Contract deferrals forced software testing specialist SQS to issue a profit warning in May. But, with these figures, chief executive Rudolf Van Megan said that all of the group's key markets were stabilising and that delayed deals were coming back onstream.
Indeed, the delays and short-notice contract suspensions have pushed SQS to look at de-risking its business model - which was heavily reliant on consultants. These consultants earn revenues on day rates and, despite the group boasting 75 per cent recurring business, contract deferrals sent billed days per consultant down from 187 to 175. That, combined with pricing pressures and a €0.6m (£0.52m) restructuring charge, explains the hefty pre-tax profit slide.
To de-risk the business and boost visibility, the planned migration to more managed services work was accelerated in the period - where revenues are earned on deliverables rather than a per day rate. What's more, SQS signed seven new managed services deals in the period, of up to five years' duration, and managed services now generate just under 10 per cent of the business. Management plans to grow this to half over the medium term.
Broker Panmure Gordon expects full-year pre-tax profit of €9.2m, giving adjusted EPS of 19.2¢ (39.4¢ in 2008).
SQS SOFTWARE QUALITY SYSTEMS (SQS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 169p | MARKET VALUE: | £44.3m | |
| TOUCH: | 166-172p | 12-MONTH HIGH: | 323p | LOW:135p |
| DIVIDEND YIELD: | 5.7% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 236¢* | NET DEBT: | 2% | |
| Half-year to 30 Jun | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2008 | 68.9 | 5.94 | 20.0 | nil |
| 2009 | 67.5 | 1.71 | 4.00 | nil |
| % change | -2 | -71 | -80 | - |
*Includes intangible assets of €63.4m, or 242¢ a share £1=€1.144 | ||||
