sqs.com 2015 Banking & Financial Services · PDF fileAdded Business Analysis, ... 8 September 2015 | 7 IBM Infosys Cognizant 0 125 250 500 1,000 SQS 300m* ... bill ratio of 2.1

sqs.com

SQS – the world’s leading specialist in software quality

8 September 2015 Diederik Vos – CEO René Gawron – CFO

SQS H1 2015 Interim Results

sqs.com

SQS – the world’s leading specialist in software quality

Energy & Utilities

Manufacturing

Insurance Retail & Logistics

Telecommunications

Banking & Financial Services 2015

© SQS Software Quality Systems AG | Results for the 6 months ended 30 June 2015 | 8 September 2015 | 2

Founded more than 30 years ago, we have established ourselves as the leading specialist for smart quality solutions, serving North America, EMEA and APAC. The SQS mission is to shape and drive the most critical and challenging software change initiatives. We support our clients through our deep industry know how and global delivery capability. Driven by our standardised methodology PractiQ®, industrialisation & automation processes.

SQS is the world’s leading specialist in independent software quality services.

About SQS

We focus on customers from six industries: • Banking & Financial Services • Energy & Utilities • Insurance • Manufacturing • Retail & Logistics • Telecommunications

Progress in Profitability, Managed Services and Global Footprint. Margins under Pressure in Regular Testing.

Key Highlights H1 2015


+ 16% revenue growth with increased market share (11% organic growth)

Growth

Gross Margin Up to 35.9% for Managed Services and up to 34.5%

for Specialist Consulting. Down to 26.4% for RTS.

Capex Investments

Invested €16m in Bit Media / Trissential and €2.4m in India Test Centre resulting in €26.5m net debt

Order Intake Managed Services

€ 153m further improving visibility

Record book to bill ratio of 2.1

Transition of business model

Managed Services largest segment at 48% of total revenues (up from 44% of total)

Focus on Managed Services is yielding results. Challenges in RTS Margin are being addressed.

Achievements H1 2015 and Challenges


• Managed Services at 48% of total revenues • Record order intake for MS with book to

bill ratio of 2.1 • Successful acquisition of Trissential and Galmont in the USA • Completed European footprint with Bit Media acquisition

Achievements H1 2015

• Margin pressure in Regular Testing Services (RTS) has increased

• Post the period we have taken actions to reduce and disengage from some clients in RTS, reduce overheads and headcount

• Lower macro economic growth forecast across our markets

Challenges

Achievements in the execution of SQS‘ strategy SQS‘ Strategy


Established global sales and delivery infrastructure in Managed Services engagements

Key Verticals • BFSI • Manufacturing/Automotive • Retail/Logistics

US Presence (47% of world market) • Built SQS US • Acquired Trissential and Galmont

Change and drive all critical software initiatives

Enlarge Specialist Consultancy Services

~ 18% of SQS Group revenue going forward

SQS is innovation leader in industrialised delivery and methodology using own IP

Added Business Analysis, DevOps, Agile and Project Management Services to portfolio


By adding Trissential and Galmont acquisitions to SQS US, we have built a strong quality specialist services US business.

US Market Coverage

Trissential

IT Programme & Project Management

Onsite Specialist Consulting

SQS US Galmont

Software Testing & Quality Management

Onsite Specialist Consulting + Regular Testing

Nearshore Test Centre (Kentucky)

Offshore Test Centre (India)

Now a $65m revenue organisation, c. 18% of SQS total revenue on full year run rate

Cross selling potential

System Integrators (testing part only)

SQS is the world’s largest testing services specialist by revenue and has moved to # 8 among system integrators.

Competitor Landscape

Source: Nelson Hall Report, 2014; SQS, based on estimated or published 2014/15 revenue figures

(€m)

Cap Gemini

TCS

Wipro

Accenture

HP

Tech Mahindra


IBM

Infosys

Cognizant

0 250 500 1,000 125

SQS 300m* 317m (incl. acquisitions:

Trissential, and Galmont)

* Current revenue run rate

230

700

790

570

920

250

1,000

500

955

CGI

HCL

295

310

Pure Play Test Specialists

(€m) 350 25 50 100 …………. 0

Qualitest

15 Maverick

MTP

26

43 Cigniti Plan IT

22

Imbus 15

Inspearit 22

15 QA Infotech

Acial 12

RTTS 15

14 Galmont

58

SQS

300m* 317m (incl. acquisitions:

Trissential, Galmont)

World market for software testing: • $15.7bn • 47% in US, 40% in Europe, 13% RoW • Expected CAGR of ~ 7 – 12%

# 1

# 8

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8 © SQS Software Quality Systems AG | Results for the 6 months ended 30 June 2015 | 8 September 2015 |

