Risk & risk manage­ment

The significant risks that affect the internal control regarding the financial reporting and operational controls are identified and managed both at the group, business area and subsidiary level.

Starbreeze divides relevant risks and uncertainties into eight categories.

Risks related to external developers

Starbreeze’s publishing activities are dependent on the studios who produce the contracted work honouring the agreements entered.

Project delays

Delays can occur to both in-house projects and projects where external partners are managing the development. Completion of a project may also require more resources than originally estimated, in which case the costs will usually have to be borne by Starbreeze, particularly in the case of in-house projects.

Low revenues when releasing games or other products

Whenever new games or projects are released, there is a risk that they will not be well received by the market. This applies to self-financed projects as well as games where Starbreeze acts as the publisher and provides a significant proportion of the financing. Capitalized development expenditure may have to be impaired in such cases.

Key-person dependency

Starbreeze is a knowledge-intensive company and is dependent on its ability to continue to recruit, train and retain several keypersons to achieve success across all functions at the locations in which it operates. Important knowledge includes commercial experience, an understanding of player preferences and expertise in game development and technology. The business is also dependent on keypersons at management level.Financing needs and capitalIn the context of Starbreeze’s operations, revenues are often spread unevenly over time, which affects liquidity. Consequently, there is a risk that the company will need to be capitalized in the future. There is also a risk that, at any given time, the company may not be able to raise additional capital or that it may not be raised in a manner that is favourable to existing shareholders.

Intellectual property rights issues

Intellectual property is a significant part of Starbreeze’s assets, mainly in the form of copyrights for proprietary games and software, publisher licenses for games whose rights are owned by third parties, patents and patent applications, trademarks, and company-specific knowledge and expertise. It is therefore of great importance that the assets developed within the Group remain the property of Starbreeze. There is also a risk that third parties may infringe the company’s intellectual property rights or that the company may infringe others’ intellectual property rights.

Currency risks

Starbreeze operates in an international market. A large percentage of Starbreeze’s revenue is earned in USD, while costs are primarily in SEK and in EUR. Starbreeze is therefore exposed to currency market fluctuations and changes in exchange rates.

Risk of impairment of goodwill and other intangible assets

Starbreeze continuously monitors relevant circumstances affecting the company’s business and general financial position and the possible impact such circumstances may have on the valuation of the company’s goodwill and other intangible assets. It is possible that changes in such circumstances, or in the many factors that the company considers in making judgments, assumptions and estimates in connection with the valuation of goodwill and other intangible assets, may require the company to record impairment losses on goodwill and other intangible assets in the future.