MORE VALUE ANNUAL REPORT 2005/2006 P&I PERSONAL & INFORMATIK AG

Transcription

1 MORE VALUE ANNUAL REPORT 2005/2006 P&I PERSONAL & INFORMATIK AG

2 Contents Summary of the Management Report 2005/ Business and Conditions 3 2. Financial Situation 8 3. Financial State of affairs Assets Risk Report Forecast Supplementary Report 22 AG Financial Statements for 2005/2006 according to HGB Balance Sheet 23 Statement of Income 24 Cashflow Statement 25 Development of fixed Assets 26 Notes 27 Legal Status 44 Audit Certificate 46 Report from the Supervisory Board 48

3 P&I Personal & Informatik Management Report (Group and Corporation) 1. Business and Conditions This management report contains information concerning the P&I Personal & Informatik group (P&I Group) and the P&I Personal & Informatik corporation (P&I AG). P&I Personal & Informatik AG is the parent company of the P&I Group and performs group leadership functions. Since P&I Personal & Informatik AG is a major part of the P&I Personal & Informatik Group, the Management Report of P&I AG is combined with that of the P&I Group. The respective details relate to the Group, unless P&I AG is expressly referred to. The Group accounts are prepared in conformity with the International Financial Reporting Standards (IFRS) while the financial statements for the corporation were compiled in conformity with HGB (German Commercial Code) Development in the Industry Sector and Economy as a Whole With a rise of 4.3 %, growth in the global economy in 2005 lay once again, according to the estimates of the International Monetary Fund (IMF), above the long-term average. Determining stimuli came from the USA and the Asia region. The individual economies in Europe showed distinctly weaker development in Gross Domestic Product (GDP) for the euro-zone grew according to Organisation for Economic Co-operation and Development (OECD) figures by a total of 1.4 % after 1.8 % growth in For Germany, the OECD expects a rise in GDP of 1.1 %. Even in 2004, there was an increase in productivity of 1.6 %. What held growth down was the weak domestic market, which had to be compensated for through higher export quotas. However, the assessment of the Kiel Institute for the World Economy was that there was a clear improvement in the German economy in the fourth quarter. The IT market grew faster than the economy as a whole. According to calculations made by the European Information Technology Observatory (EITO), world market volume for information technology and telecommunications (ITC) grew in 2005 by 4.2 %. Europe and the USA are the most important regions of this global market, each generating one-third of the total volume. Within the technology sector, particularly high growth rates are being seen in information technology. According to Gartner Research, the IT market in North America grew by 5.5 % and in the euro-zone countries by 3.7 %. The BITKOM (German Association for Information Technology, Telecommunications and New Media) assessment of the German IT market are that it has increased by 3.2 %, on a parallel with the previous year s growth. According to BITKOM analysis, 2005 saw growth of 4.5 %.in Germany in the software market for systems and application programs. Enterprises are more than ever challenged to accommodate new requirements and adapt to meet them efficiently. Therefore they need IT systems which are tailored to react fast and flexibly to changing market and business conditions. The goal in essence is to have systems which provide effective support to business processes and are therefore more efficient. Despite the high level of interest in modernizing IT structures, businesses are still holding back with their investment budgets. Return on investment is a deciding factor for companies when investing they want investment to create profit in a very short time.

4 P&I Personal & Informatik Management Report (Group and Corporation) 1.2. An overview of the fiscal year for the P&I Group Highlights By comparison with the overall growth rates described, the P&I Group achieved a very good company result of 9.8 million (EBIT) with sales growing by 11.0 % to 50 million. Very good company result in a difficult market environment - Total sales rose by 11.0 % from 45.0 million to 50.0 million, which meant that the P&I Group exceeded its own target. - The major engine of growth was software licensing business, with sales volume of 13.3 million. In comparison with the previous year this represents an increase of 9.2%. - Above-average growth rates were generated in software support and maintenance, with 19.1 million, sales exceeded those of the previous year by a good 14%, with about 3% due to acquisitions. - The higher volume of sales, in particular in the high-profit licensing and maintenance business, led P&I to surpass its own targets, boosting EBIT to 9.8 million ( %) in comparison to the previous year). - The P&I share price developed positively (Frankfurt trading floor).it opened on 1 April 2005 at a price of 9.60 closing on 31 March 2006 at This represents an increase of 75 percent Product and Market Strategy incl. Development. Key elements of this success were: a redesigned and successful product strategy, concentration on increasing sales - here in particular the increase of licence sales through a successful marketing strategy - and further improvements in efficiency. Successful product strategy: - On the basis of the new brand strategy, P&I was defined as a premium brand, designating and leading all products and solutions. The premium brand, P&I, is now central; the services performed and functionality are linked to P&I at a secondary level. These sub-brands at the secondary level make up the P&I brand family, each of which can develop to its full potential through its own character. The four subbrands: P&I LOGA as a payroll-linked solution, P&I HCM as web-based HR management solution, P&I PLUS as an HR management solution independent of payroll for the premium segment, and P&I SMART as a payroll-focused trademark for smaller enterprises. - With the finalized integration of time management into P&I LOGA and P&I HCM, P&I s product palette is complete. We can now offer customers a full range of solutions for HR work. With its unified software, based on the three key components - payroll accounting, HR management and time management, P&I can service the entire spectrum of core personnel management processes. - Aside from expanding the functionality of solutions, continuing development on the technological side has been successful.

