The P&I Group according to fiscal year:

Transcription

1 Annual Report 2003 / 2004

2 The P&I Group according to fiscal year: Key figures acc. to IAS million euro million euro million euro million euro million euro Group sales Result before depreciation (EBITDA) Result before interest and taxes (EBIT) Consolidated result (DVFA/SG) Number of employees (average) Earnings per share (DVFA/SG) HIGHLIGHTS Results according to plan: P&I lifts EBIT margin to 10,7 % P&I has increased the operating result (EBIT) by 34,4 % to 4,3 million euro. P&I gains large orders in the public sector In additional to local government computing centres, P&I has won over the Bavarian police force. Further large orders in Austria P&I gains Wüstenrot as well as the major construction firm Porr und Swietelsky FINANCIAL SITUATION, PROFITABILITY UND PRODUCTIVITY Key figures acc. to DVFA/SG Equity ratio 72.0 % 55.2 % 57.0 % ** 52.4 % 54.6 % Gearing * % % * % % % EBIT margin % 3.9 % 5.3 % 8.4 % 10.7 % Return on capital % 0.0 % 2.6 % 3.2 % 6.1 % Performance per employee (in '000 euro) EBIT per employee (in '000 euro) Development costs to sales *** 19.9 % 17.0 % 19.7 % 21.5 % 20.6 % *) Balance sheet structure based on DVFA/SG, reclassification as at (formerly %) **) Reclassification as at (formerly 52.1%) ***) After capitalization of LOGA International P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 2 from 51

3 Contents Foreword by the Board of Directors 4 Investor Relations 5 Summarised Situation Report 2003/ A. Outline of Business Developments 1. Development in the Industry Sector and Economy as a Whole 7 2. Development in Sales and Orders 3. Research and Development 4. Financing 5. Personnel B. Outline of the Situation Assets 2. Financial Situation 3. Special Outline of the Development and Situation of the Company Annual Financial Statements for 2003/ Consolidated Financial Statements according to IAS Balance Sheet Statement of Income Cash Flow Statement Analysis of Fixed Assets Analysis of Equity Notes 18 Additional details not forming part of the audit 42 Audit Certificate 43 AG Financial Statements according to HGB Balance Sheet 44 Statement of Income Cash Flow Statement Report from the Supervisory Board 47 Glossary 49 Financial Calendar, Contact Person & Addresses 51 P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 3 from 51

4 Foreword by the Board of Directors Dear Shareholders, Ladies and Gentlemen, Sustainability is the new magic word, which will guarantee success for a business. Maybe this is just a new fashion, taking over from the hype of the Internet with its radical business models, which hit the software industry hard as well. For businesses, sustainability in practice means that long-term goals are consistently pursued over the years, and only minor adaptations for the purposes of optimization are planned. P&I s pursuit of its software development goals is sustained through concentrating, on the one hand, on a European payroll accounting system, and on the other, on extending the scope of human resource software out of the personnel departments and onto the desks and computer screens of managers and other employees. P&I s financial goals are focused, given a moderate increase in sales, on gaining a better-than-average increase in earnings. P&I occupies a sustainable place with its goals and the resulting earnings. The number of clients who require a multinational payroll accounting system doubles each year: the economic advantages of a homogeneous system have convinced the marketplace of its benefits. In the fiscal year just ended, the expansion began with the broadening of LOGA europe to take in Greece, France and Italy. We are also aiming for exceptional growth figures with our human resources management portal solution LOGA erm (Employee Relationship Management). A growth in client numbers means that the numbers are also growing of applications which can be cost-effectively integrated into an employee and manager portal. Thus the cost-benefit effect for the user is constantly being improved. A further, and very forward-looking product, is our Personnel Placement Planning, which has already been installed on an e-persinf basis for two state police authorities, and which is increasingly establishing itself in the private sector. In this product, the flexibility of the e-persinf software is fully brought into play. Careful cost controls, which have kept the sales, administration, and even the development costs practically unchanged despite the rise in sales of over 5 %, have enabled the EBITDA (earnings before depreciation) to climb to approximately 8.5 million euro, representing an EBITDA margin of 21.1 % and thus exceeding our target of 20 %. We have seen exactly the same pattern with EBIT: with 4.3 million euro we achieved an EBIT margin of 10.7 %, here also, exceeding our target of 10%. We firmly believe that sustainability is not just a passing fad, but rather the secret of doing successful business. Yours sincerely, sgd. Egbert K. Becker P&I Personal & Informatik AG CEO / Chairman of the Board of Directors P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 4 from 51

5 Investor Relations P&I Shares ISIN DE (Prime Standard, FWB) Number of shares 7.7 million shares Type No-par bearer shares Shareholder structure 61.4 % management, other diverse Stock code PUI Designated sponsors DZ Bank AG (Frankfurt), Seydler AG (Frankfurt) Market capitalization million euro (as at 31 March 2004) High/low for the year 6.99 euro ( ) / 2.60 euro ( ) Share price development Source: Bloomberg Share market trends P&I shares opened in the last fiscal year at a price of 2.71 and closed at 5.90, representing an increase of 118%. P&I shares developed positively after the stock market slump and profited from the general upwards trend. In comparison to the Prime All Share performance index, P&I shares performed distinctly above the general market trend - notably through two marked price surges in August 2003 and in January P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 5 from 51

