Ubisoft 2004 Annual Report Download - page 129

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UBISOFT > 2005 FINANCIAL REPORT
CHAIRMAN OF THE BOARD OF DIRECTOR’S REPORT
Definition and objectives
of internal control
Ubisoft has adopted the definition of internal control laid out in
the AFEP/MEDEF report on corporate governance in France.
According to this definition, the objective of internal
control is:
lto ensure that the actions taken and operations carried
out by the company's management, as well as the conduct
of personnel, comply with the existing laws and
regulations, the policies established by the corporate
bodies and the company's own values, standards and
rules;
lto ensure the accuracy and reliability of the accounting,
financial and management data conveyed to the corporate
bodies;
lto prevent and manage risk resulting from the company's
activity and the risk of error or fraud.
The procedures put in place form an operational framework
within the company.
The objectives of risk management and internal control
procedures are as follows:
lto identify potential risks and evaluate them in terms of
their impact on the company's activity;
lto define and implement measures for monitoring and
measuring these risks.
The primary risks identified by General Management (cf.
Section 6.2.2 below) have been mapped out and the following
steps have been taken:
lidentification of all the company's activities;
lidentification of approximately 30 risks that could impact
the group's activities;
lidentification of the main preventative measures.
This descriptive analysis is part of a far-sighted effort that
will enable Ubisoftto evaluate, in the long run, the relevance
and effectiveness of its internal control.
Principal risks
The principal risks identified are as follows:
6.2.2.1 Risk related to computer
security
In spite of the numerous integrated security systems
deployed, Ubisoft is not totally protected from malicious
intent, intrusion, problems with network user identification,
and so on. Changes in legislation, the deployment of new
6.2.2
6.2.1 mobility technology, the spread of virus attacks and
increased use of the Internet have all been factors in the
adoption of comprehensive security solutions.
Information is a strategic resource of considerable value,
and must therefore be protected in an appropriate manner.
Security measures for information systems protect
information from a wide array of threats to ensure business
continuity.
These measures are aimed at guaranteeing the
confidentiality, integrity and availability of information.
6.2.2.2 Risk related to customer
dependence
The company has no significant dependence on customers
that could affect its development plan.
Ubisoft's distribution network is increasingly centralized.
In fact, in most European countries as well as in the United
States and Japan, distribution is centralized, and Ubisoft
delivers its products directly to local retail chains, which in
turn redistribute products to their stores. Only the smallest
independent retailers are supplied through distributors or
wholesalers, mainlyin France and United Kingdom.
Most sales are made to so-called "major accounts”. The
risk of non-payment by theseclients is relatively low.
Moreover, the main subsidiaries, which represent more
than 89% of group sales, are covered by credit insurance
6.2.2.3 Market risk
The group limits its market operations to the management
of positions arising from its commercial activity and does
not engage in any speculative operations. Management of
these operations is centralized and handled exclusively by
the staff of the group's Finance department based on
policies approvedby the CEO.
To minimize interest rate and foreign exchange risk resulting
from business financing needs and from its international
activities, the group uses certain financial instruments, as
described below.
Interest rate risk
The management of interest rate risk is aimed mainly at
minimizing the cost of the group's borrowings and at reducing
exposure to this risk. In this regard, the group gives priority
to fixed-rate loans for long-term financing needs and
variable-rate loans for temporary needs related to an
increase in working capital requirements during particularly
active periods.
As of March 31, 2005, the group's net debt consisted mainly
of bond liability and fixed-rate loans. The group is therefore
not greatlyaffectedby a rise in interest rates but is exposed
to opportunity cost risk if rates should decrease.
Internal control procedures
6.2
6