Annual Report 2006

Transcription

Annual Report 2006

51149 Köln
Deutschland
www.sqs-group.com/www.sqs.de
Telefon: +49 (0) 2203 91 54-0
SQS Group Limited
Software Quality Systems
SQS Software Quality Systems
SQS Nederland B.V.
120 Moorgate
(Schweiz) AG
Ges.mbH
Van Voordenpark 5A
London, EC2M 6SS
Baarerstrasse 135
Nußdorfer Straße 20/16
5301 KP Zaltbommel
United Kingdom
6301 Zug
1090 Wien
Nederland
www.sqs-uk.com
Schweiz
Österreich
www.sqs-group.nl
phone: +44 (0) 20 7448 4620
www.sqs-group.ch
www.sqs.at
phone: +31 (0) 418 655 888
Telefon: +41 (0) 41 720 41 50
Telefon: +43 (0) 1 319 35 23-0
SQS Portugal Lda.
SQS South Africa
Av. Prof. Dr. Cavaco Silva, 33
(Ireland) Ltd
Technology House
Taguspark
4–5 Dawson Street
29 Salisbury Avenue
2740–120 Porto Salvo
Dublin 2
Westville
Portugal
Ireland
South Africa
www.sqs.pt
www.sqs-ire.com
www.sqs-sa.com
phone: +351 (0) 21 4 22 90 90
phone: +353 (0) 1 670 9916
phone: +27 (0) 31 266 8466
Financial Year 2006
Stollwerckstraße 11
SQS Software Quality Systems AG
Financial Year 2006
The First 25 years of Quality
Seeing the big picture. Focusing on detail.
QA QM QA QM QA QM QA QM QA QM
QM QA QM QA QM QA QM QA QM QA
K EY G RO U P F I G U R ES
MISSION STATEMENT
SQS | Financial Year 2006
Key data
2006
2005
Ch a n g e Yo Y
Revenue
T%
78,933
54,737
44.2%
in Germany
T%
41,859
34,273
22.1%
in other countries
T%
37,074
20,464
81.2%
T%
26,936
19,174
40.5%
%
34.1
35.0
Profit before tax and financing result (EBIT)
T%
%
5,734
7.3
4,486
8.2
27.8%
Adjusted profit before tax (PBT)
T%
%
5,345
6.8
3,713
6.8
44.0%
Profit for the year
after minority interests
T%
%
4,686
5.9
2,394
4.4
95.7%
Revenue per employee (annual average)
T%
130
119
9.2%
Employees
(annual average)
609
459
32.7%
Undiluted profit per share
%
0,28
0,21
Diluted profit per share
%
0,28
0,20
Adjusted profit per share
%
0,28
0,22
Gross profit
2006
2005
Ch a n g e Yo Y
Net cash flow from
operating activities
T%
2,998
4,106
-27.0%
Capital expenditure
T%
19,922
2,961
572.8%
%
718
125
–intangible assets property
T%
19,598
2,741
615.0%
T%
324
220
47.3%
T%
26,499
18,195
%
42
51
of depreciation and amortazation
–plant and equipment
Equity
of total equity and liabilities
Finance liabilities
T%
5,795
6,747
-14.1%
Total assets
T%
62,465
35,604
75.4%
SQS makes IT projects more successful.
SQS improves the success rate and the
efficiency of software projects worldwide.
By combining our growing national and
international skill base with extensive
knowledge of our clients’ businesses
we offer ‘best in class’ services for
Software Quality Management, Quality
Assurance and Testing. Importantly, our
unique position as an ‘independent’ specialist allows us to add considerable value
at all stages of the software life cycle.
CO N T E N TS
CO N T E N TS
To Our
Shareholders
Group Management
Report34
4
Notes to the
Consolidated
Financial Statements 44
Key Data
Letter to Shareholders
6
Group Management Report for 2006
Mission Statement
The Company 8
12
Risk management
40
Notes to the Financial Information
Situation of SQS and outlook
41
at 31 December 2006 50
50
References The SQS Share Corporate Governance
The Executive Board
Supervisory Board Report
28
29
30
32
36
Balance Sheet
The SQS Group 36
Profit and Loss Account
47
Course of business 2006
37
Cash Flow Statement
48
Personnel and social welfare matters
39
Development of Shareholders‘ Equity
49
Structure of the company
40
Description of business activities
46
Summary of Significant Accounting Policies 50
Segmental reporting
59
Expenses
61
Financial result
63
Taxes on earnings
63
Earnings per share 66
Intangible assets
67
Property, plant and equipment
69
Marketable securities and cash and
cash equivalents
69
Trade and other receivables
69
Work in progress
69
Bank loans, overdrafts and other loans
70
Other current and non-current liabilities
71
Pensions and other provisions
72
Equity
75
Minority Interests
77
Employee participation programme
77
Notes to the Cash Flow Statement
80
Acquisition and sales of subsidiaries
80
Financial instruments
84
Related party transactions
85
Corporate Governance
87
Other Financial Obligations
88
Post balance sheet events
89
Further
Information
90
Consolidated Fixed Asset Analysis
92
Auditors‘ report
96
Addresses/Imprint
97
To Our Shareholders
To Our Shareholders
To Our
Shareholders
In 2006 SQS acquired all the shares in the British
company Cresta Group. This tripled turnover for
SQS in the United Kingdom and gave the company
as a whole a growth spurt. As a result, SQS is now
by far the largest independent provider of software quality management and testing services in
the UK.
To Our Shareholders
To Our Shareholders
SQS | Letter to Shareholders
SQS | Letter to Shareholders
Dividend and return of capital
Pursuant to these results, SQS proposes to return capital to shareholders. Under German law, the Company requires
some limited reorganisation of its net asset base in order to pay a dividend to shareholders. It now seems likely
that this reorganisation will not be complete in order to enable the Company to pay a dividend in respect of its
2006 financial year. However, as stated at the time of its announcement of its preliminary results, the Company
intends to return an equivalent amount of capital to its shareholders through alternative means. Given the recent
issue of new SQS shares to satisfy demand in the market, SQS no longer considers that a share buy back is an
Dear Shareholders,
appropriate mechanism. Therefore, the Company now proposes to pay an enhanced dividend for its 2007 financial
year which will incorporate both the return of capital for its 2006 financial year and the dividend which the directors
currently expect to be able to pay for the Company’s 2007 financial year. This enhanced dividend will be paid following
the AGM planned for May 2008. Further details will be given at that time.
The directors are confident that there will be no structural issue that will prevent the payment of a dividend to
shareholders in respect of the 2007 and future financial years and, in respect of these years, SQS proposes to operate
I am pleased to report SQS’s preliminary results for 2006. SQS had an excellent year, recording a 44%
a dividend policy in line with earnings.
increase in both revenues and profit, which demonstrates an underlying performance in our core businesses. At the time of our admission to AIM in September 2005, we indicated that it was our plan to
The Board
double the size of our business within a two year–period. As a result of the strong organic and acquisitive
There were no changes to our management or Supervisory Boards.
growth achieved last year, SQS is firmly on track to meet this target. During the year we continued to
invest in four growth markets: developing our long–term software testing outsourcing business, increasing
Strategy
our presence in the software testing of embedded systems, adding our first offshore testing centre in
Our strategy is to strengthen our market position as the leading independent pan-European provider of quality
South Africa and starting an additional consulting practice in SQS business consulting. Business within our
management and testing services for software development. We aim to grow our business with long–term outsourc
existing client base was buoyant and we secured a record number of 100 additional new clients which will
ing and offshoring contracts and investment in expanding markets such as embedded systems in the automotive
provide the platform for further growth in the current year.
industry. We intend to strengthen our position in a number of key European markets and will actively look for
acquisitions to support and accelerate this strategy.
Results
Turnover from continuing operations rose 44.2% to 78.9 million € (2005: 54.7 million €). On an unaudited
Employees
pro forma basis including Cresta, revenue for the whole year would have been 91.5 million €. EBITDA increased
On behalf of the board, I would like to thank all our employees for their contribution, hard work, and excellent
by 24% to 8.5 million € (2005: 6.8 million €) and underlying adjusted profit before tax increased by 44.0% to
support and superior deliverables to projects during the last year. I am confident that we have the team in place
5.3 million € (2005: 3.7 million €).
to capitalise on the opportunities available and to enable us to deliver long–term value to our shareholders.
Gross margins edged up slightly overall in the second half of the year as a result of a better business mix, whilst
Outlook
at the operating level they suffered slightly from stronger than expected price pressure mainly in the German
During the year, SQS further strengthened its position as the leading independent pan-European provider of quality
market, falling from 8.2% to 7.3%. Utilisation of billable consultants remained strong throughout the Group at
management and testing services for software development. Once again the Group accelerated its organic growth
185 billable days per consultant (2005: 185 billable days).
rate well ahead of the European IT service market.
Turnover growth was highest in the United Kingdom, Ireland and South Africa (UKISA) where it grew by 159%
In 2007, our focus will continue to be on both acquisitive and organic growth, focusing on expanding markets such
across all three countries. This was primarily due to the acquisition of Cresta in July 2006 but also evidences
as outsourcing and offshoring. Trading has been encouraging in the year to date and ahead of the comparable
continuing strong organic growth in these countries. In Switzerland turnover grew by 33.8%, and in Germany by
period last year, whilst the pipeline of new business remains strong.
22.1% (purely organic). This confirms our strategy that having achieved the market leadership in our field in those
regional markets we are able to drive revenue growth significantly above market growth rates.
Adjusted earnings per share (adjusted to add back deferred taxes and IFRS tax differences to actual taxes) of
0.28 € rose by 27.3% (2005: 0.22 €).
The balance sheet has been considerably strengthened during the year reflecting the acquisition of Cresta and
Rudolf van Megen, Chief Executive Officer
the retained profits in 2006. We reduced our borrowings by 0.9 million € to 5.8 million € (2005: to 6.7 million €).
Cologne, in March 2007
Cash balances and marketable securities at the year end stood at 2.6 million € (2005: 6.5 million €) reflecting an
initial cash payment of 4.6 million € for the Cresta acquisition.
To Our Shareholders
To Our Shareholders
SQS | The Company
SQS | The Company
“We help our clients to adapt their software reliably to meet the needs of new
markets, which are changing at an ever
faster rate.”
>> Rudolf van Megen, Chief Executive Officer
Facts and figures
Established: 1982
Business purpose: Software testing and
quality management for software projects
and software products
Fields of business: IT & Quality Governance,
Quality Services for IT projects,
Test Management, Test Outsourcing / Offshoring,
Tool Integration, SOA Testing and
Application Intelligence, Organisation of QM and
Software Testing Congresses + Seminars / Training, Business Consulting
(Project Management, Change Management,
Risk Management, Offshore Consultancy)
Number of employees: 609 (annual average)
Sales in 2006: 78.9 million w
Chief Executive Officer: Rudolf van Megen (CEO)
Company headquarters: Cologne
Locations:
Germany: Cologne, Munich, Stuttgart,
Frankfurt (am Main), Hamburg
United Kingdom: London, Woking,
Manchester, Birmingham
Netherlands: s’Hertogenbosch
Austria: Vienna
Switzerland: Zurich, Geneva, Zug
Portugal: Lisbon
South Africa: Durban
Projects: over 4,000
Clients: about 400
The Company
The evolution of quality management and testing
applications. As a consequence of this, they developed a methodology for
Blue chip organisations from a wide range of industries make use of
SQS has been developing continuously for the past 25 years: from being a
systematic testing and quality management of software applications.
the expertise offered by SQS, working with the likes of Deutsche Bank,
specialist in independent software testing and innovative test methods to
From this, the SQS business model has grown based on this methodology.
Barclays, Dresdner Bank, Lloyds TSB, Credit Suisse, O2, Vodafone, T-Mobile,
a consultancy company with comprehensive expertise in developing and
evaluating all kinds of IT processes.
German Army, Alcatel, DaimlerChrysler, Airbus, Lufthansa, BP, Beazley and
From the founding of SQS Gesellschaft für Software-Qualitätssicherung
MessageLabs. In fact, half of all DAX 30 companies and 30% of the Euro
mbH in 1982, Rudolf and Heinz have seen their company continuously
STOXX 50 companies are clients of SQS.
Software is like a complex machine. It is easy enough with a machine, to
consolidate and expand this competence. In the beginning, SQS established
tell once it is built, whether or not it does what it is supposed to. However,
its reputation as a supplier of innovative test methods and as an expert
SQS grows strategically
there is a danger that it will malfunction under stress unless it has been
in independent software testing – the experts at SQS have consistently
The Company’s growth is extremely dynamic with SQS gaining 100 new
thoroughly tested at each stage of its development – design drawings are
adapted their service offerings to meet the needs of their clients at all
clients in 2006 alone – the biggest increase in new client business over
reviewed, the quality of the components are checked and the integration
stages along the IT value chain. It has since grown its service offerings to
the previous four years.
of the various parts examined.
its current position as a full service consultancy and a prime organiser of
training events and conferences.
In 1977, at Cologne University, Rudolf van Megan and Heinz Bons, carrying
The UK company Cresta Group, acquired by SQS in June 2006, has made
an exceptional contribution to this growth with the UK and Irish share
out research into methods to improve software, discovered that whilst test
In terms of sales, SQS is now the largest independent provider of high
of total sales climbing to about 40% (of pro forma revenues) as a result.
procedures existed for machinery, there was no equivalent for software
standard test procedures and software quality management in Europe.
This rapid rise in sales and profits in 2006 shows that the merger was well
A brief history of SQS in time.
1982–1983
1984–1988
1989–1993
After the company is founded, SQS quickly establishes itself in Germa-
SQS develops a method for test case specification and in collaboration with
SQS develops a methodological approach for test process automation and
ny as an independent service provider for software testing and deve-
the UBS Bank launches a corresponding software tool in 1986 — the first
the corresponding software product component. The expansion of exper
lops a standard product for systematic software testing. In parallel,
component of SQS-TEST®/Professional. This is followed in 1988 by a method
tise in the field of software development continues to advance.
SQS contributes to IEEE standards 829 (Software Test Documentation)
for test data definition — the second component of the tool.
and 1008 (Software Unit Testing).
To Our Shareholders
10
To Our Shareholders
SQS | The Company
SQS | The Company
received by the markets. Additionally, the mix of customers with whom SQS
SQS has many years experience in the manufacturing and automotive
Conferences have grown to become the world’s largest conferences for
a minimum – the teams test executable software components system
is involved underlines that it is succeeding with the diversification of its
industries where the company has built up comprehensive know-how in
software quality management and testing. Along with the main interna-
atically and at as early a stage as possible. This uncovers errors from the
business as planned.
quality assurance for embedded systems.
tional conference in Germany there are offshoots in the United Kingdom,
very beginning, preventing the process from going off track and causing
Switzerland and in 2008, Ireland.
high repair costs at a later stage.
SQS knows its clients
SQS’s strength lies not only in highlighting the strengths and weakness of
SQS enhances the success and efficiency for its clients’ IT projects by
IT systems, – they test the systems and add value with the aid of change
Through its training courses, SQS provides industry recognised courses
The new SQS Group Business Consulting in Zurich and Frankfurt brings
helping them to adapt to ever more rapidly changing markets and to
management and configuration management, resulting in well-ordered and
such as ISTQB (International Software Testing Qualification Board) and ISEB
together technical and IT departments in projects. From the outset of a
identify potentially system critical situations. SQS consultants have a deep
lean IT production.
(Information Systems Examination Board), with certification standards
project, experienced IT managers, project managers and consultants
such as iTTCCM® for change and configuration management or IRE for
from SQS analyse each client’s market environment and derive recom-
requirements engineering.
mendations for the corporate processes and IT infrastructure. SQS Group
knowledge of their clients’ systems which enables them to add the value
that it does to client projects. SQS uses procedures which ensure that IT
The management retains a clear overview through use of monitoring
projects are completed on time and within budget, whilst at the same time
systems enabling project managers to check at any time the status of
ensuring that quality is boosted and business risks are minimised.
their project and the stage it has reached – via dashboards created by SQS
Competence grows with the market
taken a wrong turn which would make it unnecessarily complex and points
for this specific purpose. This is particularly important for nearshore and
In recent years, the Company has expanded into the United Kingdom,
out suitable alternatives. In this way, SQS consultants sharpen the focus
SQS consultants adapt their approach to suit each industry sector. For
offshore projects where supplier tracking is crucial to the success of the
the Netherlands, Austria and Switzerland where the SQS Group now has
on the interaction between business processes and IT processes. As a
example, banks and insurance companies are increasingly interlinking
project.
presence in the form of subsidiaries or majority holdings. From its location
result, they become a strategic partner for the governance of a company
their business processes on an international scale. SQS makes sure that
Business Consulting identifies right at the outset whether a project has
in South Africa the company is serving the growing market for test
beyond the immediate scope of IT, for example, as co-project managers,
the supporting IT solutions really meet the requirements defined by the
SQS operates independently of software vendors and other providers of IT
offshoring. The team operates in the same time zone as Central Europe and
risk managers or change managers.
business. Since their markets were liberalised, telecommunications compa-
services, thus enabling the company to give its clients neutral advice using
shares a similar cultural make-up. This growing business segment comes
nies too face tough competition for their customers and SQS has devised
the procedures and tools that best support the business and IT of the
as a result of clients looking to run a leaner organisation where they
SQS: evolution and continuity
model quality assurance procedures for all the important processes such
company concerned. This applies to the entire life cycle, from the call for
outsource supporting IT functions to external service providers. Following
For 25 years now, SQS has been helping its clients to adjust to the needs of
as customer relationship management, billing or SAP. By so doing, SQS can
tenders through the design and development phases right through to the
on from the outsourcing of developing, testing is now being caught in the
the market with intelligence and pragmatism – through efficient and high
help keep the expenditure down and reduce the complexity of IT projects.
operation and maintenance of the systems.
outsourcing wave.
quality IT processes. SQS has advanced the evolution of quality management and testing by recognising the challenges posed by the markets and
Utility companies also find themselves in a more open market in which SQS
Seminar business has developed into another important field of work for
In pursuit of a holistic approach, SQS is increasingly linking software
facing up to them. Acting as its clients’ companion and helper, who has the
has helped in making IT processes more flexible and faster whilst reducing
SQS. Making use of the know-how that it has acquired over the years in
development to testing to create an integrated procedure. Within this,
appropriate solution ready and waiting at short notice. This will continue
costs. In public authority projects, SQS has supported its clients setting up
various industry segments and fields of technology SQS now organises
modern methods of agile testing keep the conceptual design phase to
into the future.
new IT-based services such as e-government.
conferences and training courses. The Software and Systems Quality
1994-1999
2000-2003
2004-2006
SQS –
The first 25
years of Quality
SQS broadens its business model: assessment projects begin across Europe
SQS goes international and in 2000 changes its name to SQS Software
Since 2004 SQS has grown well above the European average for the IT service
SQS is celebrating its 25th anniversary in 2007. As an independent
in 1994. In 1997 SQS takes over Hamburger DTK, a specialist in the testing
Quality Systems AG. The Austrian company is founded in the same year.
market. In 2006 the organic growth achieved by SQS is almost four times higher
software and consulting house, the Company has grown successfully
of embedded systems. In 1998 SQS sets up a joint venture in Spain, and
In 2001 it takes over two Dutch consulting companies (now SQS Neder-
than the market average for IT services in Europe. Listing on the stock market
and sustainably along with the development of the IT market.
therefore its first foreign branch. In 1999 SQS takes over FTT, a Cologne-
land B.V.) and SQS Group (UK) Limited. In 2002 a subsidiary is founded in
in London — the first German company with its main listing on AIM (Alternative
based company specialising in security services.
