Quarterly Report as at September 30, 2008

Transcription

1 Quarterly Report as at September 30, 2008

2 TABLE OF CONTENTS I. REPORT AS AT SEPTEMBER 30, 2008 AND THE THIRD QUARTER II. INTERIM MANAGEMENT REPORT 8 1. Preliminary Note 8 2. Report on the Financial Performance, Assets and Financial Position of the Beta Systems Group 9 3. Outlook Opportunities and Risk Report Report on Material Transactions with related Parties Events after the Balance Sheet Date 17 III. CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, Consolidated Statement of Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Shareholder s Equity Notes to the Consolidated Interim Financial Statements as at September 30, 2008 (unaudited) 23 IV. DISCLOSURE OF DIRECTORS HOLDINGS OF 38 V. CONTACT 39 2

3 I. REPORT AS AT SEPTEMBER 30, 2008 AND THE THIRD QUARTER 2008 At the end of the first nine months of 2008, Beta Systems had raised EBIT by 13.9% and earnings before interest, tax, depreciation and amortization (EBITDA) by 10.3% Earnings before tax (EBT) grew significantly to 1.1 million, up from 0.3 million, at the end of the 2008 nine-month period License revenues climb 3.9% at the end of the 2008 nine-month period Total revenues in the third quarter and at the end of the 2008 nine-month period slightly above the previous year s level Substantial increase in the cash flow to 8.4 million, up from 0.5 million, at the end of the 2008 nine-month period Guidance for the year as a whole affirmed Following on from a good first half-year in 2008, Beta Systems Software AG (BSS, ISIN DE ) had improved its results by the end of the 2008 nine-month period for the third quarter in a row, with a slight increase in revenues. Despite the deteriorating market environment and the traditionally weaker third quarter, earnings before interest and tax (EBIT) had risen 13.9% to 0.8 million (Q1-Q3/2007: 0.7 million) and earnings before interest, tax, depreciation and amortization (EBITDA) by 10.3% to 3.7 million (Q1-Q3/2007: 3.4 million). Particularly notable was the increase in the result before tax, which climbed to 1.1 million (Q1-Q3/2007: 0.3 million). The result of the period under review, which came in at 0.7 million (Q1-Q3/2007: 0.3 million), was also clearly positive. At the end of the first nine months of 2008, Beta Systems Software AG had raised license revenues 3.9% to 17.2 million. In the third quarter, license revenues fell 0.8 million to 4.4 million in contrast to total revenues which rose 1.2% to 19.6 million (Q3/2007: 19.4 million) over the same period and by 1.5% to 62.1 million (Q1-Q3/2007: 61.2 million) at the end of nine months). In the third quarter of 2008, services revenues came in at 3.1 million (Q3/2007: 3.2 million) and maintenance revenues at 10.2 million (Q3/2007: 10.2 million), virtually unchanged from the previous year s level. Scanner hardware revenues generated by new systems, realized as part of customer-oriented total solutions for hard- and software, rose to 5.0 million in the first nine months of 2008 (Q1-Q3/2007: 2.4 million). Moreover, the considerable increase of 7.9 million to 8.4 million in the cash flow from operating activities (Q1-Q3/2007: 0.5 million), which rose in tandem with the improved cost and results situation, was also very satisfactory. 3

4 Key Financial Data for the 2008 Nine-month Period at a Glance EBIT rises 13.9% to 0.8 million (Q1-Q3/2007: 0.7 million), EBITDA climbs 10.3% to 3.7 million (Q1-Q3/2007: 3.4 million), and EBT advances to 1.1 million (Q1-Q3/2007: 0.3 million) License revenues climb 3.9% to 17.2 million (Q1-Q3/2007: 16.5 million) Total revenues advance 1.5% to 62.1 million (Q1-Q3/2007: 61.2 million) Service revenues post 10.0 million (Q1-Q3/2007: 10.8 million) Maintenance revenues fall in line with expectations to 29.9 million (Q1-Q3/2007: 31.5 million) owing to process of consolidation in banks and data centers Hardware revenues generated by new systems, realized as part of customer-oriented total solutions for hard- and software, rise to 5.0 million, up from 2.4 million The cash flow from operating activities climbs sharply to 8.4 million (Q1-Q3/2007: 0.5 million) Key Financial Data for Q3/2008 at a Glance EBIT posts 0.2 million (Q3/2007: 0.3 million) License revenues post 4.4 million (Q3/2007: 5.2 million) Total revenues advance 1.2% to 19.6 million (Q3/2007: 19.4 million) Service revenues come in at 3.1 million (Q3/2007: 3.2 million) Maintenance revenues remain unchanged at 10.2 million (Q3/2007: 10.2 million) Hardware revenues increase to 1.8 million, up from 0.7 million Statement by the Management Board Kamyar Niroumand, Chief Executive Officer of Beta Systems Software AG, commented as follows: Following on from a successful first half-year in 2008, we have succeeded in raising our revenues and result again, despite the tense situation in the global capital and financial markets. We have felt the first impact of the crisis in the financial markets on our customer base in recent weeks. However, making a statement today on what the effects might be in the future is and remains difficult. What cannot be entirely excluded is the fact that, in the future, there may be delays or postponements in the placing of orders by our customers who mostly operate in the banking and insurance sectors. On the other hand, it is crises such these which have the effect of driving demand for IT solutions which enable compliance with official rules and regulations and provide efficient support in the event of mergers. These software products and solutions are an integral part of Beta Systems product portfolio, which means that this crisis may also turn out to be an opportunity for Beta Systems. 4