6 Activities During fiscal 2003/2004, apart from the Annual Result Press Conference and the conference of the German Society of Investment Analysis and Asset Management (DVFA) as well as the AGM, roadshows and individual meetings with analysts, investors, and business journalists were held. The Board of Directors represented P&I at the Seydler AG investment meeting in Frankfurt and at the German Equity Forum with a company presentation. In addition, the Board of Directors gave interviews to 15 representatives of the capital market and the business press. The aim of Investor Relations activities is to consolidate the shareholder structure by encouraging stronger institutional investment. Private investors (retail) continue to dominate as shareholders. Researches and Studies Company studies and research reports from 13 institutes have made more than 40 recommendations, regularly coming from the finance portal Aktiencheck, the DZ Bank (Deutsche Zentral-Genossenschaftsbank), and the market analysts Independent Research, as well as from the investment guide issued by Scherrer Asset Management. The emphasis of the recommendations was largely on 'buy'. AGM The fourth ordinary Annual General Meeting of P&I Personal & Informatik AG took place on 4 September 2003, in a new venue - the Casino reception centre in Wiesbaden. Items to be decided on were the ratification of the acts of the Board of Directors and Supervisory Board and the appointment of the auditor, and in addition, decisions were called for concerning the authorized capital in order to enable a capital increase in the future. As well, amendments to the Memorandum and Articles of Association were on the agenda. Among other things, the rights of the Supervisory Board were strengthened, in order to accommodate the requirement of the German Corporate Governance Codex for greater independence of this body. The approximately 120 shareholders controlled 67.6 percent of the authorized capital. All proposals on the agenda were adopted by majority vote, with the acts of all members of the Board of Directors and Supervisory Board being ratified unanimously. Shareholdings by the company and executive bodies As at 31 March 2004, neither P&I Personal & Informatik AG nor any other company have a shareholding in P&I s own shares pursuant to 160 Para.1 No. 2 AktG (German Companies Act). No convertible bonds or similar securities pursuant to 160 Para.1 No. AktG had been issued as at 31 March Shareholdings with executive bodies as at 31 March 2004: Board of Directors Shares Options Supervisory Board Shares Options Egbert K. Becker 2,359,500 - Bernd Jacob 30,500 - Ingeborg E. Becker 2,359,500 - Dr. Wolfgang Metz - - Vasilios Triadis 6,927 27,000 Bernd Hentschel 2,000 - Dr. Hartmut Voß - - Michael Abels - - Prof. Dr. Werner Fröhlich - - Dr. Martin Steinbach - - P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 6 from 51

7 Summary of the Management Report 2003/2004 A. Outline of Business Development 1. Development in the Industry Sector and Economy as a Whole The continuing difficult economic environment has left its mark on fiscal 2003/2004 as well. The uncertain economic and geopolitical situation, which has now endured for over 24 months, led to the postponement of order placements both in the private business and in the public service sectors. The IT industry in particular has again felt the impact of the customers' reluctance to invest. Cost-cutting measures have led in some cases to a total halt on investment in IT projects, and in others, to a drastic reduction. In the public administration arena, a complete ban on spending has been on many agendas. However, numerous research analysts and business associations are now forecasting an end to the economic stagnation in the coming months, with a turnaround in the economy leading to a slight surge in growth. 2. Business Development 2003/2004: Development of Profits, Share Price, Sales and Orders P&I Group Highlights: Despite this difficult market environment, in fiscal 2003/2004, the P&I Group succeeded in doubling the Group result after tax (EAT) from 1.2 million to 2.4 million. The EBIT margin rose from 8.4 % in fiscal 2003/2004 to the present 10.7 %, with the EBITDA margin rising in the same period from 18.1 % to 21.1 %. The share price for P&I shares (Frankfurt trading floor) saw a growth of 118 %: P&I shares opened on 1 April 2003 at a price of 2.71 and closed on 31 March 2004 at P&I Personal & Informatik AG (Germany): Incoming orders in fiscal year 2003/2004 went according to plan, amounting to 26.4 million. We were not expecting to attain the previous year's level of incoming orders - a high of 30.8 million due to the input from the Lower Saxony project, which will continue to run over a number of years. However, highlights in fiscal 2003/2004 were further major contracts from the public sector. More orders from municipal computing centres were placed, and the Bavarian police force have now followed the example of the North Rhine Westphalian police force with a contract. Included in the incoming orders figure are software licences and consulting services. Contracts for software maintenance concluded in conjunction with the sale of licences are not included. Sales of services are accounted for partly by direct sales and partly by sales through partners. Partners include not only system houses but also providers of software accounting solutions who have added P&I Personal & Informatik AG products to their portfolios. In addition, incoming orders arising from existing business relations with customers are also generated in the System Integration (Consulting) division. Total sales in Germany grew by 7.5% from 34.3 million to 36.9 million. This figure includes sales to third parties of 35 million (previous year: 32.5 million), representing an increase of 7.7%. P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 7 from 51

