The operations and activities of the M+M group are subject to various risks.
In our risk management system, sources of uncertainty are systematically identified, documented, evaluated and as far as possible controlled.
In all business units there are so called risk owners, responsible for the description, evaluation and control of risks in their fields. All units’ risks are documented in a risk inventory together with the initiated counteractions, and the remaining risk is evaluated. The evaluation takes into account the likelihood of occurence and the impact on the group.
The risk inventory with its documentation of counteractions, together with the monitoring of various early indicators, allows control of the development of a risk. The reduced risk impacts and likelihoods of occurence after successful counteractions, are duly monitored and reported to the Managing Directors.
The remaining risks, particularly, are taken into account in business planning.
The accounting is integrated into the risk management, which allows identification and evaluation of risks which are in conflict with the compliance of the group financial statements. At this stage, we cannot see any such risks.
The whole accounting is subject to efficient control mechanisms. These particularly include extensive monthly reporting andliquidity planning, which are controlled in detail. Additionally, there is a regular review concerning specific items.
In addition, the financial transactions are supervised continuously. Within finance and accounting, there is additional protection by the principle of dual control. Systematic limit controls (e.g. for open sales orders or for capital expenditure invoices) supplement the control mechanisms.
In detail, the following risk categories exist:
Bad debt risks are counteracted with customer credit insurance, individual bad debt provisions, and streamlined receivables management. Also favourable in this respect, is the fact that sales are divided among many individual customers each of which carries less than 1% of the total group revenue.
These risks are generally covered by corresponding insurance contracts. A risk of loss in value during warehousing can be considered virtually non-existent since the suppliers’ software product contracts always include a price, update and stock rotation clause.
As with every other supplier of standard software, M+M is subject to software market and product cycles, especially thoseof the CAD/CAM market. Such risks are generally counteracted, as far as possible, by the vertical and regional division of the M+M Group and by the spread across several product lines, but risk may not always be fully compensated by these actions.
As an enterprise in the soft ware industry, M+M is, in principle, dependent on individuals with special skills. M+M’s distinctive corporate culture, so far, has been instrumental in keeping employee turnover exceptionally low. The risk of dependence upon key top management people has been counteracted by appointing several Managing Directors and by strengthening the secondary management level.
Concentration on the main supplier Autodesk in the VAR segment represents a certain risk through dependency on thissupplier’s product development, market competence and operational policy.
In all shareholding or subsidiary relationships, it is recognised that there is a risk that, contrary to positive expectations, a negative development may occur possibly proceeding to total loss. This would not only cause an appropriate impairment of goodwill or investment value but also lead to a corresponding writedown of deferred tax assets (if capitalized) in case of fully consolidated subsidiaries with loss carryovers.
As in any business model not exclusively financed by equity, there is a dependency risk for the debt financed part due to the refinancing capabilities of the financial market. This risk is counteracted by distribution of credit lines at several banksinside and outside Germany. It cannot be excluded, however, that the refinancing interest rate payable by M+M may develop negatively or the refinancing by debt may fail in parts or in total. In this respect, internal as well as external influences play a role. Internal influences are mainly the earnings and financial status impacting the M+M market rating, as well as the management’s ability in handling relation ships with existing and potential creditors. External influences are for example the general interest rate level on the market, the credit policy of banks and other creditors, as well as the legal framework conditions.
Opportunities result from the successful execution of our general strategic concept.