5 Gernot Sagl, Chief Financial Officer of Beta Systems Software AG, added the following: We succeeded in improving our results despite the critical situation in the financial markets not least due to consistent and ongoing cost management. Moreover, the substantial increase in our cash flow led to a significant reduction in financial liabilities, with the result that the financial position of the company has improved again significantly. Outlook for the Fiscal Year 2008 Although, from today's standpoint, any statements on the future impact of the financial crisis are difficult, the Management Board nonetheless currently stands by its expectations of an improvement in the results as compared with fiscal With a marginal increase in revenues, it has planned for an EBIT margin in the upper single-digit range and a double-digit EBITDA margin. The prerequisite for this is that all three business segments are profitable. The Management Board continues to assume that the goals of sustained profit improvement through concentration on business with software licenses and services, the building up of customer relationships, above all in the financial services sector and industry at large, the expansion of the global partner business and the ongoing implementation of the Beta 4Agility product and sales strategy will be achieved. 5

6 Key Operational Highlights Beta Systems renews contract with Chief Financial Officer Gernot Sagl for another three years Beta Systems successfully completes the acquisition of SI Software Innovation GmbH Beta Systems again figures among the Top 10 in the Lünendonk ranking Beta Systems supports further job schedulers with an efficient log and history management for Unix platforms Beta Systems Software AG celebrates its 25 th anniversary in Berlin Price Performance of the Beta Systems share Beta Systems renews contract with Chief Financial Officer Gernot Sagl for another three years In its meeting on September 12, 2008, the Supervisory Board of Beta Systems Software AG resolved to renew the contract with Chief Financial Officer (CFO) Gernot Sagl for another three years. Accordingly, the contract with Mr. Sagl will run for a further three years until December 31, Beta Systems successfully completes the acquisition of SI Software Innovation GmbH On February 18, 2008, Beta Systems Software AG announced the successful completion of its takeover of all the shares in SI Software Innovation GmbH (SI GmbH) headquartered in Neustadt. The company will continue to operate as an independent company with limited liability (GmbH) under new management. With immediate effect, the company s business will be managed by Harald Podzuweit, head of Beta Systems Data Center Infrastructure (DCI) and Identity Management segments, and by Richard Racs, SI GmbH s managing director to date. Similar to Beta Systems, SI GmbH, a company with over 20 years of experience in the market, has longstanding customer relationships with a large number of major enterprises and customers in the financial services sector. Beta Systems will supplement its existing product portfolio by including SI GmbH s Large Documents Management System (LDMS), thereby strengthening its mainframe business in particular. In this process, LDMS will be treated as an individual product line in its own right which, at the same time, will underscore Beta Systems long-term commitment to the Neustadt location. Through its acquisition of SI GmbH, Beta Systems has raised its market share in data centers in Germany s financial services sector while at the same time reinforcing its profile as a strategic IT supplier to the German savings banks and the retail banks. At the same time, the former customers of SI GmbH, as well as those of Beta Systems Software AG, will benefit from extensive support with a broad solutions portfolio for data processing in data centers. In addition, they can draw on the premium support and range of services of Beta Systems. 6

7 Beta Systems again figures among the Top 10 in the Lünendonk ranking Lünendonk again placed Beta Systems Software AG among Germany s leading mid-sized standard software companies in The ranking lists the top ten companies, measured by revenues, with headquarters in Germany, which generate more than 60 percent of their sales through standard software production, sales and maintenance, and have total revenues of below 500 million respectively. In 2007, Beta Systems generated revenues of 88.6 million, thus coming fifth in the ranking. In 2006, the Berlinbased software specialist took sixth place. Beta Systems supports further job schedulers with an efficient log and history management for Unix platforms Beta Systems Software AG has extended the functionalities of its Beta UX product suite to include the standardized support of further job schedulers and their log types. In doing so, Beta Systems offers archiving options for all leading Unix-based schedulers, a solution which secures the operation of systems and the transparency of business. Alongside UC4, Dollar Universe and J2U, Beta s UX History Management product now offers standard components for processing the log types of the IBM TWS for Distributed, BMC Control/M and SUN MBM scheduling systems. Job schedulers control and automate complex processes which are critical to business. The log information must be stored outside the systems for the purposes of analysis and archiving. With its support of further job schedulers, Beta Systems has reacted to the rising demand in the market for the archiving of scheduler logs and for documenting the processing of complex process chains. Beta UX History Management is a standard software solution and part of the Beta UX product suite. It is a powerful infrastructure software product designed to automate Unix-based production processes. The suite features functions for processing and distributing log files and enables their audit-compliant archiving. This raises the efficiency and reliability in live production and facilitates the implementation of legal requirements. In addition, Beta UX offers specialized system interfaces, for SAP for instance. With Beta UX, Beta Systems enables companies to manage, record and analyze data center processes transparently as well as manage logs groupwide across platforms. Beta Systems Software AG celebrates its 25 th anniversary in Berlin Beta Systems Software AG celebrated its 25 th anniversary on September 25, 2008, in Berlin. Around 600 guests from 30 nations took part in the festivities. Company co-founder William P. Schmidt and Kamyar Niroumand, the current Chief Executive Officer, opened the ceremony and gave the floor to the guests of honor from the world of politics, science and sport. Among the VIPs were Dr. August Hanning, State Secretary in the German Federal Ministry of the Interior, and Ulrike Nasse-Meyfarth, twice German Olympic high jump champion. 7