8 P&I Europe: Of chief significance for the year's business for Vienna-based P&I Personal & Informatik GmbH were contracts acquired for large-scale projects - in the construction industry (Swietelsky/Porr) and with Wuestenrot. Replacement of the old LGS payroll software with LOGA was successfully continued, and the continuance of good business relationship with former IBM clients following the take-over of IBM Payroll LOGA vplus 2001 was equally successful. Sales amounted to 3.7 million in the financial year compared to 3.4 million in the previous year, representing a rise of 10 %. The development of the two Swiss P&I companies in Thalwil near Zurich (P&I Personal & Informatik AG) and Gland in western Switzerland (DESI S.A.) ran separate courses. While new customers continued to be acquired in the German-speaking part of Switzerland, especially with employee and management portal projects (LOGA erm), business in western Switzerland slipped back. This was partly attributable to the scheduled phasing out of the DESI S.A. payroll software, Safir. Combined sales for both companies in the financial year amounted to 0.8 million compared to 1.0 million in the previous year. The P&I strategy going to Europe with our customers continues apace with even stronger emphasis on partnerships. To add to our existing contacts in the Czech Republic, the Netherlands, Poland, Hungary, and Spain, we now have a partner in France. Our partners are generally responsible for the sales activities in each country, while our Spanish partner is also responsible for the development of the Spanish version of the software. P&I remains responsible for developing the other national versions and has integrated the necessary development capacities into P&I's subsidiary in Bratislava (Slovakia), founded in The main task of this development unit is to permanently upgrade the functionality of the individual national versions. P&I Group Sales: Despite the continuing decline in the IT market, in fiscal 2003/2004 P&I was still able to achieve an organic growth in of 5.2% to 40.1 million (previous year : 38.1 million). Customer restraint was most noticeable in the decline in sales of licenses, which was more than compensated for however, by an above-average rise in Consulting sales compared with the previous year. License sales declined by 17 % to 9.4 million in fiscal 2003/2004 (previous year : 11.3 million). Postponement of order placements affected sales in this area most strongly. However, in the final month of the fiscal year, incoming orders of over 6 million (comprising 4.6 million incoming orders for licenses ) were acquired, which was only slightly reflected in revenue recognition in March P&I goes forward into the coming fiscal year with a wholesome raft of orders on hand. Consulting income, which includes seminars and training courses, rose by 25% from the previous year's 11.1 million to 14.0 million. The increase in Consulting income was primarily due to the very high level of activity of our own Consulting employees, particularly in Human Resources Management Systems (HRMS) projects and the even seasonal distribution of work. Maintenance service income developed in relation to licence sales for the previous years, with a total revenue of 15.7 million (previous year: 14.4 million ) being posted, representing a rise of 10 % compared to the previous year. The result of an rise in maintenance income is a consequent increase in earning power, since the costs of maintaining the software remain virtually independent of the number of customers to be attended to. Maintenance income was invoiced in January for the whole of the 2004 calendar year and is shown at a quarter of its value in the operating results for the 2003/2004 fiscal year. The re- P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 8 from 51

9 maining nine months are accrued (deferred income), in other words, they are not included in sales. Thus at the end of fiscal 2003/2004, there is already ensured income of 11.1 million (previous year: 10.8 million) for the upcoming financial year. The contribution to sales made by Human Resource Management Systems dropped back to 16% of total sales after having risen in the previous year to 19% (through the major project in Lower Saxony). HRMS turnover amounted to 6.3 million in fiscal 2003/2004 compared with 7.4 million the year before. Sales from abroad rose only very slightly from 4.5 million to 4.6 million, accounting for 12 % of total sales. P&I Group sales in detail: Sales to third parties Fiscal 2001 / 2002 Fiscal 2002 / 2003 Fiscal 2003 / 2004 Share Share Share Sales according to category Licences 9, % 11, % 9, % Consulting 12, % 11, % 13, % Maintenance 12, % 14, % 15, % Other (incl. merchandise, ASP) 2,406 6 % 1,332 3 % 1,032 3 % Total 36, % 38, % 40, % Sales according to product line Payroll 29, % 29, % 32, % HRMS (Human Resources Management 4, % 7, % 6, % System) Other (incl. merchandise, ASP) 2,188 6 % 1,168 3 % 1,045 2 % Total 36, % 38, % 40, % Domestic/foreign sales Domestic 31, % 33, % 35, % Foreign 4, % 4, % 4, % Total 36, % 38, % 40, % 3. Events after the Balance Sheet Date In order to reduce administrative costs, DESI Développement et étude de systèmes informatique S. A., Gland, has been amalgamated with P&I Personal & Informatik AG Thalwil, retrospectively to 31 March Preliminary measures in preparation for the amalgamation have been carried out and the relevant decisions of the executive board responsible are now awaited. 4. Research and Development Fiscal 2003/2004 saw once again more than 20% of revenue from sales invested in Research and Development - going to further product development, updates for changes in P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 9 from 51

