SQS H Interim Results

Transcription

1 SQS the world s leading specialist in software quality specialist in software quality sqs.com Manufacturing 2015 Banking & Financial Services Energy & Utilities Telecommunications Insurance Retail & Logistics SQS H Interim Results 8 September 2015 Diederik Vos CEO René Gawron CFO

2 About SQS SQS is the world s leading specialist in independent software quality services. 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. We focus on customers from six industries: Banking & Financial Services Energy & Utilities Insurance Manufacturing Retail & Logistics Telecommunications SQS Software Quality Systems AG Results for the 6 months ended 30 June September

3 Key Highlights H Progress in Profitability, Managed Services and Global Footprint. Margins under Pressure in Regular Testing. Growth Gross Margin Capex Investments Order Intake Managed Services + 16% revenue growth with increased market share (11% organic growth) Up to 35.9% for Managed Services and up to 34.5% for Specialist Consulting. Down to 26.4% for RTS. Invested 16m in Bit Media / Trissential and 2.4m in India Test Centre resulting in 26.5m net debt 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) SQS Software Quality Systems AG Results for the 6 months ended 30 June September

4 Achievements H and Challenges Focus on Managed Services is yielding results. Challenges in RTS Margin are being addressed. Achievements H 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 Challenges 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 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

5 SQS Strategy Achievements in the execution of SQS strategy Key Verticals BFSI Manufacturing/Automotive Retail/Logistics Established global sales and delivery infrastructure in Managed Services engagements US Presence (47% of world market) Built SQS US Acquired Trissential and Galmont ~ 18% of SQS Group revenue going forward Change and drive all critical software initiatives Enlarge Specialist Consultancy Services SQS is innovation leader in industrialised delivery and methodology using own IP Added Business Analysis, DevOps, Agile and Project Management Services to portfolio SQS Software Quality Systems AG Results for the 6 months ended 30 June September

6 US Market Coverage By adding Trissential and Galmont acquisitions to SQS US, we have built a strong quality specialist services US business. IT Programme & Project Management Software Testing & Quality Management Trissential SQS US Galmont Onsite Specialist Consulting Cross selling potential 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 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

7 Competitor Landscape SQS is the world s largest testing services specialist by revenue and has moved to # 8 among system integrators. Pure Play Test Specialists System Integrators (testing part only) # 1 SQS IBM 1,000 Qualitest Cigniti Plan IT MTP m* 317m (incl. acquisitions: Trissential, Galmont) Accenture Cognizant Inspearit 22 Maverick 15 TCS 790 Imbus 15 RTTS 15 Cap Gemini 700 QA Infotech 15 Wipro 570 Galmont 14 Acial 12 ( m) Infosys SQS HCL m* 317m (incl. acquisitions: Trissential, and Galmont) # 8 World market for software testing: $15.7bn 47% in US, 40% in Europe, 13% RoW Expected CAGR of ~ 7 12% ( m) CGI HP Tech Mahindra ,000 Source: Nelson Hall Report, 2014; SQS, based on estimated or published 2014/15 revenue figures * Current revenue run rate SQS Software Quality Systems AG Results for the 6 months ended 30 June September

8 Financials SQS Software Quality Systems AG Results for the 6 months ended 30 June September

9 Financial Highlights H Grew top line and MS/Specialist contribution, however lower margin performance in RTS legacy business. in m H H Change Main developments Revenue % Adj.* Gross Margin (%) 31.3% 33.1% -180 bps Adj.** PBT % MS Order Intake 153m 70m 119% Adj.*** Earnings per Share ( ) % Net Debt (26.5)m (8.9)m -17.6m Organic +11.1%, acquisitive growth incl. 4.2m of Bitmedia and 2.4m Trissential revenue Improved MS and Specialist margin, lower RTS margin from market pressure Reflects lower overhead costs at 24.9% (H1 2014: 26.0%) Now 49 MS clients, incl. 9 new engagements. Record book to bill ratio of 2.1 Reflecting higher local tax rate at 33.8% and higher minority interests Reflects cash out of 15.2m for acquisitions and 2.4m for test centre building * 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 H ** 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) SQS Software Quality Systems AG Results for the 6 months ended 30 June September

