Foreword from the Chairman of the Board 4 Investor Relations 6

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2 The P&I Group according to fiscal year: Key figures acc. to IAS million euro million euro million euro million euro million euro Group sales Result before depreciation (EBITDA) Result before interest and taxes (EBIT) Consolidated result (DVFA/SG) Number of employees (average) Earnings per share (DVFA/SG) HIGHLIGHTS Results according to plan: P&I lifts EBIT margin to 11.6 % P&I has increased the previous year s annual EBIT result of 4.3 million by 0.9 million euro to 5.2 million euro. The EBIT margin rose from 10.7 % (31 March 2004) to the present 11.6 %. Time management rounds off the P&I product portfolio Through the acquisition of the ZHS group, P&I has developed its software into an comprehensive all-in-one solution for personnel work with three core components: payroll accounting, human resources management and time management. Positive share price move The P&I-shares started at a price of 5.90 euro on 1 April 2004 and closed at 9.60 euro on 31 March 2005, representing a price advance of 62.7 %. FINANCIAL SITUATION, PROFITABILITY UND PRODUCTIVITY Key figures acc. to DVFA/SG Equity ratio 55.2 % 57.0 % 52.4 % 54.6 % 56.0 % Gearing % % % % % EBIT margin 3.9 % 5.3 % 8.4 % 10.7 % 11.6 % Return on sales 0.0 % 2.6 % 3.2 % 6.1 % 7.5 % Performance per employee (in '000 euro) EBIT per employee (in '000 euro) P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 2 from 66

3 Contents Foreword from the Chairman of the Board 4 Investor Relations 6 Summarised Situation Report 2004/2005 A. Outline of Business Developments 8 1. Development in the Industry Sector and Economy as a Whole 8 2. Business Development 8 3. Events after the balance sheet date Research and Development Financing Employees 13 B. Outline of the Situation Assets Earnings Risks associated with future development and outlook 15 Annual Financial Statements for 2004/2005 Consolidated Financial Statements according to IAS Balance Sheet 19 Income Statement 20 Cashflow Statement 21 Development of Fixed Assets 22 Consolidated Statement of Shareholders Equities 23 Notes 24 Additional details not forming part of the audit 56 Audit Certificate 57 AG Financial Statements according to HGB Balance Sheet 59 Statement of Income 61 Cashflow Statement 62 Report from the Supervisory Board 63 Financial Calendar, Contact Person & Addresses 66 P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 3 from 66

4 Foreword from the Chairman of the Board Dear Shareholders, Friends and Partners of P&I, The 2004/2005 financial year was not an easy one for P&I, but nevertheless very successful. The challenges we have faced have helped us to grow. Restrained investment and fierce competition continue to be distinguishing features of the market environment for software solutions in human resources management. In the middle of the financial year, the investors The Carlyle Group took over the majority interest in P&I. The former majority shareholders and founders, Egbert and Ingeborg Becker, resigned from the company. We thank the Beckers for what they achieved for the company. Under their leadership, P&I grew to be one the most successful providers of standard software for HR management. On top of that, their choice of new majority shareholder has ensured that we can continue to pursue our previous production strategies. Yet with these changes in the background, we still reached our ambitious targets. Sales rose in comparison to the previous year by 12.3 % from 40.1 million to 45 million. License sales stood out with a hefty plus of 30 %, after a slight decline in the previous fiscal year. The result is just as satisfactory. Year on year, Group earnings before interest and taxes (EBIT) grew by 21.9 %, from 4.3 million in the previous year to close on 5.2 million, with the EBIT margin increasing from 10.7 % to the present 11.6 %. These figures show indisputably that P&I is a thriving and stable enterprise. Our goal is to build on our leading position as providers of standard software for HR management. We have extended the functions of our most important product line LOGA by adding a time management component, and we rank among the few providers who can offer a comprehensive solution for all the subareas of personnel work. Our web-based HRM solution, e-persinf, which can be customized for individual requirements, is our answer to the needs of large corporations and administrative organizations. With LOGA smart, a payroll solution distributed through resellers, we offer smaller businesses the opportunity to enter the world of LOGA. Computer centers are an area of high potential for us. Major players such as Deloitte in the Netherlands, or TDS in Germany, and also numerous municipal computer centers include LOGA in their application service providing (ASP), or they use our solution in their provision of business process outsourcing (BPO) for personnel administration. A strong brand is the engine of sustainable development. 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. The motto for our product development is: keep focusing on the customers' wishes. The same goes for the other areas. In future, Consulting will be structured on a cross-border basis, allowing an even faster response to customer needs, and improvement in support for international projects. Our new organizational structure aims to allow the Development, Consulting, Sales, Market- P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 4 from 66

