own methodology with PractiQ® as foundation of services

Software as a Service (SaaS)

Focus on Managed Services and Thinksoft integration.Targets 2014


• Grow Managed Services to 45% of total revenues• Successful integration of Thinksoft acquisition (consolidated from 1

Jan 2014 onwards)• Expand share of test automation and output based pricing• Increase share of test centre delivery to more than 30% of revenue

and keep it above 60% of total billable headcount• Improve performance in Nordic region• Further improve cash position and profitability

Operational Targets 2014

To introduce a new chapter, please copy a slide with a suitable picture from the file „Dividing Slides.pptx“ (change to presentation mode

to download) and paste it here. If necessary, apply the correct formatting by right‐clicking and choosing “Layout Dividing Slide“.

6© SQS Software Quality Systems AG | Results for the 12 months ended 31 December 2013 | March 2014 |

Financials


Financial Highlights 2013

in €m 2013 2012 Change Main developments

Revenue 225.8 210.1 7.5% All organic, focus on profitable clients, less on growth

Gross Margin (%) 32.0% 31.2% 0.8% Mainly driven by gross margin improvements in MS and RTS

Adj. EBIT 13.2 10.6 24.7% Improvement driven by higher gross margin

Adj. PBT 12.4 9.2 34.5% Incl. €0.6m lower finance costs than 2012 helped by forex

Operating cash flow +22.8 + 14.1 +8.7m Further improvement, 119% EBITDA to OpCash conversion

Investment cash flow ‐23.4 ‐ 4.4 ‐19.0m Incl. Thinksoft € ‐17.8m; and India test centre investment phase II of €m ‐1.3

Net debt ‐2.9 ‐ 7.9 +5.0m Without Thinksoft ‐€5m we would have ended at net cash of €2.1m

Profitability, Cash Flow and Net Debt all improved

Highest EBIT contributions with MS and Specialists. RTS overheads have come down.

Gross Margin Contribution by Business Line Total 2013


91,096

36,662

77,049

21,024

225,831

MS Specialists Regular TestingServices

Other (non‐MScontractors, T&C,

Tools)

Total

Revenue (€k)

Gross Margin in % of revenue

34.2%

41% of total(2012: 35%)

Overhead in % of revenue 26.0% 26.4% 29.7% 26.2%

36.0% 30.2% 22.4% 27.1% 32.0%

25.2%

16% of total(2012: 17%)

34% of total(2012: 38%)

9% of total(2012: 10%)

(2012: 33.5%) (2012: 34.9%) (2012: 28.4%) (2012: 27.8%) (2012: 31.2%)

29%(+1%*)

19%(+4%*)

18%(‐1%*)

12%(+1%*)

7% (+1%*)

6% (‐4%*)

4%

2%3%

37%

21%

12%

10%

7%

6%5% 3%

Focus verticals

Banking & Financial Services

Retail & Logistics

Insurance

Manufacturing

Energy &Utilities

Telecom‐munication

OtherHealthcare & Food

Government & Public

Germany

Ireland

Switzerland

Nordic

USA / Rest of WorldRest of Europe

91% of SQS’s revenue is generated from the six focus verticals.

Revenue Split


Revenue by geographiesRevenue by industries

YE 2013 Revenue: € 225.8 m (+7.5 YoY)

* Change to YE 2012

UK

Austria

We propose to pay a dividend of €0.09 per shareDividend


Dividend• SQS proposes to pay a dividend

of €0.09 per share for its 2013 financial year (€0.07 for 2012)

• German companies pay dividends once a year

• SQS dividend will be paid following the AGM resolution on dividends, on 30 May

• In the future SQS proposes to continue to pay a dividend of 30% of adj. PAT




Markets and Outlook

Testing Services market growth rates expected to continue to improve in 2014.

Software Testing Services Market

Highest growth rates expected in Financial Services, Energy & Utilities, Retail & Logistics

Market split by servicesWorld market testing services

Source: Nelson Hall 2013

Change per year 2013 2014 2015

North America + 9% + 12% + 12%

Europe + 5% + 7% + 8%

Rest of World + 7% + 9% + 10%

North America

EuropeRest of World

Total:34,500 m$ 5,500

(49%)

4,500(40%)1,300

(11%)76%

12%

7%5%


Specialist testing contracted stand alone

2013, in $mTotal: 11,300

Functional Testing

Non‐functional testing

Consultancy + Other

ERP/BI/Datawarehouse

Highest growth potential

(36% of total by 2026)

System Integrators (testing part only)Pure Play Test Specialists

SQS is the world’s largest testing services specialist by revenue and no. 11 among system integrators.

