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Wednesday 13 September 2017

SQS H1 in line but demonstrating positive change

logoThe direction of travel for quality assurance provider SQS was clear when it released its trading update in July. H1 results confirm performance is in line, management consulting demand is rising on the back of digital change and process automation to deliver services efficiently and profitably is progressing although still at an early stage.

The loss of a €7m banking contract meant revenue dropped 3.9% to €160.1m (€161.8m cc) but expectations are that new customer wins will more than overcome the loss putting H2 ahead (with automotive and manufacturing sectors strong). Adjusted EBIT rose 5.2% to €12.1m, with margins up from 6.1% to 7.5% - improvements here are one of the goals SQS has set and process automation is playing a part.

While Managed Services remains the largest part of the business (€73.4m, 46% of revenue) revenue fell by 5.4%, largely due to the reduced scope of a large contract with a banking client. Management Consulting is expected to be a growth engine and showed progress in H1 with revenue up 5.2% to €30.1m, taking it to 19% of total revenue (vs. 17%). Europe played a significant part in growth.

SQS management says 52% of revenue came from digital engagements compared to 40% in the year to December 31 2016. Although we don’t know how SQS defines a digital engagement, assuming the definition is constant over the periods, there does appear to be significant ramp up. Looked at in the context of overall revenue, digital change is altering the mix of the SQS business rather than adding significant revenue – it is not alone in this situation (something that is reflected in our market forecasts (see UK SITS Market Trends and Forecasts 2017, and the forthcoming ESAS Market Trends and Forecasts 2017 report).

As continual change and development is integral to the digital operational environment, demand for quality assurance services from suppliers like SQS, Testplant and NCC Group that provide continual quality assessment, should rise. 

Posted by Angela Eager at '09:12' - Tagged: results   managedservices   digital  

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