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

Transcription

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

2 2 P&I AG Contents FOREWORD FROM THE CHAIRMAN OF THE BOARD PRODUCTS AND SOLUTIONS FOR ALL INDUSTRIES INVESTOR RELATIONS COMBINED MANAGEMENT REPORT GROUP FINANCIAL STATEMENTS ACCORDING TO IAS BALANCE SHEET INCOME STATEMENT STATEMENT OF SHAREHOLDERS EQUITIES CASH FLOW STATEMENT DEVELOPMENT OF FIXED ASSETS NOTES AUDIT CERTIFICATE AG FINANCIAL STATEMENTS ACCORDING TO HGB BALANCE SHEET STATEMENT OF INCOME CASH FLOW STATEMENT REPORT FROM THE SUPERVISORY BOARD

3 Key figures and highlights P&I AG 3 Key figures acc. to IAS 2001/ / / / /2006 million euros Group sales Result before depreciation (EBITDA) Result before interest (EBIT) Consolidated result (DVFA/SG) Number of employees (average) Earnings per share (DVFA/SG) THE P&I GROUP IN FIGURES Significant improvement in results in fiscal 2005/2006 Growth in sales of 11.0 % for P&I boosts earnings before interest and taxes from 5.3 million euros to 9.8 million euros attaining an EBIT margin of 19.6 %. Proposal for payout of dividends At the next Annual General Meeting, the Supervisory Board and Board of Directors intend to propose distribution of a dividend of 3.00 euros per share. Integrated solutions portfolio for HR work from P&I Integration of time management into P&I LOGA / P&I HCM is now fully completed. Key figures to DVFA/SG 2001/ / / / /2006 Equity ratio 57.0 % 52.4 % 54.6 % 56.0 % 60.2 % Gearing % % % % % EBIT margin 5.3 % 8.4 % 10.7 % 11.6 % 19.6 % Return on sales 2.6 % 3.2 % 6.1 % 7.5 % 14.8 % Performance per employee ('000 euro) EBIT per employee ('000 euro) FINANCIAL SITUATION, PROFITABILITY AND PRODUCTIVITY

4 4 P&I AG Foreword Dear Shareholders, Dear Sir or Madam, After such a successful fiscal year, it is an easy task for me to address you in this foreword. Sales rose in comparison to the previous year by 11.0 % from 45 million to 50 million. The result is just as satisfactory. Year on year, Group earnings before interest and taxes (EBIT) grew by 87.1 %, from 5.2 million in the previous year, to 9.8 million. This represents yet another improvement in the EBIT margin from 11.6 % in the previous year to the present 19.6 %. The figures are confirmation of the strategy we implemented in the past fiscal year and which we will continue to pursue in the future. It is based on four cornerstones - firstly, short-term measures for improved efficiency. To achieve this, we monitor our behaviour with regard to our business objectives on a daily basis and react very fast when we see that something needs to be dealt with. In the fiscal year just ended, measures we took for example were focusing attention on licence sales in respect of the marketing process, and steadily raising our consultants level of involvement in customer projects. We want all of our employees to be absolutely clear of the extent to which their work builds P&I s success and they should ascertain for themselves whether uneconomic processes are occurring which should be avoided. Employee suggestions for improvements are always welcome they are also implemented forthwith if positively assessed by the respective department head. Targeted restructuring, in order to preclude areas where margins are weak or which are loss-making, is the second cornerstone. An instance of this is the organizational changes we made in Switzerland, where not only was a loss avoided in the same fiscal year, but a very encouraging trend in the result was apparent. Such measures are introduced on the initiative of the Board of Directors, as they involve more complex structures and procedures. The third cornerstone is our active product portfolio management. The scope of functions encompassed by our solutions must cover today what the market is going to require tomorrow. I refer to an example of this - the addition of time management to our range of concepts. We not only incorporated the ZHS time management solution when we took over the company. We also extended our P&I HCM portal solution to enable it to handle the issues of resource planning and control and personnel deployment on the basis of key business data. It is precisely this area of resource planning and control with flexibility in personnel deployment which we see as being the strategic motif of the future for HR work. Shorter