8 Price Performance of the Beta Systems Share The price of the Beta share started at 4.90 on January 2, 2008, and had risen to 4.99 by March 31, 2008, and to 5.25 by June 30, 2008 (closing price in Xetra). While the performance of the Beta Systems share was more moderate in the months of July and September when it reached its lowest point of 4.04 on July 22, 2008, August was a positive reporting month when it recorded its highest price of On September 3, 2008, its value climbed to 5.39, and on September 30, 2008, it stood at In the wake of the extreme volatility in the global capital markets, the Beta share price also fell in October and posted 3.75 on November 3, II. INTERIM MANAGEMENT REPORT 1. Foreword Beta Systems Software AG has drawn up this Interim Management Report as at September 30, 2008, in accordance with the legal requirements. The reporting period covers the first nine months of The Interim Management Report is to be read in conjunction with the interim financial statements as at September 30, All forward-looking statements relate to the period up until December 31, In observance of the legal provisions, this Interim Management Report is not an instrument of information in its own right but constitutes material changes to the statements made in the Combined Management Report on the Group and on the Parent Company as per December 31, 2007, and must therefore be read in connection with the latter. In respect of the forward looking statements, these are also an update on those made on December 31, The following information relates to the consolidated results of the Beta Systems Group. The Segment Reporting has been prepared in accordance with the structure of the Company and is divided into the following business segments: Data Center Infrastructure (DCI), Identity Management (IdM) and Enterprise Content Management (ECM). All amounts cited in the Interim Management Report and information derived therefrom (e.g. percentage figures) are figures fully rounded up to thousands of euros as presented in the Interim Consolidated Financial Statements. The Interim Consolidated Financial Statements as at September 30, 2008, and the Interim Management Report were neither audited by the external auditor nor were they subject to a review by the external auditor. 8

9 2. Report on the Financial Performance, Assets and Financial Position 2.1. Financial Performance of the Beta Systems Group Development of Revenues As a supplier of complex IT solutions, Beta Systems generates revenues from the components of software licenses, maintenance and services. An additional source of revenue comes from hardware in the form of scanner systems. Development of Revenues Amounts in T In the third quarter of 2008, total revenues climbed 1.2% to 19.6 million (Q3/2007: 19.4 million). At the end of the first nine months of 2008, sales revenues came to 62.1 million (Q1-Q3/2007: 61.2 million). Software license revenues declined to 4.4 million in the third quarter of 2008 (Q3/2007: 5.2 million) and had climbed to 17.2 million by the end of the 2008 ninth-month period (Q1-Q3/2007: 16.5 million). This development was attributable to the increase in license revenues in Germany, Italy and France, where Beta Systems continued to benefit from the dynamic trend in IT outsourcing. The hardware business with scanners, which stood at 1.8 million (Q3/2007: 0.7 million) in the third quarter of 2007 and, by the end of the 2008 nine-month period, had advanced from 2.4 million to 5.0 million. As before, Beta Systems is concentrating on business with software licenses and services. It nonetheless continues to realize profitable revenue from scanner hardware in new systems as part of customer-oriented total solutions for hard- and software (above all, in the banking sector). 9

10 In the third quarter of 2008, maintenance revenues of 10.2 million remained unchanged at the previous year s level (Q1-Q3/2007: 10.2 million). At the end of the 2008 nine-month period, they had fallen 5.1% to 29.9 million, down from 31.5 million, which was attributable to contractual consolidation in the key accounts business owing to the process of concentration at banks and data centers. Services generated revenues of 3.1 million in the third quarter (Q3/2007: 3.2 million) and 10.0 million at the end of the nine-month period (Q1-Q3/2007: 10.8 million). Development of the Gross Profit In comparison with the previous year, the cost of revenues declined to 29.1 million, down from 29.4 million. This effect was especially due to another reduction in personnel expenses. The cost of revenues in the third quarter of 2008 rose to 9.9 million as compared with the previous year figure of 9.1 million, which was attributable to the greater materials usage and to the increase in the cost of services sourced. Accordingly, the gross profit had risen to 33.0 million (Q1-Q3/2007: 31.8 million) at the end of nine months. In the third quarter of 2008, however, it fell slightly to 9.7 million (Q3/2007: 10.2 million). 10

