init innovation in traffic systems SE

Quarterly Report • May 12, 2016

Quarterly statement Q1/2016

The name init stands for innovations in the optimisation of public transport through integrated planning, dispatching, telematics and ticketing systems. The company's systematic focus on international growth markets consistently reinforces its global leadership.

init achieves this success by having a strategy that is purposefully aligned to customer requirements, a structure that supports this strategy perfectly, and a corporate culture that creates space for employees to contribute their own ideas and enjoy their own success.

Thus, the company will continue to play its part to ensure that bus and rail transportation becomes more attractive, efficient, and the first choice for an increasing number of travellers.

Group key figures

according to IFRS

EUR '000	2016	2015	Change in %
Balance Sheet (31/03)
Balance sheet total	140,570	136,713	2.8
Shareholders' equity	68,002	71,050	-4.3
Subscribed capital	10,040	10,040
Equity ratio (in %)	48.4	52.0
Return on equity (in %)	0.8	1.1
Non-current assets	43,575	36,242	20.2
Current assets	96,995	100,471	-3.5
Income Statement (01/01 – 31/03)
Revenues	19,439	23,551	-17.5
Gross profit	5,325	6,650	-19.9
EBIT	899	1,181	-23.9
EBITDA	1,776	1,931	-8.0
Consolidated net profit	545	748	-27.1
Earnings per share (in EUR)	0.06	0.08	-20.9
Dividend (in EUR)		0,20 *
Cash Flow
Cash flow from operating activities	-1,168	3,301	-136.1
Share
Issue price (in EUR)	5.10	5.10
Peak share price (in EUR)	18.40	23.76	-22.6
Bottom share price (in EUR)	12.01	20.05	-40.1

* dividend to be proposed to the AGM 2016.

General information about the quarterly statement of the init group

In the past the quarterly results were presented in a quarterly interim report. This is replaced by the following quarterly statement. In the future we will publish a quarterly statement for the first and the third quarter. The interim report for the first half of the year will remain in the previous form.

Important business transaction in the first quarter 2016

With effect from 29 January 2016 INIT GmbH has acquired an additional 6 per cent of iris GmbH, Berlin. The purchase price for this 6 per cent amounts to EUR 762k.

Orders

All in all, init managed to acquire new orders to the value of EUR 35.0m in the first quarter (Q1 2015: EUR 25.2m) which is in line with our planning. The main part of incoming orders consists of new ticketing projects and maintenance contracts.

We are well on our way to achieving our target for incoming orders of EUR 110m for 2016. However, this depends both on whether we win more of the large tenders in which we are currently participating and whether the resulting orders are placed this year.

Orders on hand as per 31 March 2016 stand at around EUR 97m and are therefore below the EUR 127m achieved on the previous year's balance-sheet date.

Earnings position

Revenues of EUR 19.4m (Q1 2015: EUR 23.6m) were generated in the first quarter of 2016 which is in line with our planning.

Breakdown of revenues by region for the first three months:

in million EUR	01/01‑31/03/2016	%	01/01‑31/03/2015	%
Germany	6.2	32.0	5.4	22.9
Rest of Europe	3.4	17.5	5.0	21.0
North America	8.9	45.9	12.0	50.9
Other coun tries (Aust ralia, UAE)	0.9	4.6	1.2	5.2
Group total	19.4	100.0	23.6	100.0

Revenues based on customer's location.

Earnings before interest and taxes (EBIT) decreased to EUR 0.9m compared with Q1 2015 (EUR 1.2m), but is still in line with our planning. Foreign currency gains due to positive effects when assessing the forward exchange transactions amounting to EUR 1.1m (Q1 2015: foreign currency losses of EUR 0.5m) in the first quarter 2016.

Gross profit stands at EUR 5.3m which is lower than in the previous year (EUR 6.7m). The reason for this is found in the decreased revenues.

Sales and administrative expenses came in at EUR 0.3m above the previous year's level. The added expenses are a result of the increase in the number of employees.

Research and development expenses are around EUR 0.5m above the previous year due to new development work.

Net interest income (balance of interest income and interest expenses) stands at EUR -101k (Q1 2015: EUR -113k). Interest expenses are incurred primarily from interest for real estate finance at the Karlsruhe site as well as from short-term euro loans.

Overall, net profit as at 31 March 2016 decreased to around EUR 0.5m compared with the prior-year period (Q1 2015: EUR 0.7m), which is due to the previous mentioned effects. This corresponds to earnings per share of EUR 0.06 (Q1 2015: EUR 0.08).

As a result of unrealised losses from currency translation of foreign companies (especially as a result of US dollar exchange rate devaluation) and due to lower net profit, total comprehensive income decreased to EUR -1.9m (Q1 2015: EUR 3.5m). This development is reflected in the change in other reserves.

Net assets and financial position

Operating cash flow stands at EUR -1.2m (Q1 2015: EUR 3.3m) and deteriorated compared with the previous year which was primarily due to decreasing other noncurrent liabilities as well as the change in shareholders' equity, which did not have any impact on income. This is offset by the reduction of future receivables from contract orders as well as the lower buildup of inventories. We expect operating cash flow to continue to rise over the further course of business as a result of payment receipts for major projects.

