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SQS Software is confident industry trends are in its favour

Foreign exchange movements suppressed sales growth and impairments dented profits
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The fast-growing Management Consultancy arm is capitalising on the growing demand for digitisation and automation

These are testing times for quality control specialist SQS Software Quality Systems AG (LON:SQS), which saw amortisation of goodwill put a dent in profits.

Profit before tax in 2016 fell to €7.99mln from €11.65mln the year before, as the company took a €5.6mln charge relating to the book value of its Galmont acquisition.

Adjusted profit before tax (PBT) rose 17.2%, however, to €24.4mln from €20.8mln the previous year, with the PBT margin hitting its highest level since the global financial crisis in the previous decade.

Total revenue rose 2.0% to €327.1mln from €320.7mln, with the top-line figure not helped by foreign exchange movements, which effectively reduced 2016’s revenue by €7.1mln.

Revenue from the group’s largest division, Managed Services, declined 4.4% to €146.4mln from €153.2mln the year before, contributing 45% of total group revenue.

The decrease in revenue was largely due to a number of products coming towards the end of their life-cycle.

The group expects its Management Consultancy (MC) arm, currently chipping in with 18% of total revenues, to be the main engine of growth as it capitalises on the growing demand for digitisation and automation.

MC revenue rose 56.6% to €57.3mln from €36.6mln in 2015.

Revenue from the Professional Services arm eased 5.9% to €93.4mln from €99.3mln the previous year, contributing around 29% of group revenue.

The group has proposed a dividend of 15 cents, up from 13 cents the year before.

"We enter 2017 with confidence,” declared Diederik Vos, the chief executive officer of SQS.

“The broader industry trends driving our business remain strong and supportive. We will continue to invest in our intellectual property and services portfolio to ensure they evolve in line with key market developments and remain relevant for future demand,” he added.

Shares were down 12% at 550.75p in mid-morning trading.

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