10 Gross Margin Contribution by Business Line Total June 2015 YTD Actions taken to reduce RTS exposure by selectively reducing client numbers, overheads and headcount. Revenue ( k) 48% of total (H1 14: 44%) 9% of total (H1 14: 10%) 34% of total (H1 14: 37%) 9% of total (H1 14: 9%) 150,254 71,948 50,895 13,209 14,202 MS Specialists Regular Testing Services Other (non-ms contractors, T&C,Tools) Total Gross Margin in % of revenue 35.9% 34.5% 26.4% 22.2% 31.3% (H1 14: 35.7%) (H1 14: 32.8%) (H1 14: 33.6%) (H1 14: 18.2%) (H1 14: 33.1%) Overhead as a % of revenue Adj. EBIT in % of revenue 24.9% 6.4% SQS Software Quality Systems AG Results for the 6 months ended 30 June September

11 Further Financial Metrics Typical H1 Seasonality on Operating Cash Flow, 18m investment cashout for acquisitions/test centre expansion. Operating Cash Flow Net Debt/ Net Cash (in m ) Adj. PBT 9.0m *see remark on slide 18 WIP increase -5.4m Receivables up -5.1m Seasonality in debtor days: YE H YE H Trade Payables down -4.6m Other 1.5m Operating Cash Flow* -4.6m -12, FY 2011 FY 2012 H1 2013* FY 2013 H1 2014* Number of clients / Average revenue Annualised H k 634k k k k Capex FY 2014 H1 2015* 15.2m 2.4m 8.9m 9.8 Acquisitions SQS India Test Centre Normalised net debt H H *Net debt higher at H1 due to typical seasonality SQS Software Quality Systems AG Results for the 6 months ended 30 June September

12 Revenue Split Continued diversification in verticals and regional split. H Revenue: m (+16% YoY) Revenue by industries Revenue by geographies Government & Public Telecommunication Other 6% 4% 5% 36% (-2%)* Banking & Financial Services USA + Nordic o Rest of Europe + 6% 4% Rest of World (ASIA/SA/ME) 8% o 5% 33% Germany - Energy & Utilities Manufacturing 7% 12% (-)* 14% (-1%)* 16% ( -)* Insurance Ireland + Austria - 8% 8% 11% 17% Focus verticals Retail, Logistics & Services * Change to FY 2014 Switzerland o UK - +/- Change to FY 2014 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

13 North America 47% EMEA 40% Summary and Outlook SQS Software Quality Systems AG Results for the 6 months ended 30 June September

14 Outlook Continue to strengthen strategic growth in a lower macro economic environment and reduce exposure to RTS. 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 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

15 Appendix SQS Software Quality Systems AG Results for the 6 months ended 30 June September

16 Profit & Loss Statement Revenue up by 16% YoY. in 000 HY 1/2015 HY 1/2014 Change YE 2014 in % of sales in % of sales HY /2014 Revenue 150, , % 268,483 Adj. Gross Profit 46, % 42, % 9.8% 89, % in % of sales G&A S&M R&D 24,816 10,897 1, % 7.3% 1.1% 22,091 10,098 1, % 7.8% 1.1% 12.3% 7.9% 18.2% 45,250 20,720 3, % 7.7% 1.4% EBITDA Depreciation 12,624 3, % 2.0% 11,849 2, % 2.1% 6.5% 13.6% 25,820 6,049 Adj. EBIT 9, % 9, % 4.4 % 19, % Net interest financial Exchange rate loss/gain % -16.7% -1, Adj. PBT 8, % 8, % 5.6% 18, % IFRS regular amortisation on acquisitions -3,145-4,399-8,202 Acquisition costs and IFRS pro forma interests on pension PBT 5, % 3, % 39.6% 10, % Taxes -1, 316-1, % -3,266 Profit after taxes 3, % 2, % 48.9 % 6, % Primarily SQS India BFSI purchase price amortisation (non cash effects) 9.6% 2.3% SQS Software Quality Systems AG Results for the 6 months ended 30 June September