10 legislation and collective bargaining arrangements, and to the following new technological developments: a) The functionality of the personnel management software, e-persinf, which has proved particularly successful with large-scale administrative structures, has now been expanded to include time recording and management. Supplementary modules are integrated into e-persinf, with components for planning such as personnel requirements, personnel placements, deployment of personnel at short notice, and distribution of salary-related payments to employees. A pilot project with the police force in North Rhine Westphalia was followed by the Bavarian police force deciding in favour of our product, over all our major competitors. Burger King, the restaurant chain, and the building cleaning contractor Dorfner are also numbered among our clients. This supplementary module is fully web-capable - as is e-persinf generally. b) The LOGA software has penetrated further into the European arena with Greece and France now having been taken on. A second emphasis was on extending the personnel portal LOGA erm (employee relationship management). This application reduces personnel administration costs considerably, at the same time, significantly broadening the range of information available to management and employees. It is anticipated that in five years' time, every second business and every second large-scale public authority will be using an integrated software tool of this sort 5. Financing The P&I Group is distinguished by its solid equity capital base amounting to 54.6 % of total capital (previous year : 52.4 %). Liquidity (including of short-term security assets) was improved by 6.8 million to 26.1 million on the previous year. Loans from financial institutions were reduced from 3.0 million to 0.9 million in fiscal 2003/2004. By May 2004 the balance of these loans will have been repaid as well. 6. Personnel There were only slight changes in the number of employees over the period of the fiscal year, with the average rising to 239 full-time-equivalent employees (previous year : 236). There was a total of 275 employees at 31 March 2004 (previous year : 263). In Germany, an average of 206 people were employed by the P&I Group, while in the rest of Europe there were a total of 33 employees, the Company being represented most strongly in Austria, with 13 employees, and with 10 at the development centre in Slovakia. Most people were employed in the area of Consulting - a year average of 91 (39 %), followed by Research and Development with over a quarter of all employees (63). Sales and Marketing accounted for 53 positions, and 32 people provided administrative support for the P&I Group. The P&I group has an ongoing commitment to investment in training and further development for its employees. P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 10 from 51

11 B. Outline of the Situation 1. Financial Status P&I Personal & Informatik AG (Germany): Fixed assets fell from 21.4 million in 2002/2003 to 17.0 million in 2003/2004. The decline was primarily due to scheduled depreciation. Current assets, comprising receivables and other assets stood at the same amount as in the previous year: 7.0 million. Liquid funds including other securities, rose from 18.0 million to 24.1 million in 2003/2004, representing an increase of 34 %. Authorised capital remained unchanged at 7.7 million. Thanks to the positive operating result achieved in 2003/2004, equity rose from 25.7 million to 28.2 million. Turning to accruals, accruals for pensions increased from 2.0 million to 2.1 million. Other accruals saw a rise of 4.3 million to 5.3 million (incl. tax accruals amounting to 1.6 million compared to 1.1 million in the previous year). Liabilities amounted to 4.2 million (previous year : 5.5 million). The decrease was due to repayments of bank loans of 2.1 million. Payables amounted to 1.1 million. P&I Group: The capital assets for the Group are determined by the parent company. With an equity of 28.2 million and a balance sheet total of 52 million the P&I Group is in a favourable position. 2. Profit Situation P&I Personal & Informatik AG (Germany): The German P&I AG reported a positive result of 3.3 million on ordinary business activities before taxes, with net profit for the year amounting to 1.3 million. P&I Group: Group earnings are determined by the parent company. The necessarily heavy investment in building up a European group has certainly put pressure on results, but thanks to the successful performance of the German parent company, this fiscal year once again saw positive operating results after taxes for the Group, amounting to 2.4 million (previous year : 1.2 million ). 3. Outlook and risks associated with future development According to the latest market analyses, (ID, Garner, Meat Group, Forester, among others) the global IT market, and therefore IT budgets, will take about three years before starting to show growth. With this in mind, P&I Personal & Informatik AG is targeting a figure of around 10% for increase in sales for the coming fiscal year, aiming for the higher end of the organic growth rate achieved in the past few years. Nevertheless, the prime goal for P&I remains the improvement of the EBIT margin, which we aim to establish above the 10% level in the longterm. Meeting these targets in fiscal 2004/2005 is nevertheless based on the assumption of conditions over which the Company has little or no influence. International political events could dampen economic recovery and have a sustained, negative effect on the willingness of businesses to make investments, thus impacting on our business development in a way which is beyond our control. For risks which we can control, there is a company-wide riskmanagement system which provides early warning of critical developments. P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 11 from 51