5 P&I Personal & Informatik Management Report (Group and Corporation) More and more functionalities have been made available as web services, accessible by other applications used by customers. This makes integration of P&I software into other environments ever easier and offers customers the flexibility in their IT strategies that is demanded today. Web services relating to business processes within P&I HCM, the portal solution, have been heavily expanded. P&I stands wellequipped to deal with the current trend for software on demand. Research and Development The four strong P&I brands form the basis for sustainable development. With the LOGA, LOGA erm, e-persinf and LOGA smart products, P&I possesses a valuable portfolio of brands within the European software industry. With P&I SMART, P&I has separated off the lower part of its market segment. P&I is convinced that it can only maintain and expand its leading market position in HR management software solutions if it continues to develop its innovative products, and invests in new technologies. In general, P&I shows investments in further development of the software solutions directly in current expenses. Intangible assets arising from development activities are only capitalized if, among other things, it is sufficiently probable that the future economic benefits attributable to the asset will flow to the enterprise and that the cost of the asset can be determined reliably. These criteria apply to the P&I LOGA property rights. Research and development expenses for fiscal 2005/2006 amounted to 9.8 million, following 10.1 million in the previous year. This includes depreciation on the P&I LOGA property rights of 0.2 million euros (previous year: 0.8 million euros). Thus, 19.6 % of income was invested in research and development (further development of products and updates for changes in legislation and collective bargaining arrangements). The main focus was on the integration of the time management module. Here the issues focused on were: a unified, redundancy-free data model, a uniform user-interface and integrated administrator management. The process of integration has now been completed. It was not merely possible to place the fully integrated all-in-one solution with new customers, but P&I has also succeeding in replacing customers existing time management solutions with the new P&I module. In the year under review, P&I invested in: a) P&I LOGA Aside from the integration of time management, the new user interface was a focus for development. P&I sees a new user interface resembling Windows 2003 as an opportunity to exploit the continuing shakeout in the market and to replace old systems. But also among existing customers, the new user interface has met with a high level of interest.

6 P&I Personal & Informatik Management Report (Group and Corporation) b) P&I HCM The business logic of the web application P&I HCM was considerably extended in order to offer customers on the web as many of the familiar functions of P&I LOGA as possible. In addition to this, completely new functional areas were also integrated. For example, the newly-developed module for controlling the deployment of personnel for service providers and hospitals. Further developments in the self-service area were also continued with. c) P&I PLUS A time management component added to the successful HR management system P&I PLUS was refined and extended. In addition to the planning component in the deployment of resources for police forces and service providers in the facility management area, it has been possible, for example, to map all working hours models, from fixed shift rosters to flexitime accounting. d) P&I SMART The P&I trademark, exclusively marketed by dealers, distinguishes itself through its high level of efficiency, which stems from P&I LOGA. Through the extensive measures for preconfiguring the system, it has been possible, by relinquishing its capacity for flexibility, to make the software usable on a Plug-and-Play basis with the minimum amount of introductory effort. P&I s goal in pursuing these preconfiguration activities is to offer smaller scale enterprises a convenient, efficient solution, which can be implemented with practically no initial outlay of effort. Apart from guaranteeing the updates for changes in legislation, the P&I Group also will continue developing the entire product palette in future. Investments in the coming years will be focused on technological development of the software solutions of P&I LOGA, P&I HCM, P&I PLUS and P&I SMART. We will also concentrate on further equipping our products for standardization and optimization of business processes, by using, for instance, new add-on modules and also connections to external systems, especially in other European countries. The goal of P&I s product strategy is to take leadership in the technology market through the competence of our systems, offering innovative products and applications and expertise in design and systems. The P&I Group plans investments of the order of up to 20 % of sales in the coming years.