5 Foreword P&I AG 5 "P&I no longer thinks in terms of individual functions: it orients itself according to the HR processes of its users." innovation cycles and supply of goods and services according to demand require both flexibility in deploying personnel and the alignment of personnel costs to sales development. During the fiscal year just ended, the time management component exemplified this. In many new contracts, the fact that this important functionality was available was a deciding factor for clients when considering a payroll accounting solution, even if it was not ordered as part of the initial package. In deciding for our solutions, our customers gain the option of easily adding the module later - a unique selling point, which many new customers appreciate. We saw the same effect in the nineties, when P&I, as one of the first providers of payroll accounting systems, was able to offer the HR management module as an integrated component of its payroll accounting software. Finally, we come to the fourth cornerstone of our strategy assessing potential acquisitions. Company take-overs are an integral part of our growth strategy. Our aim in this is always that the company in question should strengthen P&I. This is not just a matter of sales; rather, we are more concerned that the acquisitions bring extra benefits extensions to our product portfolio, specialist knowledge or improvements in our chances on entering a certain market segment. The takeover of ZHS in the fiscal year just ended is an example of product portfolio extension - by time management - and of the gain of time management know-how by our employees. We were able to attain the goal we have consistently set for ourselves of achieving an above average increase in sales and profit. Double digit growth in both, given the economic conditions in the past fiscal year, was a feat we are proud of. For the current fiscal year, the economic situation is looking distinctly healthier. Not only abroad, but also in our principal market, Germany. The marked rise in willingness to invest, however, is leading to a change in behaviour in the market. Project volume today is distinctly smaller. Businesses are negotiating very tough price agreements and investing only in areas giving a return on investment. We have accepted this situation. Supported by our expanded sales and marketing organization, we are positioned to take on considerably more projects, realizing significant rates of growth overall despite sinking volume in individual cases. We are determined that our growth shall not be limited to the anticipated upward trend in the economy. Our goal is to see the positive economic environment as a very special challenge thrown out - to generate growth and to ensure that our rate of growth clearly overtakes the economic data. Today, P&I s organizational structure means we can take on these challenges and win. Our new, flat hierarchy enables us to act fast and efficiently. True, making decisions quickly does mean running the risk of not considering all factors and thus possibly reacting in error. We can live with this swift action is of greater importance to us than striving never to put a foot wrong. We would lose our dynamism if our work became routine. This leads me to our employees. I am proud to affirm how motivated and committed our people are. The dismantling of layers of hierarchy was linked to extensive delegation of decision-making powers. This has not only shortened reporting and decision-making paths, but also has given a massive boost to motivation and caused efficiency to rise significantly. We have achieved a great deal: the foundations for the continuing success of our business have been laid. Vasilios Triadis P&I Personal & Informatik AG CEO, Chairman of the Board

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7 Your partner for integrated HR solutions P&I AG 7 THE HUMAN RESOURCE MANAGEMENT METHODS OF THE FUTURE WILL BE BASED ON INTEGRATED SOLUTIONS. Differentiating between products and services is hardly even possible any more. The more comparable the offers become, the more customers make decisions exclusively on the basis of price. Companies ask themselves: "What distinguishes us from the competition?" "What justifies our prices in comparison with discount suppliers?" PEOPLE ARE WHAT MAKES THE DIFFERENCE. Employees and executive managers make a contribution towards the success of a company or a public authority every time they come into contact with customers and potential clients. Having the most suitable employee in the right position that is not just an accident: it is the result of human resource management. Strategically oriented human resource management is an entrepreneurial function of the first order. Personnel departments will evolve into business partners for corporate management and executive managers. They will not only control their own processes; they will also support the business processes of the entire organisation. For many companies, this is still a vision of the future. The prerequisite for realising that vision is for human resource managers to be relieved of the burden of administrative work, so they have room to breath for tackling the tasks of the future: personnel development and development of executive personnel, assessment as well as encouragement and support, recruiting and personnel retention, change management, personnel controlling and internationalisation. P&I supplies innovative instruments for these tasks. The integrated solutions encompass an international payroll accounting system for many European countries, personnel administration, human resource management, time management and resource control, as well as employee and manager portals. The individual modules are seamlessly interlinked. Data are structured in a standardised manner and stored centrally. Processes are handled with software support without exception and without interruption. Whereas human resource strategy is developed centrally for the company, the practical day-to-day work of personnel management is handled in a decentralised manner. Routine tasks, such as application procedures and seminar registrations, can be taken care of online between employees and their superiors without involving the personnel department. And once it has been liberated from some parts of administrative work, the personnel department has more scope for strategic functions. For example, by using the software of P&I, the personnel department can support managers competently and promptly. Managers get up-to-date information about their staff quickly, for example because they can access the personal HR records of their team via PC, including the development of remuneration and performance, supplementary training and competence areas. With respect to resource and personnel cost planning, the software handles the complex co-ordination between required and available resources. For the purpose of cost planning, the personnel department makes actual-versus-target comparisons and personnel cost extrapolations available to managers by means of the P&I software. Personnel reports for the management can be prepared ad hoc.

