HALF-YEAR REPORT FOR THE P&I PERSONAL & INFORMATIK GROUP P&I strengthened by acquisitions first financial statements for the new sales category P&I Outsourcing Licensing sales under pressure due to year 2000 change-over After successfully completing the Initial Public Offer (IPO) in July 1999, P&I Personal & Informatik Group hereby presents its first half-year report. P&I specialises in the development and marketing of software for human resource applications. Stock market floatation in July 1999: The successful placement of P&I shares realised net issuing proceeds of DM 39 million. In addition, a further DM 11 million also flowed into the P&I Group, on account of a capital increase on the part of the existing shareholders during the IPO, meaning that a capital inflow totalling DM 50 million (without taking IPO-costs into account) has been posted for the first fiscal half-year. P&I s international presence expanded during the year through the purchase on 1 September of Profitcenter Lohnverrechnung from the SIS group, Vienna, as well as that of Swiss competitor DESI SA, Geneva, which belongs to the P&I business group since 1 October. These acquisitions have provided a reliable basis for P&I s objective to become profitable internationally in the foreseeable future. During the 2 nd fiscal quarter, a range of important customer projects could be successfully concluded: One of the largest internationally active business consulting companies has installed LOGA - with its interface to the personal management system Peoplesoft. A popular German TV broadcasting station now uses LOGA to calculate remuneration for its free-lance and staff members. The Federal Printing Office in Berlin has successfully implemented LOGA. The P&I Outsourcing sales category, which was presented in August, was very well received by the market. A renowned, internationally active business consulting company, and a large credit card company, have already been won over. Furthermore, in the future, the large-scale project, the city of Frankfurt, will be conducted in P&I s own computing centre. The P&I group achieved a turnover of DM 14.7 million during the past 6 months of the fiscal year. This corresponds to an increase of 6% compared to the same period the previous year. Whilst Licensing sales during the 2 nd quarter were strongly influenced by the buying restraint caused by the year 2000 change-over, P&I posted an above average increase in sales of Consulting services, which rose 80% from DM 3.2 million during the same period the previous year, to DM 5.9 million for this year. 1 April 1999 30 September 1999 Half-year report: P&I Group Page 1 of 10
Due to the envisaged high starting up costs for international operations, and increased personnel costs for new staff, the Pro Forma Result Group (without IPO-costs, writedowns on goodwill for acquisitions and special development projects) before tax and interest (EBIT) stood at minus DM 2.8 million, thereby, around DM 3.6 million below the result for the same period last year. As of now, P&I will post its reports according to the International Accounting Standards (IAS), after having previously balanced its accounts according to the US GAAP method. This does not entail any fundamental alterations in the use of accounting and valuation methods, whilst a comparison with results stemming from the previous year is possible. Operations developed for P&I during the 1 st fiscal half-year from 1 April 1999 to 30 September 1999 as follows: Comparison of annual operating figures according to IAS in million DM 1 st + 2 nd Q 99/00 1 st + 2 nd Q 98/99 Change (%) Group sales 14.7 13.8 6% Sales P&I AG, Germany 14.5 13.4 8 % EBIT, Pro Forma Result group - 2.8 0.8 EBIT, Reported Result group - 4.5 0.8 Total IPO costs 3.7 DVFA result (= EAT) - 2.4 Employees (BQU) 201 126 1 April 1999 30 September 1999 Half-year report: P&I Group Page 2 of 10
DEVELOPMENT OF SALES During the first half of the fiscal year 1999/2000, the P&I Personal & Informatik Group recorded an increase in group sales of 6% to DM 14.7 million, in comparison with DM 13.8 million during the same period last year. When compared, the sales increase achieved during the 1 st quarter of this year could not match that of the same period the previous year. This is mainly due to the restrictive stance of many interested parties, particularly those in the financial services and manufacturing sectors, in view of the year 2000 change-over in addition to the pricing pressure resulting from this, especially in the licensing sector. The civil service sector, IT branch and health sector are less affected by the Millennium-blockade. In Germany, sales increased in the first half of the fiscal year by 8%, from DM 13.4 million in 1998/99 to DM 14.5 million in 1999/2000. The sales