Switzerland and a joint venture in Lisbon. In 2003 SQS restructures its
Investment Market) — and the further listing on the Entry Standard of the Ger-
German organisation. New consulting services are introduced for complex
man stock exchange in Frankfurt are key milestones. In 2006 SQS achieves sole
IT systems (Quality Governance).
market leadership in the UK through full acquisition of Cresta Group (UK).
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To Our Shareholders
12
To Our Shareholders
SQS | References
SQS | References
Lufthansa Cargo
Safe in the air. Safe on the ground.
Lufthansa Cargo runs a separate control tower for IT.
13
To Our Shareholders
14
To Our Shareholders
SQS | References
SQS | References
“The SQS quality control centre is financially beneficial to us:
in the medium term our expenditure on IT maintenance and
operation will fall.”
>> Dirk Harloff, Operations Director at Lufthansa Cargo
Reference
Client
Assessment (PQA) procedure from SQS. Harloff has been building the sophisticated system for controlling software
Lufthansa Cargo AG
products since 2004. The smooth functioning of IT systems is vital in air transport. This is illustrated by spectacular
4,671 employees (2006)
breakdowns such as the computer faults that paralysed British air traffic control for many hours in June 2004 —
EUR 2,84 billion sales (2006)
and all air traffic over the United Kingdom along with it. Although the systems at Lufthansa Cargo (LC) had in fact
www.lufthansa-cargo.com
previously worked smoothly, Harloff and his team wanted to play safe for the future and now also closely examine
the inner workings of the software systems, because “sometime or other, quality deficiencies in the internal structure
Sector
of software will also have a negative effect on the functionality of the applications,” says Harloff.
Transport & logistics
When the time came to push for further development of LC’s CESAR (Cargo Entire Sales Reporting) accounting syBusiness model
stem for import and export, Harloff awarded SQS the contract to set up a corresponding controlling procedure. The
Cargo services in the air transport business: with 19 air freighters of its own plus additional chartered cargo
SQS specialists got to work straight away and took random samples, surveying the structure of selected software
aircraft as well as trucks, Lufthansa Cargo (LC) serves over 500 destinations around the world. LC also markets
in use at LC. The criteria they applied included the following: how often had the programmers added comments to
the freight holds of all passenger aircraft belonging to the parent company Lufthansa.
the source code? And how consistently did they follow their own guidelines? The result was a quality profile of the
systems, and IT Director Dirk Harloff could only be partly satisfied with it. “It’s true that we were clearly within the
Task
range of results that other comparable IT systems produce,” says Harloff. Nevertheless, he saw need for action.
Cost containment — inadequate technical quality is making software systems unstable and increasingly driving
The management, who had previously only known of Harloff’s fears of potential system risks, all of a sudden had
expenditure on operation and maintenance up and up. Introduction of a procedure that continuously checks the
tangible data to hand. Soon it was clear: a permanent quality control system for IT was needed.
quality of programs and systematically improves them.
To put this in place, LC and SQS first had to define the quality standards and develop a performance measurement
Solution
system according to which the software would be measured in the future. The joint project team evaluated the results
Product Quality Assessments (PQA) — a team of SQS and LC employees lays down binding programming guidelines
of the first stocktaking in two workshops and above all analysed the quality of the program code, the software design,
and sets up a performance measurement system. On this basis they install a ‘quality control centre’, which
the architecture and the technology used. SQS supplied its own product, Process Performance Management, to pro-
measures the technical quality of new software products. The quality control centre collates the measured values,
vide the essential basis for the quality control centre to be installed later and advised LC on selecting appropriate
for example to be used by management, who thus obtain greater transparency for the various IT projects running
procedures and components; in some cases the measured quantities originated from comparable projects, and in
at any one time.
others from Sun, which provides its own guidelines for its Java programming language. In the meantime, 53 key
performance indicators have become established. SQS also organised the base workshops and subsequently set up
Benefits
the quality control centre, which today examines every nook and cranny of all the IT systems.
New and expanded software products now run more stably and give better performance, and the costs of IT maintenance and operation have fallen considerably. Management can take countermeasures early on if measurements
Throughout the phases, the mixed team of SQS consultants and LC employees worked closely with the developers
reveal divergences from the envisaged quality. Moreover, communication between LC and its IT suppliers has
of Lufthansa Systems, which is the strategic IT partner and takes care of the lion’s share of software development
become simpler.
for the air cargo group. “The growing transparency that we gain from the software checks is also making our life
easier on the developer side,” enthuses Christoph Glanz, head of maintenance and further development in Advanced Accounting at Lufthansa Systems. Above all, he says, communication between the customer and the supplier
Transparency for management
is now easier, because there are clear quality guidelines — and measured values which indicate whether they have
Lufthansa Cargo, one of the world’s leading airfreight operators, has improved its IT systems and at the
been adhered to. The project control centre enables developers to have new components checked overnight. If the
same time reduced costs. SQS developed a tool for the company that automatically checks the technical
system finds any errors, the developers can go directly to the source code simply by clicking on the error message
quality of new software even as it is being developed.
and then rectify the problem.
His job was much like ‘squaring the circle’, says Dirk Harloff, Operations Director at Lufthansa Cargo in Hamburg.
In addition, the quality control centre returns regular reports on the status of the project. LC therefore has at its
On the one hand his software systems were supposed to deal with an ever greater number of more complex
disposal an automatic check on many quality characteristics. At the same time the company is benefiting from
tasks. On the other hand, IT maintenance and operation were supposed to cost less and less because of the fierce
falling expenditure, says SQS consultant Frank Simon, who helped to set up the quality control centre in Hamburg.
competition in the air cargo business. Harloff succeeded in squaring the circle — thanks to the Product Quality
“Our experience from similar projects shows that up to 20 per cent lower maintenance costs are achievable.”
15
To Our Shareholders
16
To Our Shareholders
SQS | References
SQS | References
Vodafone
Well connected. Vodafone Ireland opens new avenues.
17
To Our Shareholders
18
To Our Shareholders
SQS | References
SQS | References
“SQS has made a significant contribution to us reducing the risk
of errors in product development — and we have been able to save
time and money as well.”
>> Mike Stacey, CTO Vodafone Ireland
Reference
Client
through new technologies — and through constant innovation in billing and service models. Vodafone Ireland, a
Vodafone Ireland Ltd., Dublin
1,400 employees
subsidiary of the world-leading mobile telecoms provider Vodafone Group, wanted to dramatically shorten the time
2 million customers
Analyses had shown that the product development methods used up to that time were no longer able to fully meet
www.vodafone.ie
customer demand.
taken to introduce new products and services onto the market, and reduce the error rate in new developments.
Sector
The Dublin-based company therefore commissioned the IT consulting house Accenture to come up with a new de
Telecommunications
velopment approach. SQS was to contribute a matching company-wide test strategy. Vodafone expected the new
approach to be able to make new products and technologies ready for the market in very short cycles. Accenture
Business model
and SQS were given the task of presenting a development and test concept that would produce at least three
Provision of mobile voice, data and internet services. The company’s new strategy envisages bringing three
product innovations per year. Not only that, it should model Vodafone’s three business fields: marketing, private
product innovations to market each year: in marketing, and in the fields of private and business customers.
customers and business customers. As far as the test processes were concerned, this meant that the test cycles
should be shorter whilst at the same time quality should be enhanced. The error rate in new products should be
Task
significantly lower. Above all, Vodafone wanted a standardised test process so that system changes and new re
The core requirements: error-free market introduction at the first attempt, improvement of synergies in order to
quirements could be put into practice much easier and more flexibly than before. SQS was also given the task of
make better use of scarce resources, increasing economies of scale, standardisation of the product development
training those responsible at Vodafone to work with the new test procedures. For SQS, seminars on software quality
cycle, a simple and quick procedure for system changes, an optimum test procedure.
management and testing are part of its core business. First of all, SQS assembled a 40-strong team of its own
consultants and the client’s employees. Sixteen SQS experts had drawn up the company-wide test strategy. They
Solution
also brought with them their expertise in telecommunications applications and knowledge from the fields of custo-
Accenture and SQS draw up the development plan and test strategy: system components are evaluated and
mer relationship management (CRM), billing and spoken dialogue systems. A separate hardware team constructed
prioritised. All projects utilise the same processes and standards. The experts define a binding performance
the actual test environment in a parallel process.
measurement system on the basis of key performance indicators (KPIs), and the tests for the individual system
components are also prioritised — according to their respective significance for business success.
The experts from SQS chose a risk-oriented approach to implementing the tests. They prioritised the tests, placing
right at the top of the test list those product components that cause major financial damage in the event of an
Benefits
error. A framework from Mercury (QuickTest Professional) provided the basis for automatic regression tests. This
Risk control: Vodafone detects considerably more software errors straight away; the number of errors in operation
solution systematically runs through all important settings and combinations available in the new systems. Today,
drops by 50 per cent. Thanks to improved status reports, management is able to take quicker decisions and on a
a separate test centre (Mercury TestDirector) makes it possible to manage all test sequences live and, if necessary,
sounder basis. Risks are detected at an early stage.
to readjust individual procedures by hand. To be able to measure the progress of quality in the project, the experts
Cost reduction: efficiency of the entire test process is raised, and a database for test results prevents misunder-
in conjunction with Vodafone defined key performance indicators (KPIs) that map all the relevant business pro-
standings and increases the accuracy of the tests. Fully automatic regression tests reduce the test phase by 170
cesses within the company. Using these indicators the managers in charge are able to check at any time whether
man-days.
an ongoing project is keeping within the specified framework in terms of time, cost and quality.
In the meantime the new development procedure is well established. The integrated, predominantly automated
The experts’ expertise
test procedure has seen to it that the error rate after new products are introduced has fallen by 50 per cent. As
Vodafone, the market leader in Irish mobile telecommunications, wanted to modernise its business and
the bulk of the regression tests now run automatically, the test teams can concentrate on additional tasks. The
product development processes from the ground up. To achieve this, Accenture and SQS designed a new
amount of work expended on testing has been reduced by 170 man-days — and costs have therefore also fallen
development and test strategy. SQS also took care of training staff.
significantly, because the company has fewer software errors to correct after a market launch. Vodafone has
reinvented its product development. Now it is ideally equipped to face the competition.
Mobile telephony markets are considered to be largely saturated: in Western Europe there are almost as many mobile phones in circulation as there are people living on the Continent. The battle for market share is being fought
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To Our Shareholders
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SQS | References
SQS | References
NATO
Controlling the airspace. NATO provides for tactical clarity.
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To Our Shareholders
22
To Our Shareholders
SQS | References
SQS | References
“ACCS is NATO’s biggest and most complex software project to
date. Several hundred suppliers from all member states have been
cooperating on it for years. SQS has succeeded in largely automating quality assurance. This makes the project manageable and
keeps the cost within the limits.”
Reference
Client
NATO Air Command and Control System Management Agency (NACMA)
114 employees (2005)
the Air Command and Control System (ACCS) was one of the most complex software applications that NATO had
EUR 1.5 billion project budget for ACCS
www.nacma.nato.int
contract at various times.
ever attempted up to that point. Several hundred software suppliers, consultants and service providers are under
As well as that, 40 per cent of the software code had already been written when development began in earnest in
Sector
2004, because some programmers had already started work in parallel with the design phase. The coordination
Public service
office NACMA (NATO ACCS Management Agency) set up by NATO therefore had to analyse the components that had
already been completed, and check them continuously. In addition, NACMA had to make sure that all subcontrac-
Function
tors adhere to the required quality standards. To do this, the NATO experts spent time on reviews and process
Development of the Air Command and Control System (ACCS), which is intended to replace the existing tactical
analyses on the suppliers’ own premises. A further critical factor was the stipulation that although the ACCS
defence systems in NATO (NADGE, GEADGE and STRIDA). As a unified command and control system, its role is to
system software was to be adapted to the requirements of individual member countries, it was not allowed to be
control all of the alliance’s air operations.
too greatly modified.
Task
Against this background, SQS drew up two solutions:
In the ACCS project, NATO has to coordinate a quite vast multiplicity of suppliers. These all have to prove that they
are complying with the requisite standards and quality requirements. Not only that, NATO must ensure that specific
The primary task was to develop a Computer Aided Quality Management System (CA QMS). This administers and
ACCS features required in individual member states harmonise with the upkeep of the central system.
coordinates the complex quality management in the project. The specialists from SQS constructed a Web-based
software platform that acts as a distributed quality control centre, bundling all the necessary reporting systems
Solution
and status controls ready for evaluation. Among other things, the application is able to integrate the QM documents
Establishment of a Computer Aided Quality Management System (CA QMS) lead-managed by SQS. Via a Web-based
available from other systems.
application, this system independently generates all the necessary reports, analyses and trends for the quality
managers. An electronic Change Control Board speeds up the approval of new system components. In some cases
The CA QMS mapped all of the QM processes at NACMA, and produced reports, analyses and trends at various levels
release is even granted automatically.
of abstraction. It provided all of the aids the quality managers needed — a few mouse clicks were enough for the
project staff, from management down to individual technicians, to be able track and control all of the important
Benefits
processes and back them up with key performance indicators. The various subcomponents of ACCS, which also
The complex large-scale project is more manageable; it is easier to keep to timetables and budgets; project
come from different countries, can be coordinated and harmonised with each other with far less effort and ex
progress can be read off from up-to-date key performance indicators; and the quality of the system is assured.
penditure than before. The validation of the ACCS is currently in progress, with highly promising prospects.
The Change Control Board personnel are able to concentrate on critical software charges, and their workload is
considerably reduced.
The second task for SQS was to develop a concept for configuration and change management. SQS drafted a white
paper on the proposed solution, Cooperative and Coordinated Configuration Management (C3M). The basic idea
was that even whilst they were still in the concept phase, adaptations to the software would pass through an auto-
Flexible control of large-scale projects
mated test procedure that deals with the lion’s share of uncritical routine decisions. This electronic Change Control
NATO is renewing the electronic command system for its air forces, to be completed by 2008 /2009.
Board (eCCB) approves software changes through what are known as Silent Approval Procedures. As a result, the
A gigantic undertaking with hundreds of suppliers: SQS set up a quality management (QM) system which
staff in change management can concentrate on taking decisions about particularly complex and critical changes.
NATO uses to guide the many contractors — and which helps to speed up the project.
This speeds up the procedures and relieves the burden on the project staff.
The North Atlantic defence alliance NATO is a public client and is subject to strict guidelines on the award of con-
The complex, large-scale ACCS project with hundreds of suppliers from all of NATO’s member states has become
tracts: software projects always have to be split between several suppliers. When the member states agreed on the
manageable. SQS has produced the strategic and tactical overview that NATO needs.
design of their new, unified control and command system for their air forces at the end of 2003, it was clear that
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To Our Shareholders
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To Our Shareholders
SQS | References
SQS | References
Egg Banking plc,
London, UK
No risks in online banking. No risks in software development.
Because Egg Banking tests software before it exists.
25
To Our Shareholders
26
To Our Shareholders
SQS | References
SQS | References
“SQS is one of the few companies that not only understand our
quality assurance aspirations but adopt them as their own.”
>> Daren Martin, Director Egg Technology Solutions
Reference
Client
company has found the appropriate partners to match those expectations. Daren Martin, IT Director at the British
Egg Banking plc, London, UK
online bank, is convinced of this: “SQS understands the process of quality assurance. And it also puts it into practice
2,680 employees
with the enthusiasm and passion that is needed in our fast-moving business.” Over the past years, SQS has syste-
3.5 million customers
matically expanded its expertise in the optimisation of development processes. In addition to Egg, numerous other
www.egg.com
financial service providers are also calling upon the know-how offered by the experts from SQS.
Sector
In 2003 the management of this financial service provider decided to switch software development to agile
Finance
methods in which the success of the subsequent stages is already secured in the design phase. The new approach
makes provision for software checks from the very beginning – even before any actual programming takes place.
Business model
“We used to work in a highly linear fashion,” reports Daren Martin. “A development process was like a waterfall: the
Online sale of banking services, investment products and insurance. The Egg Money Manager enables customers to
requirements were simply passed on from the top to the bottom for technical implementation. This gave rise to
keep track of all of their accounts and portfolios at the same time online — including those from other providers.
interminable processes.” Testing was only ‘squeezed in’ right at the end, he said, and under great pressure in terms
of both time and cost.
Task
Reduce production costs and times — switch to agile development methods and the associated software tests. First
The bank switched to the new procedure at the time of the relaunch of Egg Money Manager. SQS devised the
project in early 2004: relaunch of Egg Money Manager.
requirements in collaboration with the business and development team at Egg and ensured that they were understood by everyone and contained no hidden assumptions. It was only then that actual work could begin: before any
Solution
programming was started, the quality experts together with the business team had already come up with all the
SQS experts develop a modified test approach that is entirely focused on agile software development. They make
important acceptance criteria and corresponding tests. When programming did start, the teams automated these
sure that all of the project teams and not only the testers consider themselves committed to quality. Develop-
software checks with the WinRunner tool from Mercury.
ment is now oriented towards tests from A to Z. Through the early implementation of quality assurance, the tests
prevent many costly repairs at a later date.
“Agile software development has proved to be a great success for Egg Banking,“ says IT boss Daren Martin. Thanks
to support from SQS, the British company has been able to save time and money, and calculate risks systematical-
Benefits
ly. Egg Money Manager was launched after a project duration of less than six months — three months shorter than
The optimised Egg Money Manager is launched on time and with the full range of services. The project stays within
would have been possible with the conventional methods. To date, not a single error has occurred.
the specified budget, and no errors of any kind occur in operation any more. Not only that, Egg now has a process
at its disposal that it can use for other projects to achieve considerable reductions in development time compared
“SQS has helped Egg to put the new method into practice at all,” says Daren Martin. “We were able to recognise
with the conventional approach.
problems at an early stage and neutralise them in good time.” Agile development and testing has now become the
blueprint for other projects. Mr. Martin is also delighted with the cooperation with SQS: “It has moved both companies forward. And it has let a relationship grow that is characterised by trust and mutual respect.”
Lower costs, more quality
The largest online bank in the world, Egg, has made the changeover to ‘agile software development’ with
the aid of SQS. Now projects are tested at an early stage on the precautionary principle, instead of money
being lost through expensive rectifications.