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9 Your partner for integrated HR solutions P&I AG 9 INNOVATION THROUGH EXPERIENCE The history of P&I goes back as far as the year P&I has evolved together with the IT sector. In the process, we have amassed an incomparable wealth of experience. But we do not simply lean back and rest on our laurels. P&I is committed to continuous innovation. Today P&I is fully prepared for the triumphant advance of web technology in conjunction with standard software solutions for business management. The employee and manager portal, P&I HCM, is a step in that direction. Web services, which have been successfully implemented several times in this business year, represent another step. They allow users to incorporate P&I solutions into flexible software architecture contexts. The year 2005 was marked by the completion of the functions of our solutions for human resource management. The time management component is now an integral part of the P&I software, in addition to payroll accounting and human resource management. The advantages for users are tremendous: interfaces and separate solutions have become superfluous. Many customers are already taking advantage of the expanded product offer and have been replacing their existing island solutions for time management. At the beginning of the year 2006, P&I presented another innovation. The software user interface of P&I LOGA was completely modernised. Users can navigate even more conveniently within the solution, which has been adapted to conform to the design of Office 2003.

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11 Your partner for integrated HR solutions P&I AG 11 SOLUTIONS STRAIGHT FROM THE SPECIALIST P&I is a specialist for human resource management software. Its solutions offer a scope of functions that is unequalled. But what really characterises a specialist in particular is a precise knowledge of processes. There is a demand for process-oriented solutions. For the P&I service offer this means: all human resource management workflows are mapped in one integrated application. Users do not have to manage interfaces or in the case of comprehensive analyses - resort to several data sources that have to be linked manually. P&I advises its customers as to how they can design workflows so they are as simple and efficient as possible, with the aim of lowering process costs and becoming an even better partner for the company's specialist departments and the management. In order to be able to cover various different requirements, P&I offers four product lines, which can be combined with each other as needed. A solution can be offered to every company - no matter what the size or business sector - in accordance with the principle of "mass customisation", which means: P&I supplies standard software that can be individually adapted without any additional programming. Users can implement many adaptations themselves independently, without consulting IT departments or consultants. In this way, P&I can supply solutions that are a perfect fit, easy to manage and maintain and economically efficient as far as day-to-day operations are concerned.

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13 Your partner for integrated HR solutions P&I AG 13 P&I YOUR PARTNER FOR INTEGRATED HR-SOLUTIONS IIn September 2005, P&I launched a market presentation with a new design and a new brand concept. Very fundamental considerations are behind the new market presentation: because the P&I solutions had been evolving for many years and increasingly more modules had been added, the product offer had gradually become somewhat confusing. For this reason, the range of products was restructured and divided into four product brands, which are encompassed under the umbrella of the P&I corporate brand. With the new brand names, the primary focus is no longer on individual functions, but rather on orientation of the solutions according to the processes of users. P&I LOGA P&I LOGA is the comprehensive solution for payroll accounting in Europe, human resource management and time management. It encompasses all human resource management processes and handles them in an integrated manner. P&I HCM P&I HCM supports Human Capital Management with web-based processes. Employees and managers are provided with self-servive options, with which they can make use of the functions of P&I LOGA that are necessary for their daily work via PC. P&I PLUS P&I PLUS is the web-based human resource management solution that fulfils high standards with regard to process design flexibility. It is primarily utilised in large companies and public administrations with highly individual requirements. P&I SMART P&I SMART is an "all-inclusive" package specially geared to companies with up to 250 employees. The software encompasses the basic processes of personnel work: payroll accounting, travel expense accounting including time management as needed.