5 ing, and Administration divisions to interlock very closely, speeding up decision-making and leading to even more effective communication with our clients. We are confident that we will face these challenges in fiscal 2005/2006 with continuing success. This confidence is founded on our strong market position, our strength in technological innovation, our committed employees and the structuring of our processes. The tasks we have before us are: to complete full integration before year-end 2005 of the time management solutions we took over from ZHS Zeitmanagementsysteme Hard- und Software GmbH, and to update the user interface and navigation of LOGA, adapting it to resemble the "look and feel" of Microsoft Office At the business process level, we intend to integrate our solutions entirely into other applications such as the ERP solutions available on the market. We will exploit web technology to the full in achieving this. The best prerequisites for P&I's further success are the top-level know-how and the impressive motivation of the people employed in our company. I would like to thank them most sincerely for their splendid work in fiscal 2004/2005. Let's all look forward eagerly to the coming fiscal year! Sincerely yours Vasilios Triadis P&I Personal & Informatik AG CEO / Chairman of the Board of Directors P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 5 from 66

6 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 74 m euros (Record Date 31 March 2005) Year's high / low (Ffm.) euros (18/21 March 2005) / 5.54 euros (17 May 2004) Share market trends Source: Bloomberg P&I shares opened at 1 April 2004 at 5.90 and closed at 9.60 on 31 March 2005, representing an increase of 63 percent. P&I shares reacted positively to the take-over and performed well above the general market trend. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 6 from 66

7 Activities and take-over Former members of the Board of Directors Egbert K. Becker and Ingeborg E. Becker sold their P&I shares (4,719,000 shares or 61.3 % of the capital stock) mid-june, 2004 at a price of 7.40 euros per share to IPCar Beteiligungs GmbH. The price represented a mark-up of 23.3 % compared to the closing Xetra price on the day prior to the announcement of the transaction. Sole shareholder in IPCar Beteiligungs GmbH is Carlyle Europe Venture Partners L.P., a private equity fund managed by the Carlyle Group. IPCar submitted a voluntary public take-over bid to the other shareholders at the end of July, also at the price of 7.40 and published the bid documents on 27 July Egbert Becker and Ingeborg Becker gave notification on 4 August 2004 in conformity with 21 Para. 1 of the German Securities Act (WpHG) that the proportional voting rights of both in P&I had fallen below the 25 % threshold and amounted to 0 percent. Simultaneously, IPCar published an announcement as required by 25 WpHG regarding notification pursuant to 21 WpHG, that it had crossed all thresholds for voting rights in P&I and possessed proportional voting rights of %. The Supervisory Board and Board of Directors, in a joint statement on 6 August 2004 pursuant to 27 Para. 1 of the German Securities Acquisition and Take-over Act (WpUeG) regarding public take-over bids, made a positive recommendation for acceptance of the bid. On 14 October 2004 at 24:00 hours, the expiry of the statutory extension period of the deadline for acceptance of the offer (so-called "Zaunkönig-Regelung"), IPCar possessed 5,131,273 P&I shares representing % of the capital stock of and voting rights in P&I. Annual General Meeting (AGM) The Annual General Meeting of P&I took place on 7 September 2004, for the second time in the Wiesbaden Casino reception centre. The main focus at this fifth shareholders' meeting, apart from the fiscal year just ended, was the take-over by the financial investors, the Carlyle Group. The Board of Directors in their address looked back on 2003/2004, a fiscal year brought to a successful close. EBIT had improved to 4.3 million corresponding to an EBIT margin of 10.7 %, sales of close to 40 million lay 5 % above the previous year's figures. A new Supervisory Board was also elected at the Annual General Meeting; new members Dr. Wolfgang Hanrieder, Michael Wand and Michael Schuster were appointed. In the subsequent meeting of the Supervisory Board, Michael Wand was elected Chairman and Dr. Wolfgang Hanrieder Deputy Chairman. The acts of the Board of Directors and Supervisory Board were ratified for the fiscal year 2003/2004 with a large majority. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 7 from 66

8 Summary of the Management Report 2004/2005 A. Outline of Business Development This management report contains information concerning the P&I Personal & Informatik group (P&I Group) and 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. Development in the Industry Sector and Economy as a Whole The overall economic situation in Germany improved slightly in the past year. After zero growth in 2003, economic growth in 2004 measured 1.7 % in real GDP. This development had its effect on the market for information technology. According to the German national association for information management, telecommunications and new media (BITKOM), market volume rose by 2.6 % to billion. The German software and data processing service provider industry also experienced a slight upward trend. Nevertheless, long-delayed plans for investment, whether in the private or public sector, could not be realized. The chief criteria for companies when making investment decisions have been the profitability aspects - a fast return on investment (ROI), protection of investment, and integration. The market is demanding integrated solutions which can combine old and new systems and therefore protect existing investment. Oracle's long-drawn-out take-over of its competitor Peoplesoft was one factor which contributed to a deteriorating climate in the business software market. According to the industry analysts AMR Research and Gartner, lack of clarity over the future of the products led to general reining in on purchasing among businesses. Added to this, cost-cutting measures have forced many companies to either drastically cut back on or call a complete halt to investment in IT projects. In the meantime, forecasts from numerous research institutes and business associations are for an upturn in the economy in the coming months, with the anticipated turnaround bringing a slight surge in growth. Research by the industry association BITKOM expects growth in sales for 2005 to reach 3.4 %. 2. Business Development 2004/2005 P&I: a successful corporation 2004 was a year which felt the effects of consolidation and recovery in the IT service provider market. In this environment, the P&I group was able to market itself convincingly and increase sales by 12.3 % to 45 million. An EBIT of 5.2 million signified a year-on-year improvement in the EBIT margin - from 8 % to 11.6 %. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 8 from 66

