Management of risks associated with financial instruments

The risks associated with financial instruments are managed centrally by the Group Treasury unit. The use of financial instruments is subject in all cases to the principle of risk minimisation. Derivative financial instruments are only employed as a means of limiting currency risks with a potential impact on cash flow. They are not used for commercial or other speculative purposes.

Certain transactions must be approved by the Management Board and in some cases by the Supervisory Board. Both of these bodies are kept regularly informed about the nature and scope of such financial transactions.

Management of other risks

PC-WARE operates an all-embracing risk and opportunity management system that is aimed at unlocking potential without neglecting the associated threats to its business. Identification of risks at an early stage as well as risk evaluation and control are integral elements of our Group-wide planning, management and control system. Our Group-wide risk management principles are outlined in the PC-WARE Risk Manual. It includes sections relating to risk identification, risk management and risk control, which are underpinned by a monitoring system and internal reporting.

Individual risks

Based on the aggregate of risks identified for the Group, the following sections discuss the risk categories and individual risks which, from the present perspective, may have a significant influence on the financial performance, financial position and cash flows of PC-WARE. In accordance with statutory provisions, the discussion of individual risks is restricted to the respective residual or net risk, to the extent that a risk (such as damages to buildings caused by natural disasters) is offset by appropriate countermeasures (e.g. insurance policies).
Risks associated with the mere participation in market activities, e.g. economic risks, are generally beyond the scope of influence of an individual company. Likewise, risks resulting from the specific business model, the service and product portfolio as well as the geographical presence of a company are relatively difficult to influence; they are mainly accounted for as part of long-term strategic management.

• Competition

  Any commercial venture is generally associated with activities in a competitive environment. Within this context, the forces of competition within specific fields of business are such that companies may be squeezed out of the market or may have to contend with a decline in business. Owing to tender-specific requirements, clients within the public sector in particular have created competitive patterns that are unique to this segment of the market. In view of the structure of our client base, which is heavily dominated by customers operating in the public sector, this may have an adverse effect on our business.

  Additionally and with particular regard to the area of software, the market environment in which we operate is generally affected by declining profit margins.

  In order to respond rapidly or initiate proactive measures, we monitor the market, our customers and our competitors very closely, using special peer-group analyses. We also keep ourselves informed about the latest tenders and associated requirements in the respective countries. Benefiting from a broad regional positioning and unique business model, we have identified no significant threats that may be construed as being detrimental to our business. On the contrary, we have been benefiting increasingly from the effects of specialisation and economies of scale within our core business segment of software licensing, which also includes our cross-border operations. In response to declining margins in the field of »software«, we have introduced standardised and efficient order processing systems to help maintain the contribution made by this area to the Group's earnings.
  PC-WARE will continue to play an active part in the ongoing consolidation process witnessed throughout the European IT market, with the express purpose of profiting from opportunities within this area.

• Credit and default risk

  As a result of the financial and banking crisis, PC-WARE is exposed to more pronounced credit and default risk. This is attributable to policy changes on the part of banks with regard to trade credit insurance as well as a realignment of our customer structure. In recent years, PC-WARE has been focusing more closely on efforts to expand into the SME and industrial segment. In contrast to the public sector, these segments are generally associated with a higher level of credit and default risk. On average, our customers customers' credit rating is considered good. However, we have nevertheless implemented appropriate measures aimed at minimising the risk of default on accounts receivable. In addition to conducting standard credit tests, risk exposure associated with receivables is mitigated by means of trade indemnity insurance. As a further measure, as well as devoting additional resources to the monitoring of receivables, we have adopted a more rigorous approach to debtor management.

• Close partnership with suppliers

  Our status as a Large Account Reseller constitutes a significant competitive advantage for PC-WARE. It allows us to offer exclusive pricing models and special forms of certification. Changes to the remuneration system for Microsoft partners as well as the withdrawal of our LAR status would have a detrimental effect on our business, as the associated loss of exclusive rights for the certification and distribution of MS products would result in a significant reduction of revenue and earnings in the short to medium term.

  Having said that, the close relations established with Microsoft may in fact be interpreted as a form of corporate symbiosis. PC-WARE provides Microsoft with a high-performance sales network throughout Europe, generating considerable revenue growth. The strong rapport between our two companies is underscored by a number of joint projects and cooperation agreements. Nevertheless, PC-WARE is also committed to diversifying its portfolio in favour of other software manufacturers in order to further reduce the potential risk of dependency.

Assessment of aggregate risk

The assessment of aggregate risk is based on a consolidated analysis of all significant risk categories and individual risks. Despite the credit and default risk associated with the financial crisis, as well as competitive and price-related pressures, together with companyspecific relations with individual suppliers, the overall risk situation has not changed significantly. With due regard for all the circumstances and facts of which we are currently aware, there are no risks that might have a significant and lasting detrimental effect on the Group’s financial performance, financial position and cash flows or that might in the foreseeable future threaten the existence of the company as a going concern.