Financial institutions, even more than other service providers, are dependent on functional and reliable IT systems —
and the world’s largest online-only bank, Egg Banking plc of London, is no different. To be able to offer its threeand-a-half million customers credit cards, savings accounts, loans, investment funds, mortgages and insurance
products with the best level of service, Egg has high expectations of its IT systems. In the experts from SQS, the
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To Our Shareholders
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To Our Shareholders
SQS | The SQS Share
SQS | The SQS Share
The SQS Share
Trading in the SQS share on the Alternative Investment
Market (AIM) of the London Stock Exchange started on
20 September 2005. It was listed on the Entry Standard of
the German Stock Exchange on 2 December 2005.
Corporate Governance
One of the prime tenets of our business activities is trust in our employees, clients, shareholders and interested
members of the public. Consequently, we have created all the necessary conditions for transparent, value–
oriented and risk–oriented corporate management. Communication between all SQS AG’s corporate bodies is
open and regular. We adhere strictly and completely to legal requirements.
Movements in share price
We think that the development of the SQS share price during 2006 has not yet shown its full potential. It varied
between 178 p and 220 p with a close share price by the end of the year of 195 p in London and 2.99 € in Frankfurt.
Dividend distribution
In the announcement of its preliminary results for the year ended 31 December 2006, SQS stated that it was
exploring suitable means of returning capital to shareholders. The Company explained that, under German law, it
SQS Corporate
Governance Structure
would be necessary to undertake some limited reorganisation of its net asset base in order to pay a dividend to
shareholders.
It now seems likely that this reorganisation will not be complete in order to enable the Company to pay a dividend
in respect of its 2006 financial year. Therefore, the Company proposes to pay an enhanced dividend for its 2007
financial year which will incorporate both the return of capital for its 2006 financial year and the dividend which
the directors currently expect to be able to pay for the Company’s 2007 financial year. This enhanced dividend will
Elects and
formally ap–
proves the
actions of its
members
Is authorised
to call Share–
holders’ General
Meetings and
reports to these
be paid following the AGM planned for May 2008.
BAS I C DATA
Type and number of shares issued as at 31.12.2006
of which Shareholder structure
High/low share price
Issue price Ticker symbol
Formally ap–
proves the
actions of its
members
Shareholders’ General Meeting
one share — one vote
Supervisory Board
3 members
Executive Board
3 members
Is authorised
to call Share–
holders’ General
Meetings and
reports to these
17,190,823 no–par–value registered shares
8,352,354 in free float
48.7% free float
51.3% Executive Directors and their wives
220.00 pence / 178.00 pence
190 pence
AIM SQS.L
International Stock Identification Number (ISIN)
DE 000 549 3514
German Securities Identification Number (WKN)
549351
Reports to the
Supervisory
Board
Appoints members
and supervises the
Executive Board
29
30
To Our Shareholders
To Our Shareholders
SQS | The Executive Board
SQS | The Executive Board
The Executive Board
“The SQS aspiration: to be the best. How do we do that?
By understanding what it is that our clients have to do and
always having an eye for the big picture in our work. By
always positioning ourselves at the leading edge of
technological standards whilst at the same time being
opento one-off solutions. Finally: because we want to
continue growing — in business and in know-how. This is
what SQS has represented for 25 years.”
>> Rudolf van Megen, CEO
Rudolf van Megen (52)
Chief Executive Officer (CEO), SQS AG
Rudolf van Megen founded SQS in Cologne in 1982 together with Heinz Bons. Initially
responsible for the industrial and telecommunications sectors, he is now in charge of
strategy, sales and marketing.
Mr. van Megen was elected a member of the City of Cologne’s Media and IT Council on 20
March 2006.
Heinz Bons (58)
Chief Operating Officer (COO), SQS AG
Heinz Bons is a co–founder of SQS. In addition to his duties as COO, he is responsible at
Executive Board level for research and development.
René Gawron (45)
Chief Financial Officer (CFO), SQS AG
René Gawron joined SQS as CFO in 2001. He is responsible at Executive Board level for
administration, accounting, finance, mergers & acquisitions, human resources
and investor relations.
>> Left to right
René Gawron, Rudolf van Megen, Heinz Bons
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To Our Shareholders
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To Our Shareholders
SQS | Supervisory Board Report
SQS | Supervisory Board Report
Dear Shareholders,
The global economic growth in 2006 was very robust. In
Europe and finally also in Germany, economic growth was
pleasingly favourable. Against this background we are particularly pleased to be able to report that this year, too, SQS
was actually able to outperform the general positive trend
in the economy.
>> Left to right
Prof. Dr. Werner Mellis, Jeremy Hamer, Scott Hansen
The Supervisory Board resolved upon the realising of a stock option plan for members of the Management Board
and employees in accordance with the resolution of the AGM held on 2 June 2006.
The annual financial statements as at 31 December 2006 and the Management Board’s situation report for the
2006 financial year were audited by Grant Thornton GmbH Wirtschaftsprüfungsgesellschaft, Cologne, the appointed
auditor, which issued an unqualified auditor’s opinion for them. The auditors’ report was supplied to the Supervisory Board. The auditor presented the results of the report. The Supervisory Board reviewed the annual financial
statements and situation report and endorsed the results of the audit and the Management Board’s proposal
regarding the appropriation of the company’s profits. Having concluded its review, the Supervisory Board had no
The Supervisory Board oversaw business in the 2006 financial year in close consultation and cooperation with
objections to raise with regard to the annual financial statements drawn up by the Management Board. The annual
the Management Board. The Management Board regularly informed the Supervisory Board about the company’s
financial statements were approved and adopted at the Supervisory Board meeting held on 11 April 2007. The
business situation, key aspects concerning the management of the company and, as and when they occurred,
consolidated annual financial statements were also approved at the Supervisory Board meeting on 11 April 2007.
any relevant risks. The Supervisory Board played an advisory role in the Management Board’s development of
corporate strategy. Opportunities and risks related to the acquisition of Cresta Group Limited were discussed in
The Supervisory Board would like to thank the Management Board, the Works Council and the employees of SQS
detail with the Management Board and finally resolved by joint decision. The relationship between the two boards
Software Quality Systems AG and its affiliated companies for their huge commitment and hard work.
is open and based on mutual respect. The Management Board also always ensured that the Supervisory Board was
informed of all of the key financial indicators even between Supervisory Board meetings.
Cologne, April 2007
Both the strong organic growth and the growth from the acquisition of Cresta Group Limited, in conjunction
with the associated greater internationalisation of the SQS Group, demanded a reworking of the organisational
The Supervisory Board
structure and especially the management structure. This was one of the main issues for the Supervisory Board
in 2006. The Supervisory Board was involved in all of the fundamental decisions and consistently supported the
Management Board.
There were four ordinary Supervisory Board meetings and two teleconferences in the 2006 financial year. No
committees were formed. At the meetings, the Supervisory Board discussed the Management Board’s written and
oral reports at length. All of the measures for which the Supervisory Board’s consent was required were debated
intensively. The Supervisory Board and Management Board also extensively discussed the company’s financial
Professor Dr. Werner Mellis
indicators and the forecasts for the coming financial year.
Chairman of the Supervisory Board
In several meetings with the Management Board, the Supervisory Board dealt extensively with the further
development of the company’s strategy. In a joint meeting of the Supervisory Board, Management Board, board
of the Swiss subsidiary and a non-executive director of SQS UK, the current strategic direction was analysed and
enhanced. Special attention was focused on the realisation of planned growth and in technological leadership.
33
Group Management Report
34
Group Management
Report
The former monopolists in the energy and
utilities sector have to become more efficient
in their core business and at the same time be
more innovative than the competition. SQS is
supporting them in constructing software that
provides steady control for vital supply systems
as costs fall — thereby freeing up resources for
new strategies and investment.
35
36
With over 4,000 completed projects under its belt, SQS has a strong customer base including half of the DAX 30
SQS Software Quality Systems AG, Cologne
Group Management Report 2006
companies and 30% of the STOXX 50. They include names like Lloyds TSB, Deutsche Telekom, Barclays, BP, Credit
Suisse, Daimler Chrysler, and Airbus spread across the full range of industries.
Course of business 2006
Summary
SQS had an excellent year, recording a 44% increase in both revenues and profit (adjusted for the interest
Development of the market environment
costs relating to Cresta purchase obligations of 276k€), demonstrating an underlying performance in our
Software quality management and testing constitutes a segment of the IT services market and therefore growth
core businesses. At the time of our admission to AIM in September 2005 we indicated that it was our plan
in the IT services market closely correlates with growth in software quality management and testing. Research
to double the size of our business within a two year period. As a result of the strong organic and acquisitive
conducted by the European Information Technology Observatory (“EITO”) showed the European growth rate for
growth achieved last year, SQS is firmly on track to meet this target.
IT services to be 5.3% in 2006, with 5.4% expected for 2007. In 2006, SQS’s organic growth rate was almost four
During the year we continued to invest in four growth markets:
times that rate and, in addition, SQS generated further growth from acquisitions.
developing our long-term software testing outsourcing business,
Development of sales
increasing our presence in the software testing of embedded systems,
Total revenue for the year grew by 44.2% to 78.9m€ (2005: 54.7m€). IT Professional Services was the major
adding our first offshore testing centre in South Africa, and
contributor with revenue of 73.6m€ (2005: 50.7m€), a 45% increase year on year. Revenue from tool licenses and
having started an additional consulting practice in SQS business consulting.
maintenance was 2.5m€ (2005: 2.1m€) a 20% increase year on year, with IT training and IT events contributing
2.75m€ (2005: 1.9m€) a 45% increase.
Business within our existing client base was buoyant and we secured a record number of 100 additional new
Revenue in Germany, still our biggest market, was 41.9m€ (2004: 34.3m€) contributing 53% to the Group’s total
clients which will provide the platform for further growth in the current year.
revenue compared with 63% in the prior year. This reflects an increase of 22.1% enabled by investment in new consultants as announced during the year. We secured key contract renewals with all our large clients and other major
customers, all of which provide a solid base for the current year. We also increased the business base in embedded
Figures in m €
systems by securing new contracts with automotive and avionic clients. The high-calibre sales managers hired
2006
Sales
2005
about one year ago have enabled SQS to grow its business in line with organic growth rates in other Group regions.
78.9
54.7
EBITDA. operational
8.5
6.8
The United Kingdom, the second largest regional segment and the largest European market for IT services in
Depreciation and amortisation –2.8
–2.3
general, generated revenues of 23.7m€ (2005: 9.2m€), 30% of the Group’s total. This represented a 159% increase
5.7
4.5
year on year driven mainly by the acquisition of Cresta which was consolidated in the second half of the year
–0.6
–0.8
5.1
3.7
(UK / Ireland / South Africa) would have been 36.3m€. Integration of SQS UK and Cresta has been successful with
EBIT
Financial result
EBT
Taxes
generating revenues of 16.3m€. On an unaudited pro forma basis adding Cresta for the full year, revenue in UKISA
–0.4
–1.3
35 new client wins since the acquisition.
Profit share minority shareholders
0.0
0.0
Consolidated profit for the year
4.7
2.4
Revenue in Switzerland grew by 33.8% to 9.8m€ (2005: 7.3m€), demonstrating the highest organic growth rate
across the Group. This strong year on year increase resulted predominantly from repeat project business with
major Swiss clients in financial services and telecommunications markets coupled with significant new wins with
The SQS Group
large clients. The average number of local employees, mainly consultants, doubled to 36 people.
SQS is the largest independent European provider of software testing and quality management services by turno-
Austria and the Netherlands contributed an aggregate revenue of 3.5m€ (2005: 3.3m€), other countries contri-
ver. SQS is independent from software vendors and other IT service suppliers. It can therefore provide unbiased
buted no revenue (2005: 0.7m€). These other European countries represented 4.5% of the Group’s total turnover
opinions to customers on the software products and projects it is engaged to assess and improve. SQS consultants
overall. The year on year increase of 8% came from our Austrian business, while revenues in the Netherlands were
design and oversee quality management processes during software and IT systems development, and test the
slightly lower than in 2005.
resulting products for errors and omissions. Headquartered in Cologne, Germany, SQS now has operations across
Europe and in South Africa with 733 employees. SQS has a strong presence in Germany (Cologne, Munich, Frankfurt,
Development of the profits
Stuttgart and Hamburg) and in the UK (London, Woking, Birmingham, Manchester), Ireland, Netherlands, Switzer-
Earnings before interest, taxes and depreciation and amortisation (EBITDA) was up 24% to 8.5m€ (2005: 6.8m€)
land, Austria and South Africa. SQS also has a minor stake in an operation in Portugal and a partnership operation
while profit before tax was 5.1m€ (2005: 3.7m€). The improved result was based on slightly lower gross margins,
in Spain. In July 2006, SQS made its first acquisition after its AIM flotation, buying Cresta Group Ltd in the UK. The
unchanged overheads relative to sales and improved net interest. Adjusted earnings per share improved to
acquisition increased SQS’ UK revenue threefold and secured its position as the largest independent software
0.28€ (2005: 0.22€).
testing and quality management company in the UK.
37
38
Administrative costs of 12.2m€ (2005: 8.5m€) which represented 15.4% of turnover (2005: 15.5% of turnover),
Liabilities to banks exist from the loan financed acquisition of the SIM Group – now SQS UK Group Ltd. – in an
increased in absolute terms because of the Cresta consolidation in the second half of the year and improvement
amount of 2.95m€. In addition, there is a mortgage loan for the financing of real estate with our Dutch subsidiary
of local infrastructure in Switzerland and hiring costs. Sales & marketing costs of 5.7m€ (2005: 3.5m€) increased
which is still valued at a remaining amount of 118k€. Via Deutsche Bank AG as an appointed paying agent SQS
relative to sales (to 7.2% from 6.4%), as we continued to invest in additional sales resources to support current
AG signed a bonded loan of 3.0m€. The redemption is due in 2012 and the interest rate is linked to the rating of
and future organic growth of the business. Research and development costs of 3.4m€ (2005: 2.7m€) fell marginally
SQS Group. A further method of external financing is in the area of leasing. As a rule, nearly all company cars are
relative to sales (to 4.2% from 4.9%), reflecting amortisation of past capitalised expenditures for version 8.0 of the
leased over three years with full service. In 2006, loans for the financing of the SIM acquisition were redeemed in
SQS-TEST Professional tool, the tool Test Strategist and course development for our training products.
accordance with agreements with the banks in an amount of 2.4m€.
Amortisation of goodwill was not carried out due to the changed IFRS accounting rules. No reductions in value
The net cash flow from operating activities amounts to 1.6m€ (2005: 2.8m€). Investment activities led to a cash
were necessary by reason of the impairment tests carried out in accordance with IAS 36.
outflow of 1.7m€ (2005: 8.5m€) whereas financing activities resulted in an cash inflow of 1.8m€ (2005: 5.8m€).
The Group tax charge of 0.4m€ (2005: 1.3m€) has two components; one is tax on profits payable under local GAAP
Apart from goodwill (28,3m€), the largest asset items are the trade receivables at 22.2m€. This corresponds to
of 0.8m€ (2005: 0.2m€), and the other is IFRS and other tax differences and deferred taxes that we are required to
sales of 75 debtor days. This increased from 65 debtor days in 2005 due to a slower collection process mainly in
show under IFRS of (0.4)m€ (2005: 1.1m€). In Germany a corporation tax credit was capitalised in accordance with
the UK. Write-offs in relation to receivables were suffered in only a marginal amount (< 1% of the receivables) this
German corporation tax law at a present value of 1.426m€. This non-recurring effect leads to a very low tax rate of 8%.
year. This confirms the business policy of SQS in continuing to concentrate on major enterprises. In these market
segments, there are not, as a rule, any reservations as to credit rating.
After taxes and profit shares of minority shareholders, the consolidated profit for the year amounts to 4.7m€ (of
which 1.7m€ was generated by Cresta) compared with 2.4m€ in the previous year. In relation to revenue the profit
In addition to the bank liabilities, a large share of the liabilities is made up by other liabilities at 22.1m€. Of this
is 5.9% compared with 4.4% in 2005. This corresponds to an undiluted profit per share of 0.28€ compared with a
10.7m€ liabilities from the Cresta purchase will almost be settled with SQS shares. Trade creditors exist in the
profit per share of 0.21€ in the previous year.
amount of 3.2m€. The equity ratio is now 42% (2005: 51%). Taking in account that a huge part of the liabilities
from the Cresta purchase will be shown as shareholders’ equity after the final instalment the equity ratio would
Investments
be 59%.
Effective 1 July 2006 SQS has acquired 100% of the voting shares of Cresta Group Limited, an independent software testing consultancy. At the time Cresta Group Limited had 200 employees and was headquartered in Central
London, with subsidiaries in Ireland and an office in South Africa. Cresta recorded revenues of 12,9m£ for the year
Personnel and social welfare matters
to December 2005, up more than 50% on the previous year, and registered PBT of 0,7m£ SQS has acquired Cresta
Croup Limited to create the largest independent pureplay software testing and quality management consulting
The SQS Group had 733 (previous year 468) employees as at the end of the year including 563 fee earning consultants
practice in UK. The initial consideration was the 1,427,743 new registered non-par value SQS shares as well as the
(2005: 338). Especially in Germany, the UK and Switzerland, new staff appointments were made in order to support
amount of 4.365m€ (3.0m£) in cash. At the acquisition date the fair value of the SQS shares was amounted to
further growth.
3.789m€ (2.617m£). The further payments are dependent on the achievement of the consolidated profit of the
Cresta Group Limited and SQS Group (UK) for the period of two years starting with the acquisition date. These are
All employees of the SQS Group have individual contracts of employment. There are no collective agreements. The
to be made as follows:
salaries are redetermined annually in individual discussions with the employees. Voluntary social benefits have
been established through company agreements and are adjusted to the specific situations in the respective countries.
instalment in 2007 6.0m£ optionally in new SQS-Shares or cash,
instalment in 2008 0.3m£ in cash and 2.7m£ in shares; in case the instalment exceeds this amount
SQS can optionally redeem in cash or new SQS-shares,
In addition, Company Agreements exist on several subjects like working hours, business trips, use of internet and
e-mail and maternity / paternity leave.
in case the Cresta management over-achieves agreed targets there will be an additional instalment; this
has to be fulfilled in 22% cash and 78% new SQS-shares; this instalment is limited to maximum 3.0m£.
All subsidiary companies have independent arrangements which include comparable incentive systems, whilst
At the acquisition date the fair value of the payments based on the performance was determined by an
taking into account the special features of the respective national legislation and complying with the requirements
external valuation expert amounting to 10.656m€.
of the corporate culture in the subsidiary companies.
Effective from 31 October 2006 SQS sold its total interest of 33.34%-share of Synergy New Zealand (UK) Limited.
Senior executives of the 1st and 2nd management tiers as well as a growing number of consultants and other
The consideration was 0.15m£. The interest was held by SQS Group (UK) Ltd (formerly Cresta) and was acquired by
employees are remunerated in a salary arrangement with a target-dependent variable component in order to
SQS in connection with the Cresta share purchase.
guarantee a direct participation in personal success. The remuneration is primarily based on commercial targets.