categories Consulting and Licences account for a combined total of DM 10.3 million of total group sales. This corresponds to 40% and 30% of total sales. At DM 3.9 million, the share of the sales category Maintenance of total sales is 27%; the share of the sales category Third Party with KDM 483 is 3% of total sales. Growth of the repetitive sales category Maintenance amounted to 10% compared to last year, and thereby reflects the continual increase of installations in the Client/Server sector. Emphasis should be placed on the Consulting category, with a sales increase of 80% from DM 3.2 million to DM 5.9 million during the first half of the fiscal year. This sales growth has mainly been caused by the continual development of consulting services provided to established clients. This positive development provides an indication of intensive and satisfying client relations, and, simultaneously, confirms P&I s strategic focus on broadening its range of offers in the service sector. The wait-and-see policy of many interested parties because of the year 2000 change-over has negatively influenced Licensing sales during the last quarter, as it has throughout the branch, which is mirrored in a reduction in Licensing sales during the entire time period of DM 6.3 million down to DM 4.4 million. What must be taken into consideration here is that Licensing sales during the same period last year were particularly affected by the switching over of more than 70 ORBA clients to LOGA ; and that a similar effect due to a take-over was lacking this fiscal half-year. 87%, or sales of DM 12.9 million, were generated in the Payroll sector (payroll and salary calculations). 10% of sales were achieved with HRMS products (Human Resource Management Systems), in addition to 3% from Third Party operations. A rise in sales for the HRMS sector from DM 1 million to DM 1.3 million is particularly gratifying. 1 April 1999 30 September 1999 Half-year report: P&I Group Page 3 of 10
PRO FORMA RESULTS ACCORDING TO IAS The Pro Forma Result differs from the Reported Result in the positions Costs, Income from Interest and Taxes. The operative costs, reduced by the Project Expenses which are listed individually below, rose by 34% from DM 12.8 million during the previous year, to DM 17.2 million. IPO-Costs Additional costs of DM 3.7 million were incurred during the fiscal half-year as a result of the stock market floatation. According to the principles of IAS-accounting, the direct IPO-Costs (unavoidable costs of the floatation, such as, for example, expenses for legal advice, underwriting banks) or DM 2.7 million after tax, were set against the company s equity capital (Capital reserves); the indirect IPO-Costs (DM 1 million during the fiscal half-year, e.g. public relations expenses) are booked as expenditures in the profit and loss account. In calculating the Pro Forma Result, the total IPO-Costs were omitted from the profit and loss calculation, and, simultaneously, the additional income from interest amounting to KDM 150 resulting from the capital inflow due to the IPO and a capital increase prior to the IPO was included. International Companies Within the overall framework of a European expansion, expenses incurred for international companies have significantly increased during the past fiscal half-year, from KDM 775 during the previous year to DM 1.7 million. The expenses include half of the annual write-down of the Austrian acquisition s goodwill (setting-off pay for the SIS group). In addition, a further around KDM 200 in domestic costs were accrued in developing country-specific elements of the payroll and salary calculation software for international subsidiaries. These are starting up costs, which have resulted from P&I s additional activities in Holland, Austria and the Czech Republic. Therefore, the total cost for international activities, before adjustment in the Pro Forma Result, is DM 1.9 million. Acquisitions A further increase in costs was due to a writing down of goodwill as a result of acquisitions: hereby, the profit and loss account was burdened with costs of KDM 283, which were eliminated in the Pro Forma Result. Following the floatation, the operative business performance of the newly acquired companies only influenced the concern s performance to a slight degree during the fiscal half-year, as the new acquisitions were concluded on the 1.9. and 1.10.99. 1 April 1999 30 September 1999 Half-year report: P&I Group Page 4 of 10