11 Development of Costs and Expenses Development of Costs and Expenses Amounts in T Operating expenses declined 4.6% to 9.5 million in the third quarter of 2008 (Q3/2007: 9.9 million). At the end of the 2008 nine-month period, they had risen 3.8% to 32.2 million as against the previous year s figure of 31.1 million. This development is the result of higher research and development expenses. Selling expenses climbed 8.0% to 6.1 million (Q3/2007: 5.6 million) in the third quarter of From a nine-month standpoint, they remained unchanged at 17.2 million (Q1-Q3/2007: 17.2 million). General administration expenses declined both in the third quarter and in the nine-month period to 1.4 million (Q3/2007: 1.7 million) and 5.4 million (Q1-Q3/2007: 5.5 million) respectively. Research and development expenses rose by 4.3%, from 2.7 million to 2.9 million, in the third quarter of 2008, and by 19.5%, from 8.8 million to 10.5 million, at the end of the 2008 nine-month period. The main reason for this development was the implementation of the 4Agility strategy. Measured against revenues, operating expenses had risen to 51.9% at the end of the first nine months of 2008 (Q1-Q3/2007: 50.8%) owing to the increase in research and development expenses. EBITDA, defined as the operating result (EBIT, including Sundry income and Other expenses) plus depreciation and amortization, remains positive at 3.7 million and had risen 10.3% as against the previous year's figure (Q1-Q3/2007: 3.4 million). 11

12 The finance result rose to 0.3 million, up from -0.4 million, in the first nine months of 2008 owing to positive interest-related effects from the discounting of trade receivables and lower level of finance expenses. The result before income taxes improved notably and, at the end of nine months, posted 1.1 million (Q1-Q3/2007: 0.3 million). Given a tax rate of 30%, the income taxes came to -0.3 million at the end of the 2008 ninemonth period. Accordingly, the result after income taxes for the nine-month period posted 0.7 million as compared with the year-earlier figure of 0.3 million. Earnings per share thus improved to 0.06 (Q1-Q3/2007: 0.03), and the weighted average number of shares outstanding at the end of the first nine months of 2008 came to 13,168,304 shares. Despite the protracted global crisis in the capital and financial markets, demand in the core market of Europe came primarily from the banking and insurance sectors. In the first nine months of 2008, the companies of the Beta Systems Group signed a series of contracts worldwide with renowned customers in all of its three business segments. In the DCI segment, contracts were concluded with GIE SILCA (financial services provider, France), Allianz Shared Infrastructure Services (IT services provider, Germany), Bancaja (financial services provider, Spain), SIA-SSB (financial services providers, Italy), Nordea Capital Market, (financial services provider, Denmark), AMB GENERALI Informatik Services (IT services provider, Germany), CSC Australia (IT services provider, Australia), R&V Allgemeine Versicherung (financial services provider, Germany), Zürich Service (financial services provider, Germany), Audi AG (Automobile, Germany), Equifax Europe (services provider, Great Britain) and Alte Leipziger Lebensversicherung (financial services provider, Germany). In the IdM segment, sales successes included contracts signed with Credit Suisse (financial services provider, Switzerland), Lufthansa Systems Infratec (IT services provider, Germany) and T Rowe (financial services provider, USA). In the ECM segment, new contracts in the first nine months of 2008 included those signed with the Central Bank of Nigeria (financial services provider, Nigeria), National Planning Commission (government administration, Nigeria), Sparkassen Informatik (financial services provider, Germany), F. Hoffmann-LaRoche (pharmaceuticals company), UniCredit Global (financial services provider, Italy) and P.S.K Zahlungsverkehrsabwicklungs-Gesellschaft (financial services provider, Austria). 12

13 Performance of the Business Segments Amounts in T At the end of the first nine months of 2008, revenues generated by the DCI segment had risen 9.9%, from 23.1 million to 25.4 million, in a year-on-year comparison. The segment thus held the previous year's level and was able to build on it with a revenue contribution of 3.0 million through the acquisition of SI Software Innovation GmbH. Operating profit stood at 11.6 million, thus virtually unchanged from the previous year's level (Q1-Q3/2007: 11.8 million). SI GmbH s contribution to profit was 0.3 million. The IdM segment saw revenues fall from 7.5 million to 5.9 million in the first nine months of 2008, in particular owing to the fact that there was no repeat of a major order in the IT outsourcing business this year. Active cost management compensated for the effect of the decline in revenues on profit, bringing it to -0.5 million (Q1-Q3/2007: 0.0 million). The business volume of the ECM segment, which posted revenues of 30.9 million (Q1-Q3/2007: 30.9 million), remained at the previous year s level. In particular, the increase in the materials usage ratio, brought about by changes in the revenues mix in the third quarter of 2008, caused the result to decline to 5.6 million as compared with 6.6 million at the end of the first nine months of

