SQS Software Quality Systems AG. Interim results for the 6 months ended 30 th June Rudolf van Megen Chief Executive Officer

Transcription

1 SQS Software Quality Systems AG Interim results for the 6 months ended 30 th June 2007 Rudolf van Megen Chief Executive Officer René Gawron Chief Financial Officer David Cotterell Managing Director SQS-UK

2 Agenda Company Overview, Market and Strategy Operational and Financial Review Current Trading Appendices SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 2

3 Company Overview, Market and Strategy Rudolf van Megen Chief Executive Officer David Cotterell Managing Director SQS-UK

4 SQS Group Strong interim results material improvements in revenues, margins and profits across the Group. The global leader in independent software testing & quality management services majority of its business in Europe 25 years of prosperous operations over 4,000 successfully completed projects Strong top line growth of 78.5% to 56.2m (HY1 2006: 31.5m) Profit before taxes (adj.) up 168.9% to 4.6m (HY1 2006: 1.7m) (1) Earnings per share (adj.) up 90.0% to 0.19 (HY1 2006: 0.10) (2) Employees Triton acquisition successfully completed after the period end SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page Revenues ( m) * * analyst estimate 1)adjusted to add back pro forma interests required to be shown under IFRS of 0.3m on future payment milestones to the Cresta shareholders 2)based on net income increased by 0.5m no IFRS tax differences and 0.3m of pro forma interests but inlcuding actual profit taxes of 0.9m payable under local GAAP

5 Selected customer base Significant repeat revenues with blue chip clients approx. 75%. Industry and Engineering* 7% Public Admin* 9% IT Services* Retail/Logistics* 12% 13% * in per cent of total revenue for June ytd 2007 Other* 5% Energy/Utilities* 9% Banking* 31% Insurances* 8% Telecommunication* 6% Over 400 clients Top ten clients accounted for 29% of turnover in 2007 Top twenty clients accounted for 41% of turnover in Largest client accounted for 6.6% of turnover Secured 14 long term outsourcing deals New clients contact sources: 47% existing key contacts 26% sales 18% web 9% partners SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 5

6 SQS compared with IT Service Market Our market leadership helps us to outperform the IT service market. SQS organic revenue growth rates compared with market in % ,0 18,0 12,5 8,8 4,7 4,6 5,3 5, HY1 IT Services Market SQS Remarks: Purely organic growth came to nearly 5 times the market growth Further growth in markets where we are the absolute market leader: GE, UK, CH Strategy to become market leader in all current territories is delivering. Source: EITO Study 2006 SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 6

7 Why independent software testing is necessary Market studies prove the need for independent software testing. A study of 350 organisations by Coleman Parkes and PAC* showed: 60% reported that a lack of testing has cost them money 57% agreed that more testing is required to meet compliance and regulatory requirements 46% reported significant extra costs in live production due to inadequate testing 40% of companies said their own testers were either sitting idle or overworked 32% said too many of their products failed at go-live due to poor testing Only 21% reported no problems in the 18 months after go-live Global study on success rate of IT projects 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% IT-Projects Standish Group Study Succeeded Challenged Failed * Conducted in Dec. 06 and Feb. 07 SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 7

8 The SQS market The growth potential for SQS is through strong expected increase in testing outsourced to external service providers. IT Services Europe (CAGR: 5% p.a.) 150b SQS has an approx. 10% market share 75b SW App. Developm./ Syst. Int. 15% 11b Testing/QM 10% 1.1b External Service Providers 250m Test Specialists Systems integrators 850m This share is expected to double in the next 5 years 22% Source: EITO 2006 for overall market, *Coleman Parkes/ PAC 2007 Research for Testing/QM 70 per cent. of respondents want an independent testing organisation* SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 8

9 Strategic recommendations by Voke (leading US tech market analyst firm) The most recent acquisition of Triton is an excellent fit in meeting changing market requirements. SQS helps enterprise customers to: Understand their business Understand the goal of their organization Embrace new ideas and thinking Communicate with their entire ecosystem Partners Suppliers Vendors Customers Ready their organization for change Prepare for convergence (e.g. enterprise IT with embedded software) Triton will fill that role in the insurances vertical as part of our management consulting services Source: SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 9

10 Competitive Landscape SQS strengthened its position as the largest player and seeks to continue market consolidation. SQS 113* SOGETI/SC 100 Logica CMG/TEST 45 Tescom Applabs/IS Integration 25 RelQ/EDS 23 Optium 21 Capita/ Mission Testing 20 Q-LABS 20 Tesnet 20 ALTRAN/MAP 16 Microgen/IMAGO 12 FHG/IESE 12 SDLC 11 MTP 11 ps-testware 9 Quality House 9 Vizuri 7 Test & Data Source: SQS, based on estimated 2006/07 sales figures *analyst forecast 42 ( m) SQS is well positioned to capitalise on the opportunities available Independent Testing/QM Provider System Integrator/IT Services Group, not independent SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 10