7 P&I Personal & Informatik Management Report (Group and Corporation) 1.4. Employees There were only slight changes in the number of employees during the fiscal year, with the average rising to 255 full-time-equivalent employees (due to acquisitions) (previous year: 246). As at 31 March 2006, there were 287 employees (previous year: 265). An average of 216 people over the year were employed by the P&I Group in Germany, with a total of 39 employees in the rest of Europe, the Company being represented most strongly in Austria, 19 people, and in Slovakia, with 14 employed at the development centre. Most people were employed in consulting. This personnel-intensive area accounted for 36 % of all employees, while close to one third of all employees (85) worked in Research and Development. Sales and Marketing accounted for 43 positions and 34 people worked for the P&I Group on the administrative side. The P&I Group has an ongoing commitment to investment in training and further development for its employees. The integration of the ZHS Group employees into the P&I organisational structure was effected immediately after the take-over on 1 April The employees joined the teams in the existing organizational units of Consulting, Development, and Administration and worked focusing on time management projects. Of chief importance in this process was the integration into the P&I product family of the software acquired. In November 2005, a trainee programme was begun, to train young employees in consulting. The many-faceted challenges in fiscal 2005/2006 demanded a high level of commitment from our employees. With their dedication and their strong identification with the organization, they made the sustained positive development of P&I possible Acquisitions/Significant Events in 2005 Acquisition On and with effect from 1 April 2005, P&I Personal & Informatik AG took over the ZHS Group, based in Wiesbaden by means of a notarized purchase agreement: P&I Personal & Informatik AG acquired all limited partner shares in ZHS Verwaltungs GmbH & Co. KG (Limited partnership). ZHS Verwaltungs GmbH & Co. KG holds all limited partner shares in ZHS Zeitmanagementsysteme Hard- und Software GmbH & Co. KG, which was created through the restructuring of ZHS Zeitmanagementsysteme Hardund Software GmbH on 10 March P&I Beteiligungs GmbH is a general partner to both companies, itself a 100 percent subsidiary of P&I Personal & Informatik AG. ZHS Zeitmanagementsysteme Hard- und Software GmbH & Co. KG creates, sells and maintains time management software, performing consulting and training services in this connection. It produces terminals for time recording. The ZHS solution AZEA includes time recording, personnel deployment, working time account management, operational data collection, and access control.

8 P&I Personal & Informatik Management Report (Group and Corporation) The purchase enables P&I to upgrade its LOGA Software to a complete solution for HR work. Up to now, P&I software has encompassed payroll accounting and HR management. Time management as the third core component of human resources management complements and rounds off the product portfolio. P&I has thus taken a logical step, given the trend in businesses and administrative bodies for subareas of personnel work to coalesce. Users are increasingly looking for integrated solutions which map the functioning of their HR departments seamlessly. Changes in the Supervisory Board: Mr Michael Schuster resigned from his seat on the Supervisory Board as from 22 November The Wiesbaden local court appointed Mr Klaus C. Ploenzke to the Supervisory Board at the request of the Board of Directors of the Company with effect from 22 November 2005, by the decision of 1 November The Supervisory Board elected Mr Klaus C. Ploenzke as Chairman and Mr Michael Wand as Deputy Chairman at its meeting on 29 November Dr Wolfgang Hanrieder completes the Supervisory Board. Dependency of P&I Personal & Informatik AG on IPCar Beteiligungs GmbH: Dating from the purchase of 61.3 % of shares in P&I Personal & Informatik AG by IPCar Beteiligungs GmbH on 17 June 2004, P&I Personal & Informatik AG is a dependent enterprise of IPCar Beteiligungs GmbH. The Board of Directors has prepared a dependency report for fiscal 2005/2006. This states pursuant to 312 Para. 3, German Companies Act (AktG), that in the fiscal year no reportable transactions took place. Ernst & Young AG Wirtschaftsprüfungsgesellschaft (auditors), Eschborn/Frankfurt am Main, have examined the dependency report and granted it an unqualified audit certificate. 2. Financial Situation 2.1. P&I Group: Sales development In the face of tough competition, the P&I Group increased sales in fiscal 2005/2006 by 11.0% to the present 50.0 million (previous year: 45.0 million). The increase in sales is accounted for by across-the-board growth in all sales categories, with an exceptional spike in product sales (licence and support /maintenance sales). A considerable proportion ( 8.3 million ) was generated through international business.

9 P&I Personal & Informatik Management Report (Group and Corporation) Increase in licensing sales The major engine of growth was again software licensing business, with sales volume of 13.3 million. The complementation of the product portfolio through the acquisition of the time management component on 1 April 2005 and its full integration into the P&I LOGA world, plus the success of marketing activities abroad, led to the increase of 9.2% on the previous year s sales % of Group sales were generated by the attractive licensing business. Current licence sales are an important indicator for the P&I Group, as licence sales are followed after a certain period by the regular annual maintenance. In the context of the important licensing business, P&I offers four product lines: P&I LOGA (incl. time management), P&I HCM, P&I PLUS and P&I SMART. P&I LOGA was the major contributor to the increase in licence sales with the new time management product and P&I HCM. Product sales rose markedly maintenance service income developed in relation to licence sales for previous years. In the fiscal year, revenue of 19.1 million (previous year: 16.7 million ) was posted, of which 0.6 million was accounted for by maintenance sales from the acquisition. Overall, this represents an increase of 14.4 % in comparison to the previous year. A climb in maintenance income results in increased earning power, since the costs of maintaining the software remain virtually independent of the number of customers to be serviced. Product income with attractive margins the amounts from licence and maintenance income rose in total by 12.2 % to 32.4 million. This means that almost 65 % of P&I s total sales derived from this product area. Increase of service income by 7.3 % Consulting income, which includes seminars and training courses, grew by 7.3 % to 16.0 million. The rise in consulting income was due to increase in personnel in the context of time management as well as the seasonally evenly distributed and very high level of activity of our own consulting employees. Sales according to division 2004/ /2006 Change Licence 12,164 13, % Consulting 15,031 16, % Maintenance 16,667 19, % Other 1,184 1, % Total 45,046 49, %