17 Balance Sheet Typical mid year increase of receivables and work in progress; debtor days at 84 (H1 2014: 82). in 000 HY 1/2015 HY 1/2014 YE 2014 Assets Non current assets 118,891 90,521 87,910 Bit Media and Trissential posted 100% under goodwill while PPA is still pending 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, , ,983 Equity and Liabilities Current liabilities 87,507 58,721 51,111 Borrowings increased by 28m (since 31 Dec 14) to primarily fund investment activities = items counted under net debt 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, ,128 11, ,500 11,000 7,977 10,019 Equity/Net Assets 116, , ,876 Total liabilities 228, , ,983 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

18 Cash Flow Statement Operating cash flow impacted by seasonality and above average BFSI / Bit Media debtor days. 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 , ,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, ,575 7, ,956 7, Investment activities -22,060 3, 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, , , , , ,800-3, Financing activities 21,454 3,311-8,836 Changes in cash due to forex / consolidation effects TS Cash at beginning 26,297 15,248 15,248 Cash at end 18,308 17,024 26,297 * For H we have re-classified -599k of acquisition costs to investment activities, to make numbers comparable to previous periods SQS Software Quality Systems AG Results for the 6 months ended 30 June September

19 Earnings per Share (EPS) Adj. EPS slightly lower due to higher tax rate and minorities. in 000 HY 1/2015 HY 1/2014 Change YE 2014 PBT reported 5,196 3, % 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, , , , , , Profit after taxes adjusted 5,136 5, % 13,015 Weighted average number of shares undiluted 30,623,823 30,562,679 30,562,679 EPS adjusted in % 0.43 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

20 Backup Other short term liabilities, 30 June 2015 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 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

21 Backup Goodwill & Intangibles, 30 June 2015 In k Goodwill Intangible assets (e.g. client relationship) 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 Bit Media (*PPA still pending) 4,735 4,735 Trissential (*PPA still pending) 20,195 20,195 Other companies 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 Total 83,354 18, ,986 Total SQS Software Quality Systems AG Results for the 6 months ended 30 June September

22 Portfolio/Market trends Meeting market trends through offering the leading services portfolio in software quality. Digital Transformation SW Product Testing Product Vendor Proven Product & Industry Assets Vendor Release Dev/Ops integration SW Integration Testing Product Customer Re-usable Product & Industry Assets Customer Release Managed Services SW in Operation Product Customer Automation Assets Industrialisation SQS Certification Big data testing strategy Domain Expertise Telematics & Cloud solutions Mobility SQS Software Quality Systems AG Results for the 6 months ended 30 June September

23 Managed Services Order Backlog Record order intake of 153m from 9 new MS clients and contract extensions. Order intake 142m 153m 112.5m 101m 66.5m 51m 10m H SQS Software Quality Systems AG Results for the 6 months ended 30 June September

24 Shareholders Our largest institutional shareholders hold more than 55% of SQS issued shares. Major Institutional Shareholders > 1% 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% Individual Shareholders Founders (van Megen/Bons) 25.0% Earn Out Shareholders/Employees 1.2% Sub-Total 26.2% Source: Equiniti Investor Analytics 08/2015 SQS Software Quality Systems AG Results for the 6 months ended 30 June September

25 Issued Share Capital The number of shares in issue will continue to increase from consideration shares from acquisitions. Actual and estimated weighted (undiluted) average number of shares in issue: ,893k shares (actual) ,211k shares (actual) ,563k shares (actual) + (2,099k weighted stock options) ,044k shares (forecast) + (2,330k weighted stock options) ,307k shares (forecast) ,036k shares (forecast) SQS Software Quality Systems AG Results for the 6 months ended 30 June September

26 About SQS SQS runs eight off- and near-shore Test Centres with more than 2,000 employees. Görlitz, Germany Chennai I, India Chennai II, India Durban, South Africa Pune, India Cairo, Egypt Belfast, UK Güssing, Austria Mumbai, India SQS Software Quality Systems AG Results for the 6 months ended 30 June September

27 Thank you for your attention SQS Software Quality Systems AG Results for the 6 months ended 30 June September