11 Growth Strategy Acquisitions will continue to be underpinned by organic growth. Organic Further leverage SQS s existing client base Target existing clients for long term outsourcing and offshoring service contracts Focus on the European market whilst expanding our offshore capacities Increase our presence in software testing of embedded systems and expanding markets such as management consulting Acquisitive Successful track record of targeting and integrating acquisitions Consolidate other specialists and pursue in-fill acquisitions SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 11

12 Operational and Financial Review René Gawron Chief Financial Officer

13 Results Highlights Profitability was strongly improved. Financial Highlights: Turnover up by 78.5% to 56.2m (H1 2006: 31.5m) Profit before taxes (adj.) up 168.9% to 4.6m (HY1 2006: 1.7m) (1) Earnings per share (adj.) up 90.0% to 0.19 (HY1 2006: 0.10) (2) First-time impact of Cresta added nearly 54% to group revenues Business Highlights: Achieved 25% organic top line growth- well ahead of European IT Services Market * Margins outpacing revenue growth due to higher pricing in the UK and Germany More than 400 active clients in with approximately 64 new clients won during the year Investment in 130 new staff/consultants - to support further growth Triton acquisition after period end - immediately earnings enhancing and building out new field of management consulting 1)adjusted to add back pro forma interests required to be shown under IFRS of 0.3m on future payment milestones to the Cresta shareholders 2)based on net income increased by 0.5m no IFRS tax differences and 0.3m of pro forma interests but inlcuding actual profit taxes of 0.9m payable under local GAAP 3) IDC/ European Information Technology Observatory (EITO) 2007 study SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 13

14 SQS Business Model The majority of SQS revenues are billable days by its own consultants. Revenue HY mil Tools (2.5%) Training/Conferences (2.5%) Services with contractors 9m (16%) average 580 onshore 795 /day onshore Services with own consultants 44.4 m (79%) average 630* own consultants 188 days billable in FY average 50 offshore 170 /day offshore * 680 consultants at period end HY1 07 Consultants Utilisation Charge out rate SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 14

15 Profit & Loss statement HY adj. PBT growth strongly outpaced revenue growth. PBT (adj.) increased by 168.9% Overhead costs were slightly reduced in % of turnover and include a HY1 peak in agency hiring costs Gross margin strongly improved due to better price levels in GE and UK while consultants utilization was slightly improved on a high level SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 15

16 Balance Sheet Strengthened balance sheet. Net Assets up 7.7m from 2006 year end due to net income and fund raising of 4.8m Net cash of 3.5m (- 6.1m net debt at HY end) Trade receivables at 69.7 debtor days* (2006 year end: 75) due to quicker purchase order process and collection Liabilities from Cresta purchase ( 10.9m) will be settled with SQS shares *75 DSO was 2006 software &services industry standard (Source: CFO Europe 7/8 2007) De facto cash SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 16

17 Cash Flow statement Improved operating cash flow despite increased working capital requirements. Improved operating cash flow due to reduction in debtor days Fund raising of 4.8m was used to immediately settle short term borrowings and has enabled SQS to fund cash consideration for post balance sheet acquisition of Triton ( 4.4m) SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 17

18 Earnings per share EPS up 90.0% to 0.19 per share during HY1. Actual taxes on income at 22 % of PBT due to tax breaks under local GAAP (adjusted tax rate) Actual tax rate is expected to be approx. 25% in 2007 and 29% in 2008 SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 18

19 Segmental analysis Still targeting 9% EBIT margin. Strong organic revenue growth Germany (+29%), UK (+25%) and Switzerland (+19%) UK revenue growth of 407% was mainly acquisitive (one time effect) Profit improvement in the three large regions mainly came from gross margin improvements Measures to improve profitability in Other countries have been initiated SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 19

20 Dividend policy SQS intends to pay an enhanced dividend for Intention to return 0.08/share to shareholders from 2006 results German corporate law only allows dividend payments after AGM SQS has passed all resolutions at last AGM to reorganise its net asset base to enable it to pay a dividend in SQS proposes to pay an enhanced dividend (incl.2006) for its 2007 financial year The 2007 dividend will be payable following the AGM in May 2008 We are confident that there are no further structural issues that will prevent the payment of dividends to shareholders in future years SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 20

21 Current trading Rudolf van Megen Chief Executive Officer

22 Current Trading The current year is comfortably ahead of expectations. Trading has been encouraging in the first two months of HY2 Robust pipeline New strategic accounts with long term engagements We will consolidate our most recent acquisition Triton in the field of insurances management consulting HY2 growth will be mainly organic following the one time consolidation effect of Cresta in HY1 We expect the full year to be comfortably ahead of forecasts SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 22

23 Appendices

24 Key SQS services in Software Quality Management and Testing In many of its large customer projects SQS provides the full range of independent quality services. Management Consulting Process Consulting Business Demand Requirements Specification, Design, Realisation AI* A c c e p t Roll Out Independent Testing Documentation Independent SQS Quality Services = independent from the software design and engineering part * AI = Application Intelligence SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 24