10 P&I Personal & Informatik Management Report (Group and Corporation) Share of the divisions of total sales in % Maintenance 38% Other 3% Licence 27% Consulting 32% Increase in sales in Germany and abroad Sales from abroad rose in absolute terms from 1.4 million to 8.3 million, accounting for 16.6 % of total sales. Playing a decisive role in this success were the large-scale projects in Switzerland and Holland. 2004/ /2006 Change Domestic 38,164 41, % Foreign 6,882 8, % Total 45,046 49, % Market position continues to strengthen P&I holds a special position in HR management systems providers market. P&I concentrates on the market segment of SMEs with between 250 and 5,000 employees. P&I plays a leading role in this market segment. SAP dominates for large enterprises, while for smaller enterprises there is a range of competitors such as S+P, Exact, HANSALOG, SAGE, Varial, Veda, etc. Consequently, from the large enterprise market segment, SAP is almost our only competitor attempting to use the logic of an all-in-one ERP solution to penetrate our market segment. P&I can counter this with its more comprehensive range of functionalities and its more competitively priced solution. In the smaller enterprise market segment, companies such as those mentioned above try to win market share from P&I through low prices. P&I can defend its position with a solution which is both more modern and with a more comprehensive functional range, as in most cases, other providers are offering outdated and non-integrated solutions. P&I thus finds itself in a sandwich position between different types of competitors occupying the upper and lower limits of the market segment. P&I is of course trying to penetrate the market segment of its competitors. In SAP s market, P&I has been particularly successful in the public administration area with P&I PLUS. For the smaller enterprise market segment, P&I offers the P&I SMART trademark.

11 P&I Personal & Informatik Management Report (Group and Corporation) Profit Situation Operating margin improves again Increases in sales, especially in the high profit product divisions of Licensing and maintenance, promoted the positive development of profit. On top of this, a policy of costconsciousness helped to further improve the operating result. Increase in costs for the P&I Group amounted to 1%, as against an 11% increase in sales. The operating result (EBIT) for the Group rose to 9.8 million. The margin for the operating EBIT stood at 19.6 %. Return on sales grew in the period under review from 7.5 % to 14.8 %. Overview of earnings figures In 000 euro 2005/ /2005 Operating result (EBIT) 9,782 5,229 EBIT margin 19.6 % 11.6 % Earnings before tax EBT 10,605 5,913 Consolidated result 7,395 3,381 Return on sales 14.8 % 7.5 % Return on investment ROI 11.5 % 6.0 % Earnings per share (in EUR) Share price as at 31 March Price- earnings ratio (P.E.R.) International divisions growth Group earnings are determined by the parent company and domestic business. For the first time, the foreign subsidiaries made a positive contribution to the Group EBIT. Following the companies in Austria (2003/2004) and in the Netherlands (2004/2005) the Swiss company has now been guided into profitable operation. On the one hand, the increases in the high-profit licensing business have had a positive effect on the operating result. A determining factor for the good result, however, is that having avoided operating risks, in this year, unlike previous years, there was no resulting negative impact on profits through, for instance, value adjustments, which were not necessary. In domestic and international business, earnings before interest and tax increased, by 2.4 million and 2.2 million respectively. EBIT according to geographical segment In 000 euro 2004/ /2006 Change Domestic 6,213 8,569 2,356 EMEA ,213 2,197 Total 5,229 9,782 4,553 The P&I Group generated an operating result after taxes amounting to 7.4 million (previous year: 3.4 million).

12 P&I Personal & Informatik Management Report (Group and Corporation) Earnings per share Earnings per share rose from 44 cents (2004/2005) to 96 cents in the year under review. Development in Sales and Orders Incoming orders (licences and consulting) for the fiscal year reached 29.8 million, 15% above the previous year s level. Of particular note is that the rise in incoming orders in the international field, with 5.7 million, represents 19.1 % of the Group s total incoming orders. Orders on hand (licences, consulting and maintenance ) improved, amounting to 31.5 million (previous year: 29 million). This includes future maintenance income of 18.3 million (previous year: 16.1 million) for the next 12 months P&I AG Business developments ran a positive course in the past year. Sales development Total sales rose by 15.8 % from 39.8 million to 46.1 million. This includes sales to third parties of 42.5 million, representing an increase of 14.6 %. Sales to 2004/ /2006 Change - third parties 37,073 42, % - affiliated companies 2,772 3, % Total 39,845 46, % The major engine of growth was software licensing business with sales volume of 12.4 million and an increase of 23.4 %. Sales realization after acceptance of completed work in a large-scale project has a particularly strong effect here. The highest contribution to sales was made by maintenance. With sales volume of 17.8 million (previous year: 15.9 million) this contributed 38.5 % to sales. The second strongest sales category was consulting with a contribution of 14.4 million (previous year: 12.9 million). With sales volume of 1.5 million, the remaining sales accounted for just under 3 % of total sales. Profit Situation Increases in sales, especially in the high profit product divisions of licence and maintenance promoted the positive development of profit. In combination with the increase in activities in progress and other operating income, earnings from ordinary business activities before tax could be raised from 3.8 million to 10.0 million.