12 In order to analyse these risks and set appropriate measures in train, a detailed and uniform reporting system has been set up group-wide, with which business processes can be measured, monitored, and controlled. The risk management process encompasses all activities of the business, proceeding systematically and continuously through the stages of identification, analysis, evaluation, control, documentation, and communication. The implementation during the previous fiscal year of the web-based risk management tool, "R2C" (risk to chance) has proved the worth of this procedure, which enables the active inclusion of all managers in the process of risk management. The following risks for example have been identified: Ongoing changes in legislation which on the one hand justify the high maintenance fees, also contain the risk of errors occurring in preparing payroll accounts which could lead to recourse claims by customers. Naturally, this risk is greater in foreign countries where P&I Personal & Informatik AG has gathered less experience so far. However, as the P&I Group acquires new clients, expanding its customer base in Europe, opportunities to build on experience are growing, while the risks are lessening. A basic problem area affecting all software companies, including P&I, is the availability of sufficient numbers of qualified staff. Although P&I can fall back on sales and consulting partners in this respect, a lack of qualified personnel could lead nonetheless to a loss of incoming orders and sales. The task, not only of recruiting new employees, but also of keeping them committed to the company, falls to management. Not so much 'risk' as 'opportunity', is the market positioning of our products. With our technologically attractive products for personnel management, payroll accounting and internetbased employee portals, P&I occupies an excellent market position in the public administration, service and industrial sectors, particularly in Germany and Austria. The high level of maintenance service, especially in the payroll accounting software area, is leading to more consolidation in the software industry, on the one hand, while on the other, owing to the complexity of the legal and wage-related requirements involved, it is making access more difficult for large foreign companies. In the coming fiscal year the P&I strategy going to Europe with our customers will be continued, above all, through the inclusion of France in the P&I family. Development of the French software version is practically complete and will enable us to focus on this important European market through our sales partners there. It should be mentioned that sales and income arising out of this incursion into the wider Europe are reported in Germany through the German parent company, and not in the respective country abroad. The combination of a solid maintenance basis, the orders on hand, and brighter economic prospects allows P&I to look ahead to the coming year with confidence. The targets we have set ourselves are achievable, even taking into account both foreseeable risks and those which we cannot always control. Should the premises on which our projections are based prove incorrect, we will have to be flexible and adapt to the changed conditions. With this in mind, we can lay the foundation for a further successful fiscal year for P&I Personal & Informatik AG. Wiesbaden, 6 May 2004 The Board of Directors P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 12 from 51

13 Annual Financial Statements for 2003/2004 Consolidated Financial Statements according to IAS Balance Sheet Annex 1 Balance Sheet 31 March March 2003 Prepared according to IAS Assets Long term assets Tangible assets 981 1,153 Goodwill 582 1,412 Customer bases 14,236 16,460 Other intangible assets 1,204 1,671 Investments Deferred tax Total long term assets 17,449 21,507 Short term assets Inventories Trade receivables 7,379 6,934 Cash and cash equivalents 19,618 19,285 Tax refund claims 479 Short-term security investments 6,500 0 Other short term assets Total short term assets 34,217 27,584 Total assets 51,666 49,091 Equity and Liabilities Shareholders' equity Subscribed capital 7,700 7,700 Capital reserve 18,351 18,351 Revenue reserve Other equity Net loss 2, Total shareholders' equity 28,221 25,726 Minority interest 0 0 Long term liabilities Deferred tax Pension obligations 2,139 1,965 Other long term liabilities Total long term liabilities 3,116 2,845 Current liabilities Other current liabilities ,169 Trade payables ,174 Tax obligations ,120 Other accruals ,057 Total current liabilities 20,329 20,520 Total equity and liabilities 51,666 49,091 P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 13 from 51

14 Income Statement Annex / / Sales (5) 40,105 38, Cost of sales (6) 12,772 11, Gross profit 27,333 26, Research and development expenses (6) 8,258 8, Sales and distribution expenses (6) 8,017 8, Administrative expenses (6) 3,879 3, Depreciation on goodwill/customer bases 3,054 2, Other operating income Other operating expenses (7) Result of operating activities 4,290 3, Taxes on income (9) Financing expenses (10) Result of ordinary business activities before tax 4,775 3, Tax on earnings (11) 2, Consolidated result 2,449 1,233 Average number of shares (12) 7,700,700 7,700,000 Earnings per share in euro (12) P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 14 from 51

