SQS revenues up but profits down

SQS Software Quality Systems, a German-based provider of software testing and quality management services, has announced that it will report revenues slightly ahead of consensus.

The increase is the result of a strong performance by the firm's Managed Services business, which accounted for more than 20% of revenues in 2011.

However the news wasn't enough to stop shares falling in the wake of news that profit before tax would be lower. This is the result of the fact the firm did not recover some additional transition costs. These costs, which are not expected to exceed €2m, relate to two earlier Managed Service contracts, which are expected to result in a profit before tax below analysts' forecasts for the period.

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The firm was keen to emphasise that the contracts are now at an improved margin level, saying: "We have taken the full cost in 2011 of transferring these contracts to an optimised onshore/offshore delivery.

"We are in ongoing discussions with the clients to recover at least some of those costs in 2012. Furthermore, as a result of our ever expanding experience in the provision of Managed Services contracts, all new Managed Services contracts closed during 2011 have a better early stage margin and cash flow profile and we do not envisage incurring any further additional costs.

"With further cost saving measures implemented, increased visibility and order backlog, SQS is gaining the right momentum from its "Profitable Growth Plan 2014" for an improved future performance."

The share price fell 5.57% to 164p by 12:06.

NR