Financials

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Financial Highlights H1 2015

in €m H1 2015 H1 2014 Change Main developments

Revenue 150.3 129.4 16.1% Organic +11.1%, acquisitive growth incl. €4.2m of Bitmedia and €2.4m Trissential revenue

Adj.* Gross Margin (%) 31.3% 33.1% -180 bps Improved MS and Specialist margin, lower RTS margin from market pressure

Adj.** PBT 9.0 8.5 5.6% Reflects lower overhead costs at 24.9% (H1 2014: 26.0%)

MS Order Intake 153m 70m 119% Now 49 MS clients, incl. 9 new engagements. Record book to bill ratio of 2.1

Adj.*** Earnings per Share (€) 0.17 0.18 -5.6% Reflecting higher local tax rate at 33.8% and higher minority interests

Net Debt (26.5)m (8.9)m -17.6m Reflects cash out of €15.2m for acquisitions and €2.4m for test centre building

Grew top line and MS/Specialist contribution, however lower margin performance in RTS legacy business.

* No material adjustments in H1 2015, but there were adjustments for a non-cash amortization of SQS India BFSI acquired order backlog of €1.0m in H1 2014

** Adjusted to add back €3.1m of IFRS amortisation of client relationship assets from the SQS India BFSI acquisition, €0.6m acquisition costs for Bitmedia and Trissential and €0.03m pro forma interests on pensions

*** Adjusted to add back effects under ** at actual local GAAP tax rate of 33.8%, less €0.8m on minority interests (mainly for SQS India BFSI)

Actions taken to reduce RTS exposure by selectively reducing client numbers, overheads and headcount.

Gross Margin Contribution by Business Line Total June 2015 YTD


71,948

13,209

50,895

14,202

150,254

MS Specialists Regular TestingServices

Other (non-MScontractors,T&C,Tools)

Total

Revenue (€k)

Gross Margin in % of revenue 35.9%

48% of total

(H1 14: 44%)

Overhead as a % of revenue

6.4%

24.9%

34.5% 22.2% 31.3%

9% of total

(H1 14: 10%)

9% of total

(H1 14: 9%)

34% of total

(H1 14: 37%)

26.4%

Adj. EBIT in % of revenue

(H1 14: 35.7%) (H1 14: 32.8%) (H1 14: 33.6%) (H1 14: 18.2%) (H1 14: 33.1%)

Further Financial Metrics


Net Debt/ Net Cash

-26.5

9.8

-8.9

-2.9

-10.3

-7.9

-12,3

(in m€)

FY 2011

FY 2012

H1 2013*

FY 2013

H1 2014*

H1 2015*

*Net debt higher at H1 due to typical seasonality

FY 2014

Acquisitions SQS India Test Centre

Normalised net debt

15.2m 2.4m 8.9m

Typical H1 Seasonality on Operating Cash Flow, €18m investment cashout for acquisitions/test centre expansion.

Number of clients / Average revenue

551

335k

486 424k 468 474k

423

634k

385

769k

2011 2012 2013 2014 H1 2015

2011 2012 2013 2014 H1 2015

Annualised H1 2015

Seasonality in debtor days: • YE 2013 – 64 • H1 2014 – 82 • YE 2014 – 72 • H1 2015 – 84

Adj. PBT €9.0m

WIP increase €-5.4m

Receivables up €-5.1m

Trade Payables down €-4.6m

Other €1.5m

Operating Cash Flow*

€-4.6m

Operating Cash Flow

*see remark on slide 18

Capex

0

36% (-2%)*

16% ( -)*

14% (-1%)*

12% (-)*

7%

4%

6%

5%

33%

17% 11%

8%

8%

6%

4%

8% 5%

Focus verticals

Banking & Financial Services

Retail, Logistics & Services

Insurance

Manufacturing

Energy & Utilities

Telecom- munication

Other

Government & Public

Germany

UK Switzerland

Nordic

Rest of World (ASIA/SA/ME)

Rest of Europe

Continued diversification in verticals and regional split. Revenue Split


Revenue by geographies Revenue by industries

H1 2015 Revenue: €150.3 m (+16% YoY)

* Change to FY 2014

-

-

- o

o

+ o

+/- Change to FY 2014

Austria

Ireland +

USA +


Summary and Outlook

EMEA 40%

North America 47%

Continue to strengthen strategic growth in a lower macro economic environment and reduce exposure to RTS.