14 Human Resource Development At the end of the first nine months of 2008, the number of employees in the Beta Systems Group had climbed to 634, up from the year-earlier figure of 619. This figure includes 35 employees from SI Software Innovation GmbH, a company acquired in the first quarter of Adjusted for this acquisition, employee numbers have fallen by 20 persons Asset and Financial Position of the Beta Systems Group Amounts in T On September 30, 2008, Beta Systems disclosed cash amounting to 3.0 million compared with 3.2 million on December 31, The cash flow from operating activities increased to 8.4 million in tandem with the improved cost and profit situation (Q1-Q3/2007: 0.5 million). The acquisition of SI Software Innovation GmbH ( -3.6 million) raised the cash flow from investing activities from -0.4 million to -1.6 million. In respect of cash inflow, however, Beta Systems Software AG generated proceeds worth 2.4 million from the sale of a property held for sale. The cash flow from finance activities stood at -6.9 million at the end of the first nine months of 2008 (Q1-Q3/2007: -0.8 million) and, along with the redemption of short-term finance in an amount of -5.5 million, included the repayment of 1.3 million for liabilities held for sale. 14

15 On the reporting date, trade receivables had fallen from 38.9 million on December 31, 2007, to 25.4 million as per September 30, 2008, and work in process project orders (POC), minus project related advances received, had risen to 6.3 million (December 31, 2007: 4.9 million). Other intangible assets climbed from 0.8 million to 2.2 million through the acquisition of the customer base of SI Software Innovation GmbH. Acquired software product rights climbed from 1.6 million to 2.6 million through the rights to Software Large Documents Management System (LDMS) purchased as part of the acquisition of SI Software Innovation GmbH. By September 30, 2008, short-term finance had declined from 8.2 million on December 31, 2007, to 2.7 million. Deferred income stood at 7.6 million (December 31, 2007: 7.2 million) and included maintenance revenues invoiced at the start of the year for the corresponding provision of services and recognition of revenues in the course of the year in accordance with the accruals concept. On September 30, 2008, shareholders equity posted 24.5 million (December 31, 2007: 23.7 million). The equity ratio stood at 40.0% as against 34.2% at year-end Outlook In respect of the end of the fiscal year 2008, the Management Board confirms its outlook as per December 31, 2007, published in its Combined Management Report on the Group and the Parent Company. Although, from today's standpoint, any statements on the future impact of the financial crisis are difficult, the Management Board nonetheless currently stands by its expectations of an improvement in the results as compared with fiscal With a marginal increase in revenues, it has planned for an EBIT margin in the upper single-digit range and a double-digit EBITDA margin. 4. Opportunities and Risk Report The opportunities and risk report is an update of the assumptions made in the Combined Management Report on the Group and the Parent Company as per December 31, The report is therefore to be read in conjunction with these statements. Major changes in the current financial year have occurred in relation to the following opportunities and risks: 15

16 Market and Product Portfolio With its Beta 4Agility growth program, initiated in the second quarter of 2007, Beta Systems is taking the opportunity of improving its market position on a sustained basis with the aim of releasing additional revenue and earnings potential through an improved and market-oriented product and solution offer and an enhanced uniform presence market in the market. This incurs the customary risks identified in the last Combined Management Report on the Group and the Parent Company associated with introducing new products in the market. Through the acquisition of the rights of SI Software Innovation GmbH to the Large Documents Management System (LDMS) product, Beta Systems is currently extending its existing product portfolio in the mainframe business. In this process, LDMS will be treated as an individual product line in its own right. Beta Systems assumes that the synergies released from combined product portfolio can be used successfully in data centers. Shareholders Compensation Claim The status of the ongoing compensation claim concerning the business combination of Kleindienst Datentechnik AG has remained unchanged in respect of the statements published in the 2008 Half-yearly Report. Dependency on Qualified Personnel The success of the Company is dependent to a great extent on having qualified employees and available specialized knowledge. Accordingly, preventing highly qualified employees from leaving the Company and winning additional new personnel is a decisive factor for the Company s future earnings, asset and financial position. The current dearth of qualified personnel on the labor market incurs a risk that positions open through fluctuation or growth of the company cannot be filled with suitable personnel - or only with a delay. Current Situation in the International Financial Markets The persistently tense situation in the international financial markets is accelerating the consolidation process in the financial services sector and, at the same time, causing mounting pressure from the cost side in the sector. On the one hand, this favors the development of the new software solutions of Beta Systems which are focused on the adjustment of business processes, IT systems and organization as part of consolidation. On the other, however, there is the risk that, in the short term, investments may be shelved owing to liquidity and finance shortfalls. 16

