SQS Software Quality Systems AG Software Quality Systems AG SQS Software Quality Systems AG Preliminary results for the 12 months ended December 31st, 2008 ... Genilogix 7 Immune 5

SQS Software Quality Systems AG

SQS Software Quality Systems AGPreliminary results for the 12 months ended December 31st, 2008

Rudolf van Megen – Chief Executive OfficerRené Gawron – Chief Financial OfficerDavid Cotterell – Chief Sales Officer

© SQS Software Quality Systems AG | Preliminary Results for the 12 months ended December 31th, 2008 | March 2009 | Page 2

SQS Group and StrategySQS Group – an overview Offerings & ServicesStrategic priorities for 2008 – a reminder

FinancialsProfit & Loss statementBalance sheetCash flow statementEmployee numbersDividend policy

SQS in the marketClientsMarketCompetitors

Strategic summary and outlook

Agenda


SQS is the global leader in independent software testing and quality management services.

SQS Group at a glance

SQS is listed on the AIM London

South Africa Egypt IndiaUSA

AustriaFinland GermanyIreland Netherlands Norway Portugal Sweden

SwitzerlandUnited Kingdom

Spain(Partnership)

IndependenceMarket Leader in Independent Software Testing & Quality Management services.

ExperienceOver 27 years testing experience. Experience database with more than 5,000 projects.

PeopleTeam of over 1,450 trained quality professionals

Combined Onsite/OffsiteMultilanguage offshore testing centres in South Africa, Egypt, India

InnovationActive knowledge transfer between Innovation Groups and client projects.

ClientsWe operate across 27 client verticals for leading brands and organizations.

Innovative – Growing – Diverse Industries –Profitable - Cash Generative – Debt Free


SQS provides the full range of independent qualityofferings to many business critical IT projects.

SQS Business Model

«It seems that independent testing is shaping as a separate market segment.

Frank J.H. Ridder, Research Director IT Sourcing, Gartner

»«

Much of the recent growth in outsourced application services has been fueled by customers engaging independent testing services where the development provider is separate from the provider performing the testing.

Bill Martorelli, Forrester Research

»

BusinessDemand

Specification

Rollout

Testing

Design

Acceptance

Process Consulting - Independent Quality Assurance Testing –

Application Intelligence – Documentation – Business Management

Service

Management Consulting for Business

Coding

Requirements

Independent SQS quality services

= Independent from the software

design and engineering side

Run

SQS Engagement Models

Providing Experts

Taking responsibility for testing projectfull/partial project

ownership

Outsourced test / quality Center on

SLA basis


We have bundled our services to offerings to map ontoclient‘s needs for IT projects and maintenance.

Offerings & Services

Services(35)

Offerings(10+)

Client’sNeeds

Expertise in widest range of quality services

Offerings supportbusiness needsto generateClient‘s Benefit(ROI).

Reduce costs and time to

market in SW Development

Reduce implementation time in business

process optimisation

Ensure business continuity at

reduced system costs in an IT

merger

Early errordetection

(EED)

Rapid testing for SAP

implementations & upgrades

Risk and costreduced mergerof IT operations

Req

uire

men

tsEn

gine

erin

g

Func

tiona

lTe

stin

g

Secu

rity

Test

ing

Sust

aina

bilit

yTe

stin

g

Perf

orm

ance

Test

ing

Usa

bilit

yTe

stin

g

Test

Man

agem

ent

Test

Aut

omat

ion

…

…

…

SQS


Pay an enhanced dividend Dividend of 0,11 € proposed

SQS strategic priorities for 2008 – a reminder

SQS has achieved all strategic goals for FY 2008.

Improve operating cash flow

Continue to improve profits

Target clients for long term out-sourcing and offshoring contracts

Expand market verticals

Strengthen market position

Investment to support growth Invested in two additional offshore centres (India and Egypt)

Operating cash flow converted 127% of adj. PBT

Adj. PBT up 26%, again outpacing revenue growth

Long term contracts share of revenue increased from 11% to 14%

We have won 175 new clients across 27 market verticals

75 strategic clients / two thirds of total revenue


85% of SQS revenues are billable days by its permanent consultants.

SQS Business Model

Revenue FY 2008: € 142.9 m

187 billable days perconsultant

Prices:€ 550 – 1,800 per day onshore

Prices:€ 100 – 170 per day offshore

Average: 1,044 permanent consultants

Onshore: average 861

Offshore:average 183

Tools (1.2%)Training & Conferences (3%)Services with contractors (13%)Services with permanent consultants (incl. training)(85%)


We have achieved further improvements in revenue and profit margins despite a downturn in the economy.