Outlook


Continue to strengthen the strategic fundamentals of our business • Managed Services to be more than 50% of

total revenues going forward • Grow Specialist Consultancy Services

Reduce exposure to lower margin Regular Testing business • Reducing client numbers, overheads and

headcount • RTS to drop below 30% of total revenues

Integrate US operations and grow US footprint React, adapt and manage potential impact of global economic uncertainties. Therefore we anticipate our full year profits to be slightly below the Board’s previous expectation


Appendix

2014

2013

2012

2011

2015

Revenue up by 16% YoY. Profit & Loss Statement


in €’000 HY 1/2015 HY 1/2014 Change YE 2014 in % of

sales in % of

sales HY 1

2015/2014 in % of

sales

Revenue 150,254 129,366 16.1% 268,483 Adj. Gross Profit 46,985 31.3% 42,791 33.1% 9.8% 89,555 33.4%

G&A S&M R&D

24,816 10,897

1,712

16.5% 7.3% 1.1%

22,091 10,098

1,448

17.1% 7.8% 1.1%

12.3% 7.9%

18.2%

45,250 20,720

3,815

16.9% 7.7% 1.4%

EBITDA Depreciation

12,624 3,064

8.4% 2.0%

11,849 2,696

9.2% 2.1%

6.5% 13.6%

25,820 6,049

9.6% 2.3%

Adj. EBIT 9,560 6.4% 9,153 7.1% 4.4 % 19,771 7.4%

Net interest financial Exchange rate loss/gain

-519 -70

-576 -84

-9.9% -16.7%

-1,049 66

Adj. PBT 8,971 6.0% 8,492 6.6% 5.6% 18,788 7.0% IFRS regular amortisation on acquisitions

Acquisition costs and IFRS pro forma interests on pension

-3,145

-630

-4,399

-370

-8,202

-460

PBT 5,196 3.5% 3,723 2.9% 39.6% 10,126 3.8% Taxes -1, 316 -1,118 17.7% -3,266 Profit after taxes 3, 880 2.6% 2,605 2.0% 48.9 % 6,860 2.6%

Primarily SQS India BFSI purchase price amortisation (non cash effects)

Typical mid year increase of receivables and work in progress; debtor days at 84 (H1 2014: 82).

Balance Sheet


in €’000 HY 1/2015 HY 1/2014 YE 2014

Assets Non current assets 118,891 90,521 87,910

Goodwill Intangible assets Other assets (e.g. fixed assets, financial assets)

83,354 18,632 16,905

55,096 20,732 14,693

55,836 18,470 13,604

Current assets 109,982 92,349 96,073

Cash Trade receivables Work in progress Other receivables (e.g. tax receivables)

18,308 71,319 12,089

8,266

17,024 54,391 14,799

6,135

26,297 57,995

7,736 4,045

Total assets 228,873 182,870 183,983

Equity and Liabilities Current liabilities 87,507 58,721 51,111

Bank loans & overdrafts Trade creditors Short term liabilities for acquisitions (25% SQS Pune)

Other short term liabilities (mostly staff accruals)

Tax accruals and liabilities

34,511 7,883

10,613 24,498 10,002

14,096 6,197 6,812

23,563 8,053

5,463 10,763

7,978 16,753 10,154

Non current liabilities 25,332 21,297 28,996

Bank loans Long term liabilities for acquisitions Other non current liabilities (mainly deferred tax liabilities)

10,310 894

14,128

11,797 0

9,500

11,000 7,977

10,019

Equity/Net Assets 116,034 102,852 103,876

Total liabilities 228,873 182,870 183,983

= items counted under net debt

Bit Media and Trissential posted 100% under goodwill while PPA is still pending

Borrowings increased by €28m (since 31 Dec 14) to primarily fund investment activities

Operating cash flow impacted by seasonality and above average BFSI / Bit Media debtor days.

Cash Flow Statement


in €’000 HY 1/2015 HY 1/2014 YE 2014

Net cash flow from

Operating activities* -4,648 -2,600 26,623

Interest payments Tax payments

-619 -3,065

-598 -2,480

-1,467 -5,594

Current business activities -8,332 -5,678 19,562

Acquisition and capitalization of tangible / intangible assets (w/o goodwill) Acquisition of subsidiaries (Bit Media/Trissential/*)

Foreign currency result / interest received

-6,818

-15,202 -40

-3,575 7,524

21

-7,956 7,524

477

Investment activities -22,060 3,970 45

Dividend payments / Minority effects Increase of capital Payment for acquisition of non controlling interests Net change of finance loans Redemption / termination of leasing contracts

-3,973 194

-425 25,834

-176

-2,751 117

0 6,293 -348

-3,409 205

-1,800 -3,138

-694

Financing activities 21,454 3,311 -8,836

Changes in cash due to forex / consolidation effects TS 949 173 278

Cash at beginning 26,297 15,248 15,248

Cash at end 18,308 17,024 26,297

* For H1 2015 we have re-classified -599k of acquisition costs to investment activities, to make numbers comparable to previous periods