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15 Your partner for integrated HR solutions P&I AG 15 MAZDA MOTOR EUROPE EVERYTHING FROM ONE SOURCE Europe is moving closer and closer together. So it is all the more important to establish internationally compatible HR processes in the area of HR management. Mazda Motor Europe in Leverkusen, the head office administration for all European sales organisations and for the development centre near Frankfurt, has addressed this challenge by implementing the integrated P&I LOGA solution. "Because of our European orientation, we require a solution that can be deployed internationally for strategic personnel work," says Bruno L. Müller, Vice-President Human Resources Europe. One of Mazda's important objectives is efficient personnel reporting. It is only possible to compare and combine information and make use of it for decision making, if the reports of the individual company locations are structured in a uniform manner. Mazda has laid the foundation for efficient personnel work through the introduction of the personnel administration modules. Applicant management was a top priority, in order to be able to sift out the best candidates from among the numerous applications. Payroll accounting already started real production four months after the commencement of the project. The next step was to address the position plan issue. One special demand placed on the module was that a number of employees had to be allocated to Mazda Motor Europe GmbH as well as to Mazda Motors (Germany) because of the matrix organisation. Last but not least, personnel development is controlled with P&I LOGA, for example by means of a system used for personnel assessment and management of target agreements. The integrated time management module has replaced the existing island solutions. Today, working time accounts are managed efficiently in co-ordination with payroll accounting. The introduction of the employee portal in particular has generated extremely positive response among the staff of Mazda. All 450 employees in Leverkusen and Oberursel are connected to the portal and, for example, they can view their payroll accounting statement online. Thus, the entire staff of Mazda has benefited from the portal solution. Employees are provided with fast and uncomplicated access to their personal data and can apply for changes at the right time. At the same time the HR service department can achieve an increase in efficiency.

16 16 P&I AG Your partner for integrated HR solutions GENERALI (SWITZERLAND) HOLDING GETTING A GRIP ON COM Previously, at Generali Holding in Switzerland, account settlement for in-house employees and field sales representatives necessitated the utilisation of two separate systems. As a result of the introduction of P&I HCM Webservices, it has become possible to combine all of the existing remuneration systems for field sales representatives and in-house staff and thus to greatly simplify the accounting process. For the new system makes it possible to rapidly access all of the required services of P&I LOGA. Webservices can exchange information with other applications in real time. The user works with one user interface, from which he initiates the socalled services in order to access data. The user does not even notice that the various applications are communicating with each other behind the scenes. This requires Webservices, which P&I incorporated into its service offer in At Generali, they serve to interlink the previously separate systems for commission accounting for in-house staff and field representatives and to simplify account settlement. The insurance group, which has roughly 2,000 employees in Switzerland, has been working with P&I LOGA for payroll accounting since However, several administration solutions - which were operated independently of the remuneration system based on P&I LOGA - play a role for the determination of remuneration for sales associates. A central sales system encompasses the commission calculation system and commission processing. An analysis system ensures that the data are collected for accounting purposes. The great challenge was to ensure that the personal data required in those

17 Your partner for integrated HR solutions P&I AG 17 PLEX COMMISSION SETTLEMENT systems was always maintained with an identical content status. The administration solutions were provided with personal data via a master record administration function. Since September 2005, P&I HCM Webservices have been used to ensure that the data is always identical to the accounting data in P&I LOGA. This allows the employee data to be synchronised in real time. That significant milestone was achieved in September. Generali soon started exploiting the potential of its personnel software even further. The applicant management module of P&I LOGA was implemented for the office sales department. And as of the beginning of the year 2006, payment of all salaries and remuneration components has been handled via P&I LOGA. The sales employees and representatives are no longer aware of how complex the accounting processes in the background really are.

18 18 P&I AG Your partner for integrated HR solutions FEDERAL MOGUL MASTERING THE CHA