Profit & Loss statement FY 2008 (IFRS)

in % of sales

6.5%5.6%

8.0%

8.6%

8.7%

11.7%

15.7%7.1%3.0%

34.5%

6.7%4.7%

7.6%

9.2%

9.4%

12.1%

15.7%7.4%2.2%

34.7%

in % of sales

ChangePrev YearActual

- 241-561

- 1,140- 733- 428

IFRS regular amortisation on acquisitionsIFRS pro forma interest (mainly on deferred consideration)Exceptionals: start up costs Egypt

25.6%10,46713,143Adj. PBT

12.2%9,66610,842PBT

18.0%121,059142,903Revenue

FY 2007FY 2008in € ‘000

9,6286,696

- 4,146

- 31913,462

17,3283,866

22,50610,5153,126

49,609

- 46Net interest financial

Adjust. profit after actual tax rate/interestProfit after taxes -0.6%6,734Taxes - 2,932

Adj. EBIT 28.1%10,513

EBITDADepreciation and amortisation

G&AS&MR&D

Gross Profit

21.6%7,917

22.7%14,1243,613

19,0048,6213,614

18.8%41,752

At 2007 exchange rates, 2008 revenue would have been at €150.1m - a growth rate of 24%


We ended the year with a net cash position of €5.1m and a record low of 55 debtor days.

Balance Sheet FY 2008 (IFRS)

102,98062,956

1754,3056,515

10,995

4584,2734,771

13,0976,430

29,029102,980

5,75326,1612,736

34,650

52,65210,7404,938

68,330YE 2008

49,018Equity/Net Assets

1054,1165,118

Bank loansLong term liabilities from acquisitionsOther non current liabilities

Total equity and liabilities

Non current liabilities

Bank loans & overdraftsTrade creditorsShort term liabilities from acquisitionsOther short term liabilitiesTax accruals and liabilities

Current liabilitiesTotal assets

CashTrade receivablesOther receivables

Current assets

GoodwillIntangible assetsOther assets (e.g. fixed assets)

Non current assetsin € ,000

33,930Equity and Liabilities

9,339

1913,547

11,86112,9185,413

92,287

Assets

92,287

7,22027,1731,296

35,689

45,9775,9994,622

56,598YE 2007


Due to rigid debtor collection we have converted 127% of adj. PBT to operating cash flow – a record in SQS history.

Cash Flow statement FY 2008 (IFRS)

5,7537,220

- 4,273

- 4,1800

-469858

-482

- 9,368

- 6,0240

- 3,41066

12,582

- 192- 3,919

16,693FY 2008

Net cash flow fromin € ,000

4,817- 100

- 5,4970

- 391

Increase in share capital / dividend paymentsCosts of floatation / secondariesRedemption of finance loansIncrease of finance loansRedemption / termination of leasing contracts

Cash at endCash at beginning 2,565

Financing activities - 1,171

Investment activities - 5,528

Acquisition and capitalization of tangible / intangible assetsPurchase of marketable securitiesAcquisition / disposal of subsidiariesForeign currency result / interest received

Current business activities

Interest payments / exchange rate movementsTax payments

Operating activities

7,220

- 2,9300

- 3,088490

11,354

- 746- 1,440

13,540FY 2007


In the last 4 years SQS has developed from a mainly German based company to an international onsite/offshore business.

Development of employee numbers in SQS Group

Many newpositionsand careeropportunitieshave openedupImprovedKnowledgeSharingthrough moreclient projectsand inter-national Innovation Groups

Number of Employees

NetherlandsAustriaSwitzerland

Germany

UK

EgyptIndia

Nordic

0

300

600

900

1.200

1.500

2004 2005 2006 2007 2008

Ireland

South Africa

1.450


We propose to pay a dividend for 2008.Dividend policy

SQS proposes to pay a dividend of € 0.11 per share for its 2008 financial yearThe 2008 dividend will be paid following the AGM on May 20, 2009SQS proposes to continue to operate a dividend policy in line with earnings


New Wins by Industry – to end 2008 175 (Vs 155 in 2007) **

Verticals FY 2008 *

We have followed a strategy to develop the smaller verticalsof our client base.

Diversification of market verticals

* Percentage of total SQS Group revenue; 2008 FY: €142.9m revenue

23%

17%

8%

8%

7%

4%4%

3%7%

5%

14%Telco

Finance

PublicInsurance

Auto/Aero/Defence

Legal & Media

Fund Mgt.Other

Electron./Technology

Utilities/Energy

Retail, Logistics & Services

11%:Banks

7%:Industrial General

11%:Insurance

6%:Automobiles & Parts

11%:Tech –Software & Services

5%:Government & Public SectorPharmaceuticals & BiotechRetailersSupport ServicesTelecommunicationsTravel & Leisure

3%:Financial GeneralFood & BeveragesHealthcareEquipment & ServicesInvestment Banks

2%:GeneralIndustrial Transportation

1%:Aerospace & DefenceCharityElectronics & Electrical EquipmentLegalManufacturing

Media & InternetOil & GasReal EstateTransportation GeneralUtilities

** Percentage of total by client numbers from 175 total


79% acknowledge that software testing is essential in IT product development.