Adj. EPS slightly lower due to higher tax rate and minorities. Earnings per Share (EPS)


in €’000 HY 1/2015 HY 1/2014 Change YE 2014

PBT reported 5,196 3,723 39.6% 10,126

IFRS regular amortisation on acquisitions & acquisition costs Acquisition costs and IFRS pro forma interests on pension Taxes on income of operations local GAAP Minority interests

3,145

630

-3,032 -803

4,399

370

-2,505 -550

8,202

460

-4,954 -819

Profit after taxes adjusted 5,136 5,437 -5.5% 13,015

Weighted average number of shares undiluted 30,623,823 30,562,679 30,562,679

EPS adjusted in € 0.17 0.18 -5.6% 0.43

Backup


In k€ HY 1/2015

Accruals Bonus 4,780 Holiday 4,110 Outstanding invoices 3,416 Personnel (travel/partial retirement) 3,093 Social securities 641 Other 1,491 Audit 191 Warranties 0 Sub-total 17,722

Other liabilities Social securities 2,777 Current liabilities other (travel/rent/VAT) 2,159 Leasing 135 Wages/travel 922 Sub-total 5,993

Accrued Expenses Deferred income 783

Total 24,498

Other short term liabilities, 30 June 2015

Backup


In k€ Goodwill Intangible assets

(e.g. client relationship)

Total

UK 31,702 31,702

Triton (MC Insurance) 9,100 9,100

India 9,439 9,439

Thinksoft TS 4,527 9,220 13,747

Nordic 2,866 2,866

Netherlands 555 555

Bit Media (*PPA still pending) 4,735 4,735

Trissential (*PPA still pending) 20,195 20,195

Other companies 235 235

Sub-total 83,354 9,220 92,574

Software (SAP/Microsoft) 3,148 3,148

R&D (SQS Tools/ PractiQ) 6,045 6,045

Other 219 219

Total 83,354 18,632 101,986

Goodwill & Intangibles, 30 June 2015

Meeting market trends through offering the leading services portfolio in software quality.

Portfolio/Market trends


Managed Services Digital Transformation

Telematics & Cloud solutions

Domain Expertise Mobility

Vendor Release

Customer Release

Proven Product & Industry Assets

Re-usable Product & Industry Assets

Automation Assets

Proven Product

SW Product Testing

Product Vendor

-usable Product

SW Integration Testing

Product Customer

SW in Operation

Product Customer

SQS Certification

Dev/Ops integration

Industrialisation Big data testing strategy

Managed Services Order Backlog


Record order intake of €153m from 9 new MS clients and contract extensions.

Order intake

2009 2010 2012 2011 2013 2014

€10m

€51m

€66.5m

€101m

€112.5m

€142m

€153m

H1 2015

Shareholders


Octopus Investments 12.1%

Herald Investment Mgt 6.0%

Miton Asset Mgmt. 5.9%

Legal & General 4.6%

Investec Asset Mgt 3.6%

River & Mercantile Asset Mgmt. 2.6%

BlackRock Investment Mgmt. 2.6%

Charles Stanley 2.5%

Schroder Investment 2.4%

Standard Life 2.4%

Henderson Global Investors 2.0%

JO Hambro Capital Mgmt. 2.0%

BA Pension Investment Mgmt. 1.7%

Rathbone Investment Mgmt. 1.7%

Hargreave Hale 1.6%

Brooks Macdonald Asset Mgmt. 1.2%

Allianz Global Investors 1.0% Sub-Total 55.9%

Major Institutional Shareholders > 1%

Source: Equiniti Investor Analytics 08/2015

Founders (van Megen/Bons) 25.0%

Earn Out Shareholders/Employees 1.2%

Sub-Total 26.2%

Individual Shareholders

Our largest institutional shareholders hold more than 55% of SQS’ issued shares.

The number of shares in issue will continue to increase from consideration shares from acquisitions.

Issued Share Capital

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

2012 27,893k shares (actual)

2013 28,211k shares (actual)

2014 30,563k shares (actual) + (2,099k weighted stock options)

2015 31,044k shares (forecast) + (2,330k weighted stock options)

2016 32,307k shares (forecast)

2017 33,036k shares (forecast)


SQS runs eight off- and near-shore Test Centres with more than 2,000 employees.

About SQS


Görlitz, Germany

Durban, South Africa Chennai I, India Chennai II, India

Pune, India Cairo, Egypt

Belfast, UK Güssing, Austria Mumbai, India

Chennai I, India Chennai II, India Durban, South Africa

Pune, India Cairo, Egypt

Güssing, Austria

Thank you for your attention


Documents

sqs.com 2015 Banking & Financial Services · PDF fileAdded Business Analysis, ... 8 September 2015 | 7 IBM Infosys Cognizant 0 125 250 500 1,000 SQS 300m* ... bill ratio of 2.1