13 P&I Personal & Informatik Management Report (Group and Corporation) Tax expenses were reduced through a reversal of tax accruals from previous years of 0.5 million, as a result of a company audit by the fiscal authorities. Earnings after taxes amounted to 6.7 million. 3. Financial state of affairs 3.1. P&I Group: Cash-flow development and liquidity situation P&I s positive income development resulted overall in an increase in liquid funds. The inflow of funds was, however, lower than that of the previous year. Due to the special effect of the dissolution of the pension commitments on the one hand and the increase in receivables on the other, inflow of funds from ongoing business activities declined. There were outflows of 2.2 million from investment activities in this fiscal year. These were occasioned by the amount paid out for an acquisition, the purchase of the Spanish P&I LOGA property rights, and additions of tangible assets for improvements to the infrastructure. Cash inflows in the comparable period year-on-year were accounted for by the sale of securities. Similar activities were not undertaken in the current fiscal year. In fiscal 2005/2006 no significant financing activities took place, whereas in the previous year, repayment of a bank loan was made. Net cash from 2004/ /2006 Change - operating activities 9,118 8,085-1,033 - investments 6,005-2,232-8,237 - financing Total 14,148 5,847-8,301 Growth of liquid funds and securities Liquid funds and securities rose by 5.8 million, amounting to 25.2 million at the close of the fiscal year. The Company s holdings of securities with an original term to maturity of more than three months amounts to 14.9 million. Their liquidation is possible at any time. Adding the financial investments, the total amount of liquid resources came to 40.1 million (previous year: 33.8 million). As before, there were no liabilities due to banks. 2004/ /2006 Change Liquid funds 19,393 25,240 5,847 Securities 14,395 14, Liquid resources 33,788 40,114 6,326 Share of total assets 60.0 % 62.2 % Gearing /Net borrowing % %

14 P&I Personal & Informatik Management Report (Group and Corporation) Financial management The P&I Group has regularly generated very high surplus liquidity. This surplus liquidity, when not used for investments, is held partly in bank balances and partly in marketable, available-for-sale securities. This is in line with the intention of our management, always to have the Company s full liquidity at our disposal, for investment purposes, for example. Investment in securities is only made in euros and the most financially sound investments, in order to exclude the risk of substantial fluctuations in value. The breakdown of cash and cash equivalents is set out in the notes to the financial statements and in the cash-flow statement. Financial instruments In the context of a loan taken out to finance the take-over of the IBM Payroll /400 division, the Company concluded an interest rate contract in the form of an interest swap, which expired on 4 July P&I AG Cash-flow development and liquidity situation P&I s positive income development resulted overall in an increase in liquid funds of 5.9 million (P&I Group: 5.8 million). The inflow of funds was however lower than that of the previous year. Growth of liquid funds and securities Liquid funds and securities rose by 5.4 million (P&I Group: 5.8 million), at the close of the fiscal year amounting to 22.1 million. Adding the financial investments held in current assets, the total amount of liquid funds came to 36.9 million (previous year: 31.1 million). As before, there were no liabilities due to banks. 2004/ /2006 Change Liquid funds and securities Securities Liquid resources Financial management & financial instruments Please refer to the details given under Assets 4.1. P&I Group: The P&I Group has increased its balance sheet total by 14.5 % from 56.3 million to 64.5 million.

15 P&I Personal & Informatik Management Report (Group and Corporation) The positive Group result has allowed P&I to strengthen its equity base. With an equity of 38.8 million and a balance sheet total of 64.5 million the equity ratio amounts to 60.2%. The worth of the P&I Group s long-term assets amounted to 12.7 million, thus recording in the year under review a decline of 0.8 million. Although there was a gross increase in fixed assets, due to the acquisition and purchase of tangible and intangible assets, this was offset by scheduled depreciation carried out to the amount of 3.3 million. There were no changes in the values for deferred taxes compared to the previous year. The increase in receivables of 26.7 % to 10.5 million is attributable to two factors: the increase in sales (11,0 %) and the extension of terms of payment agreements of up to a year for large-scale projects. The decrease of long term liabilities is in the main attributable to the dissolution of the pension commitments through an agreement with the beneficiaries. Deferred tax liabilities were reduced due to the acceptance of completed work in a large-scale project. Total short-term liabilities rose by 4.0 million to 25.1 million. Of this, 1.9 million was accounted for by accruals for tax, which as at 31 March 2006 amounted to a total of 3.1 million. This affects chiefly the parent company and is a consequence of the positive yearly result. Deferred income rose by 0.8 million to 13.6 million on the basis of the previous year s licence sales, which generate maintenance sales in subsequent years. At the close of the fiscal year, other short-term liabilities amounted to 6.7 million (previous year: 5.9 million). The increase in short-term liabilities is explained by the increased obligations from bonus and commission payments arising from the very good result, as well as obligations relating to the Stock Appreciation Rights programme. 2004/ /2006 Change Long-term assets 13,515 12, Short-term assets 42,791 51,741 8,950 Assets 56,306 64,457 8, / /2006 Change Equity 31,534 38,799 7,265 Long-term liabilities 3, ,054 Short-term liabilities 21,122 25,062 3,940 Equity and liabilities 56,306 64,457 8,151