Relevant SQS market

Sources: EITO/IDC/Gartner 2009 for overall market; PAC:International Market Analysis „Software Testing“, 2008 for Testing/QM

50%

IT Services Europe (CAGR: 1.5 % p.a.) € 159b

SW App.Developm./Syst. Int.

SW App. Developm./ Syst. Int. € 79.5bn

Testing/QM

Testing/QM€ 13.9bn

External ServiceProviders

External ServiceProviders € 1.7bn

Systemsintegrators

Test Specialists

This share is expected to go to 20% in the next 4 years

SQS has an approx.8 % market share

17.5%

€ 1,320m

€ 380m12%

Strong growth potential for SQS due to an increase in testing outsourced to external service providers.

«International study by PAC

»


Competitive landscape SQS markets and worldwide

Pure Play Test Specialists

Source: SQS, based on estimated or published 2008 revenue figures

20 30 40(€m) 60 80 100 120

Vision IT/Optium

Infosys

(€m)

System Integrators (testing part only)

Wipro

0 10System Integrator/IT Services Group, not independent

Independent Testing/QM Provider

Logica

Applabs/IS Integration

Capita

Cognizant

SOGETI

SQSTCS

Satyam

40TescomSQS

143

Tesnet 20

Q-LABS 20

Quality House 9

ps-testware 9

13FHG/IESE

MTP 11

SDLC 11

Thinksoft 10

RTTS 7

13Imbus

Plan IT

T-Systems

Lionbridge/GDT

ALTRAN/MAP

16

SQS strengthens its position as market leader and seeks to continue further market consolidation.

Acial 10

150

Accenture

Hexaware

Test&Data 4

Squerist 6

Assurity 5

Genilogix 7

Immune 5

21

226

0 100 200

45

30

20

16

160

180

143130

50

60

45

300

386

60

30

400

HP/EDS 50


Organic growth enhanced by selective acquisitions.Strategic summary

OrganicBuild on position as global leader in independent software testing services

Target new and existing clients for long-term blended onshore/offshore service contracts

Continue to invest in Sales & Marketing resources

Focus on the sale of bundled service packages to address specific client needs

Maintain focus on the European market whilst expanding offshore capacity

AcquisitionSuccessful track record of targeting and integrating appropriate acquisitions

Strengthen foothold in Europe

Continue to expand SQS’s offshore facilities, increasing capacity and coverage of time-zones and languages – currently exploring opportunities in Asia/Oceanic region


Confident outlook.

Continuing strong demand for our services in first quarter of 2009

Recent well-timed acquisitions have considerably expanded our offshore capabilities and our market-leading presence in Europe

Improving visibility driven by growing demand for long-term blended on-site/offshore contracts

Independent software testing now recognised as distinct sector by industry analysts including Gartner and Forrester

Exposure to specific verticals reducing

We look to the future with confidence

Looking forward


Appendix


The SQS strategy is built on five strategic goals.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

Further develop to be the financially strongest independent global quality service company

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


Market studies prove the need for independentsoftware testing.

Why independent software testing is necessary

An international study by PAC1) showed:79 per cent of survey respondents think that poor testing has a significant impact on the company in terms of costs 33 per cent see testing as essential investment in the product 65 per cent agree that software testing should be independent from development34 per cent state they do not have a consistent approach to testing68 per cent agree that they will have to adapt their testing to compliance and regulatory requirements Only 20 per cent have no problems in the first few months after the go-live of the product

Global study on success rate of IT projects2)

(in per cent)

1) Independent study commissioned by SQS; carried out in 2008 with 1,030 companies in 13 countries2) Standish Group Study 1994–2006

Our advice: Detect errors earlier

FailedChallengedSucceeded

1627 26 28 34 29 35

53 3346 49

51 53 46

31 4028 23 15 18 19

1994 1996 1998 2000 2002 2004 2006


SQS’s diverse offshore centres suit our client’s needsSQS Offshore

Language

Customer situation International customers

National customers (Germany, Austria, Switzerland)

Internationalcustomers, US customers

Testing in Germany required

South Africa Egypt GermanyIndia

Pune

Durban

Cairo

Görlitz


Initial Training Training on the job

SQS Initial Training

3-6 Weeks

SQS Trainingon the job

Training & Certification

Continuous staff training ensures highest service qualityComprehensive training concept