9 Key elements of this success are: a successful product strategy, concentration on raising sales - here in particular the increase of license sales through a successful marketing strategy - and further improvements in efficiency. Successful product strategy: - With its three strategic product lines, LOGA, e-persinf and LOGA smart, P&I can provide businesses of any size with a standard software product on the human resources management market. - Through its expansion into time management, P&I has rounded off its product palette, and can offer customers a comprehensive portfolio of solutions for human resources administration. With its software, based on the three pillars of payroll accounting, HR management and time management, P&I services the entire spectrum of core personnel management processes. - Through the development of non-exclusive, integration-oriented technology, P&I software solutions remain open to combination with other producer solutions. Modern approaches, such as web services, simplify the integration of our solutions with other systems for the client. They support an organization in its IT strategy of seeking the best solution for each task component, and not necessarily being tied to those provided by any one single producer. Very good result in a difficult market environment: - In the year under review, total sales rose from 40.1 million to 45.0 million, crossing the double-digit threshold to reach 12.3 %. This growth was organic. - Licensing business grew significantly in the second half of the fiscal year, at 12.2 million close to 2.8 million higher than the previous year's result and representing a year-on-year increase of 29.7 %. - With 28.9 million, product sales (License and Maintenance) accounted for 64.0 % of total Group sales, nearly 15 % or 3.7 million higher than in the previous year. - With EBIT of 5.2 million, the P&I Group surpassed its own targets. The EBIT margin climbed to 11.6 % from the previous year's 10.7 %. - The P&I share price showed growth of 63 % (Frankfurt trading floor). P&I shares opened on 1 April 2004 at a price of 5.90 and closed on 31 March 2005 at Development in Sales and Orders: Incoming orders (Licenses and Consulting) for the fiscal year (Licenses ) reached 25.9 million, remaining at the previous year's level. Orders on hand (Licenses, Consulting and Maintenance ) improved, amounting to 29 million (previous year: 25.2 million). This includes future maintenance income of 16.1 million (previous year: 14.8 million) for the next 12 months. P&I Group sales: The difficult economic situation notwithstanding, P&I fiscal 2004/2005 achieved an organic increase of 12.3 % in sales rising to the present level of 45.0 million (previous year : 40.1 million). The increase in sales is accounted for by across-the-board growth in all sales categories, with an exceptional spike in license sales. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 9 from 66

10 P&I Group sales in detail: Sales to third parties Fiscal 2002 / 2003 '000 euro Fiscal 2003 / 2004 '000 euro Fiscal 2004 / 2005 '000 euro Proportion Proportion Proportion Sales bycategory Licenses 11, % 9, % 12, % Consulting 11, % 13, % 15, % Maintenance 14, % 15, % 16, % Other (incl. merchandise, ASP) 1,332 3 % 1,032 3 % 1,184 3 % Total 38, % 40, % 45, % Sales by product line Payroll 29, % 32, % 37, % HRMS (Human Resources Management 7, % 6, % 6, % System) Other (incl. merchandise, ASP) 1,168 3 % 1,045 2 % 1,079 2 % Total 38, % 40, % 45, % Domestic/foreign sales Domestic 33, % 35, % 38, % Foreign 4, % 4, % 6, % Total 38, % 40, % 45, % Through increases in license sales, growth of 29.7 % was achieved in the year under review, up to 12.2 million from 9.4 million in fiscal 2003/2004. Consulting income, which includes seminars and training courses, grew by 7.7 % from the previous year's 14.0 million to 15.0 million. The rise in Consulting income was primarily due to the seasonally evenly distributed and very high level of activity of our own Consulting employees. Maintenance service income developed in relation to license sales for the previous years, with a total revenue of 16.7 million (previous year: 15.7 million) being posted, representing a rise of 5.9 % compared 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. Maintenance income was invoiced in January for the whole of the 2005, and is shown proportionally at a quarter of its value in the operating results for fiscal 2004/2005. The remaining nine months are accrued (deferred income), i.e. they are not included in sales. Thus at the end of fiscal 2004/2005 there is already ensured income amounting to 12.1 million (previous year : 11.1 million) for the upcoming fiscal year. The contribution to sales made by the HRMS product line fell slightly to 14.0 % of total sales. However, in absolute terms, HRMS sales remained constant, amounting to 6.3 million for fiscal 2004/2005, (previous year: 6.3 million). P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 10 from 66