Assets and Financing
Additionally there is a stock option plan in place under which SQS is entitled to grant up to 1.5m options to mem-
As at the end of the year, the SQS Group had available 2.6m€ in cash after an initial cash payment of 4.4m€ for the
bers of the Management Board, executives and employees. Of these 664,300 options were granted in October 2006,
Cresta acquisition. In this context all marketable securities (5.6m€) have been disposed. The SQS Group has made
totalling to approximately 316k€ within three years. In 2006 the SQS option sheme resulted in a charge to the
no fundamental changes to its basic financing policy, which includes existing overdraft facilities arranged for SQS
income statement of 26k€.
Group (UK) Ltd. and SQS GesmbH as well as for SQS AG. The operational business is almost completely self-financed.
39
40
Structure of the company
The economic development, in particular in the IT environment, has changed significantly over the last few years,
notwithstanding the fact that in the past years a recovery was seen in almost all markets. The expertise of SQS is
The companies which form SQS Group each have different organisational structures, adapted to their own size and
especially important in the current market situation, and can contribute considerably to cost reductions in IT for
the market requirements in the respective country. These can be structured in the individual cases according to
customers. Furthermore, the services offered by SQS can help customers to optimise Service Level Agreements
market segments or regional aspects. In addition, there are the cross sectional functions such as product develop-
with partners in the growing field of outsourcing.
ment, marketing, administration etc. In SQS AG, each of these units is assigned to an Executive Board member; in
the subsidiaries, in each case to a director or managing director.
A risk may arise for SQS AG from an unsatisfactory development of business in the case of acquired companies. In
order to recognise this in good time, regular meetings of the respective managements take place in these subsidi-
The subsidiary companies are likewise respectively assigned to an Executive Board member, who both protects the
aries, at which, according to the size of the company, Executive Board members of SQS AG participate either each
interests of the SQS Group in the respective company, and also promotes the integration of the companies into the
time or at regular intervals. Furthermore, the Group Executive Committee (GEC) was established as an umbrella
SQS Group.
body which meets every month and in which the Executive Board as well as the highest responsible officers of the
subsidiaries and also the German operation are represented. The task of the GEC is, inter alia, to develop the inter-
The most important KPIs (Key Performance Indicators) to manage the subsidiary companies as well as the profit
national business policy and also to commit the firms operating on different national markets as far as possible to
generating units within the companies are the daily rates per consultant as well as the utilised capacity of the
uniform products and procedures. Also potential market risks of single or several countries will be addressed and
consultants.
actions to counteract these risks will be discussed.
Potential chances for the SQS Group
Risk management
Trends in the market can be noticed under which security and compliance (e.g. SEPA, MIFID and Sarbanes-Oxley)
of IT systems are in the main focus of most companies. Due to the complexity of such requirements there is consi-
Risk management system
derable potential that orders for quality assurance will be placed at companies like SQS with its deep experience.
SQS has installed an integrated early risk recognition system (ERRS) which is focused on addressing, analysing and
These trends may improve the market position of SQS Group especially in comparison with smaller competitors
classifying business risks at an early stage to eliminate existential risks and to control other business risks.
and may initiate an extra increase in sales.
SQS has no separate organisational unit for this task, but within the framework of their general tasks, the various
Due to the publicity of IT breakdowns in the mass media and call backs of e.g. cars caused by electronical problems
business units also discharge the tasks of the ERRS. The Executive Board, which is itself involved in all business
potential customers could invest more in quality assurance to avoid a loss of image. This could help to increase sales
processes associated with significant potential risks, is responsible for the risk management. Furthermore, the
in this business segment especially for a market leader like SQS.
Executive Board members receive monthly reports from the regional managers assigned to them, in which circumstances relevant to risks are addressed.
Situation of SQS and outlook
In the Executive Board meetings, which are held weekly, a predetermined list of topics is discussed in which events
both inside and outside the firm which harbour potential risks are also addressed. Furthermore, meetings are held
Market and competition
between the regional managers and the Executive Board on a monthly basis, in which, inter alia, circumstances
Market research on the software testing market commissioned by SQS and conducted by Coleman Parkes Research
relevant to risks are made the subject of discussion.
mainly in the UK and Ireland in December 2006 revealed that 77% of all IT decision makers acknowledge that
software testing is essential in IT product development, 69% consider the independence of the test team from the
Board or management meetings are held on a monthly or quarterly basis with the subsidiary companies at which
software development team as important and 57% agree that compliance and regulation is driving the need for
at least one member of the Executive Board of SQS AG and the local management participate in each case.
more rigorous software testing.
Minutes of these meetings, in part also continuous action minutes, are prepared and pursued.
Current regulatory market drivers include higher demands imposed on IT systems by directives such as Basel II,
SEPA (Single European Payment Area) or MIFID (Markets in Financial Instruments Directive). As well as these
legislative and regulatory developments, a high number of IT projects either fail or run out of budget and / or
Potential risks for the SQS Group
time. This further demonstrates the importance of independent software testing. In addition, continuing return
Basically, there are two factors harbouring potential risks to be recognised:
on investment (ROI) pressures, coupled with increasing ‘industrialisation‘ of the software engineering process has
led to an increased demand for outsourced software testing as well as better quality management of embedded
Economic risks
Participation risks
systems.
41
42
Strategic goals
Outlook
The SQS Group strategy is centred on five strategic goals which all contribute to market leadership as a service
Our relevant market is expected by market studies to further grow over the next years. According to an EITO
company and resulting shareholder value. They are:
study the European IT-services market will grow by 5.4% in 2007, the pure software market even by 6.5%. We
expect a further development of our relevant market also in 2008.
to extend leadership in independent quality management and testing by delivering added value to our
customers in order to achieve their goals,
For the future, our focus will continue to be on both acquisitive and organic growth, focusing on expanding
markets such as outsourcing and offshoring. Trading has been encouraging in the year to date and ahead of the
to grow the business significantly above the market growth rate for IT services,
comparable period last year while the pipeline of new business remains strong. For 2007 and 2008, we aim to
to remain the financially strongest independent quality service company in Europe,
further increase our revenue and profits. All our main businesses in Germany, Switzerland and UK are anticipated
to extend and retain a strong base of highly motivated, skilled, and best performing employees, and
to show a solid growth also in 2007 and 2008 . In relation to revenue costs for G&A as well as R&D are expected
to spot and anticipate trends in business and IT with respect to quality aspects and use them for the
to increase less. Our marketing activities target high-level consulting, especially in verticals such as financial
benefit of our clients.
services, automotive, the aviation industry and logistics, but also in the public service.
Service and product lines
Our strategy is to strengthen our market position as the leading independent pan-European provider of quality
As the largest independent provider of software quality services we continuously develop our range of services
management and testing services for software development. We aim to grow our business with long-term outsour-
and other products.
cing and offshoring contracts and investment in expanding markets such as embedded systems in the automotive
industry. We intend to strengthen our position in a number of key European markets and will actively look for
IT professional services: within its broad range of software testing and quality management services,
acquisitions to support and accelerate this strategy.
SQS has enhanced its offerings in the fields of business consulting (e.g. project and risk management),
code quality management, and outsourcing / offshoring.
Tools, licences, and maintenance: SQS’s specialist range of software testing tools which work independently
from and as add-ons to the tools available from competitors has been enhanced by successful market
The directors are confident that there will be no structural issue that will prevent the payment of a dividend to
shareholders in respect of the 2007 and future financial years and, in respect of these years, SQS proposes to
operate a dividend policy in line with earnings.
deployment of version 8.0 of our SQS-Test Professional product.
IT training and IT events: the training business was extended. Two new certification schemes were established
(INTCCM for Configuration Management and IREB for Requirements Management); this will result in additional
On 21 March 2007 the Management Board of SQS AG commenced a further consumption of the authorised capital
in the amount of 1.5m€.
courses including certification. ISTQB and ISEB courses were updated for the new versions of the syllabus.
The successful SQC conferences (Software and Systems Quality Conferences), held in Germany, the UK and for the
Cologne, March 2007
first time in Switzerland in 2006, are the largest quality management and software testing events in Europe. We
plan to expand these into Ireland in 2008. The media partnership with IDG which was started in 2006 has resulted
The Executive Board
in a higher number of delegates, exhibitors, and sponsors attending our conferences in 2006. The total number
of delegates attending increased to 1,470 (2005: 1,135); the number of exhibitors increased from 61 to 82 while the
number of sponsors increased from 17 to 26.
Research and development
The research and development of the SQS Group concentrates on developing suitable quality assurance and test
tools. The focal point is the integration of tools available on the market into a solution appropriate for the customer
which provides both the senior management with corresponding means of control and also a modern work place
at the test and execution level.
H. Bons
As a part of the improvement of knowledge management, SQS AG therefore introduced an ePortal sixyears ago
which allows all employees of the SQS Group access decentrally to its entire knowledge, including all available
tools.
R. Gawron
R. van Megen
43
Notes to the consolidated financial statements
44
Notes to the Consolidated
Financial Statements
In the automotive, avionics and rail transport
sectors, SQS is supporting vendors and their
suppliers with quality assurance for software
in embedded systems. Nowadays these systems
are controlling ever more complex components.
Because many of these applications are critical to
safety — airbags, for example — the importance
of reliable quality assurance is rising. SQS is a
competent and experienced partner to industrial
manufacturers and advises them on optimising
test processes and running them economically.
45
46
Consol idated Ba lance S h eet
as at 31 December 20 0 6 ( I F R S)
Conso l idated P rofit and Loss Account for the
business year ended 31 December 2006 (IFRS) Notes
2006
N otes
200 5
Current assets
Cash and cash equivalents
(10)
Marketable securities
(10)
0
5,626
Trade receivables
(11)
22,231
11,433
Other receivables
(11)
1,058
518
Work in progress
(12)
314
135
General and administrative expenses
Income tax receivables
264
306
Tq
2,565 Tq
839
26,43218,857
Intangible assets
(8)
3,356
2,395
Goodwill
(8)
28,313
11,589
(9)
1,057
756
Income tax receivables
(6)
1,426
0
Deferred taxes
(6)
1,881
2,007
Total Assets
Current liabilities
54,737
51,997
35,563
26,936
19,174
(4)
12,185
8,473
Sales and marketing expenses
(4)
5,666
3,525
Research and development expenses
(4)
3,351
2,690
5,734
4,486
Profit before tax and financing result (EBIT)
Finance income
(5)
103
69
Finance costs
(5)
768
842
Net interest
(5)
–665
–773
5,069
3,713
383
1,319
4,686
2,394
4,686
2,394
0
0
4,686
2,394
36,03316,747
62,46535,604
Profit before taxes (PBT)
Income tax
Bank loans and overdrafts
(13)
5,330
3,776
Trade creditors
3,159
1,844
Other provisions
(15)
76
75
Tax accruals
667
239
Tax liabilities
2,745
1,957
Equity shareholders
Other current liabilities
15,553
5,232
Minority interests
Bank loans
Other provisions
(15)
112
151
Pension provisions
(15)
294
305
Deferred taxes
(6)
1,001
859
Other non-current liabilities
(14)
6,564
0
8,436
4,286
465
(16)
Share capital
17,191
15,763
Share premium
13,322
10,936
Statutory reserves
53
53
Other reserves
-1,105
–908
Retained earnings
-2,962
–7,649
Equity attributable to equity shareholders
26,49918,195
Minority interests
Total Equity
(17)
0
0
26,49918,195
Equity and Liabilities
Profit for the year
Attributable to:
(17)
Consolidated profit for the year
2,971
Shareholders‘ equity
(6)
27,53013,123
Non–Current liabilities
(13)
(4)
Gross profit
(14)
Tq
78,933
Cost of sales
20 0 5
Tq
Revenue
Non–current assets
20 0 6
62,46535,604
Earnings per share, undiluted (q)
(7)
0,28
0,21
Earnings per share, diluted (q)
(7)
0,28
0,20
47
48
Conso lidated Cas h F low Statement
as at 31 December 20 0 6 ( I F R S)
Conso l idated Deve lopment of Sh areho ld ers‘ Eq uit y
as at 31 December 2006 (IFRS)
Notes
2006
2005
Tq
S h are
capital
S h are
premiu m
Stat u tory
reserves
Ot h er
reserves
Currency
translation
differences
Net cash flow from operating activities
Tq
Profit before taxes
1 January 2005
0
Add back for:
Depreciation and amortisation
(4)
2,772
2,361
Capital increase by transfer of
reserves and retained earning
5,886
Profit (Loss) on the sale of fixed assets
–36
–33
Capital increase by IPO
5,673
Other non-cash income not affecting payments
–1,356
–145
Change in own shares
Net interest income
705
766
Operating profit before changes in the net current assets
7,154
6,662
Net gains /losses on available
for sale securities
Increase in trade receivables and
receivables from partly completed contracts not yet billed
Currency translation differences
Costs for IPO
Increase (Decrease) in work in progress, other assets
and pre–paid expenses and deferred charges
Increase (Decrease) in trade creditors
Increase in remaining accruals
Decrease in pension accruals
(15)
-11
-18
Decrease (Increase) in other liabilities and deferred income
-1,043
456
5,069
-5,208
Tq
Minority
interests
3,713
–2,629
N otes
1,225
38
325
-417
Effects directly
recognised in equity
556
14
Profit for the period
2,998
4,106
Cash effect of foreign exchange rate movements
-89
7
Interest payments
(5)
-492
-833
Tax payments
-841
-509
Net cash flow from current business activities
Tq
4,202
Tq
1,669
Tq
Tq
Tq
53
0
143
–4,918
1
10,234
15,907
–967
2
7
9
–34
–34
57
57
–1,074
–1,074
–1,108
57
015,76310,936
53
–1,108200
Currency translation differences
Cash flow from investment activities
Stock option programme
Purchase of intangible assets
-2,874
-2,741
Purchase of tangible assets
-325
-220
Proceeds from the disposal of subsidiaries
221
0
Effects directly
recognised in equity
Cashflows arising from business combinations
-4,463
0
Profit for the period
Proceeds from the sale of tangible assets
Sale /(Purchase) of marketable securities available for sale
31 December 2006
Foreign currency result
39
-7
Interest received
(5)
63
67
-1,669
-8,498
Net cash flow from investment activities
60
35
-5,632
Cash flow from financing activities
Proceeds from the issue of share capital
0
15,909
Costs for IPO
0
-1,790
Repayment of convertible bonds
0
-1,130
Repayment of finance loans
(13)
-2,506
-7,890
Increase of finance loans
(13)
4,325
0
Redemption / termination of leasing contracts
0
-11
1,819
5,088
Net cash flow from investment activities
Change in the level of funds affecting payments
1,726
Cash and cash equivalents at the beginning of the period
8391,478
-639
Cash and cash equivalents at the end of the period
2,565
839
–1,051
2,394
–7,64918,195
5,610
2,394
31 December 2005
Net gains /losses on available
for sale securities
(10)
Tq
935
(20)
Tq
Total
Eq u ity
–5,132
Capital increase as consideration
for business combinations
1,5762,771
Retained
earnings
(20)
1,428
(18)
2,361
34
3,789
34
–231
–231
26
26
2634
017,19113,323
53
–1,074
–231 –31
4,686
–171
4,686
–2,96326,499
49
50
In addition, the following new or revised Standards and Interpretations of the IASB have been adopted for the first
Notes to the Financial Information
at 31 December 2006
1.
time. The adoption of these Standards and interpretations did not have any effect on the financial statements of SQS:
IFRS 1
Amendment – First-time Adoption of International Financial Reporting Standards,
IFRS 6
Amendment – Exploration for and Evaluation of Mineral Resources,
IAS 19
Amendment – Employee Benefits,
IAS 21
Amendment – The Effect of Changes in Foreign Exchange Rates,
IAS 39
Amendments – Financial Instruments: Recognition and Measurement,
SQS is one of the largest independent European providers of software testing and quality management services
IFRIC 4
Determining whether an Arrangement contains a Lease,
by turnover. SQS is independent from software vendors and other IT service suppliers. It can therefore provide
IFRIC 5
Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds,
unbiased opinions to customers on the software products and projects it is engaged to assess and improve.
IFRIC 6
Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment.
1. Description of business activities
SQS offers services designed to support the quality of software and IT systems from initial project definition
through the development stage and up to final implementation and, thereafter, in relation to ongoing mainte-
The amendments to IFRS 1, IFRS 6, and new interpretations IFRIC 5, IFRIC 6 are not relevant for SQS.
nance. For more than twenty years, SQS has been offering a comprehensive range of consulting services for
enterprise and technical software systems to its clients which now include ‘blue chip‘ companies in a variety
The following new or revised Standards or amendments to existing Standards and Interpretations are mandatory
of sectors, such as financial services, telecommunications, logistics and manufacturing. SQS currently has
from 1 January 2007 onwards:
17 offices in eight countries worldwide with 733 (previous year 468) employees at the end of 2006.
2.
IFRS 7 Financial Instruments: Disclosures,
IAS 1 Amendment – Presentation of Financial Statement,
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies,
IFRIC 8
Scope of IFRS 2,
Basis of preparation
IFRIC 9
Reassessment of Embedded Derivatives,
The Consolidated Financial Statements of SQS and its subsidiary companies (‘SQS Group‘ or ‘SQS Konzern‘) are
IFRIC 10
Interim Financial Reporting and Impairment.
2. Summary of Significant Accounting Policies
prepared in conformity with all IFRS Standards (International Financial Reporting Standards, formerly IAS = International Accounting Standards) and the Interpretations of the IASB (International Accounting Standards Board)
Further, according to the assessment of SQS, the application of these standards would not have any effect on the
adopted by the EU Commission and translated into the German language which are to be applied for those financial
financial statements, IFRIC 7, IFRIC 8 and IFRIC 9 are not relevant for the SQS Financial statements. The other new
statements whose reporting period starts on or after 1 January 2006.
rules will however give rise to additional disclosures in the Notes to the financial statements.
The Financial Information has been prepared on the historical cost basis. The Financial Information is presented
Basis of consolidation
in Euros and amounts are rounded to the nearest thousand (T€) except when otherwise indicated.
The Financial Information comprises the financial statements of SQS Software Quality Systems AG and its subsidiaries as at 31 December each year. Subsidiary company financial statements are prepared on a basis consistent with
Statement of compliance
those of other SQS Group companies. All companies in the SQS Group have the same accounting reference date of
The Financial Information of SQS and its subsidiaries (together the ‘SQS Group’) has been prepared in accordance
31 December.
with IFRS as adopted for use in the EU.
All inter-company balances and transactions, including unrealised profits arising from intra-group transactions,
First-time application of new standards, change in accounting policy and adjustment of figures from the
have been eliminated in full.
previous year
SQS has applied the Standards and Interpretations of the IASB as applicable in the EU which are binding for financial
Subsidiaries are consolidated from the date on which control is transferred to the SQS Group and cease to be
years commencing on or after 1 January 2006. SQS does not adopt any further changed or newly passed standards
consolidated from the date on which control is transferred out of the SQS Group.
early to the implementation date stipulated.