19 Your partner for integrated HR solutions P&I AG 19 LLENGE OF ERA The conclusion of the ERA collective wage agreement confronted those responsible in the metal and electrical industry with major challenges. Federal Mogul, which specialises in friction-type bearings, is banking on P&I LOGA in order to make the switch-over as simple and reliable as possible. In addition to payroll accounting, the HR software integrates the areas of human resource management and time management completely and offers support at every level of implementation. The friction bearing specialist, which has 1,800 employees in Wiesbaden and 46,000 employees worldwide, has been handling payroll accounting for the wages and salaries of its employees in Wiesbaden with P&I LOGA since "When we introduced the HR software of P&I more than 20 years ago, we were already very impressed by the modularity and the flexible deployment of the system," remarks Peter Keßler, who is responsible for the Personnel area at Federal Mogul. "Because the system has always worked in a stable and extremely reliable fashion in past years, we were convinced that it would also contribute towards reducing the burden of work involved in implementing ERA." At the beginning of 2005, negotiations about the necessary special plant agreements were initiated with the works council. The second step was to prepare workplace descriptions for blue collar workers and white collar employees. After that, in order to be able to classify the employees, the personnel department used the wage level examples stored in P&I LOGA as a basis and came to an agreement with the works council on allocation to the respective remuneration groups. In addition, time-related remuneration, performance-related remuneration and hardship allowances were decided on jointly and stored in the software. The defined functions were allocated to the workplaces in the Position Plan module. The wage agreement allocation was effected automatically. For payroll accounting, P&I LOGA automatically takes all relevant remuneration components into consideration. In order to determine the performance-related remuneration, Federal Mogul makes use of employee assessments. Criteria such as work performance, responsible action, quality, co-operation and leadership behaviour are evaluated using a point system and subsequently result in a performance-related remuneration component. The wages have been paid out on the basis of the new collective wage agreement since January The switch-over was accomplished in an uncomplicated manner. All payroll account statements are prepared correctly. The system works reliably and - in the meantime - the employees have fully accepted the new remuneration system.

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21 Your partner for integrated HR solutions P&I AG 21 WIRTSCHAFTSBETRIEBE DUISBURG WELL-EQUIPPED FOR THE FUTURE In the future, the introduction of the TVöD collective wage agreement will open up a new scope for creativity for employees in the public sector and will offer them attractive development prospects. Regular performance assessments and target agreement discussions are the prerequisite for implementing the new regulations. As a result of the introduction of P&I LOGA, Wirtschaftsbetriebe Duisburg now has a suitable tool at its disposal for implementation of the guidelines of the TVöD collective agreement. Wirtschaftsbetriebe Duisburg is a type of municipally owned operational enterprise belonging to the City of Duisburg. Its activities encompass waste disposal, urban cleansing, the municipal sewer system and green space management, for example. TVöD, the new collective agreement for the public sector, applies to its 1,630 employees. The provisions foresee the payment of performance-related remuneration components as of In 1996 and in 2004 there were already attempts to reward additional work performance by way of service agreements. In the process, an assessment system was developed, and that has now become the basis for the implementation of TVöD. Wirtschaftsbetriebe have been utilising the web-based P&I PLUS solution since 2004 in order to manage the assessment system. Members of the personnel area developed an information system that is specially tailored to the requirements of Wirtschaftsbetriebe. In order to prepare the masks, the project group initially documented the work processes of the personnel area. After that these were mapped in the software. In order to ensure that individual assessment results are easy to interpret, a mask was created for the assessment criteria and the results, which is then supposed to be utilised by management personnel. "In the future we want to decentralise personnel work and integrate department managers into the system by means of role-based authorisations," says project manager Achim Weifels. In order to ensure fair and uniform assessment, a standardised evaluation questionnaire was developed for all blue collar employees at Wirtschaftsbetriebe Duisburg. The questionnaire contains ten attributes for which it is possible to achieve up to two points. Jürgen Kreitz, who is Commercial Managing Director of Wirtschaftsbetriebe Duisburg, is looking forward to the future of the assessment system with optimism. "As a result of the introduction of a steering instrument, we have come a great deal closer to realisation of the TVöD collective agreement for the public sector." The next step on the agenda will be the introduction of the assessment system for white collar workers as well.