11 Sales from abroad rose in absolute terms from 4.6 million to 6.9 million accounting for 15 % of total sales. Playing a decisive role in this success were the large-scale projects in Holland and Austria. P&I Germany : Business developments ran a positive course in the past year. Total sales rose by 8.0 % from 36.9 million to 39.8 million. This includes sales to third parties of 37.1 million (previous year : 35.0 million) representing an increase of 7.5 %. Contributing to this increase were not only large-scale projects for public authorities such as the municipal computer center in Minden-Ravensberg, but also private sector projects. P&I Europe: The successful implementation of major projects for the construction industry (Swietelsky/Porr) was a determining feature of business activities for P&I Personal & Informatik GmbH Austria. Activities in the LOGA vplus field were also significant. For the IBM Payroll software taken over in 2001 version 4.0, a new obligatory update in the LOGA vplus product area was produced and delivered, generating additional license sales. In this fiscal year, sales amounted to 4.7 million compared with 3.7 million in the previous year, an increase of close on 26 %. Consolidation, increase in sales in Consulting business and reduced losses characterized the fiscal year just ended for Switzerland. Retrospectively to 31 March 2004, DESI Développement et Étude de Systèmes Informatiques S. A., Gland merged with P&I Personal & Informatik AG, Thalwil in order to reduce administrative costs. Sales rose from 0.8 million in the previous year to 0.9 million in the year under review. Employee and management portal projects (LOGA erm) were successfully placed with existing customers. The Swiss market is receptive to this product. Local marketing activities with Swiss sales personnel were discontinued as from 31 March A milestone for our subsidiary in Holland was the order from international auditors Deloitte which decided to adopt P&I's web-based solution, LOGA erm, for its computer center. Serving over 10,000 clients, Deloitte will be using LOGA in the future. The Dutch subsidiary contributed 1.2 million to Group sales. The development of the other national versions remains the responsibility of P&I, which has integrated the necessary development capacities into the Slovakian subsidiary, P & I s.r.o, Bratislava, founded in The main task of this development unit is to permanently upgrade the functionality of the individual national versions. Over and above this, corporate headquarters was constantly engaged in developing international business with its partners. Significant events Take-over by IPCar Beteiligungs GmbH: Former members of the Board of Directors Egbert K. Becker and Ingeborg E. Becker sold their P&I holdings (4,719,000 shares, equivalent to 61.3 % of capital stock) mid-june, 2004 to IPCar Beteiligungs GmbH, at a price per share of The price represented a mark-up of 23.3 % compared to the closing Xetra price on the day before the transaction was announced. Majority shareholder in IPCar Beteiligungs GmbH is Carlyle Europe Venture Partners L.P, a private equity fund managed by the Carlyle Group. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 11 from 66

12 IPCar submitted a voluntary public take-over bid to the other shareholders, also at the price of 7.40, and published the bid documents on 27 July The Board of Directors and Supervisory Board of Supervisory Board P&I Personal & Informatik AG supported IPCar's take-over bid in a joint statement. The deadline for acceptance for the take-over bid ended on 24 September 2004 (grace period until 14 October 2004). On 14 October 2004, at 24:00 hours, on expiry of the deadline for acceptance of the takeover bid, IPCar Beteiligungs GmbH received a total of total 5,131,273 shares or % of the capital stock of and voting rights in Personal & Informatik AG. Changes in the Supervisory Board and Board of Directors : As a consequence of the new ownership structure, at the Annual General Meeting on 7 September 2004, Dr. Wolfgang Hanrieder, Michael Wand and Michael Schuster were appointed as new members to the Supervisory Board of P&I Personal & Informatik AG. Egbert K. Becker and Ingeborg E. Becker resigned from their positions on the Board of Directors as from 30 September The Supervisory Board appointed Mr. Vasilios Triadis as the new Chairman of the Board of Directors effective from 1 October As from 1 October 2004, Dr. Hartmut Voss, took on the areas of Administration and Human Resources in addition to his existing responsibilities in Finance and Investor Relations. 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 2004/2005. This states pursuant to 312 Para. 3 (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. 3. Events after the balance sheet date P&I Personal & Informatik AG took over the ZHS Group based in Wiesbaden with effect from 1 April 2005: 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 Hard- und Software GmbH on 10 March Research and Development A strong brand is the engine of sustainable development. With the LOGA, LOGA erm, e- PersInf and LOGA smart products, P&I possesses a valuable portfolio of brands in the European software industry. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 12 from 66