17 5. Report on Material Transactions with related Parties Material transactions with related parties did not take place during the reporting period. 6. Events after the Balance Sheet Date Beta Systems and Proginet Strengthen Core Competencies with Strategic Technology Exchange Companies make strategic move by streamlining security product portfolio On November 3, 2008 Beta Systems Software AG and Proginet Corporation announced an agreement whereby the companies have streamlined their security product portfolios while strengthening their respective core competencies in identity management and secure file transfer. Under the terms of the agreement, Proginet has transferred all intellectual property rights to its SecurPass product to Beta Systems, and has licensed to Beta Systems the intellectual property rights to its SecurAccess and SecurForce security products. Proginet is also transferring to Beta Systems various customer, maintenance, and service contracts associated with these products. Beta Systems, in turn, has transferred to Proginet all of the intellectual property rights to its Harbor NSM and Harbor HFT file transfer products, and is transferring various associated customer, maintenance, and service contracts. In addition, Beta Systems has become the exclusive distributor for Proginet s complete file transfer portfolio in Europe. This includes the transferred Harbor NSM and Harbor HFT file transfer products. Berlin, in November 2008 Kamyar Niroumand Chief Executive Officer Gernot Sagl Chief Financial Officer Financial Statements/Disclaimer This Quarterly Financial Report contains forward-looking statements which are based on assumptions and estimates made by the management of Beta Systems Software AG. Although the expectations inherent in these forward-looking statements are assumed to be realistic, no guarantee can be undertaken that these expectations prove to be correct. The assumptions may harbor risks and uncertainties which may lead to actual results diverging significantly from the forward-looking statements. The factors which may cause such divergences have been described in the Outlook report of the Combined Management Report on the Group and the Parent Company 2007 and elsewhere. An update of these forward-looking statements by Beta Systems is neither planned nor does management undertake any obligation to do so. All company, product and service brand names and logos used here are the property of the respective company. 17

18 BETA SYSTEMS SOFTWARE AG AND SUBSIDIARIES CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2008 (UNAUDITED) 18

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23 BETA SYSTEMS SOFTWARE AG AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2008 (UNAUDITED) GENERAL INFORMATION Beta Systems Software AG with registered office in Germany comprises together with its subsidiaries, the Group ( Beta Systems or the Company ) for which the subsequent Consolidated Interim Financial Statements for the fiscal period from January 1, 2008 to September 30, 2008 were compiled in accordance with IFRS standards. The Company s principal place of business is located at Alt-Moabit 90d, D Berlin, Germany. The subsidiaries are located in Europe, Africa and North America. Description of the Business Operations The Company develops, market, implements and supports high-class automation software products and -solutions for the safe and efficient processing of large data volumes for use by enterprises, public administration as well as industry- and trade organizations for application on mainframe computers and other hardware in Mainframe-, Unix-, Linux- and Windows environments. The Company s products are designed to increase the productivity of voluminous data processing transactions in data centers by means of the cost saving automation of manual tasks and the qualitative optimization of the use of hardware resources. Highest safety standards in critical business processes with sensitive data and the observance of legal regulations form the fundamental structure of the products. The Company s products feature a common comprehensive architecture which facilitates the development and integration of the Company s products across platforms, independent of the application. The software products and -solutions of the Lines of Business ( LoBs ) Data Center Infrastructure ( DCI ), Identity Management ( IdM ) and Enterprise Content Management ( ECM ) of Beta Systems support the Company s customers in the automation, safeguarding and transparency of their IT supported business processes. Statement of Compliance These Consolidated Interim Financial Statements for Beta Systems Software AG were prepared in compliance with the International Financial Reporting Standards (IFRS) for interim financial reports (IAS 34), as they are required to be applied within the European Union. Accordingly they do not include all of the information and notes required by the International Financial Reporting Standards (IFRS) for Consolidated Annual Financial Statements, and should be read in conjunction with the Annual Consolidated Financial Statements for the fiscal year 2007 and footnotes thereto. The recognition of revenues is performed in the period in which they accumulate also in respect of interim financial periods, i.e. seasonal revenues are not brought forward nor accrued. In the opinion of the Management Board, all adjustments considered necessary for a fair presentation (normal recurring provisions) are included. The results for the period to September 30, 2008 are not necessarily indicative of the results which may be expected for the fiscal year

24 ACQUISITION OF SI SOFTWARE INNOVATION GMBH, NEUSTADT AN DER WEINSTRAßE Effective January 1, 2008, Beta Systems Software AG has acquired 100% of the shares in SI Software Innovation GmbH, Neustadt an der Weinstraße ( SI GmbH ). With more than 20 years market expertise, SI GmbH calls on proven customer relationships with a number of large corporations. The financial services sector constitutes a focal point. Here the two central IT service providers of the Volksbanken- und Raiffeisen-association, the GAD eg and the FIDUCIA IT AG and their more than 900 affiliated institutes belong to the entity s customer base. SI GmbH s product, Large Documents Management System ( LDMS ), is a central archiving system for document-based business processes as well as digital records, and is based on IBM s current zserver technology (mainframe). The business combination is allocated to the business segment Data Center Infrastructure (DCI), under the portfolio of which the LDMS-suite will be integrated as a separate product in future. The purchase price amounts to T 3,000 plus transaction costs in the amount of T 19. A further valuable consideration exists in the form of a variable purchase price component. The SI GmbH is owner of an immovable property designated as held for sale. In this way the purchase price increases by the amount of the selling price of the property, less the repayment of the mortgage over the property and the direct costs related to the sale. This additional purchase price component amounts to T 981. The acquisition date for purposes of initial consolidation was determined to be January 1, On the basis of a provisional estimate, goodwill in the amount of T 507 has been recognized. The allocation of the purchase price detailed in the following table is provisional, as current efforts to determine the market values of certain own-produced intangible assets had not been concluded at balance sheet date. Future adjustments to the purchase price allocation will be recognized retrospectively within 12 months of the purchase date in accordance with IFRS 3: The value of the goodwill is based on a number of factors, like the value of the staff complement and synergies in the area of procurement. The SI GmbH contributes revenues in the amount of T 2,960 in the reporting period, and a net profit in the amount of T 296 to the net result. 24

