Immediate Release                                                                                                            19 December 2006

SQS Software Quality Systems AG

Trading update

SQS Software Quality Systems AG (AIM:SQS.L) ("SQS" or the "Company"), the AIM listed supplier of independent software testing and quality management services, today issues a trading update for the year ending 31 December 2006.

It has been a successful year for the Company, with turnover expected to be up by more than one third on 2005. Approximately half of this increase in turnover has been generated organically. During the year, the Company has won more than 100 new clients, taking its total client base to over 300.

In the first half of the year, as highlighted in the interim results, there was significant investment in headcount to prepare for the organic growth opportunities in the second half. Whilst gross margins have improved in the final six months of the year and are now in line with expectations, the increase from the first half was not as fast as originally planned in all regional markets, and therefore PBT is expected to be towards the lower end of consensus market expectations.

The Company has commenced a number of new projects in the fourth quarter of 2006 and the directors are therefore confident that these will drive further strong organic growth in 2007. Margins are expected to be maintained now that the investment in consultants is producing returns. The Company's ability to continue to win new business from in-house teams will be a strong feature of this growth and the Company is confident that it is well positioned to meet consensus market expectations for 2007.

The acquisition of Cresta (now renamed SQS UK) in May 2006 has been very successful. The integration with the former SQS UK organisation and the rest of the SQS group has been well received by clients and is proceeding in accordance with the directors' expectations. The Company's UK, Irish and South African business now accounts for approximately 40 per cent. of total turnover. SQS continues to see considerable opportunities in its markets and believes that there is further scope for consolidation. The Company will look at potential acquisitions on a selective basis and will pursue opportunities that are earnings enhancing and provide further benefits to the Company's market position.

SQS will announce its preliminary results for the year ended 31 December 2006 on 8 March 2007.

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Notes to Editors
SQS is the largest independent European provider of software testing and quality management services. SQS consultants design and oversee quality management processes during software and IT systems development, and test the resulting products for errors and omissions.

Headquartered in Cologne, Germany, SQS now has operations across Europe and in South Africa with over 700 employees. SQS has a strong presence in Germany ( Cologne, Munich, Frankfurt, Stuttgart and Hamburg) and in the UK (London, Woking , Birmingham, Manchester), Ireland, Netherlands, Switzerland, Austria and South Africa. SQS also has a minor stake in an operation in Portugal and a partnership operation in Spain.

In May 2006, SQS made its first acquisition after its AIM flotation, buying Cresta Group Ltd in the UK for a consideration of up to £18m. The acquisition increased SQS' UK revenue threefold and secured its position as the largest independent software testing and quality management company in the UK.

With over 3,000 completed projects under its belt, SQS has a strong customer base including half of the DAX 30 companies and 30% of the STOXX-50. They include names like Dresdner Bank, Lloyds TSB, Deutsche Telekom, Vodafone, Daimler Chrysler, and Airbus spread across the full range of industries.

SQS is the first German company with a primary listing on AIM and completed its IPO in September 2005, having raised £10.8m before expenses at an issue price of 190p. SQS is included in the Software and Computer Services sector (9530) within the Computer Services subsector (9533) and has a RIC code of SQS.L. SQS completed a secondary listing on the Deutsche Boerse in Frankfurt on 2nd December 2005. For further information, please visit www.sqs-uk.com.

This information is provided by RNS
The company news service from the London Stock Exchange

END