13 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. Fiscal 2004/2005 saw once again more than 20 % of revenue from sales invested in Research and Development. Development expenses rose in fiscal 2004/2005 from 8.3 million to 10.1 million, being accounted for by further product development and updates for changes in collective bargaining arrangements. In the year under review, P&I invested in: a) LOGA In the LOGA software field, a concept for wages in the construction industry was developed to round out the product range specifically for the building industry segment. The kick-off was given by projects for construction services company Swietelsky and Porr, in Austria. The year just ended saw also construction services companies in Germany deciding for the HR Software LOGA and P&I. Important preliminary measures were carried out in the past fiscal year, building data banks for the new user interface for LOGA. 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. b) LOGA erm The web applications for our software Spectrum have been further developed in the past year and are now also deployable in computer centers as ASP front end. The international audit firm, Deloitte employs the web-based P&I solution LOGA erm in Holland and enables its users to access the HRM software in their computer center online. c) e-persinf A time management component added to the successful HR management system e- PersInf was refined and extended. In the meantime, the product is not only being used by large-scale police forces but also in the private sector. The building cleaning contractor Dorfner employs the time management component, not only to optimize HR planning and deployment (rosters), but also uses the current data, recorded decentrally via the browser, for ongoing accounting purposes and at the end of the month for the monthly salary and wages. This enables transparency and reduces the pressure on deadlines for punctual payment of salaries and wages. 5. Financing The P & I Group is distinguished by its solid equity capital base amounting to 56 % (previous year: 54.6 %) of total capital. Liquidity (including of short-term security assets) was improved by 7.7 million to 33.8 million in the previous year. Loans from financial institutions of 0.9 million were completely paid off in fiscal 2004/ Employees There were only slight changes in the number of employees over the period of the fiscal year, with the average rising to 246 full-time-equivalent employees (previous year: 239). At 31 March 2005 there were 265 employees (previous year: 275). P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 13 from 66

14 An average of 209 people were employed by the P&I Group in Germany, with a total of 37 employees in the rest of Europe, the Company being represented most strongly in Austria, 14 people, with 10 employed at the development centre in Slovakia. Most people were employed in Consulting. This personnel-intensive area with a year average of 91 accounted for 39 % of all employees, while close to one third of all employees worked in Research and Development. Sales and Marketing accounted for 51 positions and 33 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 many-faceted changes in the fiscal year 2004/2005 demanded a high level of commitment from our employees. With their dedication and their strong identification with the organization, they contributed significantly to the Company's success. B. Outline of the Situation 1. Assets P&I Personal & Informatik AG (Germany): Fixed assets fell from 17.0 million in 2003/2004 to 13.9 million in 2004/2005. The decline was primarily due to scheduled depreciation. Current assets, comprising receivables and other assets, amounted to 7.6 million and rose in comparison to the previous year ( 7.0 million). The increase is accounted for by a rise in trade receivables and receivables from affiliated companies. Liquid funds including other securities, rose from 24.1 million to 31.1 million in 2004/2005, representing an increase of 28.6 %. This increase was attributable to operating activities. Capital stock remained unchanged at 7.7 million. Thanks to the positive operating result achieved in 2004/2005, equity rose from 26.8 million to 28.8 million. Turning to accruals, accruals for pensions increased from 2.6 million to 3.4 million. The increase was due to the retirement from the Company of members of the executive bodies. The other accruals rose by 0.9 million to 6.2 million (previous year 5.3 million) with the major share being accounted for by accruals for employees costs. Liabilities in comparison to the previous year ( 4.2 million) declined slightly by 0.2 million, at present amounting to 4.0 million. Advance payments received on orders rose markedly due to the longer duration of some large-scale projects and liabilities were reduced due to repayments of bank loans of 0.9 million. Trade payables amounted to 0.6 million. P&I Group: The capital assets for the Group are determined by the parent company. The positive Group result has allowed P&I to strengthen its equity base. With an equity of 31.5 million and a balance sheet total of 56.3 million the equity ratio amounts to 56 %. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 14 from 66

15 Assets were reduced from 17.0 million to 13.2 million, in the main through scheduled depreciation on the customer base, non-scheduled depreciation of goodwill of 0.6 million and scheduled depreciation on other real assets. In the current fiscal year, an increase of 7.7 million in liquid funds and securities was seen, with the cash position at the close of the fiscal year amounting to 33.8 million (previous year : 19.6 million). There were no liabilities due to banks. Trade receivables rose in comparison to the previous year amounting to 8.3 million. This is due to large-scale projects having been completed at year end with final payments still outstanding. 2. Earnings P&I Personal & Informatik AG (Germany): The German P&I AG reported a positive result on ordinary activities before taxes of 3.8 million, with net profit for the year amounting to 2.0 million. P&I Group: Group earnings are determined by the parent company. To a certain extent, commitments in Europe encumber the Group result, but in contrast to the previous year, the Company succeeded in guiding the Dutch subsidiary into the black for the first time, alongside the Austria company. In conjunction with the successful performance of the German parent company, the Group once again generated a positive operating result after taxes in this fiscal year, amounting to 3.4 million (previous year: 2.4 million). 3. Risks associated with future development and outlook Corporate Risk Report The German Corporate Control and Transparency Act (KonTraG) obliges the management of a company to devise and apply an appropriate risk management policy. The goal is the early detection of developments which could endanger the continued existence of the company. For controllable risks, P&I Personal & Informatik AG operates a company-wide riskmanagement system. In order to analyse risks and set appropriate measures in train, a detailed and uniform monthly reporting system was set up Group-wide with which business processes can be measured, monitored, and controlled. In the monthly reports the actual and budgeted values for all Group profit centers are compared. In addition, ongoing results forecasts are made for the relevant period to the end of the fiscal year. This means that measures to rectify any discrepancies can be taken in good time. We are now in the third fiscal year where risk management has been supported by R2C (risk to chance), a tool which enables the active involvement of all managers in all risk management procedures. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 15 from 66