25 FINANCIAL REPORTING PRINCIPLES AND MEASUREMENT The same financial reporting principles and measurements as were used in the Consolidated Annual Financial Statements as at December 31, 2007 were applied in the Consolidated Interim Financial Statements as at September 30, The Consolidated Financial Statements were in principal prepared on the historical cost basis, and for the following financial and non-financial assets and liabilities on the basis of their fair value: - Cash - Trade Receivables and Trade Payables - Short-Term Finance and Finance Leasing - Long-Term Borrowings - Derivative Financial Instruments The methods and assumptions used in determining fair values are discussed under the heading Accounting Policies and Valuation Methods in the notes specific to these assets and liabilities. The accounting policies and valuation methods set out below were applied consistently to all periods presented in the Consolidated Financial Statements and by all Group entities. Functional Currency The Consolidated Financial Statements are prepared in euro thousand (T ). All amounts are commercially rounded to full T. The euro is the parent company s functional currency. Due to the utilization of electronic data processing devices differences in the addition of rounded values and percentages may arise. Use of Accounting Estimates and Discretionary Decisions The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Subsequent actual results could differ from those estimates. Basis of Consolidation and Consolidation Methods Beta Systems Software AG is the Parent Company. All companies which are subject to a controlling interest by the Parent Company ( subsidiaries ) were included in the Consolidated Interim Financial Statements by means of full consolidation. A controlling influence exists when a parent company is in the position to influence, directly or indirectly, the financial and business policies of the company. The financial statements of the fully consolidated companies included in the Consolidated Interim Financial Statements are based on the same accounting policies and valuation methods. Intercompany revenues and expenses, accounts receivable, accounts payable, inter-company operating results and inter-company dividend payments were eliminated. 25

26 Revenue Recognition Software license revenue, consisting of new product licenses and CPU upgrades, is recognized when persuasive evidence of an arrangement exists, when delivery of the software has occurred and the execution key has been provided, the fee is fixed or determinable and receipt of payment is probable. When a licensing agreement includes multiple components, revenues are allocated to the individual elements on the basis of their fair value and recognized on an accrual basis. For revenue recognized from licenses with temporary use, the criteria described in IAS18 App 20 are tested in particular. Maintenance revenue is recognized pro rata temporis over the maintenance service period. Service revenue consists of services for consulting, installation and training and is recognized, on the basis of contractually agreed prices, at the time when the services are delivered. In addition to the existing standard software products for infrastructure software, the Company also offers, in the context of consulting services, products designed to meet the individual requirements and technological resources of customers in the form of customized project solutions and individual support. On the one side these construction contracts comprise the creation of made-to-order software through modification or further development of existing standard products and on the other hand project orders which comprise the combination of hardware, software licensing, maintenance and various services. Revenues from these construction contracts are recognized in compliance with IAS 11 according to the progress of the performance in accordance with the percentage-of-completion method, a method making reference to the degree of completion of the project and requiring the following criteria to be satisfied for revenue recognition: the amount of the revenue must be able to be determined reliably, the economic gain resulting from the delivery of the service must be probable, the percentage of completion as at reporting date must be reliably measurable and the total projected costs of the contract must be able to be determined dependably. The Company uses the cost-to-cost method to determine the degree of completion of the project, whereby the actual costs accrued for the performance already completed as at reporting date are set in ratio to the estimated total project costs at that time. Apart from the revenue categories referred to additional revenues are realized in the LoB Enterprise Content Management (ECM) from sales of hardware (scanner systems). Revenue is recognized when ownership passes to the buyer, i.e. upon delivery of the goods and acceptance by the buyer. 26