25 Strategic Goals The SQS strategy is built on five strategic goals. Global goals of SQS Group Strategy Extend leadership in independent quality management and testing by delivering added value to our customers in order to achieve their goals Grow the business significantly above the market growth rate for IT services Remain the financially strongest independent quality service company in Europe Extend and retain a strong base of highly motivated, skilled, and best performing employees Trendsetter for Quality Aspects in Business / IT: Anticipate major trends and use this for clients benefits SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 25

26 SQS History SQS was the first mover to establish a market for independent quality management and testing 25 years ago. Germany International 1996: Conference and training business started 1996: Active member of the BOOTSTRAP Institute : 1st tool developed for test 1982: case specification Foundation of SQS Gesellschaft für Software- Qualitätssicherung mbh 1998: First international JV in Spain : Opening of SQS Austria : First acquisition: DTK (today BU Industry & Engineering) 2001: Acquisition of SQS B.V., NL 2001: Acquisition:SIM (SQS-UK) (100%) : Merger of DTK and SQS 2002: JV in Portugal established 2002: SQS Switzerland established : IPO on 2003: AIM Transferred remaining BOOTSTRAP Institute to ISQI : Developed SQS Service Offering to higher level services : Acquisition of Cresta (now merged with SQS UK) : Acquisition of Triton, Austria Acquisitions and joint ventures SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 26

27 What keeps SQS ahead from its competitors SQS methodology is in use by many of its clients. Data and experience from over 4,000 projects keeps SQS ahead from competition. Proprietary Methodologies Developed over the course of approx. 4,000 projects Services End-to-end portfolio including 435 emerging skill sets Employees More than 860 employees* Clients Serving more than 400 blue 300 bluechip chip clients Geography 8 countries; 17 offices *: at the end of HY SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 27

28 Development of number of shares The Cresta and Triton considerations payable in shares are expected to be earnings enhancing per share if all earn out targets are met 04/2007: 18.69m Forecast for Cresta earn-out 09/2007: 21.55m 09/2008: 22.83m Forecast for Triton earn-out 10/2008: 23.69m 10/2009: 24.56m Unaudited add. information, in case full earn out targets are met Add nb of shares issued for Cresta acquisition Add nb of shares issued for Triton acquisition Additional net earnings from Cresta consolidation Additional net earnings from Triton consolidation 2.86m 1.712m 1.28m 0.856m 0.86m 1.784m 0.87m 1.784m Total: 4.14m Total: 1.73m Total: 2.568m Total: 3.568m EPS on new shares * analyst estimate Adj. EPS e* 0.32 e* 0.32 e* actual/estimates SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 28

29 Case study Sarbanes Oxley Lloyds TSB is a good example of a long term client with a huge potential to increase SQS revenue. Objective To meet December deadline for compliance with Sarbanes-Oxley regulations Challenge Covered more than 50 different applications over five platforms, with seven parallel streams of work being undertaken across multiple locations. Solution Phase 1 - Definition of test approach Phase 2 Test execution to ensure 100% coverage Benefits Full compliance testing ensured that LloydsTSB were confident of full SOX compliance LloydsTSB internal deadline of 30 th June was met As a team we have shown what is possible and produced a major success for Group IT at the same time. Bob Spencer (Head of Group IT Information Security) SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 29

30 Case study Offshore testing, South Africa Off-shore secures on-shore business. Client Background Automated Functional Testing (Script Host & Launch) Existing onshore client (UK) Load Generators Technology/IS company Leading provider of messaging security and management services to business Load Generators Functional Test Environment Non-Functional Test Environment Test Management (Quality Center) South Africa staff involved in onshore projects in 2005 Project Background Secure Enterprise Instant Messenger messaging service/application Involving US & Canada Upgraded technology platform Offshore Test Team 2006 delivery (February to June 2006) Successful EIM launch 12th June 2006 Some key benefits Significant cost reduction by use of offshore resources and facilities Approximately 50% reduction in cost using offshore test team Significant test coverage gains achieved through pioneering automation by technically-savvy offshore resources. Reduced test execution from 8 hours to 6 minutes SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 30

31 Customer Quotes Our customers are of high value for the business. The release was not only the largest deployment but was also delivered to an exceptional level. Several days after the deployment there are no significant operational issues in the performance of the system deployed. Mike Stacey, CTO, Vodafone Ireland "They were innovative and offered a service based delivery structured around Test Points and using the Cresta TestStrategist software application to provide visibility and predictability." Tim Allen, Change and Execution Director, egg Bank SQS have made a major contribution to helping us raise the bar on the quality of our application. They have had a significant impact on helping us increase the quality of our applica-tion in a fast-paced and dynamic environment whilst also helping us to deliver a quality application on time." Dominic Shine, CIO, Beazley SQS Software Quality Systems AG Interim results for the 6 months ended June 30, 2007 September 6th, 2007 Page 31

32 SQS Software Quality Systems AG Ende Stollwerckstraße Köln Deutschland Fone: Fax: Internet: Internet: