Dear Shareholders,
We look back on an eventful fiscal year 2006/2007, which was highlighted by the restructuring of our company into an Internet service provider with fully integrated multimedia solutions. We also were extensively involved in industry-wide developments in the retail trade.
While we were able to significantly expand the portal segment of our business with double-digit growth rates, we had to report a decline in sales from our professional and consumer segment which was dominated by the retail trade. That trend resulted primarily from the changed conditions in Germany, the United Kingdom and the United States.
The United Kingdom and the United States witnessed a fundamental change in the retail trade over the past year. Important sales partners closed a significant number of their affiliates and branches. Furthermore, retail space and warehouses for software products were discontinued in favour of other electronic products with a higher price segment. By agreeing with a number of partners on converting the sales system to a commission-based sales structure, we were able once again to expand the scope of our trading activities. However, this system change meant that we encountered significant charges for the recently completed fiscal year. As a result of this, however, we expect to recover sales in these regions in 2007/2008.
In addition, the launch of the new Microsoft operating system, Vista, in February 2007 created great uncertainty among consumers. As our contacts in the German retail trade have reported, many customers elected not to purchase new software in advance of the Microsoft Vista launch. This resulted in sales from the holiday season being quite a bit lower for this industry than in the previous year. Although the Group was able to perform better than the market, the important first quarter did not meet our expectations. MAGIX has therefore acted, as the first company in the multimedia industry, to supply a Vista-compatible version of all important software products. Nevertheless in the course of the remaining fiscal year it became apparent that there was significant hesitation in consumer purchasing within the German retail sector. It was not until the beginning of the third calendar quarter that retail software sales picked up again and remained continuously ahead of the previous year’s level. Thus, we expect to see a growth potential once again in the German trade segment for the current fiscal year.
This assessment is also based on the results of our efforts to develop new sales channels in retail. In Germany we have been able to open new distribution channels with new high price products such as Xara Xtreme Pro: this refers to the professional retail sector, the so-called "VAR Channel". In this sector, there have already been expressions of interest from professionals in European countries outside Germany, as well. Moreover, we have concluded contracts with various supermarket chains regarding the sale of our products. In response to an increasing willingness of consumers to order software online, we have increased our presence in online retail.
Even if these actions in 2006/2007 have not yet taken hold and have not yet been sufficient to make up for the entire loss in sales, they have certainly increased our options and provide flexibility for future growth.
All in all, however, the performance in the last fiscal year remains significantly below our expectations. Group sales totalled EUR 32.6 million and were therefore 8.7% below last year's level. The EBIT results of EUR 3.1 million represent a significant decline of almost 63%. On the other hand, the growth in direct online sales remained favourable. Sales recently climbed by 31% and the number of registered users rose to slightly more than 7 million by the end of the fiscal year.
This fact encourages us in our belief that we should continue to expand our company to transform it into an Internet service provider. This is also the reason why despite declining sales we elected not to save money in the current year on Research & Development, even though these costs led to a significant charge on our EBIT.
We believe that Internet-based applications will play a dominant role in the future, and we hope to be at the forefront of this trend. Given the tense situation in the retail trade, we did not feel, however, that we were in a position to pursue further staff expansions. Although there were consequently delays in developing new online services, we were able to achieve a great deal in this area in 2006/2007.
We were able in the last fiscal year to launch the announced online service, myGOYA, as a so-called "Open-Beta-Version". We will present the project in an edited version at CeBIT 2008; a version with which we also expect to generate sales.
In August, Catooh – the market place for digital media on the Internet – was launched. Since then, customers have been able to offer their own photographs for sale on the Internet. The photographs can then be used either privately or commercially.
Finally, the company continues to press ahead with the development of mufin, the new global novelty for recognising and recommending music. Since July, the software may be purchased for stationary use on home PCs. Several manufacturers of MP3 players and mobile telephones have expressed interest in licensing this functionality, such that we expect very exciting developments in 2007/2008.
In addition to the technical developments, we have also continued to expand the group ourselves. By acquiring the remaining shares in the m2any subsidiary, and purchasing the Internet platform and database freeDB.org, we were able to solidify our position on the market for music recognition. By acquiring the Xara Group Ltd. in January 2007, we have also added a company that will allow MAGIX to expand its portfolio in the field of digital image design by the additional factor of vector graphics. By acquiring Xara Group Ltd. in January 2007, we have also added a company that will allow MAGIX to expand its portfolio in the field of digital image design by the additional factor of vector graphics. This acquisition, which involved a gain of additional 1.2 million registered users, also enabled us to build up our presence in online retail in the United Kingdom and the US. Although it entailed significant investments of time to integrate the Xara technology and localise the programs that had previously been available only in English, the company was still able to launch a first joint product on the market in March.
Since the end of June 2007 we were able to implement th e authority granted to us by the Shareholders' Meeting in March of 2007 to purchase almost 10% of MAGIX shares. After initially purchasing approximately 165,000 shares at a price of EUR 1.1 million on the open stock exchange, the company made a public offer in September to repurchase other shares after the close of the fiscal year. In total, almost 1.2 million company shares were bought back at a price of EUR 6.6 million, which has meant that the authority granted by the Shareholders' Meeting has been fully utilised.
We would like to take this opportunity to thank you, our shareholders, for placing your trust with us during this difficult year. We would also like to thank our employees, who contributed their very valuable efforts, so that, despite the difficult circumstances, the Group has nevertheless been able to reach a lot of its goals and is therefore well positioned as it moves forward into the new fiscal year.
Sincerely,
