25 May 2012

SQS hit by unexpected costs

13/01/2012 Ben Jaglom

German software testing concern SQS Software Quality Systems (SQS) has announced that due to two contracts having 'additional transition costs' 2011's profits are to be below expectations.

The AIM-quoted venture noted that as a result of not recovering some 'additional transition costs' from two managed services contracts that are 'not expected to exceed 2 million' profits for the year to December will be below expectations. However SQS added these contracts are 'now at an improved margin level' remarking that it is in 'ongoing discussions' with the clients on recovering 'at least some of these costs in 2012'.

The German venture noted that managed services contracts exceeded 62 million in 2011 with the focus for SQS being to build this division to 50 per cent of revenues by 2014. It enthuses that as 'contracts mature and move offshore' it expects to deliver a 'far stronger margin performance in the future'.

Chief executive officer Rudolf van Megen opined the company was 'not satisfied that two earlier contracts have had a one off impact on profitability' arguing the company is gaining the 'right momentum' for what he said would be an 'improved future performance'.

Analysts at Collins Stewart are forecasting pre-tax profits of 13.3 million on sales of 198.5 million for the year to December 2012.

Last rated by Growth Company Investor with a 'reduce' at 158.5p shares in SQS currently trade at 164p. At the current price the shares look fairly valued with the impact on 2011's results unlikely to effect future profits. Hold/reduce.

Tags: German Technology, Profit warning, Software on AIM

Sector: Software & Computer Services

Companies: SQS Software Quality Systems

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