Cash flow from investment activities stands at EUR -1.2m (Q1 2015: EUR -2.5m) and results primarily from disbursements for the additional shares of iris-GmbH, for the new building in Kaeppelestrasse in Karlsruhe as well as from replacement and expansion investments.

Short and long-term liabilities to banks in the amount of EUR 21.9m (31/12/2015: EUR 19.6m) concern property financing as well as short-term euro loans taken out to stabilise liquidity which had been prompted by delayed payment receipts and payment plans for major projects that required a large degree of pre-financing.

Cash and cash equivalents, including short-term securities and bonds, stand at EUR 12.8m at the end of the reporting period (31/12/2015: EUR 14.1m).

Compared with 31 December 2015, inventories rose by EUR 1.5m to EUR 24.2m. The reason for this is imminent hardware deliveries, which will cause stock to fall again in the months to come.

The available guarantee and credit lines continue to provide secure finance for business activities.

In the first quarter 75,253 shares were repurchased at an average price of EUR 13.55. 14,250 shares were transferred to the incentive scheme for members of the Managing Board and managing directors with a five year lock up period. Consequently, treasury stock totalled 83,405 shares as at 31 March 2016. The average repurchase price was EUR 14.91 per share.

Personnel

The init group employed 543 staff as per 31 March 2016 (Q1 2015: 506) including temporary workers, research assistants and students doing thesis work.

Number of employees by region:

	31/03/2016	31/03/2015
Employees in Germany	425	394
Employees in the rest of Europe	11	10
Employees in North America	87	85
Employees in other countries	20	17
Total	543	506

Opportunities and risks

The opportunities and risks described in the group status report 2015 (p. 51 et seq.) apply unchanged. Appropriate provision has been made for all recognisable risks. In our opinion, there are no risks capable of jeopardising the continued existence of the company.

There are currently no significant clusters of default risks within the group, with the exception of the accounts receivable from Dubai. Our general contractor from the first Dubai project failed to pass on to us payments of approximately EUR 2m by the end customer to us. init took the matter to a court of arbitration to defend its claim. The ruling in the arbitration proceedings went in init's favour. Currently the arbitration award is being examined by the court for issuing an enforceable copy. The risk remains that these receivables will not be recovered, or only partially recovered. The risk of non-recovery has been calculated in with appropriate value adjustment. In the US, init has won in 2016 two further ticketing projects in Tampa, Florida (in quarter 1) and Honolulu, Hawaii (in quarter 2). This provides init with references for further tenders in the ticketing business in North America, as there is considerable market potential for the next ten years.

Forecast and outlook

init innovation in traffic systems AG largely fulfilled our expectations in the first quarter 2016.

We are therefore adhering to our previous forecast for 2016. For the current year, we anticipate group revenues of around EUR 100m at slightly lower margins. This translates into an operating profit (EBIT) ranging of around EUR 8m.

We still foresee developments in the next few months as being influenced by major uncertainties in the general economic situation which could have an impact on how orders are placed in tenders.

With an high order backlog in excess of EUR 97m, we have already secured a major part of the planned revenues for 2016. If the projects continue to be completed on schedule and we succeed in winning the few, still outstanding orders soon, we will also succeed in reaching our targets for 2016.

Many international tenders for public transport infrastructure projects around the world, some of which extremely large, are currently in the decision-making phase. As a leading international provider of integrated planning, dispatching, telematics and ticketing systems for buses and trains, init's numerous references make it a hot contender.

We remain confident that we will be able to win several of these ongoing and pending tenders in the 2016 financial year.

For 2016, we expect incoming orders in the group of approximately EUR 110m. This plan is based on the assumption that tenders will not be delayed and that price competition will not continue to intensify. Actual figures could deviate significantly from the forecast if new risk factors arise or assumptions underlying the plan later prove to be false.

However, innovative technologies, increasing demand for ticketing and integrated transport control systems in North America and Europe as well as a first pilot project in the Asian market provide init with further opportunities for sustainable growth.

Consolidated Income Statement (IFRS)

from 1 January 2016 to 31 March 2016 (unaudited)

EUR '000	01/01 to 31/03/2016	01/01 to 31/03/2015
Revenues	19,439	23,551
Cost of revenues	-14,114	-16,901
Gross profit	5,325	6,650
Sales and marketing expenses	-2,879	-2,759
General administrative expenses	-1,845	-1,676
Research and development expenses	-1,266	-759
Other operating income	415	494
Other operating expenses	-77	-337
Foreign currency gains and losses	1,103	-539
Income from associated companies	123	107
Earnings before interest and taxes (EBIT)	899	1,181
Interest income	7	7
Interest expenses	-108	-120
Earnings before taxes (EBT)	798	1,068
Income taxes	-253	-320
Net profit	545	748
thereof attributable to equity holders of parent company	600	762
thereof non-controlling interests	-55	-14
Net profit and diluted net profit per share in EUR	0.06	0.08
Average number of floating shares	9,975,339	10,023,672

