Risk Management
The markets for software products and Internet services are subject to rapid changes as regards technologies and industrial standards. MAGIX’s success therefore depends on its ability to predict new trends and developments in time, continuously improve existing products as well as develop and launch new products in time.
These risks are factored into strategic decision-making processes within risk management via the following measures:
- Group financial control prepares variance analyses and short-term plans, which are discussed at regular intervals with the managers involved. Together with the management, it defines key financial and other indicators and continuously monitors compliance with the same.
- The project managers responsible continuously monitor development targets and adherence to project plans using milestones in order to ensure that new functions, products and services are delivered on time.
- In cooperation with the development departments, the HR department ensures that employees benefit from continuous further training and recruits a sufficient number of new employees with the specialist technical knowledge so crucial to the success of the Company.
- The IT department has coordinated and installed contingency procedures to ensure a high degree of stability and security with regard to the availability of the Internet portal and online services.
- The legal affairs and IP departments continuously monitor the Company’s intellectual property and brand rights, and check new developments for violations of property rights relating to the intellectual property of third parties.
The individual areas of the risk management system are combined at Management Board level and continuously monitored there. The Management Board is regularly informed of events and results. The system is constantly checked, expanded and adapted to the rapid growth of the Company.
Individual Risks
Shareholders were informed of a variety of possible risks to business activities in the securities prospectus for the flotation of MAGIX AG. These risks continue to apply. A selection of the points listed therein is provided below.
Operational Risks
The development of operations in the MAGIX Group is dependent on the general development of the market for personal multimedia communication. Growth in this segment is mainly driven by technological and economic factors which are beyond the Company’s control. The market is relatively young, which makes any reliable assessment of future developments more difficult. In addition, the market environment is highly dynamic. MAGIX AG continuously invests in new products and a broad product portfolio. The same applies to tapping new geographical markets and new customer groups. Dependence on developments in market sub-areas is minimized by partaking in a wide range of activities in all existing segments. However, the Company expects the vast majority of sales to continue to be focused on the European market, in particular the German-speaking area, during fiscal year 2007/2008. Regardless thereof, company earnings essentially depend on the market success of new products and the mastering of new technological developments.
Competitive Risks
The Group’s market – the market for personal multimedia communication – is characterized by global competition, which the Company believes will intensify. Some of the current and potential competitors of the MAGIX Group have more extensive financial, technical and human resources as well as more coverage and more users. Some of them currently have better market positions for individual products on certain foreign markets. None of the potential competitors can match the MAGIX Group’s comprehensive portfolio, however. The Company therefore rates the risk of a provider developing a similarly comprehensive and competitive product range in the medium term as relatively unlikely.
Legal and License Risks
The MAGIX Group must comply with the relevant legal framework when developing and selling its products. Any change to this framework may lead to considerable disadvantages for the Company. There is currently no indication that there will be any changes.
Due to the nature of the global market, it is possible for the MAGIX Group to unwittingly breach the intellectual property of third parties with its developments. By having the legal affairs department comprehensively check its products, the Company has taken the necessary steps to mitigate this risk.
Personnel Risks
The Group’s products and services require employees with relevant qualifications in the fields of R&D and sales. Without the right staff, it might not be possible to meet the strategic and economic goals of MAGIX.
Financial Risks
The Company is exposed to credit risks with regard to customer receivables and currency risks. The Company concluded a credit insurance policy to hedge credit risks. No hedges are used to secure currency risks. Because the Company is only exposed to interest rate risks to a very limited extent, no hedges are used to secure these risks.
Overall Risk
The expansion and internationalization of business inevitably lead to an increase in business risks. Experience has shown, however, that expanding the business model has always strengthened the Company. In the long term, a large portfolio reduces the Company’s dependence on individual markets and products. These activities also ultimately lead to a reduction in overall risk.
The Company’s risk situation is stable. In the reporting period, the risks neither individually nor collectively reached the ceiling set to define risks that could potentially jeopardize the Company.