15 Cash flow Statement Annex / / Cash flow from operating activities Operating result before taxes on income and interest and before minority interest (previous year) 4,290 3,191 Adjustment for the reconciliation of net income/loss to net cash provided by operating activities + Depreciation on tangible assets, intangible assets and financial assets 4,178 3,810 + Change in pension obligation Change in inventories, trade receivables and other assets not attributable to investing or financing activities 54-1,106 - Change in trade payables and other liabilities not attributable to investing or financing activities 601 2,246 + Losses from the sales of securities / - Changes in other items not affecting payments Funds received/paid for operating activities 5,022 5,236 - Interest paid Interest received Tax payments/refunds ,634 4,568 3,441 Net funds from operating activities 8,858 6,632 Cash flow from investing activities - Payments for investments in tangible assets Payments for the purchase of intangible assets Proceeds from the sale of tangible / intangible assets Proceeds from the sale of securities 566 4,202 - Payments for the purchase of securities - 6,500-1,763 - Sales of subsidaries less liquid resources disposed of (30) Received dividends 56 Net funds from financing activities - 6,412 1,750 Cash flow from financing activities + Receipts from taking out (financial) loans 2,046 - Repayment of principal on (financial) loans - 2,102-2,860 - Repayment of principal under finance lease agreements Net funds from financing activities - 2, Increase in liquid resources 333 7,493 Liquid resources at the beginning of the fiscal year 19,285 11,792 Liquid resources at the end of the fiscal year 19,618 19,285 Breakdown of funds at the end of the fiscal year Cash on hand and in bank balances 5,245 19,285 Securities 14, Cash and cash equivalents (19) 19,618 19,285 P&I Personal & Informatik AG Annual Report 2003 / 2004 Page 15 from 51

16 Development of Fixed Assets Annex 4 Acquisition and Production Costs Accrued Depreciation Net Book Value Additions Disposals Additions Disposals euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro Intangible assets Software 2, , ,500 1,204 1,671 Goodwill 2,601 2,601 1, , ,412 Customer bases 22, ,033 5,729 2, ,797 14,236 16,460 27, ,338 7,894 3, ,316 16,022 19,543 Tangible assets Factory and office equipment 2, ,806 1, , ,125 Fixtures , ,838 1, , ,153 Financial assets Long term investments Other loans , ,408 30,317 9,976 4, ,291 17,026 21,224

17 Consolidated Statement of Shareholders Equities Subscribed Capital Revenue Other Net Total capital reserve reserve Equity loss 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro As at 1 April ,700 18, ,423 24,438 Net profit 1,233 1,233 Offset of third party liabilities against reserves Currency translation effects Change in market value of financial assets held for sale As at 31 March ,700 18, ,726 Net profit 2,449 2,449 Allocation in legal reserve Currency translation effects Change in market value of financial assets held for sale As at 31 March ,700 18, ,259 28,221 P&I Personal & Informatik AG Annual Report 2003/2004 Page 17 from 51

18 Notes to the consolidated financial statements for fiscal year 2003/2004 GENERAL Commercial Register, Memorandum and Articles of Association and Corporate Object The Company is based in Wiesbaden and has been registered there at the Local Court in the commercial register, Department B, under No since 28 May The Memorandum and Articles of Association were concluded on 2 April 1998 and last amended on 4 September The corporate object for the Company and its subsidiaries is the creation, marketing and maintenance of software and the associated consultation and training of operators, as well as dealing in EDP equipment and software. In accordance with the Memorandum and Articles of Association, emphasis is placed on the human resources sector and information technology activities falling within this sector, such as programming, personnel databases, project management, personnel data graphics, image processing, procedure data processing, PPS, network control and special query language. In addition, the Company may undertake any business which furthers its corporate purpose. It may invest in companies active in the same or similar industry sectors and takeover their management. For the rest, the Company has the right to carry out any business and take any actions which directly or indirectly further the business object, in particular to set up branch offices, to conclude corporate agreements and to set up other companies at home or abroad or to acquire or invest in such companies and takeover their management. Since 1 January 2003, the Company s shares have been admitted for trading on the Prime Standard of the Frankfurt Stock Exchange. The Company s shares had previously been listed for trading on the Neuer Markt of the Frankfurt Stock Exchange since 7 July The address of the Company s officially registered office is: Wiesbaden, Kreuzberger Ring 56. ACCOUNTING AND VALUATION METHODS 1. PRINCIPLES OF FINANCIAL ACCOUNTING The consolidated financial statements have been compiled in euros. The consolidated financial statements as at 31 March 2004 for fiscal year 2003/2004 have been compiled in conformity with the International Financial Reporting Standards (IFRS) laid down by the International Accounting Standards Board (IASB). All International Accounting Standards (IAS) obligatory for fiscal 2003/2004 as well as the interpretations of the Standing Interpretations Committee (SIC) were taken into account. The Company has compiled consolidated financial statements for its release pursuant to 292a HGB (German Commercial Code). The requirements laid down in 292a HGB releasing the Company from the duty to compile consolidated financial statements in compliance with German commercial law have been met. The assessment of these requirements is based on German Accounting Standard No. 1 (DRS 1, Exempting consolidated financial statements pursuant to 292a HGB ) published by the German Standardization Board. To achieve the same standard as attained by consolidated financial statements that are compiled according to German commercial regulations, all the details and explanations required by German law and which go beyond the particulars required under the IFRS are published. P&I Personal & Informatik AG Annual Report 2003/2004 Page 18 from 51