Development Projects Furthermore, development projects, which will lead P&I products into the next technical generation, incurred costs of KDM 200 during the past fiscal half-year. P&I s purposeful and fortified engagement in these business domains has resulted in the profit and loss account being burdened, in total, with costs of DM 2.4 million in comparison with the same period last year. As a result, the P&I group has posted a loss after taxes of DM 1.7 million, compared to last years profit of DM 1.1 million. The Pro Forma Result for the group, presented at the conclusion of the 1 st business halfyear, excludes depreciation of company goodwill resulting from any of the following: acquisitions, IPO-Costs and expenses incurred by the Europeanization of the LOGA product, starting up costs from the development of products for the next technical generation and income from interest on inflowing capital from the IPO and a capital increase prior to the IPO as well as the tax incidence resulting from this. REPORTED RESULT The Personal & Informatik Group s operative costs during the first fiscal half-year came to a total of DM 18.9 million, compared with DM 12.8 million during the previous year. This corresponds to a cost increase of 48%. One reason for the rise in costs is an increase in personnel expenses. The number of staff (average employment quotient) rose by 60%, from 126 employees during last year to 201 during the same period this year. These are evenly distributed among the individual departments Consulting, Development, Sales and Administration; compared with last year, expenditure on personnel has increased by 58%. In addition, the increase in costs is also due to the business investments that have already been mentioned in the Pro Forma Result. In total, the P&I Personal & Informatik Group concluded its 1 st fiscal half-year with an operating loss (=EBIT) of DM 4.5 million, compared with last year s profit of KDM 847. The result according to DVFA gives a loss of DM 2.4 million, and corresponds to the result after tax (EAT), according to IAS. 1 April 1999 30 September 1999 Half-year report: P&I Group Page 5 of 10
OUTLOOK The substantial reduction in demand for international ERP software, caused by the year 2000 blockade, has also had an effect on P&I s licensing sales. An increase in turnover for the fiscal year of 5% is expected, compared with the previous year, with a possible loss after tax of up to DM 5 million according to DVFA (EAT). This sum corresponds to a Pro Forma Loss after tax of up to DM 3.7 million, rectified of the following positions: depreciation of goodwill acquired after the stock market floatation initial expenses for the Europeanization of LOGA products to a certain degree, starting costs for the development of next technical generation products financial income from inflowing capital resulting from the IPO IPO-Costs, as well as the tax incidence resulting from these. The integration of personnel and technology of the companies acquired in Austria and Switzerland during the previous quarter is in progress, and will fundamentally strengthen international operations as planned. By the end of the fiscal year, the Austrian LOGA software version will be completed, and therefore marketable, and the software that has already been established on the Swiss market will be able to benefit from decisive positioning advantages. During the integration process of REUSS Personalsysteme GmbH, a pre-planned, detailed study has concluded that the anticipated synergies in the development of Personal Management Systems cannot be realised as foreseen. Therefore, both buyer and seller have agreed to rescind the take-over, and to enter into a constructive marketing partnership instead. The business line P&I Outsourcing, which was introduced in August, has been very well received by the market. An increasing number of interested parties are requesting alternative offers: on the one hand, purchasing licences for in-house payroll accounting, and on the other hand, outsourcing of payroll accounting. P&I is constructing its own computing centre on the basis of the new technology, LOGA on the web. Some well-known clients have already been won over. Furthermore, in the future, the large-scale project, the city of Frankfurt, will be conducted in our computing centre. The founding of a subsidiary company for computing centre services is planned for the 3 rd quarter of the fiscal year. 1 April 1999 30 September 1999 Half-year report: P&I Group Page 6 of 10