16 P&I Personal & Informatik Management Report (Group and Corporation) Key data 2004/ /2006 Equity ratio 56.0 % 60.2 % Gearing % % Working capital 26,679 21, P&I AG The amount of fixed assets decreased from 13.9 million in 2004/2005 to 12.8 million in 2005/2006. The decrease was primarily due to scheduled depreciation. Countering this was the effect of the purchase of an investment. Current assets, comprising receivables and other assets, amounted to 8.7 million and rose in comparison to the previous year ( 7.6 million). The increase is chiefly accountable for by a rise in trade receivables. Liquid funds, including other securities, rose from 31.1 million to 36.9 million in 2005/2006, representing an increase of 18.9%. This increase was attributable to operating activities. Capital stock remained unchanged at 7.7 million. Thanks to the positive operating result achieved in 2005/2006, equity rose from 28.8 million to 35 5 million. The Company dissolved a company pension plan for two former members of the Board of Directors through an agreement with the beneficiaries on 31 March No pension commitments exist as at 31 March Other accruals rose by 1.6 million to 6.6 million (previous year 5.0 million). The major part of the other accruals is accounted for by accruals for employee costs. Liabilities, at 2.8 million, decreased in comparison to the previous year ( 4.0 million). 2004/ /2006 Change Fixed assets 13,938 12,830-1,108 Current assets 38,723 46,266 7,543 Accrued assets Assets 52,803 59,376 6, / /2006 Change Equity 28,793 35,452 6,659 Accruals 9,539 9, Liabilities 4,025 2,836-1,189 Deferred income 10,446 11, Equity and liabilities 52,803 59,376 6,573

17 P&I Personal & Informatik Management Report (Group and Corporation) Dividends At the next Annual General Meeting, the Supervisory Board and Board of Directors intend to propose a payout of a dividend of 3.00 per share. The dividend will have two components: one part, a one-off extra dividend from the repayment of a capital reserve of 18,780,000, and the other comprising approximately 50 % of the profits carried forward as well as of the annual profit 2005/2006 for P&I AG of 4,320,000. With 7,700,000 shares issued which are entitled to a dividend at present for fiscal 2005/2006, the sum to be distributed amounts to 23.1 million. The remaining net profit will be carried forward to new account. 5. Risk Report In the context of its business activities, P&I is exposed to various risks arising from, or attributable to not only ongoing operating activities but also to changes in external conditions. In order to be in control of these risks, while remaining open to chances which may arise for the Company, P&I has implemented a comprehensive risk management system which enables both early detection and analysis of risks and opportunities as well as having resort to appropriate measures. Risk management in the P&I Group P&I s risk management system comprehends both the parent company Wiesbaden and our foreign subsidiaries. The Group-wide precautions are controlled and monitored centrally from P&I in Wiesbaden. Here, risk reports are prepared, further developments in the risk management system initiated and standards for risk reduction applicable to the whole Group worked out. We are now in the third fiscal year where risk management has been supported by R2C ( risk to chance), a tool which enables the active involvement of all managers in all risk management procedures. As well as financial data, the risk management procedure encompasses all activities of the organization, systematically and continuously following through the steps of identification, analysis, evaluation, control, documentation, and communication. Through the use of this tool, the creation of risk inventories is possible in a formalized process where identified and new risks are classified according to type and evaluated according to their probability and the degree of damage they might inflict. Risks arising from economic conditions Apart from risks inherent in the economic situation, competition and market prices, as well as the risks associated with the legal framework, P&I also sees general technological risks as a basic source of risk. In the same way, product risk - for example in regard to island positioning, product stability or liability - are seen as general risks.