27 Research and Development Costs Research and development projects by the Company, which result in the construction of new software products or in the substantial enhancements to existing software products, proceed without being able to be clearly differentiated into a research and a development phase. Due to the lack of conformity with the recognition criteria an allocation of the costs to the particular phases is thus not possible. All software product rights are therefore recognized as research costs in the consolidated Statement of Comprehensive Income in the period of their accrual in accordance with the principles of IAS and IAS Other Intangible Assets and Acquired Software Product Rights Acquired intangible assets with a limited useful life are recognized in the Statement of Financial Position in the amount of the acquisition costs, less the scheduled allocation of amortization and the possible impairment losses. For each reporting period the costs are amortized according to the straight-line method over the estimated useful life of the software. Pursuant to IAS 36, the unamortized intangible assets are compared, at each reporting date, to the net realizable values of those products, in order to determine whether any impairment of value exists. If an impairment of value has occurred, the amount by which the unamortized capitalized software product rights exceeds the net realizable value of that asset (the present value of future estimated sales of the products less cost of sales and selling costs) is written off. Sundry Income / Other Expenses The sundry income comprises gains on the disposal of fixed assets and gains on financial assets and hedging instruments recognized in profit or loss. The income is recognized as it accrues. Other expenses comprise losses on the disposal of fixed assets and on financial assets and hedging instruments recognized in profit or loss, as well as impairment losses recognized. These expenses are recognized in the statement of comprehensive income in the accounting period in which they occur. Foreign currency gains and losses are reported on a net basis. Finance Result The finance income comprises all interest income on short-term fixed cash deposits and interest provisions relating to long-term provisions. Interest income is recognized as an income as it accrues in profit and loss, using the effective interest method. The finance expenses comprise interest expenses on short-tem finance and on long-term borrowings as well as interest provisions relating to long-term trade receivables. All borrowing costs are recognized as an expense in the accounting period in which they occur, using the effective interest method. 27

28 Current Income Taxes Current income taxes are determined based on the amounts of the corporate taxes due viz. receivable which are expected to result from the individual companies taxable income viz. taxable loss for the current and former reporting periods. They are established under assumption of the tax regulations and tax rates valid for the respective companies as at reporting date and are recognized at that value which is expected to result as tax payment or tax refund. As settlement will be effected on a net basis, current taxes payable and current taxes receivable were offset against each other. Deferred Income Taxes Deferred tax assets and liabilities are determined using the liability method according to IAS 12 for all temporary differences between the accounting base of assets and liabilities as recognized in the Consolidated Financial Statements according to IFRS and the corresponding tax base values. In addition, tax gains on future taxable earnings resulting from existing losses carried forward which are likely to be realized are also considered in the calculation. Exceptions from the application of this principle are differences relating to non-deductible goodwill and temporary differences in connection with investments. Since the year 2008, the German corporate tax rate on undistributed earnings and on distributed earnings is 15.0%. Together with the solidarity surcharge and the trade tax rate a composite tax rate in the amount of 30.53% has since then been applied. Earnings per Ordinary Share The basic earnings per ordinary share is calculated by dividing the net income or loss available to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the fiscal period. In particular, the number of treasury shares held is subtracted from the total number of ordinary shares issued. Diluted earnings per ordinary share is calculated by dividing the net income or loss available to present and potentially new ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the fiscal period, adjusted for the effects of all dilutive potential ordinary shares. The dilutive effect of outstanding options is reflected by application of the treasury stock method in diluted earnings per ordinary share. Cash Cash comprises cash on hand and demand deposits at banks callable without notice. Trade Receivables Trade Receivables are stated at their acquisitions cost less valuation allowances for expected uncollectible or doubtful accounts. The carrying amounts of these trade receivables due for payment within twelve months from reporting date approximate their fair values because of their short maturity. In addition, receivables with long-term settlement terms are included under this position. These are assessed on the basis of the present value of the expected future cash flows. 28

29 In Process Project Orders (POC) The project order contracts comprise the manufacture of customized - and continuing across various accounting periods - made-to-order project solutions designed to meet the individual requirements of customers. On the one side these construction contracts comprise the construction of made-to-order software through modification or further development of existing standard products and on the other hand project orders which comprise a combination of hardware, software licensing and various services. The nature and the extent of the goods and services to be delivered are in compliance with the respective contract terms; usually these are construction contracts for which the extent of the contractually agreed performance is provided at a fixed fee. Project costs comprise both direct costs as well as general production overhead costs in connection with the existing agreements indirectly allocable. During the construction phase the construction costs including margin are recognized in the Statement of Financial Position as In Process Project Orders (POC). This represents the gross unbilled amount expected to be collected from customers for contract work performed to date, excluding progress payments already received. If advance payments and progress payments received from a customer exceed the recognized profits for a particular In Process Project Order, the net excess is presented in the Statement of Financial Position under the position Advance Payments Received (POC). Inventories Inventories are stated at the lower value of the average acquisition- or production costs and the net realizable value at the reporting date. In the case of commercial inventories the net realizable value is based on the current market price while the value determined from projected income, less estimated production costs is used as a basis for the other inventories. Inventory risks resulting from storage, slow-moving-, obsolete- and damaged goods are taken into consideration by accounting for appropriate valuation adjustments. Other Current Assets Other current assets principally comprise prepaid expenses and deferred charges and are valued at their acquisition cost less impairment losses. Derivative Financial Instruments In order to limit and control existing financial foreign currency and interest risks, certain derivative financial instruments in the form of foreign currency forwards and interest caps are employed. These do not fulfill the requirements of the Fair Value Hedge in terms of Hedge Accounting. 29