In 2006 SQS has first-time adopted IFRS 2 ‘Share-Based Payment’ on the basis of its employees stock option scheme
as at 2 June 2006 (for further information see note 19).
51
52
As at 31 December, the Company held interests in the share capital of more than 20% of the following undertakings:
Consol idated companies
The conversion rates used are as follows:
EXC HANGE RATES
31.12.2006
Share of
capital
Equity
%
T%
31 .12. 2005
Result
for the
year
T%
Share of
capital
%
Equity
C losing date rates
Result
for the
year
T%
T%
SQS Group (UK) Limited
(formerly SIM Group Limited), Woking, UK
100.0
7
-205
100.0
223
252
SQS Group (UK) Limited (formerly Cresta Group Limited),
London, UK, since 1 July 2006, 100.0
3,905
887
–
–
–
SQS Software Quality Systems (Ireland)
Ltd., Dublin, Ireland, since 1 July 2006, 100.0
533
851
–
–
–
90.5
-76
25
90.5
–101
38
100.0
-163
-95
100.0
–67
–33
97.0
1,094
614
97.0
584
580
SQS Nederland BV, Zaltbommel, The Netherlands
SQS GesmbH, Vienna, Austria
Software Quality Systems (Schweiz) AG, Zug, Switzerland
31.12.2006
31.12.2005
Average rates
2006
2005
€/£
1.4862
1,4706
1,4659
1,4594
€/CHF
0.6262
0,6460
0,6358
0,6459
Use of estimates
The preparation of Financial Statements in compliance with the International Financial Reporting Standards requires the disclosure of assumptions and estimates made by the management, which have an effect on the amount
and the presentation of the assets and liabilities shown in the balance sheet, the income and expenditure as well
as any contingent items. In the actual results, there may be deviations from these estimates.
The main estimates and judgements of the management of SQS refer to:
the useful life of intangible assets and property, plant and equipment,
Taking effect on 1 July 2006 SQS Software Quality System AG acquired 100% of the shares of Cresta Group Limited
the future cashflows and interest rates relating to impairment tests of goodwill
which is now called SQS Group Limited. The purchase price is based on the performance of the consolidated profit
the valuation of the liability from the Cresta purchase
of the SQS Group (UK) and the SQS Group Limited (formerly Cresta) for the period of two years starting with the
deferred taxes on losses carried forward, the valuation of pension assets and liabilities.
acquisition date. The first amount due of the purchase price due was settled by a cash payment of 3,0 m£ and the
issue of 1,427,743 new shares at the date of transfer.
Assets and liabilities are regarded as non-current where they are intended to be used for more than twelve
months or have a remaining term of more than twelve months. Assets and liabilities which do not fulfil these
3% of the shares in Software Quality Systems (Schweiz) AG are held for legal reasons by members of the board of
criteria are regarded as current.
this entity in accordance with the interests of SQS.
Freehold land and buildings, office and business equipment
SQS AG holds 15% of the shares of SQS Portugal Lda. with a book value of 0€ (previous year 0€).
Freehold land, buildings, office and business equipment are stated at cost less accumulated depreciation and any
impairment in value. Freehold land is not depreciated as it is considered to have an indefinite useful economic life.
Foreign currency translation
Depreciation on all other assets is calculated on a straightline basis over the estimated useful life of the asset as
The Euro (€) is the functional and presentational currency of the Company and its Euroland subsidiaries. For these
follows:
entities, transactions in foreign currencies are initially recorded in the functional currency at the exchange rates
valid at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are trans-
Buildings over 40 years
lated at the functional currency rate of exchange valid at the balance sheet date. All differences are taken to the
Office and business equipment over 3 to 10 years
consolidated income statement. Non-monetary items that are measured at historical cost in a foreign currency are
translated using the exchange rate as at the date of initial transaction.
The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying
The functional currency of SQS Group (UK) Ltd. and SQS Group Ltd. (formerly Cresta) and its South African branch is
values exceed the estimated recoverable amount, the assets of cash-generating units are written down to their
UK pounds sterling (£). The functional currency of SQS Software Quality System (Schweiz) AG is the Swiss Franc. At
recoverable amount. The recoverable amount of plant and equipment is the greater of net selling price less cost
the reporting date, the assets and liabilities of these subsidiaries are translated into Euros at the rate of exchange
to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their pre-
valid at the balance sheet date and the income statement translated at the weighted average exchange rate for
sent value using a pre-tax discount rate that reflects current market assessments of the time value of money
the year. Exchange differences arising on translation are included in equity within ‘other reserves‘.
and the risks specific to the asset.
On disposal of a foreign entity, the cumulative amount of exchange differences relating to the entity are trans
For assets that do not generate (largely) independent cash inflows, the recoverable amount is determined for
ferred from reserves to the consolidated income statement.
the cash-generating unit to which the asset belongs. Impairment losses are recognised in the income statement
in the cost of sales line item.
53
54
Assets are removed upon disposal or when no future economic benefits are expected to arise from the contin
The carrying value of development costs is reviewed for impairment annually both when the asset is not yet in use
ued use of the asset. Any gain or loss arising on removal of the asset (calculated as the difference between the
or more usually when an indication of impairment arises during the reporting year indicating that the carrying value
net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in
may not be recoverable.
the year the item is removed.
Amortisation is calculated on a straight-line basis over the estimated useful life of the intangible asset as follows:
Borrowing costs
Borrowing costs are recognised as an expense when incurred in accordance with IAS 23.
Software and development costs
3 years
Licences
3 to 5 years
Goodwill
Goodwill arising on acquisition is initially measured at cost, being the excess of the cost of the business combi-
Gains or losses arising from sale or removal of an intangible asset are measured as the difference between the
nation over the acquirer’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities.
net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the
Any minority interest in the acquired business is stated at the minority’s proportion of the net fair values of
asset is removed.
those items. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate
Recoverable amount of other non-current assets
that the carrying value may be impaired.
At each reporting date, the SQS Group assesses whether there is any indication that an asset may be impaired.
Where an indication of impairment exists, the SQS Group makes a formal estimate of the recoverable amount.
At the acquisition date goodwill is allocated to each of the cash-generating units expected to benefit from the
Where the carrying amount of an asset exceeds its recoverable amount the asset is considered to be impaired and
combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating
it is written down to its recoverable amount. The recoverable amount is the higher of an asset’s or cash generating
unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the
unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset
carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part
does not generate cash inflows that are largely independent of those from other assets or groups of assets.
of the operations within that cash generating unit are disposed of, the goodwill associated with the disposed
operation is included in the carrying amount of the operation when determining the gain or loss on disposal of
Trade and other receivables
the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the
Trade receivables, which generally have 15-90 day terms, are recognised and carried at their fair value, represented
operation disposed of and the portion of the cash-generating unit retained.
by the original invoiced amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is
made when collection of the full amount is no longer probable. Bad debts are written off when identified.
Intangible assets
Acquired both separately and from a business combination
Work in progress
Intangible assets acquired separately are capitalised at cost. Intangible assets acquired as part of a business
Work in progress includes work completed which is not yet billable as at the balance sheet date; it is shown in the
combination are capitalised at fair value as at the date of acquisition. The useful lives of these intangible assets
balance sheet at the cost of production including the anticipated profit margin. The degree of completion of this
are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense
work is determined by means of a comparison of the current project status with the project plan which is prepared
is taken to the consolidated income statement through the ‘administrative expenses’ line item.
for each project.
Intangible assets, excluding development costs, created within the business are not capitalised and expenditure
is charged against profits in the year in which the expenditure is incurred.
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with
an original maturity of three months or less. Further details are given in note 10 to the financial statements.
The useful life of intangible assets is assessed at the individual asset level as having either a finite or indefinite
life. Where an intangible asset has a finite life, it is amortised over its useful life. Amortisation periods for intan-
Interest-bearing loans and borrowings
gible assets with finite useful lives are reviewed annually or earlier where an indicator of impairment exists.
All loans and borrowings are initially recognised at their fair value, being the consideration received net of issue
costs associated with the borrowing.
Research and development costs, software and licences
Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost
forward when its future recoverability can reasonably be regarded as assured.
using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs
and any discount or premium on settlement.
Following the initial recognition of the development expenditure the cost model is applied requiring the asset to be
carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried
Gains and losses are recognised in the income statement when the liabilities are repaid or impaired, as well as
forward is amortised over the period of expected future sales from the related project
through the amortisation process.
55
56
Provisions
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
Provisions are recognised when the SQS Group has a present obligation (legal or constructive) as a result of a
operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-
past event, it is probable that a payment in cash or kind will be required to settle the obligation and that a reliable
line basis over the lease term.
estimate can be made of the amount of the obligation. Where the SQS Group expects some or all of a provision to
be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but
Revenue
only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the SQS Group and
statement net of any reimbursement.
the revenue can be reliably measured. The majority of revenue relates to the provision of consultancy services at
pre-agreed hourly rates. A minority of revenue relates to fixed price contracts where revenue is recognised when
Pensions and other post-employment benefits
it is probable that economic benefit will flow and is calculated on the basis of the percentage completion of such
The SQS Group makes contributions to employees’ personal pension plans based on the legal requirements
contracts.
of the particular country in which the employee is employed. These funds are defined contribution (money
purchase) schemes.
Interest income
Interest income is recognised as the interest accrues (using the effective interest method being the rate that
In addition, the SQS Group operates a defined benefit pension scheme for certain senior employees, which
exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net
requires contributions to be made to a separately administered fund. The cost of providing benefits under this
carrying amount of the financial asset.
plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are
recognised as interest income or finance costs immediately in the period to which they relate.
Income taxes
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date
Share-based payment transactions
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
SQS issued three share-based payment programmes.
Deferred tax liabilities are recognised for all taxable temporary differences:
The first two were granted in 2001 before IFRS 2 was published and effective. IFRS 2 is mandatory for share-based
payment programmes granted since 7 November 2002. The third programme was issued in 2006.
except where the deferred tax liability arises from goodwill amortisation or the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction,
The entity applies IFRS 2 in accounting for all share-based payment transactions arising from the third programme.
affects neither the accounting profit nor taxable profit or loss; and
Under IFRS 2 ‘Share-based Payment‘, the SQS share option scheme is accounted for as an equity-settled share-based
in respect of taxable temporary differences associated with investments in subsidiaries, associates and
payment transaction.
interests in joint ventures except where the timing of the reversal of the temporary differences can be
By grating shares or share options to employees the entity measures the fair value of the employee services re-
controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
ceived by reference to the fair value of the equity instruments granted. The option value is allocated to the vesting
period as personnel expense with the corresponding increase in equity. The expenses were capitalised taking into
To the extent that taxable temporary differences do not arise from the initial recognition of goodwill deferred
account the estimated rate of forfeitures. No expense is recognised for share options that do not ultimately vest.
tax liabilities are recognised.
The fair value is determined by an external valuation expert using an appropriate pricing model, further details of
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets
which are given in Note 18.
and unused tax losses, to the extent that it is probable that taxable profit will be available against which the de
ductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised:
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings
per share (further details are given in Note 7).
except where the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
Leases
transaction, affects neither the accounting profit nor taxable profit or loss; and
Finance leases, which transfer to the SQS Group substantially all the risks and benefits incidental to ownership
of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at
in respect of deductible temporary differences associated with investments in subsidiaries, associates and
the present value of the minimum lease payments. Lease payments are apportioned between finance charges and
interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the
reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
temporary differences will reverse in the foreseeable future and taxable profit will be available against which
Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of
the temporary differences can be utilised.
the estimated useful life of the asset and the lease term.
57
58
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent
Financial liabilities mainly comprise trade creditors, bank loans and overdrafts, bonded loans and liabilities from
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax
share purchase transactions. In general financial liabilities are recognised at their fair value. For bonded loans and
asset to be utilised.
liabilities from share purchase transactions see note 14. The trade creditors do not bear any interest risks.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the
Derecognition of financial instruments
asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substan-
The derecognition of a financial asset takes place when the SQS Group no longer controls the contractual rights
tively enacted at the balance sheet date.
that comprise the financial asset, which is normally the case when the instrument is sold, or all the cash flows
Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
attributable to the instrument are passed on to an independent third party.
Revenues, expenses and assets are recognised net of the amount of sales tax except:
The derecognition of a financial liability takes place when the liability is extinguished, which normally is the case,
when the obligation specified in the contract is discharged or cancelled or expires.
where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation
authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part
of the expense item as applicable; and
receivables and payables are stated with the amount of sales tax included.
3. Segmental reporting
The SQS Group’s segmental reporting is in accordance with IAS 14. The directors consider that the SQS Group has
one dominating class of business, being consultancy and testing for software quality assurance. Other activities
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of re
such as the provision of seminars and training or the sale of software products serve the primary business purpose
ceivables or payables in the balance sheet.
and are accordingly not regarded as segments requiring separate disclosure. Consequently, the business units in
Germany, UK (including Ireland and South Africa), Switzerland and other European countries (‘Rest of Europe’) are
defined as the primary reporting segments. If the location of the customers is different from the location of the
Recognition of financial instruments
assets revenue from sales to external customers is allocated to the customer-based geographical segment.
Under IAS 39 and IAS 32, a financial instrument is any contract which simultaneously gives rise to a financial
asset in one company and a financial debt or an equity instrument in another. These may, for example, be cash in
Transactions between the segments or legal entities are made on an arms length basis. Centrally incurred external
hand, bank balances, securities, receivables and liabilities or rights for acquisition or sale upon pre-determined
costs relating to subsidiaries are recharged to the subsidiaries affected. Cost allocations between the segments or
conditions.
legal entities are not charged.
Financial instruments are, under IAS 39, sub-divided into the following categories:
Segmental assets comprise all assets which are necessary in order to earn the operating segmental result. These
include work in progress, trade receivables and tangible and intangible assets. Segmental liabilities comprise all
loans and receivables issued by the enterprise;
operating liabilities as well as other liabilities and other accruals. Non-allocated items include tax receivables and
financial assets held at fair value through profit or loss;
liabilities, and finance liabilities. Investments, depreciation and amortisation relate to the segmental assets.
financial instruments available for sale; and
financial investments to be held until the final maturity date.
Geographical segment
The following tables present revenue and profit information and certain asset and liability information regarding
Loans and receivables issued by the enterprise are shown in the balance sheet at the net book value or the lower
the SQS Group’s business segments for the years ended 31 December 2006 and 2005.
attributable value at the balance sheet date. Changes in the value are recognised affecting the profit.
The primary reporting segment ‘UK based business’ comprises SQS Group (UK) Ltd. and for the second half of the
Financial assets available for sale are shown in the balance sheet at the settlement date, taking into account fluctuations in value between the trading and settlement dates, and recorded at their market value as at the balance
sheet date. The income or expenses resulting therefore are recognised in the relevant period directly to reserves.
Financial investments to be held until the final maturity date are likewise shown in the balance sheet at the
settlement date, taking into account fluctuations in value between the trading and settlement dates, and recorded
at their net book value or the lower attributable value.
year 2006 SQS Group Ltd. (formerly Cresta) and its subsidiaries in Ireland and its South Africa branch.
3.
59
60
S egmental reporting
20 0 6
Segmenta l reporting
2005
German y
Sales
Internal sales between
the segments
41,859
3,263
23,744
2,379
Tq
Oth er
Eu ropean
Cou ntries
External sales
Tq
Switzerlan d
Tq
U K-based
bu siness
9,801
355
Tq
3,529
167
Result
Segment result
2,547
2,468
791
TOTAL
G ermany
Tq
78,933
6,164
-72
5,734
Consolidation
0
Financial result
Taxes on income
Result for the period
4,686
Profit share of minority
shareholders
United
Kingdom
Sales
External sales
Internal sales between
the segments
Tq
Tq
Ot her
E u ropean
Cou ntries
Tq
Switz erl and
Tq
34,273
9,177
7,327
3,960
54,737
3,875
0
170
69
4,114
Result
Segment result
TOTAL
Tq
53
4,481
Consolidation
5
-665
Financial result
–773
-383
Taxes on income
–1,319
Result for the period
2,394
Profit share of minority
shareholders
0
Result of the Group for the period
4,686
Other information
Segment assets
3,333
381
714
0
Result of the Group for the period
2,394
Other information
Segment assets
15,963
40,711
2,476
1,594
60,744
18,212
12,941
2,574
1,584
35,311
Non–allocated assets 3,571
Non–allocated assets 2,314
Consolidation
-1,850
Consolidation
–2,021
Consolidated assets
62,465
Consolidated assets
35,604
30,058
Segment liabilities
Segment liabilities
8,060
19,195
1,140
1,663
6,870
1,831
1,862
1,626
12,189
Non–allocated liabilities
7,758
Non–allocated liabilities
7,241
Consolidation
-1,850
Consolidation
–2,021
Consolidated liabilities
35,966
Consolidated liabilities
17,409
Investments
2,560
18,122
52
23
20,757
Investments
2,669
239
11
42
2,961
2,319
411
8
35
2,773
2,125
185
3
48
2,361
–157
71
17
60
–9
Non–cash expenses (income)
Non–cash expenses (income)
except for depreciation
and amortisation
except for depreciation
551
-176
184
-95
The UK-based business increased significantly since the Cresta purchase effective from 1 July 2006.
464
and amortisation
4. Expenses
The Consolidated Income Statement presents expenses according to function. Additional information concerning
the origin of these expenses, by type of cost, is provided below:
Cost of material
The cost of material includes in the cost of sales in the year ended 31 December 2006 amounted to 11,215T€
(2005: 4,074T€). Cost of material relates mainly to the procurement of outside services such as contract software
engineers. In addition, certain project-related or internally used hardware and software is shown under cost of
material.
4.
61
62
E mp loy ee benefits
expenses
5. Financial result
2006
Tq
Wages and salaries
Social security contributions
Expenses for retirement benefits
5.
2005
Tq
38,604
27,552
5,376
4,249
461
506
44,441
32,307
The financial result is comprised as follows:
F inancia l res ult
20 0 6
20 0 5
Tq
Tq
Interest income
63
67
Exchange rate gains
40
2
The expenses for retirement benefits include the change in pension accruals and other retirement provisions
Total finance income
103
69
such as direct insurance and provident fund costs.
Interest payable
-768
-833
0
-9
The average numbers of employees in the individual companies of the SQS Group were as follows:
Total finance costs
-768
-842
Financial result
-655
-773
Exchange rate losses
E M PLOY E ES
O F TH E SQS G ROU P
2006
2005
number
number
Finance income results from fixed deposit investments and investments in securities maturing in the short term
which yield interest income, or securities negotiable at short notice. Interest expense relates to interest on bank
SQS AG, Germany
375
340
SQS UK-based business
167
71
liabilities. An amount of 276T€ results from discounting the liability from the purchase of Cresta Group Ltd.
SQS Switzerland
36
18
Finance income and costs are stated after foreign exchange rate gains and losses.
Other European countries
31
30
609
459
By using a cross currency swap, SQS assured interest and currency exchange advantages. The basis for this swap
Total
was an existing bank loan (for the acquisition of SQS Group (UK) formerly SIM Group Limited). The mature redemption amounts were rendered by using CHF-cash flows from the Swiss subsidiary. The swap was contracted for the
period from March to October 2006.