18 P&I Personal & Informatik Management Report (Group and Corporation) We endeavour to counteract these risks through continuing further development of our market-oriented product palette, and the high value we place on quality assurance, including intensive testing and continuous quality control measures. Risks arising from processes and value added Fluctuations and decreases in P&I s licensing business can affect service and maintenance income, which as a rule reflects the development of licensing sales after a certain period of time. A significant reduction in the proportional percentage of software licensing income in total income could have a considerably negative impact on business and thus on the assets, financial situation, and profitability of P&I. In P&I s corporate strategy accordingly, emphasis is laid on growth in software licensing business as opposed to other forms of sales, and has thus lifted the percentage share of software income of total income in the two previous fiscal years. P&I is confident of being able to continue this trend in the coming fiscal year. P&I generates a substantial proportion of its sales income from its large base of longstanding customers. Should these customers decide not to prolong maintenance contracts, take out new licences or conclude other contracts for further products or services with us, or reduce the scope of their existing maintenance contracts, the effect would be considerably detrimental to P&I;s revenues and profits. However, given P&I s sound business development in dealings with its long-standing customers, and its future-oriented technology strategy, which has earned the recognition of analysts and customers alike, this seems rather unlikely. Financial risks The Group is not subject to any significant credit risks. Liquid resources and securities are deposited/invested with banks or their investment funds. P&I generally follows an extremely conservative investment strategy in order to hedge the financial risk of long-term impairment of financial assets: One investment resulted because of the interest rate risk and credit risk in the time deposit accounts with a well-known financial institution (at least an A rating) with a short term to maturity. Owing to the very high level of funds and their availability at short notice, there is no liquidity risk for the Company. Trade receivables are measured on an ongoing basis in respect of their realizability and value adjustments undertaken if discrepancies are present. Trade receivables due from customers facing bankruptcy proceedings were fully written off for receivables of under 5,000. A 100% provision for doubtful debts is made if receivables are over 5,000 and reported in the bankruptcy proceedings. A 50% provision for doubtful debts was made for receivables from customers whose creditworthiness is in doubt. Payment risks are managed by means of prepayments, by obtaining assumption declarations for receivables from the official receiver or through information on creditworthiness in doubtful cases. The Group does not maintain any other forms of collateral security such as entitlements to securities etc. The Group does not face a significant

19 P&I Personal & Informatik Management Report (Group and Corporation) concentration of payment risks arising from one single contractual partner nor from a group of contractual partners with similar features. As P&I does not have any customers whose contribution to sales exceeds 10 %, credit risks do not endanger inventory. Legal risks As a corporation listed on the stock exchange we are subject to increasing risks which could conceivably lead to our no longer being in a position to comply with the many regulations and increasing changes in legislation. P&I counters this risk in that it draws up stringent, formal procedures and integrates any new or changed conditions into the organizational operation immediately. Risks from existing or new customer contracts are continuously monitored and measured. In developing new business activities, a considerable investment is made in building know-how regarding the implementation and control of the relevant contracts. Employee risks P&I is a specialist in standard software solutions for HR management. Accordingly, experts in these areas are also in demand with other software companies. In order to prevent our employees being poached we bind staff closely to the company through profit-sharing measures and offers of further training, and non-competition clauses. Further, we make sure that there several people in each of the essential areas who possess the requisite expertise for the independent continuation of work. In the period under review, none of the risks identified and quantified in the context of P&I s risk management system reached the threshold level established as an indication for the existence of inventory risk. The overview shows that the risks P&I is subject to are limited and manageable. No risks have been identified which could endanger the continuing existence of the Company, now or in the future. 6. Forecast 6.1. The economy and industry in the new FY The first forecasts are again for growth of four percentage points in the global economy The European Commission predicts economic growth of 1.5 % for the euro-zone, with the German Institute for Economic Research prediction for the German economic area being higher 1.7 % growth in GDP.

20 P&I Personal & Informatik Management Report (Group and Corporation) Larger budgets for IT will see growth taking off globally in The US market may develop at a faster rate growth of 5.5 % has been forecast (Gartner Research). The EITO is expecting market growth of 4.2 % with regard to the euro-zone. The upward trend is set to take hold in Germany as well, with the EITO seeing a possible increase of 3.6 % Expectations of the P&I Group and P&I AG P&I Group forecasts for the coming fiscal year are positive. As the parent company, P&I Personal & Informatik AG performs group leadership functions in the P&I Group and is a major part of the P&I Personal & Informatik Group. It chiefly determines the sales development and profitability of the P&I Group. The expectations of P&I Personal und Informatik AG are in the main the same as those of the P&I Group and differ only in respect of the impact of the business activities of affiliated companies. Its goal is the consolidation of its market position in the HR sector by strengthening its already leading market position in the Payroll and HR systems field; defending its market leadership in technology through systematic technological innovation; and expanding the acquisition of new customers. With our product palette continuing to expand, we provide support for the various industries at different stages along the value added chain. Accordingly, we can react swiftly to changes in the market. If, for example, demand is stagnating in the payroll area, we can aid the optimization of personnel resource control in the service provider industry and exert a positive influence on the success of the companies. With our products, we can support more and more of our customers processes. With our chief module Payroll, adapted for many European countries, an integrated solution comprising human capital management and time management products, our product range possesses significant unique selling points in the German market. The foundations have thus been laid for a steady increase in our market share and the resulting growth. In the coming years, we will continue to build on this advantage. Looking to the future development of P&I Group, we have developed clear concepts of how we can react with more efficiency, flexibility and speed to the requirements of an increasingly complex market: a flat hierarchy in our management high level of individual responsibility among the our employees and close interlocking of the individual areas of activity of our Company. The new organisation which arose out of the restructuring has led not only to strengthened relations with clients, but also to major synergy effects in our continuing software development. The close cooperation among software development, systems integration and consulting sections is invaluable in defining the products we present to the market.