16 As well as financial data, the risk management procedure encompasses all activities of the organization, systematically and continuously following through the steps of identification, analysis, evaluation, control, documentation, and communication. Through the use of this tool, the creation of risk inventories is possible in a formalized process where identified and new risks are classified according to type and evaluated according to their probability and the degree of damage they might inflict. Apart from risks inherent in the economic situation, competition and market prices, as well as the risks associated with the legal framework, P&I also sees general technological risks as a basic source of risk. In the same way, product risk - for example in regard to island positioning, product stability or liability - are seen as general risks. We endeavour to counteract these risks through continuing further development of our market-oriented product palette and the high value we place on quality assurance, including intensive testing and continuous quality control measures. Over and above these, a further risk should be mentioned - a basic problem area affecting all software producers, namely, the availability of sufficient numbers of qualified staff. Although P&I can fall back on sales and consulting partners in this respect, nonetheless a shortage of qualified employees could lead to a loss of incoming orders and sales. Aside from recruiting new employees, management also has the permanent task of keeping them committed to the company. Financial instruments In the context of a loan taken out to finance the take-over of the IBM Payroll /400 division, the Company concluded an interest rate contract in the form of an interest swap, with a term until 4 July On the basis of this agreement, the Company undertakes to pay a fixed interest of 5.6 % on the original face value of 4,090,000 at the agreed dates each quarter year. The face value, taken into consideration in calculating the swapped interest payments due under the swap agreement, is also reduced each quarter by 204,000. As at balance sheet date, the face value was 409,000. The rate of the variable incoming interest payments are set at the amount of the 3-month Euribor (2.147 % at the last date) at the payment swap dates. The fair value of the interest swap was 5,000. The interest swap was no longer used as a hedge as at balance sheet date since the loan had been fully repaid. As at 31 March 2005 a fee of 5,000 will be levied for early withdrawal. A contingency reserve of the amount of 5,000 was therefore established. No further risk due to changes in interest rates exist as only fixed-interest securities are held. Liquidity risks arise from the potential inability of customers to meet their obligations to the Company within normal trading terms and conditions. In order to manage this risk, the Company periodically assesses the creditworthiness of its customers. Trade receivables due from customers who are facing bankruptcy proceedings were fully written off for receivables of under 5,000 and a 100 % provision for doubtful debts was made if receivables amount to more than 5,000 and are reported in the bankruptcy proceedings. Payment risks are managed by means of prepayments, by obtaining assumption declarations for receivables from the official receiver or through information on creditworthiness in doubtful cases. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 16 from 66

17 The Group does not maintain any other forms of collateral security such as entitlements to securities etc. The Group does not face a significant concentration of payment risks arising from one single contractual partner nor from a group of contractual partners with similar features. The Group is not subject to any significant credit risks. Liquid resources and securities are deposited/invested with banks or their investment funds. The values given for the following financial assets and liabilities correspond to their fair value: liquid assets (including securities), trade receivables and payables, other assets and liabilities and liabilities arising from finance leases. Outlook According to the latest market analyses (Gartner, Goldman Sachs and others) the global IT market, and therefore IT budgets, will rise by 3-5 % in 2005, comparable with movements in Industry experts do not expect to see the moderate growth trend in the IT sector to change radically in The industry association BITKOM forecasts growth of 3.4 % for the German market. A BITKOM survey of its member companies at the end of December 2004 points to somewhat brighter sales prospects in the industry. The P&I group is expecting positive business development for the coming fiscal year. Its goal is the consolidation of its market position in the HR sector by strengthening its already leading market position in the Payroll and HR systems field; defending its market leadership in technology through systematic technological innovation; and expanding the acquisition of new customers. The P&I Group has set a sales growth target of 5 % for the coming fiscal year, to be achieved through organic growth. Our focus is on growing license sales, aiming at a doubledigit increase. However, our top priority and long-standing goal remains: to establish the EBIT margin long-term above the 10 % level. The goal of P&I's strategy is to achieve an enduring increase in the value to our customers of our brands - by offering innovative products and applications, competent design and systems, and through the provision of excellent back-up service. Our focus is not on any one single module in our product development, but on business processes which the user, with the help of P&I solutions, can guide. Our service division is not alone in being highly customer-oriented. Bringing the expert quality assurance team into large-scale projects means that future developments will benefit from their direct hands-on experience to reflect market needs and user requirements more closely. With a healthier economic environment, the benefits of our new strategic and organizational orientation will start to take effect. We see growth potential on the basis of: - product extension to take in the time management component. As leading Payroll and HR provider, P&I offers an integrated software solution with three products - payroll accounting, time management and HR management systems. - intensification of marketing activities in industry, in particular the construction industry market segment. The P&I Group is well-armed with ERA (Metal and Electro Industry Agreement) and the specialist product concept for construction industry wages. P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 17 from 66