Competitor Landscape

Source: Nelson Hall Report/Gartner Report, 2013; SQS, based on estimated or published 2013 revenue figures

(€m)

226

Cap Gemini

SQS + Thinksoft

TCS

Infosys

Accenture

CSC

Atos

CGI

0 250 500

630

250

666

630

750

1000125

440

150

370

(€m) 20025 50 1000

SQS + Thinksoft

Qualitest 48

17Maverick

MTP 26

18Cigniti

Keytorc

Avnet 17

7

Plan IT 22

Imbus 15

Inspearit 22

TACT 38

10QA Infotech

Tesnet 12

Acial 12

13FHG/IESE

12Amsphere

Quality House 9

RTTS 15

10Qualitykiosk


Eclipse IT 10

Assioma 9

HCL

IBM 980

Wipro

Cognizant

520

960

300

13U‐Test

Logi Gear 10Allied Testing 10

24

Healthy current trading and confident in delivering continued growth in the year ahead.

Outlook 2014


Continue to focus on higher margin business and increased visibility• Managed Services is to account for up to 50%

of total revenues within two years• Focus on larger clients with revenue per client

continuing to grow

Extend new businesses• Successful integration of Thinksoft• Further build out our domain and technology

expertise

Target six core industries • Focus on the six industry verticals in which we

have the deepest expertise

We are confident of delivering continued growth in the year ahead.




Appendix

Operating profit (adj. PBT) has grown by 34.5%.Profit & Loss Statement


in €’000 YE 2013 YE 2012 Change

in % of sales in % of sales 2013/2012

Revenue 225,830 210,111 7.5%Adj. Gross Profit 72,301 32.0% 65,631 31.2% 10.2%

G&AS&MR&D

38,524 17,344 3,228

17.1%7.7%1.4%

35,61315,8793,549

16.9%7.6%1.7%

8.2%9.2%‐9.0%

EBITDADepreciation

19,235 6,029

8.5% 16,7946,204

8.0% 14.5%‐2.8%

Adj. EBIT 13,205 5.8% 10,590 5.0% 24.7%

Net interest financialExchange rate gain/loss

‐1,054201

‐ 1,160‐ 246

‐9.2%‐181.7%

Adj. PBT 12,353 5.5% 9,184 4.4% 34.5%

IFRS regular amortisation on acquisitions & other IFRS Goodwill write off NordicIFRS pro forma interest on pensions & other

‐843‐2,638 ‐320

‐1,376

‐5

PBT 8,551 3.8% 7,803 3.7% 9.6%Taxes ‐3,376 ‐1,922 75.7%Profit after taxes 5,175 2.3% 5,881 2.8% ‐12.0%

2012 IFRS adjustments contain a minor change in valuation of Swiss pension assets required under IAS 19 due to changes in regulations during 2013

Debtor days at 64 at year end (76 at H1 2013 end, 58 at 2012 YE) reflecting typical seasonality.

Balance Sheet SQS Group FY 2013


in €’000 YE 2013 YE 2012

Assets Non current assets 75,225 64,713

GoodwillIntangible assetsOther assets (e.g. fixed assets)

51,7335,69917,793

49,0627,6088,043

Current assets 85,761 68,011

CashTrade receivables Work in progress (mostly on MS contracts)Other receivables (e.g. tax receivables)

15,24849,9587,65512,900

11,87942,7549,4933,885

Total assets 160,986 132,724

Equity and Liabilities Current liabilities 47,059 38,725Bank loans & overdraftsTrade creditorsOther short term liabilitiesTax accruals and liabilities

7,1008,70022,8068,453

7,9945,48718,7906,454

Non current liabilities 24,571 19,955Bank loansLong term liabilities from acquisitions Other non current liabilities

11,0218,1915,359

11,7501,9886,217

Equity/Net Assets 89,356 74,044

Total liabilities 160,986 132,724= items counted under net debt

Incl. €8.2m for 26% of TS shares

Incl. €9.6m for open offer TS shares on escrow account

Incl. €7.7m increase of SQS Pune 25% shares option

2012 contains a minor change in valuation of Swiss pension assets required under IAS 19 due to changes in regulations during 2013