The following additional measures have been implemented to improve performance: In order to improve sales efficiency, a more comprehensive structuring of sales, according to branches, will be implemented by the end of 1999. This is expected to achieve a further growth in technical competence on the part of sales representatives, and a shorter timespan for sales to be concluded. After the year 2000 change-over, P&I will press forward the introduction of the HRMS product (Human Resource Management System) to established clients who mainly use our Payroll Accounting System and present new tools for Data Analysis and Reporting. After the year 2000 blockade which is the root cause of our client s hesitation in offering contracts has passed, P&I again expects a significant rate of growth for the coming fiscal year, as well as a positive performance. The positive expectations for the company s future development are largely based on: Expectations of further sales contributions from international markets, especially from Austria and Switzerland Expectations of an increase in domestic demand for Licences, following the reticence of the past few months The enormous success of the sales category Consulting Wiesbaden, 22 nd of November, 1999 The Board P&I Personal & Informatik Kreuzberger Ring 56 D-65205 Wiesbaden Tel.: ++49(0)611.7147-211 Fax: ++49(0)611.7147.125 e-mail: aktie@pi-ag.com Internet: http://www.pi-ag.com 1 April 1999 30 September 1999 Half-year report: P&I Group Page 7 of 10
Profit and loss statement 1 April 30 September 1999/1998 According to IAS accounting methods Unaudited Unaudited Unaudited 1 Apr 30 Sep 1999 1 Apr 30 Sep 1999 1 Apr 30 Sep 1998 in KDM in KDM in KDM Reported Results Pro Forma Results Reported Results Sales 14,715 14,715 13,817 Cost of sales -6,604-6,604-4,227 Gross profit 8,111 8,111 9,590 Development costs -3,967-3,412-2,458 Sales and marketing costs -5,350-4,994-4,053 General administration costs -3,015-2,261-2,124 Other operating income 209 209-204 Other operating expenses -514-483 96 Earnings before interest and tax -4,525-2,830 847 Interest income and similar income 186 39 459 Interest expenses and similar expenses -41-41 -118 Profit / loss on ordinary activities -4,380-2,832 1,188 Taxes on income and yield 1,890 1,069-51 Minority interest 63 63 15 Annual profit / loss -2,427-1,700 1,152 The Pro Forma Result is rectified of: * Expenses of direct and indirect IPO costs * Expenses from depreciation of goodwill through acquisitions * Development projects for the Europeanization of LOGA, as well as Development of the next technical generation * Interest income on inflowing capital from the IPO and a capital increase prior to the IPO as well as the tax incidence resulting from this 1 April 1999 30 September 1999 Half-year report: P&I Group Page 8 of 10
Sales revenue 1 April 30 September 1999/1998 According to IAS accounting methods Sales by category Unaudited Unaudited 1 Apr 30 Sep 1999 1 Apr 30 Sep 1998 In KDM in KDM License 4,415 6,332 Consulting 5,890 3,269 Maintenance 3,922 3,541 Third Party 483 675 Other 6 0 Total 14,715 13,817 Sales by product line Payroll 12,857 12,124 HRMS (Human Resource Management System) 1,375 1,018 Third Party 483 675 Total 14,715 13,817 Sales from Germany / International Germany 14,537 13,425 International 178 392 Eliminations 0 Total 14,715 13,817 1 April 1999 30 September 1999 Half-year report: P&I Group Page 9 of 10
Capital flow statement 1 April 30 September 1999/1998 according to IAS accounting methods Unaudited Unaudited 1 Apr 30 Sep 1999 1 Apr 30 Sep 1998 in KDM in KDM Cash flow from ordinary activities: Quarterly profit / Quarterly loss -2,427 1,152 Adjustments for the transition of the quarterly result to revenue / (expenses): Write-down of fixed property assets 603 370 Minority interest -110 6 Tax deferment (assets - liabilities) -3,376-71 Allocations for pension reserve 221 20 Alterations to assets and liabilities: Trade debtors -481-2,125 Alterations to other assets -766 22 Trade creditors 610-59 Other allocations 127 1,184 Liabilities due to shareholders (short / long-term) -22-146 Liabilities due to banks 0 0 Pre Payments received 0 0 Defend Income from maintenance revenues -3,343-3,131 Tax provisions -93-454 Alterations to other liabilities -41-1,251 Account balance from company business activities -9,098-4,483 Cash flow from investments: Investments in intangible assets -63-17 Investments in tangible assets -415-285 Acquisitions -2,982-300 Purchase / sale of securities 201 210 Account balance from investments domain -3,259-392 Cash flow from the financing domain: "Pro Forma" earnings transfer 0 0 Cancellation of "Pro Forma" securities from previous year 0 0 Loans from third parties -292 0 Direct IPO costs -1,283 0 Capital increase 52,296 0 Redemption of leasing payments from financial leasing arrangements -42-28 Account balance from financing domain 50,679-28 Alterations to liquid funds and short-term investments 38,322-4,903 Liquid funds and short-term investments start of fiscal year 3,537 7,149 Liquid funds and short-term investments end of the period 41,859 2,246 Additional information: Payments made during the year for: Income tax 50 16 Interest 14 5 Nugatory account transactions: Investments in operational and company property from financial leasing arrangements 210 0 1 April 1999 30 September 1999 Half-year report: P&I Group Page 10 of 10