18 In taking on these challenges P&I is confident of continuing success in fiscal 2005/2006. This confidence is founded on its strong market position, its strength in technological innovation, its committed employees and the structures of its procedures. Wiesbaden, 12 May 2005 Board of Directors P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 18 from 66

19 Annual Financial Statements for 2004/2005 Consolidated Financial Statements according to IAS Balance Sheet Assets Long term assets 31 March March Goodwill Customer bases 12,017 14,236 Other intangible assets 395 1,204 Tangible assets Investments Deferred tax Total long term assets 13,515 17,449 Short term assets Inventories Trade receivables 8,320 7,379 Cash and cash equivalents 33,788 19,618 Tax refund claims 0 6,500 Short-term security investments Total short term assets 42,791 34,217 Total assets 56,306 51,666 Equity and Liabilities Shareholders' equity Subscribed capital 7,700 7,700 Capital reserve 18,351 18,351 Revenue reserve Other long-term liabilities Net profit/loss 5, Total shareholders' equity 31,534 28,221 Long term liabilities Deferred tax 1, Pension obligations 2,429 2,139 Other long term liabilities Total long term liabilities 3,650 3,116 Current liabilities Other current liabilities ,502 Trade payables ,129 Tax obligations ,714 Other accruals 12,811 11,984 Total current liabilities 21,122 20,329 Total equity and liabilities 56,306 51,666 P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 19 from 66

20 Income Statement 2004/ / Sales (5) 45,046 40,105 Cost of sales (6) 14,368 12,772 Gross profit 30,678 27,333 Research and development expenses (6) 10,099 8,258 Sales and distribution expenses (6) 8,736 8,017 Administrative expenses (6) 3,711 3,879 Depreciation on goodwill/customer bases (15) 2,800 3,054 Other operating income Other operating expenses (7) Result of operating activities 5,229 4,290 Taxes on income (9) Financing expenses (10) Result of ordinary business activities before tax 5,913 4,775 Tax on earnings (11) 2,532 2,326 Consolidated result 3,381 2,449 Average number of shares (undiluted) (12) 7,700,700 7,700,000 Average number of shares (diluted) (12) 7,761,417 7,766,000 Earnings per share in euro (12) P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 20 from 66

21 Cashflow Statement 2004/ / Cashflow from operating activities Operating result before taxes on income and interest 5,229 4,290 Adjustment for the reconciliation of net income/loss to net cash provided by operating activities + Depreciation on tangible assets, intangible assets and financial assets 4,207 4,178 + Change in pension obligation / - Change in inventories, trade receivables and other assets not attributable to investing or financing activities Change in trade payables and other liabilities not attributable to investing or financing activities 1, / - Losses from the sales of fixed assets / - Losses from the sales of securities of the current assets / - Changes in other items not affecting payments Interest paid Interest received Tax payments/refunds - 2, Net funds from operating activities 9,140 8,858 Cashflow from investing activities - Payments for investments in tangible assets Payments for the purchase of intangible assets Proceeds from the sale of tangible / intangible assets Proceeds from the sale of securities 10, Payments for the purchase of securities (20) - 3,880-6,500 Net funds from financing activities 6,005-6,412 Cashflow from financing activities - Repayment of principal on (financial) loans ,102 - Repayment of principal under finance lease agreements Net funds from financing activities Increase in liquid resources 14, Liquid resources at the beginning of the fiscal year 19,618 19,285 Liquid resources at the end of the fiscal year 33,788 19,618 Breakdown of funds at the end of the fiscal year + Cash on hand and in bank balances 19,393 5,245 + Available-for-sale securities 14,395 14,373 Cash and cash equivalents (19) 33,788 19,618 P&I Personal & Informatik AG Annual Report 2004 / 2005 Page 21 from 66

22 Development of Fixed Assets Acquisition and Production Costs Accrued Depreciation Net Book Value Additions Disposals Additions Disposals euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro Intangible assets Software 2, ,767 1, , ,204 Goodwill 2, ,601 2, , Customer bases 22, ,033 7,797 2, ,016 12,017 14,236 27, ,401 11,316 3, ,989 12,412 16,022 Tangible assets Factory and office equipment 2, ,842 1, , Fixtures , ,874 1, , Financial assets Long term investments Other loans Total fixed assets 30, ,416 13,291 4, ,172 13,244 17,026