The number of employees in the first-time consolidated companies was calculated pro rata.
During 2006 SQS purchased an equity-linked swing-swap held for trading. This swap was contracted for the period
Amortisation and Depreciation
from 1 March to 29 December 2006.
Amortisation and depreciation charged in the year ended 31 December 2006 amounted to 2,772T€
(2005: 2,361T€). Of this, 2,095T€ (2005: 1,749T€) was attributable to the amortisation of development costs.
These transactions led in total to a profit of 8T€ which are recognised as interest gains.
Rentals and leasing
Operating lease costs in connection with office space and equipment in 2006 amounted to 2,480T€
6.Taxes on earnings
(2005: 1,845T€).
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date
Provision is made against leases payable in relation to buildings no longer used by the SQS Group. The lease
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The
contracts will expire between 2007 and 2011 (see note 24). Some of them can be prolonged or renewed, some
calculation is based on the tax rates anticipated in the respective countries as at the realisation date. These are
allow price alignments.
essentially based on the statutory provisions applicable or passed by the government at the date of the Financial
Statements.
As a basic principle, SQS Software Quality Systems AG is liable to corporate income tax, the solidarity surcharge
and trade tax. The results of the Company are subject to corporate income tax at 25%. A 5.5% solidarity surcharge
is imposed on corporate income tax. The trade income tax amounts to 19% of the taxable income and is deductible
for the purpose of determining the taxable income.
6.
63
64
The tax credit granted to persons liable to tax in Germany follows the so-called half-income system, i.e. only
For the assessment of the deferred tax claims and debts, SQS Software Quality Systems AG applies a tax rate based
50% of the income from the company is liable to tax in the hands of the shareholder.
on the current tax law in Germany of 40% (2005: 40%) which takes into account corporation tax, the solidarity
surcharge and trade tax. For the deferred tax claims of the overseas subsidiaries, the local tax rates are taken as
the basis.
Consolidated income tax expense / (income) is as follows:
Deferred income tax relates to the following:
tax expense
2006
2005
Tq
Current tax expense / (income)
Tax on IPO costs
Tq
1,498
238
–
716
deferre d taxes
20 0 6
Losses carried forward
Adjustments in respect of current income tax of
previous periods –70
115
Deferred tax 381
250
-1,426
–
Capitalisation of the corporation tax credit Taxes on income
1,319
383
20 0 5
Tq
Tq
1,398
1,857
Pension accruals
86
74
Obligations from Cresta purchase
107
0
Foreign currency adjustment
113
0
Property subventions
53
0
Other accruals
124
76
Deferred tax assets
1,8812,007
A reconciliation of income tax applicable to the accounting profit before income tax at the statutory income tax
Capitalised development costs
–930
–780
rate to the income tax expense in the income statement is as follows:
Capitalised Software
–40
–53
Trade receivables
–18
–18
Other –13
-8
–1001
–859
Deferred tax liabilities
tax expense
2006
Profit /(loss) before tax multiplied by the standard
rate of German income tax of 40% 2005
Tq
Tq
Net deferred tax assets
8801,148
2,027
1,477
-70
115
-272
-209
Expenditure not allowable for income tax purposes
26
16
Where a company has suffered losses, deferred tax claims thereon are capitalised if the ability in the future to set
Not allowable personnel expenses for stock options
10
0
off the losses with later income is permissible under the respective national provisions. According to the planning
Disposal of subsidiaries
88
0
of each company, a return to taxable profits is regarded as very probable.
0
-80
-1,426
0
383
1,319
Adjustments in respect of current income tax
of previous years
Deferred tax assets are recognised when it is considered probable that economic benefit will flow to the entity.
Differential tax rates in respect
of overseas subsidiaries
Other
Capitalisation of the corporation tax credit
Based on the earnings situation of the past and on the business expectations for the foreseeable future, value
adjustments are determined if applicable.
SQS Austria has capitalised a tax asset with an amount of 125T€. Although the company has suffered losses in the
current and preceding periods the management is expecting sustainable increases in the future profits.
At effective income tax rate of 36% (2004: 29%)
Deferred taxes with an amount of 113t€ were charged directly to equity.
In accordance with § 37 KStG (German corporation tax law) SQS has capitalised the corporation tax credit on
31 December 2006 at present value of 1,426T€. This tax credit is paid off by ten instalments from the year 2008
to 2017. The present value has been discounted using an interest rate of 5,5%. The capitalisation of this tax
assets leads to the low effective income tax rate of 8% in 2006.
65
66
7.
7. Earnings per share
8. Intangible assets
The earnings / (loss) per share presented in accordance with IAS 33 are shown in the following table:
The development of the intangible assets of the SQS Group is presented as an appendix to the Consolidated Notes
8.
(Consolidated Fixed Asset Analysis).
s hare
2006
2005
Intangib le assets
Tq
Tq
Profit / (loss) for the year attributable
to equity shareholders
4,686
2,394
Diluted profit / (loss) for the year
4,686
2,406
Weighted average number of shares in issue,
undiluted
Weighted average number of shares in issue,
diluted
Book va lu es
Remaining
u sefu l life
31.12. 20 0 6
Years
31.12. 20 0 5
T%
T%
UK based business
16,471,084
11,671,168
Part I
4,696
4,696
Part II
6,105
6,105
16,683,328
11,714,477
Part III
16,724
–
Undiluted profit per share ( q )
0.28
0.21
SQS BV, Netherlands
555
555
Diluted profit per share ( q )
0.28
0.20
O ther
233
233
Adjusted profit per share ( q )
0.28
0.22
G oodwill
28,31311,589
D evelopment costs
Undiluted earnings per share are calculated by dividing the profit for the year attributable to equity shareholders
Capitalisation 2004
by the weighted average number of shares in issue during 2006: 16,471,084 (2005: 11,671,168).
Capitalisation 2005
Capitalisation 2006
0
0
472
1
846
1,609
2
1,719
0
Diluted earnings per share are determined by dividing the profit for the year attributable to equity shareholders
by the weighted average number of shares in issue plus any share equivalents which would lead to a dilution.
Software
The adjusted earnings per share 2005 were calculated by adding back IFRS differences on IPO costs of 716T€
and deferred taxes of 365T€. 2006 the profit after tax was adjusted for the corporate income tax asset of 1,426T€,
Intangible assets
2,5652,081
1 to 3
758
255
R emaining intangible assets
33
59
3,356
2,395
the tax advantage of Cresta acquisition in the amount of 656T€, deferred taxes of 381T€ and the interest cost
of the Cresta purchase obligations of 276T€. The taxes on income payable under local GAAP amounts to 771T€
(2005: 238T€). This results in an adjusted profit after taxes of 4,573T€ (2005: 3,475T€). This divided by 16,471,084
No impairment losses in accordance with IAS 36 on account of falling anticipated payments were necessary in the
shares (2005: 15,763,080) shares issued as at 31 December 2005) shows adjusted earnings per share of 0.28€
business year 2006. Development costs were capitalised in the business year in the amount of 2,578T€ (in the
(2005: 0.22€).
previous year 2,415T€) and amortised over a period of 36 months, as the conditions under IAS 38 were fulfilled.
The Management Board consider that there are share equivalents which could have a dilutive effect. One of these
The scheduled amortisation of goodwill was, in compliance with IFRS 3, no longer carried out. Under the perfor-
are the convertible bonds granted to the vendor of the shares in SQS Group (UK) Ltd in a total nominal amount of
mance of an impairment test in accordance with IAS 36 in the version of 2006, no reduction in the value of the
53T€, divided into 52,800 convertible bonds of a nominal value of 1.00€ each. The other one are the stock options
goodwill was required.
given to employees. On a weighted average basis over the year this were 159,444 shares. Both effects lead to an
immaterial difference between undiluted earnings and diluted earnings per share. The number of potential shares
Taking effect from 1 July 2006 SQS purchased 100% of the shares of Cresta Group Ltd. This transaction included
are calculated pro rata temporis.
purchased goodwill of 16,724T€ (for further details see note 20).
The management of SQS integrated this asset into the UK-based business and allocated the goodwill to this segment.
67
68
The impairment test was carried out in accordance with IAS 36.80 for SQS UK-based business, as well as for the
For the remaining goodwill values, the cash generating unit is the operating unit which currently derives the benefit
Dutch subsidiary. This is the lowest level at which the management of the SQS Group continuously monitors the
from the investment. This is, in the one case, the region North, in the other case the region West / East of SQS Soft-
underlying value of the goodwill acquired with each transaction.
ware Quality Systems AG. In both cases, the remaining book values of the cash generating units or the goodwill are
so small in relation to the anticipated returns that a detailed investigation was waived.
In order to test the recoverability of the goodwill held, the future estimated cash flows of the business unit are
compared with the goodwill valuation using a discounted cash flow methodology.
The amortisation of development costs is included in the costs for research and development. The amortisation
of software and remaining intangible assets as well as the impairment losses under IAS 36 are spread over the
For this purpose, the current plans of the companies, which take into consideration the status of the accounts
functional costs in accordance with an allocation key.
up until the end of November of the business year, were taken as the basis. For the year 2007, detailed planning
is available in this regard; for the following years up until 2011, assumptions were made for the individual result
No write-ups on account of the lapse of the reasons which led to value adjustments in previous years needed to be
and asset or debt items. For the period thereafter, a constant cash flow was assumed in accordance with the
carried out in 2006, as was also the case in the business year 2005.
DCF method.
With regard to the development of earnings, it is assumed for both subsidiaries that also in the future an above
9. Property, plant and equipment
9.
average growth in sales against the market can be achieved. In both geographical markets, the justification is
clear. In the UK, a growth of 24% against prior year was achieved in the business year 2005 and 22% in 2004.
The development of the tangible assets of the SQS Group is presented as an appendix to the Consolidated Notes
A corresponding further increase in personnel is planned. It is further assumed that the gross margin can be
(Consolidated Fixed Asset Analysis).
increased. It is assumed in this respect that as from 2007 to 2010 the growth level will approach the growth per
centage of 2004. Thereafter whilst further increases are expected, no further growth has been factored in. In
addition, it is assumed that there will be an increase in the productivity of the employees. The marketing costs and
10. Marketable securities and cash and cash equivalents
10.
also the general and administrative costs are planned to rise absolutely whilst falling relative to sales. The central
administration is, with the capacities existing today, sufficient to cope with further growth. Also for the Nether-
Cash and cash equivalents comprise cash and credit balances at banks which can be realised in the short term and
lands an increase in sales of 24% is expected for 2007 due to the order backlog situation and scheduled hiring of
which earn commercial rates of interest.
additional consultants. For the following years the growth is reduced to 10% from 2009 on. It is assumed that both
headcounts and daily rates will increase while general and administrative costs will decrease relative to sales.
The valuation of the securities is made at the attributable current value on the basis of the market rates at the
In the planning period, on the basis of these expectations and planning assumptions, annual cash flows will be
balance sheet date. Changes in the attributable values are recorded directly in equity. These have been recognised
achieved which ensure a reasonable rate of return on the funds invested.
in the amount of 0€ (2005: 34T€). For further details see note 21.
In accordance with IAS 36, the following special features were taken into account:
11. Trade and other receivables
11.
Expenses and income, assets and debts in connection with taxes on earnings, such as active and passive
deferred taxes, tax reimbursement claims, tax liabilities and tax accruals, were eliminated both from the
Trade receivables are stated at their recoverable amount, after provision for any likely bad debt. The balance sheet
book value and from the use value
values of the receivables and the other assets correspond to the market values. Trade and other receivables do not
The cash flows, either in or out, from financing activities have not been taken into account
contain any interest rate risks.
For reasons of practicability, in compliance with IAS 36.79, the trade receivables and trade creditors and also
other liabilities were included in our calculations when estimating the future cash flows and the book value
For the transition from the value of the entire business to the use value of the equity holders, the entire
liabilities at the market value (= book value) were eliminated
Growth rate of the perpetuity of 2%
12. Work in progress
The work in progress shown in the balance sheet represents work already performed as at the balance sheet date
which has not been billed due to the project status.
The goodwill was allocated entirely to the book value of the cash generating unit in accordance with IAS 36.80
and IAS 36.81
The discount rate was determined in accordance with IAS 36.55-57; as the capital cost rate for the equity, a
risk-adjusted pre-tax interest rate of 18.5% p.a was assumed, which was calculated from a risk-free interest rate,
an average risk surcharge and also a factor to take into consideration branch and other risks. For the interest
on capital from outside sources, the actual interest rate of the companies of 5.7% for capital from outside
sources was taken, with a slightly increasing trend in the future. Neither interest rate is corrected by taxes. The
discounting was then carried out with the average interest rate weighted according to the ratio of shareholders’
equity / capital from outside sources.
The valuation is made at the cost of production, including the anticipated profit margin.
12.
69
70
13.
13. Bank loans, overdrafts and other loans
14. Other current and non-current liabilities
The composition of finance liabilities is as follows:
The item is comprised as follows:
finance liabilities
Ot her CRE DITORS
31 .12 .2006
31.12 . 2005
31.12. 20 0 6
Tq
Tq
Current account liabilities to banks
Loan from real estate financing Netherlands
Loan for financing of shares
Convertible bond
Current finance liabilities
Liabilities in regard to social security
Current finance liabilities and components
of long–term liabilities due in the short term 14.
2,720
1,270
6
6
716
759
5,620
3,569
Obligations from Cresta purchase
10,661
0
Remaining other liabilities
2,018
832
2,604
2,500
Deferred income
3,776
Bonded loans
0
0
162
75
2,940
0
22,117
5,232
Non–current finance liabilities
From the financing of shares to bank
From real estate financing Netherlands
Non–current finance liabilities
353
2,853
112
118
465
2,971
5,795
6,747
The remaining other liabilities comprise trade accruals and other items due in the short term.
SQS has liabilities from the Cresta purchase in total of 10,661T€. The non-current liability has an amount
of 3,624T€.
The Cresta purchase obligations can be fulfilled mostly in new SQS-shares.
Of these, secured3,075
5,477
SQS is obliged to redeem the liability as follows:
The current account liabilities exist both with SQS Software Quality Systems AG and its subsidiaries. For some
instalment in 2007 6,000T£ optionally in new SQS-Shares or cash,
subsidiaries bank overdraft agreements are in place.
instalment in 2008 300T£ in cash and 2,700T£ in shares; in case the instalment exceeds this amount
SQS can optionally redeem in cash or new SQS-shares,
The current account liabilities to banks are secured on the assets of the Company and those of its subsidiary
undertakings.
in case the Cresta management overachieves agreed targets there will be an additional instalment;
this has to be fulfilled in 22% cash and 78% new SQS-shares; this instalment is limited to maximum
3,000T£.
Bank loans
The interest rate for the acquisition loans is Euribor +1.25% with one bank and equal to 5.67% on 31 December
For further details see note 20.
2006 with the other. As security, the shares in SQS Group (UK) Ltd. were pledged in a pool contract jointly for the
lenders. Furthermore, under an assignment agreement all current and future trade receivables of SQS Software
The loan represents a 3,000T€ bonded loan. The loan payment was reduced by a discount of 63T€.
Quality Systems AG were assigned to Deutsche Bank AG for and on behalf of the syndicate.
The discount is set off against the loan in accordance with IAS 39.AG 65. The interest rate is agreed
with 6,93% p.a. The redemption is due in 2012. The Deutsche Bank AG acts as appointed paying agent.
Convertible bonds
The Deutsche Bank is entitled to assign the bond to a special purpose entity, a trustee thereof, a bank
SQS has, on the basis of the resolution of the General Meeting of 14 September 2005, granted the previous owner
or an insurance company. The interest rate is linked to the rating of the SQS Group following a defined
of the shares in SQS Group (UK) Ltd convertible bonds a total nominal amount of 53T€, divided into 52,800 conver-
rating system. If the SQS Group improves the rating the interest rate will be decreased. If the rating
tible bonds with a nominal value of 1.00€ each as agreed already in 2003. The exercise of the right of conversion
decreases below a certain bound the creditors have the right to terminate the bonded loan immediately.
lapses on 31 July 2008.
The right of conversion arises if the party entitled pays in the nominal value of 1.00€ per unitright. Up until the
completion of the preparation of these Financial Statements, this has not taken place; accordingly, this contract
is not reflected in the balance sheet (see notes 16, 24).
Tq
Personnel liabilities (leave, bonus claims)
5,330
5,3303,776
31.12. 20 0 5
Tq
71
72
15.
15. Pensions and other provisions
The pension provision developed as follows:
accrua ls
pension accrua ls
Warrant y
costs
Pension
provision
TOTAL
Tq
Tq
Tq
Tq
Pension accruals as at 1 January 2005
323
323
28
184
535
Pension expenses
28
Utilisation
–
–
–32
–32
Income from reinsurance cover
–46
Charge
–
1
45
46
Pension accruals as at 31 December 2005
305
-18
–
At 1 January 2005
Net charge / (credit)
Tq
Vacant
propert y
–
-18
Pension expenses
42
At 31 December 200530529197
531
Income from reinsurance cover
–53
Utilisation
–
–
–39
–39
Pension accruals as at 31 December 2005
294
Charge
–
1
–
-1
–11
–
–
–11
At 31 December 200629430158
482
Net charge / (credit)
No recourse was made to the pension provision in the business year.
The pension provisions of SQS result as follows:
Of which, non current represent:
At 31 December 2005305
–151
456
At 31 December 2006 294
–112
406
pension provisions
31.12. 20 0 6
31.12. 20 0 5
Tq
Tq
Pension provision
Defined benefit obligation as at the
SQS Group pays contributions under different pension schemes by way of defined contributions. The levels of
beginning of the year
contributions are made in accordance with the statutory, financial and economic framework conditions of the
795
759
Current service espenses
34
33
Interest expenses
36
38
In addition, the Company makes payments into a final salary scheme for certain senior employees. These emplo-
Actuarial gains or losses
-12
-35
yees will receive a monthly invalidity and old age pension from the age of 65. The surviving dependants of these
Defined benefit obligation as at the end of the year
853
795
employees will likewise receive an invalidity and old age pension at a lower amount. This is a funded, insurance
backed scheme where existing reinsurance cover is pledged to the persons entitled to the benefits.
Fair value of plan assets as at the
respective country. For the statutory obligations, contributions are paid on an ongoing basis.
beginning of the year –491
–436 The final salary scheme has been valued in accordance with an actuarial valuation report by SLPM Schweizer Leben
Contribution to plan assets
–52
–19
Pensions Management GmbH (an independent actuary) dated 19 December 2006.
Expected return on plan assets
–21
–46
5
10
-559
-491
294
305
Actuarial gains or losses
Fair value of plan assets as at the
Pension charges have been determined in accordance with the following assumptions:
end of the year Pension accruals
Pension ch arges
2006
2005
Rate of growth in pension liabilities
1.00%
2.00%
Interest rate
4.50%
4.50%
Salary increases
Nil
Nil
Pension age
65
65
4.20%
4.50%
Interest on reinsurance cover claims
The assumptions for life expectancy is represented by the mortality table of Dr. Heubeck 2005G.