19 German accounting regulations deviate from the IFRS regulations in several areas. Discrepancies occur particularly in relation to: - discrepancies in the valuation of accruals for pensions, - the capitalization of specific leasing items by the lessee (capital lease), - the capitalization of specific self-produced fixed assets, - discrepancies in the accounting and valuation of financial assets and liabilities, - the neutral offsetting of costs arising from the procurement of equity against equity capital, - reporting minority interests outside equity capital, - sales realization, - structuring the balance sheet according to the current/noncurrent method. The annual financial statements for the companies included in the P&I consolidated financial statements have been compiled as at the consolidated balance sheet date. Compiling the annual financial statements in accordance with the International Financial Reporting Standards has required the Board of Directors to make estimates and assumptions which affect the figures given in the assets and liabilities, in the notes and in the income statement. Actual results may differ from the estimates. Historic acquisition or production costs have been used in compiling the financial statements. Financial assets held for trading or available for sale are shown at market value in accordance with the valuation principles described below. The consolidated balance sheet and the consolidated income statement have been compiled in an aggregate form with close reference to the relevant reporting standards of the Deutsche Vereinigung für Finanzanalyse e.v. (DVFA) (German Association for Financial Analysis). Individual items have been combined for purposes of clarity; the items are explained in the notes. 2. PRINCIPLES OF CONSOLIDATION Consolidated Companies and Consolidation Methods In the consolidated financial statements for the 2003/2004 fiscal year, alongside P&I Personal & Informatik AG (P&I AG), six foreign subsidiaries and one domestic subsidiary have been included in which P&I AG has, directly or indirectly, a majority of voting power or with which a controlling relationship exists on the basis of other rights within the meaning of IAS 27 (referred to below as P&I Group). Capital consolidation is based on the acquisition method, whereby the purchase value of the investments is set against the proportional current value of their shareholders equity at acquisition date. Assets and liabilities are shown at their purchase price. The difference remaining on the asset side is shown as goodwill or as capitalized customer base and is written off on a straightline basis over a period of five to ten years. Initial consolidation comes into effect on that date on which P&I AG, directly or indirectly, assumes a controlling interest in the subsidiary. Figures relating to minority shareholdings are shown separately in both the consolidated balance sheet and the consolidated income statement. Intragroup gains and losses, sales, expenses and income as well as claims and liabilities existing between the consolidated companies have been eliminated. For those consolidation transactions affecting results, the income tax consequences are recognised and deferred taxes are formed. A list of the subsidiaries integrated into the consolidated financial statements is given in Note 35. P&I Personal & Informatik AG Annual Report 2003/2004 Page 19 from 51

20 Foreign Currency Translation The consolidated financial statements have been compiled in euros ( ). The functional currency of each member of the Group is the local currency of the country in which the company is based. Accordingly, assets and liabilities which are shown in foreign currencies in the balance sheets of foreign subsidiaries (except for shareholders equity) are translated into euros at the rate prevailing on the relevant cut-off date. The translation of income and expenditure is effected at the average rate for the quarter. The difference arising from the valuation of equity at historic rates and at the rate prevailing on cut-off date is shown as a neutral change in equity. Assets and liabilities shown in foreign currencies, and unsettled spot transactions are always translated at the rate prevailing on balance sheet date. Cash Flow Statement The cash flow statement shows how the funds available to the P&I Group changed during the course of the year under review through the inflow and outflow of funds. The effects of acquisitions/divestitures and other changes in the consolidated companies have thereby been eliminated. For the initial integration of subsidiaries, only the actual net cash flows are shown in the cash flow statement. The amount affecting liquidity arising from the purchase or sale of companies i.e. the purchase price less/plus funds acquired/disposed of with the company, is shown as an outflow/inflow of funds from investment activities. In conformity with IAS 7, cash flows from operating, investing and financing activities are shown separately. 3. PRINCIPLES OF ACCOUNTING AND VALUATION Sales The Company achieves sales by granting licenses for software products to end users. The Company also achieves sales from services such as consulting (technical and expert support of new customers on implementation of the software and support of existing customers), from maintenance services and from the sale of third party goods (merchandise). Sales are shown less VAT and after the deduction of cash discounts granted. Sales from granting licenses are considered realized once the software has been handed over, when the software has been installed at the customer s or the master CD has been delivered to the sales partner and the receipt of payment is considered sufficiently assured. Consulting sales are connected directly to services arising from implementation and installation which are effected on the basis of separate service agreements. Consulting and training sales are realized when the service has been provided. Should one license agreement include both software and service elements, these elements are clearly differentiated from each other. Services are not an essential component of software functionality and the software is not modified. Only installation in the customer s system and a menu-controlled adjustment to the customer s requirements take place. Sales realization for software and services are effected separately here. The agreed remuneration is divided in proportion to the market value of the individual components to each other. The share of software sales in technical installations is realized as if the software had been sold separately. Sales of services are realized in accordance with the service provided. Maintenance sales are accrued over the period of the maintenance service. P&I Personal & Informatik AG Annual Report 2003/2004 Page 20 from 51