35 Innovation Groups

Continuous LearningISTQB® Certified Tester

Foundation LevelAdvanced LevelExpert Level

IREB®CertifiedProfessionalfor Requirements EngineeringPMI® Project ManagementProfessional (PMP®)QUAMP® – Quality Assurance Management Professional


In constant exchange rates revenue would have been €150.1m and adj. PBT at €13.6mDespite negative foreign exchange effects from translating UK business contribution to consolidated numbers in Euros we further improved adj. Earnings per Share by 5% and met market expectations

Financial results summary

Revenue up 18% (by €21.8 m)

Adj. PBT up 26% (by €2.6 m)

Adj. EPS up 5% (by €2-cent)

142.954.7 78.9

121.1

2005 2006 2007 2008

13.13.7 5.3

10.5

2005 2006 2007 2008

SQS has almost tripled in size since we floated on AIM more than three years ago.

41.028.022.043.0

2005 2006 2007 2008


Due to strong market demand profits improved in theGerman and the „Other Countries“ segments.

Geographical segmental analysis 2008 (IFRS)

8.5%

121,059-

10,2728.3%

142,903-

11,893

Revenue1)

ConsolidationEBIT incl. IFRS effects

Total

8.2%4,113

3379.2%13,950

1,283Revenue1)

EBITOther countries(Nordic, Austria, NL, Egypt)

6.6%12,534

8224.4%14,138

629Revenue1)

EBITSwitzerland

11.5%48,704

5,5807.7%46,076

3,555Revenue1)

EBITUK/Irl/RSA/India

6.3%55,708

3,5339.3%68,739

6,426Revenue1)

EBITGermany and Group costs

in % of sales2007

in % of sales2008in € ,000

1) external consolidated revenue without intercompany

Year ended December 31


EPS up 5%Earnings per share

4.9%0.410.43EPS adjusted in €

9,9%9,66510,842PBT reported

ChangeFY 2007FY 2008in € ,000

22,287,098

9,628

1,140733428

- 3,515

19,089,779Weighted average number of shares undiluted

Profit after taxes adjusted

IFRS regular amortisation on acquisitions IFRS pro forma interest (mainly on deferred consideration)Exceptional start up costs Egypt Taxes on income for operations local GAAP

7,917

241 561

0-2,550


Development of number of shares from pending earn outs (I)The considerations payable in shares for acquisitions are paid when profit related earn out targets are met.

21.55m 22.82m1)25.22m 26.19m 27.17m

0.12m 0.87m0.97m2.40m1.22mAdd nb. of shares issued for acquisition

in case full earnout targets are met

1) incl. 0.053m shares increase from convertible bonds in 02/2008

Crestafinal earn-out

Tritonearn-out (I)

Validateacquisition

FC Validate earn-out (I)

26.31m

FC Tritonearn-out (II)

Est. weighted number of shares:2008: 22.287m shares2009: 26.340m shares2010: 27.540m shares

12/2007 08/2008 11/2008 12/2008 08/2009 11/2009

Actual


Development of number of shares from pending earn outs (II)The considerations payable in shares for acquisitions are paid when profit related earn out targets are met.

27.17m

0.499m0.250m0.884mAdd nb. of shares to be issued for acquisition

FC Tritonearn-out (II)

08/2010 08/2010 08/201011/2009

28.06m

FC Validate earn-out (II)

28.31m

FC Verisoftearn-out (I)

28.81m

FC Validate earn-out (III)

Additional stock options:Granted YE 2008:0.795mPotentially exercisable from onwards

10/2009: 0.529m shares (3.06€ exercise price = 273p*)10/2010: 0.266m shares (3.95€ exercise price = 353p*)*at 4 March 2009 Sterling/EUR exchange rate

No warrants or convertibles are outstanding


Our customers are of high value for the business.Customer Quotes

Mike Stacey, CTO Vodafone Ireland

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.

Tim Allen, Change and Execution Director Egg Bank

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.

Dominic Shine, CIO Beazley

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 application in a fast-paced and dynamic environment whilst also helping us to deliver a quality application on time.

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SQS Software Quality Systems AG

Stollwerckstraße 11 | 51149 Köln, GermanyPhone: +49 22 03 91 54-0 | Fax: +49 22 03 91 54-15E-Mail: [email protected]: www.sqs.de | Internet: www.sqs-group.com

Thank you for your attention

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SQS Software Quality Systems AG Software Quality Systems AG SQS Software Quality Systems AG Preliminary results for the 12 months ended December 31st, 2008 ... Genilogix 7 Immune 5