73
74
16. Equity
The pension expenses s of SQS with respect to the defined benefit plans are comprised as follows:
16.
SQS is listed on the AIM market in London and on the Entry-Standard in Frankfurt (Main).
pension expenses
31 .12 .2006
31.12 . 2005
The development of the equity is presented in the Consolidated Development of Shareholders’ Equity.
Tq
Current service expenses
34
33
Subscribed Capital
Interest expenses
36
38
The subscribed capital amounts to 17,190,823€ (in the previous year 15,763,080€). It is divided into 17,190,823
Yield contributions from the reinsurance assets
–21
–19
(in the previous year 15,763,080) individual registered shares with an arithmetical share in the share capital of
–7
–24
1€ each. Each share entitles the holder to one right to vote. No preference shares have been issued. The capital
Actuarial losses
Pension expenses
Tq
4228
is fully paid up.
The movements in the issued share capital are as follows:
All expenses arising from pension obligations are contained in the general and administrative expenses. Actuarial
profits and losses are realised immediately in compliance with IAS 19.95.
Subscribe d Capita l
In divid ua l s h ares
The estimated benefit expense for the next period is as follows:
As at 1 January 2005
Increase in capital in return for contributions
(Entry of 16 August 2005)
estimated benefit
Tq
Current service expenses
34
Increase in capital from company funds
(Entry of 16 August 2005)
Interest expenses 38
Expected return on plan assets
–23
Increase in capital in return for cash contributions
from the floatation on the stock exchange of
Total benefit expense
49
20 September 2005 (Entry of 16 September 2005)
N ominal va lu e
Number
q
4,204,126
4,204,126
74
74
5,885,880
5,885,880
5,500,000
5,500,000
173,000
173,000
Increase in capital in return for cash contributions
from the floatation on the stock exchange of
On account of the changed legislation in the area of private and company retirement benefits, SQS Software
20 September 2005 (Entry of 23 September 2005)
Quality Systems AG has, as an alternative to the direct insurance offered historically, joined a provident fund as
Status at 31 December 2005
at 1 January 2005 in order to be able to offer employees this model alternatively. The employees can choose into
Increase in capital against contributions in kind
which of the two types of retirement pension scheme the contributions are paid. Moreover, the employees are also
entitled, within a stipulated framework, to pay in their own contributions. The subsidiary companies have independent rules, which take into account the special features of the respective national legislation.
15,763,08015,763,080
in the form of shares in Cresta Group Limited
(Entry of 3 July 2006)
1,427,743
1,427,743
17,190,82317,190,823
The total expenses arising from the company retirement benefits scheme not carried as liabilities amounted in the
business year to 427T€ (in the previous year 473T€).
The Supervisory Board was consented to the resolution of the Management Board of the Company dated 20 June
2006 on the capital increase out of the authorised capital from EUR 15,763,080 by EUR 1,427,743 to EUR 17,190,823
Warranty costs
against contribution in kind in the form of 34,210,761 shares in Cresta Group Limited. The issue price amounted to
SQS Group estimates the costs of software product remediation provided under warranty. These costs were amoun-
EUR 1.00 per share. The capital increase was registered on the commercial register on July 3, 2006.
ted to 3% (2005: 3%) of the turnover relating to software products.
Accordingly, SQS had no shares in its ownership as at 31 December 2006.
Vacant properties
The SQS Group makes provision against property leases where the property is not occupied by members of the SQS
Group. Provision is made net of expected rent receivable on the same property. 112T€ (in the previous year 151T€)
of the vacant property provision is regarded as being due in more than one year. The relevant contracts will expire
between 2010 and 2011.
75
76
Conditional capital
Statutory reserves
At the General Meeting of 12 April 2002 a conditional increase in the share capital by an amount of up to 31,112€
The statutory reserves in SQS AG were formed in accordance with Section 150 of the Stock Corporation Act (Germany).
was approved. The resolution became effective with the entry of 6 June 2002. Following the increase in capital,
the conditional capital amounted to 43,556.80€ as at 16 August 2005 and to 74,668.80€ as at 20 September 2005.
Other reserves
By resolution of the General Meeting of 14 September 2005 and the subsequent entry in the Commercial Register
The foreign currency translation differences arise on conversion of the opening reserves of subsidiary under
of 23 September 2005, the existing conditional capital was revoked and increased again by 52,800€.
takings where the functional currency of the subsidiary is not the Euro. It amounts to -31T€ (2005: 200T€).
The conditional capital serves as security for the convertible bonds (see above “Convertible bonds” and Note 13).
IPO costs are accounted for net of taxes in the amount of –1,074T€ (2005: –1,074T€).
By resolution of the General Meeting of 2 June 2006 and the subsequent entry in the Commercial Register by 30
Retained earnings
June 2006 increased the conditional capital increased by the amount of 1,500,000€ (Conditional Capital 2). The
Retained earnings represent the accumulated retained profits less losses of SQS Group.
conditional increase serves to grant up to 1,500,000 share options until 31 December 2008 as incentive compensation for SQS employees and executives (for more information see Note 18 under ‘Share-based Payment’).
No dividends have been paid or proposed in any of the financial years ended 31 December 2005 and 2006.
Authorised capital
Convertible bonds with conversion rights
By resolution of the General Meeting of 12 July 2005, the capital (243T€) previously authorised was revoked.
SQS has, on the basis of the resolution of the General Meeting of 14 September 2005, undertaken to grant the
The Management Board is empowered, by resolution of the General Meeting of 12 July 2005, with the approval
vendor of the shares in SQS Group (UK) Ltd convertible bonds in a total nominal amount of 53T€, divided into
of the Supervisory Board, to increase the nominal capital once or several times up to a maximum amount of
52,800 convertible bonds of a nominal value of 1.00€ each, if the party entitled pays into SQS the nominal amount
2,072,257€ until 12 July 2010 by issuance of new registered non-par value shares against cash contribution or
of 1.00€ per share. The exercise of the right of conversion expires on 31 July 2008. Up until completion of the
contribution in kind (Authorised Capital 1). The power to increase the nominal capital is restricted to the purpose
preparation of these Financial Statements, the party entitled had not exercised this right. (see notes 13, 24).
of acquisition of businesses or the acquisition of holdings in businesses.
In addition, the Executive Board was empowered, likewise by resolution of 12 July 2005, to increase the nominal
17. Minority Interests
17.
capital by 1,500,000€ up until 12 July 2010 with the approval of the Supervisory Board, either through one single
or several issues of newly registered non-par value shares in return for cash or contributions in kind (Authorised
The book value of minority interest is 0€ (previous year 0€).
capital 2).
Up to 2003 losses applicable to the minority have exceeded the minority interest in the subsidiary’s equity. In
Furthermore the Management Board is authorised, with the consent of the Supervisory Board, to increase the
accordance with IAS 27.35 the excess and any further losses applicable to the minority have been allocated against
Company’s share capital until 1 June 2011 once or several times up to a maximum amount of 2,881,540€ by issuan-
the majority interest. In the case that the subsidiary reports profits, such profits are allocated to the majority
ce of new registered non-par value shares against cash contribution or contribution in kind (Authorized Capital 3)
interest until the minority’s share of losses previously absorbed by the majority bas been recovered. In 2006
minority profits were allocated to the majority in the amount of 2T€ (2005: 3T€).
Thereafter, the authorised capital developed as follows:
18. Employee participation programme
Au t horised capital
During 2001, shares were offered to certain senior executives of the SQS Group. In August 2001, 25 senior emplo
Tq
yees of Software Quality Systems AG acquired shares. In December 2001, six senior employees of SQS Group (UK)
243
Ltd. acquired shares under the same programme, effective 18 January 2002. According to the regulations of this
Revocation of the authorised capital
–243
programme the shares could be sold back for the purchase price in the event of an IPO. To motivate these senior
Increase in authorised capital 1
3,500
executives to keep their shares the two founders and major shareholders, Messrs. Bons and van Megen, offered a
1,500
number of shares for free to these individuals to adjust the weighted purchase price to 10% lower than the admis-
As at 31 December 2005
5,000
sion price. A number of these individuals accepted this offer, others sold back their shares to Messrs. Bons and van
Usage of authorised capital 1
–1,428
Megen. No further share acquisition programmes or option rights for the acquisition of further shares under these
2,882
programmes exist.
6,454
18.
77
78
The movements in the shares of SQS Software Quality Systems AG held by employees under these programmes are
Share-based Payment
as follows:
At the Shareholder’s Meeting on 2 June 2006, SQS shareholders resolved to introduce a share option scheme as
incentive compensation for SQS employees and executives. The Executive Board has been authorised to grant, with
the approval of the Supervisory Board, up to 1,500,000 options until 31 December 2008. The option scheme is based
on a conditional capital from which up to 1,500,000 shares can be issued. If options already granted are forfeited
E M PLOY E E SH A R ES
before 31 December 2008, the total number of options is increased accordingly. Of the total number of options up
No–par shares
25,710
Re–purchases by SQS
–200
Increase in capital from company funds (thereof assigned shares)
35,722
Re–purchases by Messrs. Bons and van Megen –26,826
Additional shares granted by Messrs. Bons
and van Megen from private means
164,519
Withdrawal from the employee participation programme
by reason of the floatation
–85,855
113,070
113,070
to 10% can be granted to directors of the parent company, up to 15% to directors of domestic and foreign subsidiaries, and up to 75% to employees. Options may be offered to eligible employees and executives at different dates,
but only within two weeks after the publication of annual, semi-annual or quarterly financial data. To effectively
subscribe any options, the offer must be accepted within two weeks. Irrespective of the exact date of subscription,
options are granted on the first banking day following the two-week offering period.
Each option gives its holder the right to buy one SQS share at the exercise price which is determined as the average closing price (arithmetic mean) of SQS depositary interests traded on the London Stock Exchange’s Alternative Investment Market (ISIN DE 0005493514) over the period of 20 trading days preceding the offer. The average
closing price in £ is converted into € using the exchange rate on the day prior to the making of the offer. The
options can only be exercised if the price of SQS depositary interests has increased at least 20% compared to the
exercise price, based on the average closing price (arithmetic mean) over the period of 20 trading days preceding
the exercise date. The average price in £ is converted into € using the same rate as applied when determining the
Trustee administration and other important conditions
exercise price. The option term is six years. The options may not be exercised during the first three years of the
There are two employee share option schemes in place with similar rules. The scheme covering the senior emplo-
option term. Options are forfeited if the option holder terminates his employment during the three-year vesting
yees of SQS Group (UK) Ltd was simply adapted to the requirements of English law.
period.
All shares issued within the framework of these two programmes were administrated on trust by Mr. Bons,
Under IFRS 2 ‘Share-based Payment‘, the SQS share option scheme is accounted for as an equity-settled share-
member of the Executive Board, for the shares offered to the German employees, and Mr. Bons, member of the
based payment transaction. Such transactions are recorded at the fair value of the options at the date of grant.
Executive Board, and Mr. Bartlett, director of SQS Group (UK) Ltd, for the English employees. Rights and powers
The option value is allocated to the vesting period as personnel expense taking into account the estimated rate of
to issue instructions were laid down by contract uniformly for all shareholders who had acquired shares within
forfeitures. The corresponding accounting entry in each year of the vesting period is an increase in equity. In the
the framework of these schemes. Until such time as these shares commenced trading on a stock exchange there
absence of market prices, the fair value is to be estimated using an option pricing model.
are no circumstances under which a trustee, acting on behalf of the employees, can apply to the courts to have a
resolution overruled that has already been agreed at a General Meeting. In relation to third parties, the trustees
On 4 October 2006, SQS executives and employees were granted a total of 664,300 options with an exercise price
appeared as holders of the shares in their own name.
of 2.97€. Of the total number of options granted, 6,000 have been forfeited during the remainder of the year,
leaving 658,300 options outstanding on 31 December 2006.
The trusteeship will not end before the expiration of six months from the date of admission of the shares for
trading on a German stock exchange (lock-up-period) or, if applicable, a longer lock-up period if the employee
The option value at the grant date was 0.54€. It was determined using a binomial option pricing model that incor-
consents to a longer lock-up-period. Furthermore, the trust relationship ends upon the employee leaving the SQS
porates the market-based performance target. The valuation is based on the following parameters:
Group or through notice of termination.
Following the floatation on the stock exchange, the trustee model only continues to apply for employees whose
valuation
shares have not been transferred to a private portfolio.
Stock option programme of the major shareholders
Share price
2.97€ (199.5 pence)
The two founders and major shareholders, Messrs. Bons and van Megen, offered shares to a selected circle of
Exercise price
3.06€ (205.9 pence)
executive personnel with different target agreements at preferential conditions, dependent on the market rate at
Target share price
3.67€ (247.1 pence)
the time of the option.
Expected share volatility
20%
Risk-free interest rate
3.77%
Expected dividend yield
2.77%
Vesting period
3 years
Option term
6 years
79
80
The conversion from £ to € values is based on the relevant exchange rate from the option agreement (1,4866 €/£).
The fair value of the identifiable assets and liabilities of Cresta Group Limited as at date of acquisition and the
Expected volatility is based on historic volatility of SQS depositary interests. Expected dividend yield is based on
corresponding carrying amounts immediately before the acquisition were:
analyst forecasts of SQS dividends.
In 2006, the SQS option scheme resulted in a charge to the income statement of 26,355€. This amount incorporates
an estimated annual forfeiture rate of 4% and is based on the three-month period during which the scheme was in
effect.
Id entifiab l e assets
an d l iabi lities
Fair Va lu e
Carry ing Va lu e
Tq
Tq
Non-current assets
19.
19. Notes to the Cash Flow Statement
The cash flow statement shows how the funds of the Group have changed in the course of the business year through
outflows and inflows of funds. The payments are arranged according to investment, financing and business activities.
Intangible assets
491
491
344
344
Deferred tax asset
656
0
Non-current assets
1,491
835
6,414
6,414
Current assets
Trade and other receivables The sources of funds on which the cash flow statement is based consist of cash and cash equivalents (cash on
hand and bank balances).
Current assets
Total assets
20.
20.Acquisition and sales of subsidiaries
458
458
6,872
6,872
8,363
7,707
0
0
Non-current liabilities
In accordance with the contract of 9 May 2006 for the sale and purchase of all 34,210,761 shares in Cresta Group
Current liabilities
Limited (since July 2006: SQS Group Limited), effectively 3 July 2006, SQS has acquired 100% of the voting shares
Trade and other liabilities 1,422
1,422
of Cresta Group Limited, a independent software testing consultancy.
Current income tax liabilities
1,160
1,160
Liabilities to banks Accrued expenses
At the time Cresta Group Limited had 200 employees and was headquartered in Central London, with subsidiaries
169
169
2,971
2,971
5,722
in Ireland and an office in South Africa. Cresta recorded revenues of 12,9m£ for the year to December 2005, up
more than 50% on the previous year, and registered PBT of 0,7m£.
Total liabilities
5,722
SQS has acquired Cresta Croup Limited to create the largest independent pureplay software testing and quality
Net assets
2,6411,985
management consulting practice in UK.
The acquisition of the shares in Cresta Group Limited to be regarded as a so-called ‘business combination‘ in
accordance with IFRS 3.
Purchase price allocation
The initial consideration was the 1,427,743 new registered non-par value SQS shares – with the issue price of 1.00€
per share – as well as the amount of 4,365T€ (3,000T£) in cash. At the acquisition date the fair value of the SQS
shares was amounted to 3,789T€ (2,617T£) with the stock-market price of 2.653€ (1.835£) each.
The further payments are dependent on the achievement of the consolidated profit of the Cresta Group Limited
and SQS Group (UK) for the period of two years starting with the acquisition date. These are to be made as follows:
instalment in 2007 6,000T£ optionally in new SQS-Shares or cash,
instalment in 2008 300T£ in cash and 2,700T£ in shares; in case the instalment exceeds this amount SQS
can optionally redeem in cash or new SQS-shares,
in case the Cresta management overachieves agreed targets there will be an additional instalment; this
has to be fulfilled in 22% cash and 78% new SQS-shares; this instalment is limited to maximum 3,000T£.
At the acquisition date the fair value of the payments based on the performance was determined by an external
valuation expert amounting to 10,656T€.
81
82
The result of the purchase price allocation for the acquisition of Cresta Group Limited based on IFRS 3 can be
Cash outflow on acquisition:
summarised as follows:
Cash outf low
P urc h ase Price
Tq
Tq
Net cash acquired 458
Cash amount
4,365
Cash paid
–4,365
Shares issued, at fair value
3,789
Incidental expenses
–556
Payments depending on further performance, at fair value
10,656
Net cash outflow
-4,463
Purchase price for all shares bought 18,810
Incidental expenses
556
Cost of purchase
19,364
Less ‘Fair value‘ of net-assets bought
-2,641
Goodwill
16,723
From the date of acquisition, Cresta Group Limited has contributed 1,738T€ to the net profit of the SQS Group.
If the combination had taken place at the beginning of the year, the net profit of SQS Group would have been
3,692T€ and revenue would have been 92,378T€.
Effective from 31 October 2006 SQS sold its total interest of 33.34%-share of Synergy New Zealand (UK) Limited.
The consideration was 150T£ payable to a sellers bank account. The interest was held by SQS Group Ltd (formerly
The goodwill comprises the following factors that result in the recognition of the goodwill:
Cresta) and was acquired by SQS in connection with the Cresta share purchase. The interest was recognised at
cost following the equity method according to IAS 28.
strong market position as the fastest growing in biggest independent software quality assuring group
in the UK and Irish market
The book value of the interest developed as follows:
professional and strong organisation
powerful sales department
highly experienced team (know how).
The following intangible assets have not been recognised because they did not meet a material value:
book value
Tq
Initial recognition 1 July 2006 50
trademark and trademark rights
Profit for the period from 1 July 2006 to 31 October 2006 24
InternetZ page
Book value at the date of disposal 31 October 2006
74
orders on hand
Consideration (cash), 150T£
software.
Consideration in T€ on transaction date
221
Profit
147
The goodwill contained in the purchase price and not attributable to individual assets can be justified by the
present and future profitability of Cresta Group Limited. This goodwill is, in accordance with IFRS 3, not the subject
of periodical amortisation.
The net assets at the initial recognition date were 45T£. SQS held the minority of the shares of 3,334 ordinary
The initial accounting for the business combinations of Cresta Group Limited was determined only provisionally
because the further conditional payments of the purchase price as well as the acquisition costs and to that the
goodwill are influenced by the future development of the UK based business. These can be determined only
provisionally.
B shares of a total of 10,000 of such shares. The partner decided to terminate the cooperation with the SQS Group.
83
84
21.
21. Financial instruments
The operating business of the Group has, up until now, been financed from the current cash flow. Against this background, the management of interest risks is superfluous. The interest risks from the financing of the acquisition
In 2006 all marketable securities have been disposed. Therefore the corresponding revenue reserve (34T€) has
of SQS (UK) Group Ltd are, due to the short-term interest commitment, only dependent upon interest rate develop-
been dissolved against profit and loss.
ments in the European market. All other financing activities are contracted with fixed interest rates.