21 Goodwill and Customer Base, Intangible and Tangible Assets Goodwill and capitalized customer base are attributed a useful life of five to ten years. Acquired intangible assets are shown at their purchase price and are systematically written down on a straight-line basis over their expected useful lives. Intangible assets arising from development activities are capitalized in accordance with IAS 38 only if (a) it is sufficiently probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and (b) the cost of the asset can be measured reliably. In the year under review these criteria applied to the LOGA property rights for the international version of LOGA. These property rights are written off on a straight-line basis over five years. For LOGA property rights, depreciation begins after completion of the respective localization process (adaptation of LOGA to local conditions in each country) and the start of its actual implementation. Costs of updating the software to take account of continuously changing legislation are posted by the Company to expenses as they are incurred. Other acquired intangible assets are systematically written off on a straight-line basis over their useful life which, as a rule, is from three to four years. In the follow-up valuation of intangible assets, the benchmark method is applied. Should the carrying amount exceed the estimated recoverable amount, non-scheduled depreciation is made on this amount in accordance with IAS 36. The recoverable amount of an intangible asset not as yet available for use is estimated at the end of the fiscal year. Tangible assets are always shown at their acquisition or production cost and are systematically written down on a straight-line basis over their estimated useful operating life of 2 to 13 years. In calculating depreciation, residual values have been ignored due to their insignificance. Fixtures are written off over the term of the lease or, if shorter, over their estimated useful life. The useful life for tangible assets is assessed as follows: Hardware 2-3 years Vehicles 5-6 years Factory and office equipment 4-13 years Should the carrying amount exceed the estimated recoverable amount, non-scheduled depreciation is made on this amount in accordance with IAS 36. On the sale or disposal of tangible assets, the relevant purchase price together with the related cumulative depreciation is removed from the relevant accounts. Gains or losses made on the disposal of fixed assets are shown as other operating income or expenses. Service and maintenance costs are posted to expenditure in the income statement. In applying IAS 17, leased assets which can be allocated to the Company as beneficial owner are capitalized and written down over their normal operating life. The liabilities arising from the leasing arrangement are correspondingly carried as liabilities and reduced by that part of the leasing rate comprising the redemption sum. Other leasing arrangements taken up by the Company are classified as operating leasing arrangements. The payments made are posted to the income statement on a straight-line basis over the term of the lease. Financial Instruments P&I Personal & Informatik AG Annual Report 2003/2004 Page 21 from 51

22 Financial instruments appearing in the balance sheet include liquid funds, securities held for sale, trade receivables, trade payables, other borrowed funds and finance leases. The individual accounting methods are explained under the relevant items, other details on financial instruments can be found in Note 29. Financial assets are classified as follows: financial investments to be held to maturity, financial assets held for trading and financial assets available for sale. Financial assets with fixed or measurable payments and set terms which the Company intends and is able to hold to maturity, excluding loans and receivables originated by the Company, are classified as heldto-maturity investments. Financial assets primarily acquired to generate a profit from shortterm price or rate fluctuations are classified as financial assets held for trading. All other financial assets, excluding loans and receivables originated by the Company, are classified as available-for-sale financial assets. Held-to-maturity investments appear under long-term assets in the balance sheet unless they are due within 12 months of balance sheet date. Financial assets held for trading are shown under short-term assets in the balance sheet. Available-for-sale financial assets are classified as short-term assets if they are to be realized within 12 months of balance sheet date. On initial recognition, a financial asset is shown at its acquisition cost which is the fair value of whatever was paid for the financial asset; transaction costs are included. Available-for-sale financial assets and those held for trading are subsequently measured at fair value without deducting any transaction costs that may be incurred and stating their quoted market price at balance sheet date. Gains or losses from the re-measurement of an available-for-sale financial asset to fair value are posted directly to other equity until the financial asset is sold, extinguished or otherwise disposed of, or until an impairment in value for the financial asset has been ascertained, so that the cumulative gain or loss previously posted to equity is at this time reported in net profit or loss for the period. Changes in the fair value of financial assets held for trading are reported in the financial results. Held-to-maturity investments are measured at their amortized cost using the effective interest rate method. Financial instruments are initially classified as either liabilities or equity, according to the commercial purpose of the underlying contract. Interest, dividends and gains and losses in conjunction with financial instruments which are classified as financial liabilities are recorded in the income statement under expenses or income. Dividends to holders of financial instruments classified as equity are deducted directly from equity. Where the rights and obligations regarding the manner of settlement of the financial instrument depend on the occurrence or non-occurrence of uncertain future events, or on the outcome of uncertain circumstances that are beyond the control of both the issuer and the holder, the financial instrument is classified as a liability unless the possibility of the issuer being required to settle in cash or another financial asset is remote at the time of issuance, in which case the instrument is classified as equity. Inventories Inventories are valued at the lower of their purchase price or their realizable net selling price at balance sheet date. The valuation of inventories is based on the FIFO method. Trade receivables Trade receivables and other receivables are always shown at their nominal value taking into account appropriate value adjustments. P&I Personal & Informatik AG Annual Report 2003/2004 Page 22 from 51