22 22 P&I AG Investor Relations THE P&I SHARE ISIN & Trading Segment Number of Shares and Category DE in Prime Standard (FWB), Exchange Code: PUI 7.7 m no-par-value bearer individual share certificates Shareholder Structure % IPCar Beteiligungs GmbH (as at 14 October 2004), 5.35 % Axxion S.A. (as at 30 December 2004), remainder: diverse shareholders Designated Sponsors Seydler AG (Frankfurt), DZ Bank AG (Frankfurt) till June 2005 Market Capitalization m euros (Record Date 31 March 2006) Year's high/low (Ffm.) euros (27 March 2006) / 9.05 euros (16 May 2005) ACTIVITIES AND TAKE-OVER P&I Personal & Informatik AG took over the ZHS Group based in Wiesbaden with effect from 1 April 2005: With the acquisition, P&I gained 100 per cent of shares in ZHS Verwaltungs GmbH & Co. KG (limited partnership). This in turn holds 100 per cent of ZHS Zeitmanagementsysteme Hard- und Software GmbH Co. KG. The ZHS-Gruppe generates annual sales of approximately two million euros. CEO Vasilios Triadis explains the rationale for the take-over as part of P&I s growth strategy. The goal is further development of the company s position in the human resources software solutions market. P&I sees time management as a area of growth potential. Through the acquisition, P&I has been able to develop the P&I LOGA software as an all-in-one solution for HR work. Previously, P&I software encompassed payroll accounting and Human Resources management. Time management as the third core component of human resources management complements and rounds off the product portfolio. P&I had already announced an increase in the annual profit for 2005/2006 on 2 March Group earnings before interest and taxes (EBIT) would rise by the end of fiscal 2005/2006 by 0.5 million to at least 7.5 million. The reason for this is the dissolution of all pension commitments to former members of the Board of Directors through an agreement with the beneficiaries. Further improvements from operating activities are possible, though this is as yet not confirmed. P&I announced provisional financial figures on 16 May 2006, which were confirmed on 31 May Earnings before interest and taxes (EBIT) of 9.8 million euros for fiscal 2005/2006 (1 April 2005 to 31 March 2006) (previous year: 5.2 million euros), an increase in the EBIT margin from 11.6 % in the previous year to the present 19.6 %. and in earnings after tax (EAT), an improvement from 3.4 million euros to 7.5 million euros, with profit per share amounting to 96 cents. In addition, it was announced on 31 May 2006 that the Supervisory Board and Board of Directors have decided to propose a dividend distribution to the Annual General Meeting for the first time. ANNUAL GENERAL MEETING The fifth ordinary Annual General Meeting of P&I took place on 6 September 2005 with more than 100 attendees in the Wiesbaden Casino reception centre. The shareholders voted 100 % in favour of all agenda items in agreement with the Board of Directors and the

23 Investor Relations P&I AG 23 Supervisory Board. Of the Wiesbaden company s capital stock of 7,700,000, 5,500,244 or per cent was represented. Proposals put forward by the management included in particular a share buyback scheme and several amendments to the Memorandum and Articles of Association. The focus of the changes lay on the conversion from tied to distributable capital. The goal of this measure is, according to the details given by the Board of Directors, to open up options - such as for the take-over of competitors, the repurchase of shares or the distribution of dividends to shareholders. The acts of the Supervisory Board and Board of Directors for fiscal 2004/2005 were ratified with near unanimity PUICY 174,85 Prime All Share 130,57 TECDAX Performance 137, SHARE PRICE DEVELOPMENT APRIL 2005 TO MARCH April Mai Juni Juli Aug. Sept. Okt. Nov. Dez. Jan. Feb. März Source: Bloomberg P&I shares closed on 31 March 2006 at Euro16.80 after having closed on 31 March 2005 in the previous fiscal year at a price of Euro This represents an increase of 75 percent. P&I shares have thus developed positively subsequent to the take-over in fiscal 2004/2005 and have been consistently claimed by the market.

24 24 P&I AG Combined Management Report 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). 1.1 DEVELOPMENT IN THE INDUSTRY SECTOR AND ECON- OMY 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 onethird 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

25 Combined Management Report P&I AG 25 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. 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 Euro 50 million. Very good company result in a difficult market environment 1.2 AN OVERVIEW OF THE FISCAL YEAR Total sales rose by 11.0 % from Euro 45.0 million to Euro 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 Euro 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 Euro 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 Euro 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 Euro 9.60 closing on 31 March 2006 at Euro This represents an increase of 75 percent.

26 26 P&I AG Combined Management Report 1.3 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 sub-brands: 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. 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 well-equipped to deal with the current trend for software on demand.

27 Combined Management Report P&I AG 27 Research and Development The four strong P&I brands form the basis for sustainable development. With the P&I LOGA, P&I HCM and P&I PLUS 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.

28 28 P&I AG Combined Management Report 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. b) P&I HCM 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. c) P&I PLUS 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. 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.

29 Combined Management Report P&I AG 29 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. 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). 1.4 EMPLOYEES 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

30 30 P&I AG Combined Management Report 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. 1.5 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. 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 comple-

31 Combined Management Report P&I AG 31 ments 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. 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). 2 FINANCIAL SITUATION 2.1 P&I GROUP A considerable proportion ( 8.3 million ) was generated through international business.

32 32 P&I AG Combined Management Report 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.