119% operating cash flow/EBITDA cash conversion.Cash Flow Statement SQS Group FY 2013


in €’000 YE 2013 YE 2012

Net cash flow from

Operating activities 22,826 14,073

Interest payments Tax payments

‐1,375‐3,705

‐1,640‐2,020

Current business activities 17,746 10,413

Acquisition and capitalization of tangible / intangible assets (w/o goodwill)Acquisition of subsidiariesForeign currency result / interest received

‐6,226‐17,753

108

‐4,853

481

Investment activities ‐23,871 ‐4,372

Dividend paymentsIncrease of capitalRedemption of finance loansIncrease of finance loansRedemption / termination of leasing contracts

‐1,95313,854‐7,7216,098‐629

‐1,395

‐6,1164,262‐257

Financing activities 9,649 ‐3,506

Changes in cash due to forex ‐155 74

Cash at beginning 11,879 9,270

Cash at end 15,248 11,879

For 52% TS shares

Incl. €‐1.3m for building in Pune

Adj. EPS up by 25%.Earnings per Share (EPS) 2013


in €’000 YE 2013 YE 2012 Change

PBT reported 8,551 7,803 9.6%

IFRS regular amortisation on acquisitions & otherIFRS pro forma interest on pensions & otherIFRS Goodwill write off NordicTaxes on income of operations local GAAP/minority interests

843320

2,638‐ 3,840

1,3765

‐ 2,521

Profit after tax adjusted 8,512 6,663 27.8%

Weighted average number of shares undiluted 28,201,084 27,893,289

EPS adjusted in € 0.30 0.24 25.0%

2012 contains a minor change in valuation of Swiss pension assets required under IAS 19 due to changes in regulations during 2013

According to strategy the number of client engagements has further come down in 2013.

Number of Client Engagements


551

335

486

424424

523

Number of clients* Average revenue / client**

2011 (full year) 2012 (full year) 2013 (full year)

* Clients excl. training / conferences clients** in k€ p.a.


Onshore/Offshore Split ConsultantsPermanent Billable Employees

0

400

800

1200

1600

2000

2400

2007 2008 2009 2010 2011 2012 2013

Billable test centres staff share (47% of total) has moved up from 41% during the last 12 months.

Billable Staff

Onsite Consultants Offshore Consultants

848

1,264

91%

72% 68%62% 58% 59%

53%

7%10% 11%

11%

9%

22% 26% 31% 32% 30%36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013

6%

* incl. all test centres

Nearshore test centres (Goerlitz and Belfast)

Onsite Consultants Offshore Consultants

Nearshore test centres (Goerlitz and Belfast)

47%*

256

5%

YE data

Order intake of €112.5m mostly from contract extensions with order backlog of €109m going forward.

Managed Services Order Backlog

Order intake

€10m

€51m

€66.5m

€109m(YE 2012: €98m)

€101m


€112.5m

Order backlog

2009 2010 20122011 2013 31 Dec 2013

Our largest institutional shareholders hold more than60% of SQS’ issued shares.

Shareholders

Legal & General Investment Mgt 10.8%Octopus Investments 8.4%Miton Capital Partners 8.1%Herald Investment Mgt 6.2%JO Hambro Capital Mgt 4.2%Investec Asset Mgt 3.9%Charles Stanley 2.4%British Airways Pension Investment Mgt 2.1%BlackRock Investment Mgt 2.1%Hargreave Hale 2.0%Standard Life Investments 1.9%Killik Asset Mgt 1.7%Hargreaves Lansdown Asset Mgt 1.5%GLG Partners 1.4%Barclays Wealth 1.3%Rathbone Investment Mgt 1.0%South Yorkshire Pensions Authority 0.7%Adam & Co 0.5%TD Direct Investing 0.5%Unicorn Asset Mgt 0.5%AXA Investment Mgrs 0.5%Sub‐Total 61.8%

Major Institutional Shareholders > 0.5%

Source: Equiniti Investor Analytics 01/2014

Founders (van Megen/Bons) 25.6%

Earn Out Shareholders/Employees 1.3%

Sub‐Total 26.9%

Individual Shareholders


The number of shares has increased by 2.6m shares following the placing in November 2013.

Number of Shares

Actual and estimated weighted (undiluted) average number of shares:

2009 26,242m shares (actual)





2014 30,563m shares (forecast)





Thank you for your attention

2013 fy-preliminary-results

Documents