23 Consolidated Statement of Shareholders Equities Subscribed Capital Revenue Other Net loss Total capital reserve reserve Equity 000 euro 000 euro 000 euro 000 euro 000 euro 000 euro As at 1 April ,700 18, ,726 Net profit 2,449 2,449 Allocation to other reserves Currency translation effects Change in market value of financial assets held for sale As at 31 March ,700 18, ,259 28,221 Net profit 3,381 3,381 Allocation to other reserves 1 1 Currency translation effects Change in market value of financial assets held for sale As at 31 March ,700 18, ,640 31,534 P&I Personal & Informatik AG Annual Report 2004/2005 Page 23 from 66

24 Notes to the consolidated financial statements for fiscal year 2004/2005 GENERAL Commercial Register, Memorandum and Articles of Association and Corporate Object The Company is based in Wiesbaden and has been registered there at the Local Court in the commercial register, Department B, under No since 28 May The Memorandum and Articles of Association were concluded on 2 April 1998 and last amended on 7 September The corporate object for the Company and its subsidiaries is the creation, marketing and maintenance of software and the associated consultation and training of operators, as well as dealing in EDP equipment and software. In accordance with the Memorandum and Articles of Association, emphasis is placed on the Human Resources sector and information technology activities falling within this sector, such as programming, employee databases, project management, employee data graphics, image processing, procedure data processing, PPS, network control and special query language. In addition, the Company may undertake any business which furthers its corporate purpose. It may invest in companies active in the same or similar industry sectors and take over their management. For the rest, the Company has the right to carry out any business and take any actions which directly or indirectly further the business object, in particular to set up branch offices, to conclude corporate agreements and to set up other companies at home or abroad or to acquire or invest in such companies and take over their management. Since 1 January 2003, the Company s shares have been admitted for trading on the Prime Standard of the Frankfurt Stock Exchange. The Company s shares had previously been listed for trading on the Neuer Markt of the Frankfurt Stock Exchange since 7 July The address of the Company s officially registered office is: Wiesbaden, Kreuzberger Ring 56, Germany. ACCOUNTING AND VALUATION METHODS 1. PRINCIPLES OF FINANCIAL ACCOUNTING The consolidated financial statements have been compiled in euros. The consolidated financial statements as at 31 March 2005 for fiscal year 2004/2005, similarly to fiscal 2003/2004, have been compiled in conformity with the International Financial Reporting Standards (IFRS) laid down by the International Accounting Standards Board (IASB). All International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) obligatory for fiscal 2004/2005 as well as the interpretations of the International Financial Reporting Interpretations Committee (IFRIC, formerly Standing Interpretations Committee (SIC)) were taken into account. As well, an early application of IFRS 2 (Share-based Payment) has been undertaken. P&I Personal & Informatik AG Annual Report 2004/2005 Page 24 from 66

25 The Company has compiled consolidated financial statements for its release pursuant to 292a HGB (German Commercial Code). The requirements laid down in 292a HGB releasing the Company from the duty to compile consolidated financial statements in compliance with German commercial law have been met. The assessment of these requirements is based on German Accounting Standard No. 1 (DRS 1, "Exempting consolidated financial statements pursuant to 292a HGB") published by the German Standardization Board. To achieve the same standard as attained by consolidated financial statements that are compiled according to German commercial regulations, all the details and explanations required by German law and which go beyond the particulars required under the IFRS are published. German accounting regulations deviate from the IFRS regulations in several areas. Discrepancies occur particularly in relation to: - discrepancies in the valuation of accruals for pensions, - the capitalization of specific leasing items by the lessee (finance lease) the capitalization of specific self-created intangible assets - discrepancies in the accounting and valuation of financial assets and liabilities/accruals, - the neutral offsetting of costs arising from the procurement of equity against equity capital of costs arising from the procurement of equity against equity capital, - differing principles of sales realization, - the formation of deferred tax for differences between the valuations for tax purposes and valuations in the consolidated balance sheet, - structuring of the balance sheet according to the current/noncurrent method. The annual financial statements for the companies included in the P&I consolidated financial statements have been compiled as at the consolidated balance sheet date. Compiling the annual financial statements in accordance with the International Financial Reporting Standards has required the Board of Directors to make estimates and assumptions which affect the figures shown under the assets and liabilities, in the notes and in the income statement. Actual results may differ from the estimates. Historic acquisition or production costs have been used in compiling the financial statements. Financial assets held for trading or available for sale are shown at market value in accordance with the valuation principles described below. The consolidated balance sheet and the consolidated income statement have been compiled in an aggregate form with close reference to the relevant reporting standards of the Deutsche Vereinigung fuer Finanzanalyse e.v. (DVFA) (German Association for Financial Analysis). Individual items have been combined for purposes of clarity; the items are explained in the notes. The accounting and valuation methods applied conform with the accounting and valuation methods applied in the previous year. As an exception to this, the Group has applied IFRS 3 Business Combinations, IAS 36 (revised 2004) Impairment of Assets, and IAS 38 (revised 2004) Intangible Assets. In addition to the standards mentioned, IFRS 2 has been applied early. The prior-year comparatives have not been affected. P&I Personal & Informatik AG Annual Report 2004/2005 Page 25 from 66