The book value of financial instruments, such as cash and cash equivalents, trade receivables and trade creditors,
The SQS Group has made no fundamental changes to its basic financing policy, which includes existing overdraft
corresponds approximately to the current value of the financial instruments which, in turn, is based on the short-
facilities arranged for SQS Group (UK) Ltd. and SQS GesmbH as well as for SQS AG.
term period of the instruments. The book value of the liabilities of the company is approximated to the current
value. This is determined by means of discounted cash flow analysis based on interest rates for similar types of
Funding risks
loans.
The management takes account of the financing aspects at an early stage in strategic projects, and protects SQS
from the funding risk through only entering into obligations once the financing has been adequately secured.
In accordance with the policy for dealing with surpluses in cash and cash equivalents, SQS Group invests in lowrisk, short-term securities. These are money market and annuity funds, shares or securities with fixed-interest
The SQS Group has made no changes to its basic financing policy, which includes existing credit facilities of the
rates or time deposit investments at banks with excellent credit ratings. A further part of the surpluses in cash and
subsidiaries in Great Britain and Austria. The SQS AG has made an agreement for further credit facilities. On the
cash equivalents had been transferred to an external portfolio management. This management was bound by the
basis of the planning for the business year 2007 and the following business years, the Executive Board of SQS AG
investment principles of maintaining the value of the asset at reduced expectations in relation to return. The in-
assumes that the loans for the acquisition financing can at all times be redeemed as scheduled.
vestments related to tradable securities (shares and fixed interest bonds as well as risk-reduced products derived
there from) of West European issuers. The valuation is reflecting market prices. SQS Group attaches importance,
The management will take care about the funding risks from the bonded loan due in March 2012.
within the framework of its risk management strategy, to security, short-term commitment and free availability of
the surplus cash and cash.
Credit risks
In dealing with credit risks, the SQS Group pursues a policy of concentrating on major credit-worthy companies
Policy on dealing with financial risks
and the public sector. In these customer categories there are no, as a rule, material credit risks. The maximum
credit risk is the amount shown in the respective positions in the balance sheet.
Currency risks
SQS Group operated almost exclusively in the Eurozone, Switzerland and the United Kingdom. No significant
Market value of the financial instruments
current foreign currency transactions are effected within the SQS Group (UK) Ltd.. Accordingly, the directors do
The book value of the cash and cash equivalents corresponds to the market value.
not consider that the results of the SQS Group are subject to significant currency risks. In 2006, as in previous
years, no significant exchange gains or losses arose from transactions in foreign currencies. During 2006 SQS
The marketable securities are shown in the balance sheet at the market value as at the balance sheet date.
contracted a cross currency swap for the purpose to secure CHF-payments (see note 5).
Interest risks
22. Related party transactions
The SQS Group’s exposure to market risk for changes in interest rates relates primarily to the SQS Group’s longterm bank loans arranged for the purposes of the acquisition of SQS Group (UK) Ltd.
Under IAS 24, related persons and related companies are persons and companies who have the possibility of
controlling another party or exercising significant influence over their finance or business policy. In the SQS
The SQS Group‘s exposure to market risk for changes in interest rates relates primarily to
Group, these are the Executive Board members as well as the members of the Supervisory Board, Mr. and Mrs.
Bons and Mr. and Mrs. van Megen, by reason of their position as shareholders, as well as the real estate invest-
the SQS Group’s long-term bank loans originally arranged for the purpose of the acquisition
of the SQS (UK) Group Ltd.
the bonded loan.
ment fund ‘S.T.O.L. Immobilien Verwaltung GmbH & Co. KG‘ (formerly ‘Stollwerckstrasse GbR mbH‘), Cologne and
‘Am Westhofer Berg GbR mbH‘, Cologne.
22.
85
86
In detail, the following transactions have taken place with these individuals and companies:
SQS uses property owned by the closed real estate investment fund ‘S.T.O.L. Immobilien Verwaltung GmbH & Co. KG‘
(formerly ‘Stollwerckstraße GbR mbH‘), Cologne and also the real estate investment fund ‘Am Westhofer Berg
The married couples Bons and van Megen receive dividends if they are paid and emoluments as shareholders of
GbR mbH‘, Cologne. The shares in the fund are held by employees and also Executive Board members of SQS AG.
SQS. Mr. Bons and Mr. van Megen are members of the Executive Board.
The contractual conditions of the lease of property are compatible with normal market conditions. The total
expenses incurred under these contracts amounted in the business year to 1,303T€ (2005: 1,293T€).
The relationship between the Executive Board and the Supervisory Board is explained in note 23.
Interest in
individ ual sh ares
Heinz Bons
Maria Helene Bons, née Peters
Rudolf van Megen
Ilona van Megen, née Rumsch
René Gawron
Supervisory Board Total
31 .12 .2006
31.12 . 2005
No–par shares
No–par shares
3,295,945
3,295,945
932,544
932,544
3,657,647
3,657,647
932,544
932,544
2,289
2,289
René Gawron
Graduate in business, Frankfurt am Main
17,500
27,100
Rudolf van Megen
Graduate in business, Bergisch Gladbach
8,838,469
8,820,969
23. Corporate Governance
Management Board
Heinrich Hermann Bons Graduate in business, Frechen
Supervisory Board
Prof. Dr. Werner Mellis Chairman, Königswinter, holder of the chair for Economic Informatics
at the University of Cologne,
In addition, Mr. Bons administers on trust alone (in Germany) and jointly (in UK) with a senior executive of SQS AG
Scott Hansen
Management consultant (self–employed), Brussels, Belgium – Vice–chairman
and of SQS Group (UK) Ltd a further 113,070 shares (2005: 113,070 shares) within the framework of the employee
Jeremy Hamer
Marnhull, UK, Chartered Accountant and independent management consultant –
participation programme (see note 18).
Messrs. Bons and van Megen received emoluments in the business year as members of the Executive Board (see
Prof. Dr. Mellis holds no further Supervisory Board mandates.
Member of the Supervisory Board
note 23).
Scott Hansen is also Chairman of Teamcall Ltd., High Wycombe (UK), of Teams and Technologies Ltd., High Wycombe
As a part of the remuneration for the Executive Board activities, SQS has granted a pension commitment to two
(UK), of Software Services Support for Europe and India sprl., Brussels (Belgium) as well as Vice-chairman of Quality
Executive Board members. For further details, see note 15.
Assurance Institute sprl., Brussels (Belgium).
Within the framework of a stock option programme, the two major shareholders grant employees shares from
Jeremy Hamer is also Chairman on boards similar to Supervisory Boards of Glisten plc, Blackburn (UK), of Access
within their private holdings private means.
Intelligence plc., York (UK), of Inter Link Foods plc., Blackburn (UK), and a normal board member in boards similar
to Supervisory Boards of Rose Bowl plc., Southampton (UK), of Avingtrans plc., Nottingham (UK), of Unicorn AIM
Mrs. Bons and Mrs. van Megen are employed at SQS and have received remuneration in a total of 13T€ (2005:
VCT 2 plc., London (UK) and of West Country Fine Foods Ltd., Warminster (UK).
11T€). Their employments ended effective 31 December 2006.
The total emoluments of the Executive Board members amounted in the business year 2006 to 858T€ (2005:
Mr. Gawron holds a minority stake of one share in the Swiss subsidiary on trust for SQS AG as his office as
776T€). The emoluments of the Supervisory Board members amounted in total to 81T€ (2005: 57T€), of which
president of the administrative board of this company makes this necessary under Swiss law.
81T€ had not been paid by the end of the business year.
Within the framework of the share option scheme 2006 50,000 share options with a value of 27T€ were granted
Members of the Executive Board held 40.5% (2005: 44.1%) of the shares in SQS as at 31 December 2006.
to one member of the Management Board. The expense for the year 2006 has been recognised with an amount
of 2T€.
23.
87
88
24.
24. Other Financial Obligations
In the event of exercising the right of conversion, the entitled party must in accordance with § 3, pay the lowest of
the following amounts, less the issue price, by way of conversion price:
The composition of other financial obligations is as follows:
4,17€
the issue price in the amount of GBP 1.90 per share
the issue price for a share at which shares are issued within the framework of an increase in capital
Oth er financial obl igations
The lowest of the prices stated may not, however, be lower per share issued than the proportional amount
Remaining term
u p to
one y ear
T%
between one
and five years
longer th an
five years
T%
T%
of the share capital attributable to the individual share.
No interest is payable on the convertible bonds, and they are non-transferable.
31.12.2006
Tenancies from rental of buildings
2,057
5,240
0
821
1,102
0
2,878
6,342
0
1,668
3,972
539
480
699
0
2,148
4,671
539
Leases from leasing of vehicles
and office equipment
Under § 6, no. 6.2 of the conversion conditions, the exercise of the right is only admissible following payment
of the issue price, and elapses on 31 July 2008. Since, up until the closing date of the Financial Statements, no
payment had been received, no conversion rights arose which could be recorded in the balance sheet.
31.12.2005
Leases from leasing of vehicles
and office equipment 25. Post balance sheet events
25.
The date of the release of these Financial Statements by the Executive Board to the Supervisory Board is
22 March 2007.
Effective from the beginning of 2007 a German Executive Board has been set up consisting of four members
The contractually committed income from letting is shown as follows:
with responsibility for the management of the German operating business. This board is acting below the
Management Board of the Group. The Management Board of the Group will concentrate on and intensify highlevel strategical and international duties.
I N CO M E F RO M R E N TAL O F B U I LDI N GS
On 21 March 2007 the Management Board of SQS AG commenced a further consumption of the authorised capital
in the amount of 1.5m€.
Remaining term
u p to
one y ear
T%
between one
and five years
longer t h an
five y ears
T%
T%
Cologne, 22 March 2007
31.12.2006
168
467
0
31.12.2005
221
517
0
Further, SQS undertook in November 2005, on the basis of the resolution of the General Meeting of 14 September
2005, to grant the vendor of the shares in SQS UK Group Ltd convertible bonds with a nominal value of 53T€,
H. Bons
divided into 52,800 convertible bonds of a nominal value of 1.00€ each, if the entitled party paid into SQS the issue
price of 1.00€ per share into SQS.
51149 Cologne
R. Gawron
R. van Megen
89
90
Further Information
Further Information
Further
Information
SQS has extensive expertise in many sectors
of industry and in training. The SQS experts
pass on this knowledge in seminars and training
courses. SQS also offers a neutral platform for the
exchange of experience through its conferences.
For example, the Software and Systems Quality
Conferences in Germany, the UK and Switzerland
have become the largest such events for software
quality management and testing. Further training
is an important business mainstay for SQS and
ideally complements its consultancy activities.
91
Consolidated fixed asset analysis
Consolidated fixed asset analysis
92
Conso lidated fixe d
asset analysis
Historical Acqu isition Costs
as at 31 December
20 0 6 ( I F R S)
Notes
31.12 .2005
On disposal
of subsidiary
undertakings
Tq
Tq
Exchange
adjustments
Tq
Acquisitions
through
business
combinations
Depreciation an d Amortisation
Additions
Tq
Tq
Intangible assets
Goodwill
Software
(8)
Development costs
(8)
Other intangible
assets
(8)
(8)
22,964
Disposals
31 .12 .20 0 6
Tq
Tq
Tq
0
0
39,688
31.12. 20 0 5
Tq
C h a rg e fo r
t h e yea r
N et book value
O n d i s p osa l
of s u bs i d i a r y
u n d e r ta k i n g s
E xc h a n g e
a d j u st m e n ts
Re –
c l a ss i fi ca t i o n s
O n d i s p osa l s
Tq
Tq
Tq
Tq
Tq
0
0
0
0
0
31.12. 20 0 6
Tq
31 .12 . 20 0 6
Tq
0
1,762
0
13
491
293
0
0
2,559
1,505
0
0
296
0
0
1,801
758
257
6,614
0
2
0
2,578
0
0
9,194
4,534
0
0
2,095
0
0
6,629
2,565
2,080
3
0
0
92
30
0
0
29
0
0
59
33
59
49119,598
0
0
51,533
17,444
0
02,420
0
019,86431,66913,985
0
0
015
11,375
11,375
28,313
Freehold Land
and Buildings
Office and
business equipment
23
(9)
213
0
1
44
0
0
0
258
(9)
5,400
0
17
300
324
0
110
5,931
4,834
5,613
018344324
0110
6,189
4,857
0
0
0
0
0
0110
57,722
22,301
11,589
0
Property,
plant and equipment
Tq
0
31,429
31 .12. 20 0 5
0
89
16,724
Reclassifictions
0
0
25
0
0
48
210
0
7
328
0
0
7353
0
0
0
0
0
0
0
72,773
0
190
85
5,084
847
566
85
5,1321,057
756
Financial assets
37,042
0
033
0
0
83519,922
Historical Acqu isition Costs
as at 31 December
20 0 5 ( I F R S)
Notes
0
31.12 .2004
On disposal
of subsidiary
undertakings
Tq
Tq
Exchange
adjustments
Tq
Acquisitions
through
business
combinations
Tq
Additions
Tq
Tq
0
0
0
Goodwill
(8)
Software
Development costs
Other intangible
assets
(8)
1,525
(8)
4,288
(8)
Tq
11,375
E xc h a n g e
a d j u st m e n ts
C h a rg e fo r
t h e yea r
Re –
c l a ss i fi ca t i o n s
O n d i s p osa l s
Tq
Tq
Tq
Tq
Tq
0
0
0
0
0
31.12 .20 0 5
Tq
11,375
31 .12 .20 0 5
Tq
11,589
31 .12. 20 0 4
Tq
11,589
0
0
237
0
0
1,762
1,291
0
0
214
0
0
1,505
257
234
0
-1
0
2,415
0
88
6,614
2,873
0
0
1,749
0
88
4,534
2,080
1,415
0
89 0
0
0
30
0
0
30
59
0
15,539
0
01,993
0
213
19
0
0
4
0
0
0
0
0
89
0
28,777
0
-1
02,741
0
Freehold Land
and Buildings
Office and
business equipment
22,964
O n d i s p osa l
of s u bs i d i a r y
u n d e r ta k i n g s
0
Tq
31.12. 20 0 4
N et book value
0
31 .12 . 20 0 5
0
0
Property,
plant and equipment,
Disposals
Tq
0
Reclassifictions
0
8524,99632,72614,741
Depreciation an d Amortisation
Intangible assets
22,964
0
8831,429
8817,44413,98513,238
(9)
213
0
0
0
0
0
0
0
23
190
194
(9)
5,188
0
-8
0
220
0
0
5,400
4,477
0
-7
364
0
0
4,834
566
711
5,401
0
-8
0220
0
0
5,613
4,496
0
-7368
0
0
4,857
756
905
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
34,178
0
-9
02,961
0
8837,042
20,035
0
-72,361
0
Financial assets
8822,30114,74114,143
93
94
95
AUDITORS‘ REPORT
96
Imprint
Auditors’ Report
The following report was issued
We have audited the consolidated financial statements prepared by SQS Software Quality Systems AG, Cologne,
by the editors on the financial
comprising the balance sheet, the income statement, cash flow statement, statement of changes in equity and
statements, and the auditors
the notes to the consolidated financial statements, together with the group management report for the business
51149 Cologne
issued the following report
year from January 1, 2006 to December 31, 2006. The preparation of the consolidated financial statements and
Germany
on the consolidated financial
the group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of
statements and the Group ma-
German commercial law pursuant to § 315a Abs. [paragraph] 1 HGB are the responsibility of the parent company’s
nagement report.
management. Our responsibility is to express an opinion on the consolidated financial statements and on the
group management report based on our audit.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German gene-
www.sqs.de
rally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer
Corporate Communication
www.sqs–group.com
[Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such
Phone +49 (0)2203 9154-1215
E-Mail: investoren@sqs.de
that misstatements materially affecting the presentation of the net assets, financial position and results of
Fax
+49 (0)2203 9154-55
operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business
Investor Relations:
activities and the economic and legal environment of the Group and expectations as to possible misstatements
Phone +49 (0)2203 9154–0
are taken into account in the determination of audit procedures. The effectiveness of the accounting-related
Fax
internal control system and the evidence supporting the disclosures in the consolidated financial statements
+49 (0)2203 9154–15
and the group management report are examined primarily on a test basis within the framework of the audit.
The audit includes assessing the annual financial statements of those entities included in consolidation, the
The annual report of SQS AG is available in German and English.
determination of entities to be included in consolidation, the accounting and consolidation principles used and
You will find both language versions on our website:
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
www.sqs.de/investoren
financial statements and the group management report. We believe that our audit provides a reasonable basis
for our opinion.
We would be happy to send you additional copies of the annual report:
Phone +49 (0)2203 9154–0
Our audit has not led to any reservations.
Fax
+49 (0)2203 9154–15
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as
adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and give
a true and fair view of the net assets, financial position and results of operations of the Group in accordance with
Concept and design
these requirements. The group management report is consistent with the consolidated financial statements and
Aclewe Werbeagentur GmbH, Cologne
as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of
www.aclewe.de
future development.
Photos
Cologne, March 23, 2007
André Lössel, Lufthansa AG, NATO, Getty Images, SQS
Grant Thornton GmbH
Printing
Wirtschaftsprüfungsgesellschaft
sieprath druck service gmbh, Aachen
Printed on chlorine-free bleached paper.
Graf von Kanitz Schulz-Danso
Wirtschaftsprüfer Wirtschaftsprüfer
(Auditor) (Auditor)
97
51149 Köln
Deutschland
www.sqs-group.com/www.sqs.de
Telefon: +49 (0) 2203 91 54-0
SQS Group Limited
Software Quality Systems
SQS Nederland B.V.
120 Moorgate
(Schweiz) AG
Ges.mbH
Van Voordenpark 5A
London, EC2M 6SS
Baarerstrasse 135
Nußdorfer Straße 20/16
5301 KP Zaltbommel
United Kingdom
6301 Zug
1090 Wien
Nederland
www.sqs-uk.com
Schweiz
Österreich
www.sqs-group.nl
phone: +44 (0) 20 7448 4620
www.sqs-group.ch
www.sqs.at
phone: +31 (0) 418 655 888
Telefon: +41 (0) 41 720 41 50
Telefon: +43 (0) 1 319 35 23-0
SQS Portugal Lda.
SQS South Africa
Av. Prof. Dr. Cavaco Silva, 33
(Ireland) Ltd
Technology House
Taguspark
4–5 Dawson Street
29 Salisbury Avenue
2740–120 Porto Salvo
Dublin 2
Westville
Portugal
Ireland
South Africa
www.sqs.pt
www.sqs-ire.com
www.sqs-sa.com
phone: +351 (0) 21 4 22 90 90
phone: +353 (0) 1 670 9916
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Financial Year 2006
Financial Year 2006
The First 25 years of Quality

Annual Report 2006

Transcription

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