Consolidated Statement of Comprehensive Income (IFRS)

from 1 January 2016 to 31 March 2016 (unaudited)

EUR '000	01/01 to 31/03/2016	01/01 to 31/03/2015
Net profit	545	748
Items to be reclassified to the income statement
Changes on currency translation	-2,458	2,776
Total Other comprehensive income	-2,458	2,776
Total comprehensive income	-1,913	3,524
thereof attributable to equity holders of the parent company	-1,858	3,538
thereof non-controlling interests	-55	-14

Consolidated Balance Sheet (IFRS)

as of 31 March 2016 (unaudited)

EUR '000	31/03/2016	31/12/2015
Cash and cash equivalents	12,735	14,038
Marketable securities and bonds	29	30
Trade accounts receivable	18,059	23,467
Future receivables from production orders ("Percentage-of-Completion-Method")	38,714	39,158
Inventories	24,184	22,718
Income tax receivable	0	100
Other current assets	3,274	2,473
Current assets, total	96,995	101,984
Tangible fixed assets	21,016	21,240
Investment property	6,064	6,086
Goodwill	4,388	4,388
Other intangible assets	1,219	1,457
Interest in associated companies	3,227	2,341
Deferred tax assets	5,239	5,273
Other assets	2,422	2,313
Non-current assets, total	43,575	43,098
Assets, total	140,570	145,082
Bank loans	15,414	12,884
Trade accounts payable	10,584	10,968
Accounts payable of "Percentage-of-Completion-Method"	3,348	4,023
Accounts payable due to related parties	79	5
Advance payments received	672	525
Income tax payable	486	1,560
Provisions	10,197	10,337
Other current liabilities	12,197	14,032
Current liabilities, total	52,977	54,334
Bank loans	6,439	6,717
Deferred tax liabilities	5,261	5,143
Pensions accrued and similar obligations	7,681	7,496
Other non-current liabilities	210	212
Non-current liabilities, total	19,591	19,568
Liabilities	72,568	73,902
Subscribed capital	10,040	10,040
Additional paid-in capital	5,351	5,809
Treasury stock	-1,243	-436
Surplus reserves and consolidated unappropriated profit	52,881	52,281
Other reserves	869	3,327
Attributable to equity holders of the parent company	67,898	71,021
Non-controlling interests	104	159
Shareholders' equity, total	68,002	71,180
Liabilities and shareholders' equity, total	140,570	145,082

Consolidated Cash Flow Statement (IFRS)

from 1 January 2016 to 31 March 2016 (unaudited)

EUR '000	01/01 to 31/03/2016	01/01 to 31/03/2015
Cash flow from operating activities
Net income	545	748
Depreciation	877	750
Gains on the disposal of fixed assets	-21	24
Change of provisions and accruals	45	450
Change of inventories	-1,466	-2,623
Change in trade accounts receivable and future receivables from production orders (PoC)	5,852	691
Change in other assets, not provided by /used in investing or financing activities	-810	-917
Change in trade accounts payable	-384	857
Change in advanced payments received and liabilities from PoC method	-528	1,030
Change in other liabilities, not provided by /used in investing or financing activities	-2,837	-452
Amount of other non-cash income and expenses	-2,441	2,743
Net cash from operating activities	-1,168	3,301
Cash flow from investing activities
Inflows from sales of tangible fixed assets	392	32
Investments in tangible fixed assets and other intangible assets	-867	-2,567
Investments in associated companies	-762	0
Net cash flows used in investing activities	-1,237	-2,535
Cash flow from financing activities
Cash payments for the purchase of treasury stock	-1,019	-233
Payments received from bank loans incurred	2,531	2,790
Redemption of bank loans	-278	-278
Net cash flows used in financing activities	1,234	2,279
Net effects of currency translation and consolidation changes in cash and cash equivalents	-132	486
Increase/reduction in cash and cash equivalents	-1,303	3,531
Cash and cash equivalents at the beginning of the period	14,038	9,213
Cash and cash equivalents at the end of the period	12,735	12,744

Financial calendar and imprint

Date	Event
21 July 2016	Annual General Meeting 2016, Kongresszentrum/Konzerthaus Karlsruhe
11 August 2016	Publication Q2 Report 2016
11 November 2016	Publication quarterly statement Q3/2016
21 – 23 November 2016	Analyst conference, German Equity Forum, Frankfurt

Contact:

init innovation in traffic systems AG Kaeppelestrasse 4–10 76131 Karlsruhe Germany

P.O. Box 3380 76019 Karlsruhe Germany

Tel. +49.721.6100.0 Fax +49.721.6100.399

info@initag.com www.initag.com This quarterly statement and any information contained therein must not be brought into, or transferred to, the United States of America (USA), or distributed or transferred to US-American persons (including legal persons) and publications with general distribution in the USA. Any breach of this restriction may constitute a violation of the US-American securities law. Shares of init Aktiengesellschaft are not offered for sale in the USA. This quarterly statement is not an offer for the purchase or subscription of shares.