21 P&I Personal & Informatik Management Report (Group and Corporation) From the numerous projects we operate with clients of all sizes and across all industries, we gather experience which has enabled us to better recognize current needs. However, even more important for us is the knowledge we gain with regard to future developments. For the future, we will be striving for even stronger product differentiation in comparison with the products of our competitors. The P&I Group has set itself a sales growth target of more than 5 % for the coming fiscal year, 2006/2007, to be achieved through organic growth. We will be focusing on boosting licence sales, aiming for a double-digit increase. Just as in the fiscal year just ended, we aim for growth in domestic business as well as in business with international customers. With time management in place, we see promising opportunities for increasing sales domestically and internationally. Our goal is not only to win over existing customers to this product. We also intend to exploit the clear competitive advantage that our integrated P&I software solution gives us over others in the market in order to gain new customers. P&I offers a software solution for all HR-processes and a product with cross-border application for payroll accounting and employee self management. Our aim is for the successful acquisition of new customers of previous years to continue in future, and so to achieve an expanded customer base and increased market share. The P&I Group is anticipating a healthier economic environment in setting targets, and expects that enterprises will be raising investment levels. Our top-priority goal however, has been and remains the improvement of the EBIT margin, which we aim to establish long-term above the 15 % level. In the medium term (3-5 years) the P&I Group is also expecting the steadily increasing sales which are associated with positive business development. The goal is organic annual growth of 5 10 %. The EBIT margin should establish itself near 20 %. The goal of P&I's strategy is to achieve an enduring increase in the value to our customers of our brands - by offering innovative and comprehensive products and applications, competent design and systems, and through the provision of excellent backup service. Our emphasis lies not on any one single module in our product development, but on business processes which the user, with the help of P&I solutions, can guide. Our service division is not alone in being highly customer-oriented. Bringing the expert quality assurance team into large-scale projects means that future developments will benefit from their direct hands-on experience to reflect market needs and user requirements more closely. With the approaching healthier economic environment, the benefits of our new strategic and organizational orientation will start to take effect. We see growth potential particularly on the basis of:

22 P&I Personal & Informatik Management Report (Group and Corporation) - the extension of our product by inclusion of the time management component. With the expansion of its software products through the addition of the time management component, P&I was able to chalk up a further competitive advantage in new customer acquisition. Not only that, but also the first replacements by P&I customers of another supplier s time management solution by the P&I product. - Changes in the ASP market. In the hotly fought-over ASP market, the software which outsourcers use in performing their services will play an ever greater role. Major international application service providers see the strong potential for using P&I software to win market share from established German outsourcers, with their out-dated solutions. P&I sees the ASP market as one of the strongest growth markets in coming years. P&I is confident of meeting successfully the challenges which will arise in fiscal 2006/2007. This confidence is founded on its strong market position, its strength in technological innovation, its comprehensive product portfolio, committed employees and the constant monitoring and improvement of internal processes. 7. Supplementary report No events of special significance occurred after balance sheet date. Wiesbaden, 15 May 2006 The Board of Directors

23 P&I Personal und Informatik AG, Wiesbaden Balance Sheet as at 31 March 2006 ASSETS EQUITY AND LIABILITIES euro 000 euro 000 euro 000 euro FIXED ASSETS EQUITY Intangible assets Subscribed capital Software Customer bases Capital reserve Revenue reserve Tangible assets Legal reserve 2 2 Other revenue reserve Other equipment, factory and office equipment Fixtures 12 2 Net Profit/Loss Financial assets ACCRUALS Shares in affiliated companies Accruals for pensions and other obligations Other loans Tax accruals Other accruals CURRENT ASSETS LIABILITIES Inventories Advance payments received Work in progess of which with a residual term of up to one year: 1,393,000 (previous year: 2,682,000 euro) Goods Payables of affiliated companies of which with a residual term of up to one year: 213,000 (previous yar: 40,000 euro) Trade payables of which with a residual term of up to one year: 944,000 (previous year: 562,000 euro) Receivables and other assets Other liabilities of which with a residual term of up to one year: 286,000 (previous year: 741,000 euro) Trade receivables of which from taxes: 277,000 (previous year: 423,000 euro) Receivables from affiliated companies of which relating to social security and similar obligations: 0,000 (previous year: 304,000 euro) Other assets of which with a residual term of more than one year: 1,000 (previous year: 1,000 euro) Securities DEFERRED INCOME Other investements Cash on hand and in Bank Balance DEFERRED INCOME