Sasbadi Annual Report 2020

Digital/Online Solutions and our Direct Selling Business The Group’s digital and direct selling segment showed a decrease in revenue for the current financial year. The combined revenue of MindTech Education Sdn Bhd (“MTE”) and Sasbadi Online Sdn Bhd decreased from RM4.428 million for FYE 31 August 2019 to RM2.833 million (equivalent to 36.0%) for the FYE 31 August 2020. The decrease in revenue was mainly due to the accounting adjustments required under the MFRS 15, Revenue Contract with Customers, where a certain portion of the income from the actual sales of products were deferred to the next financial year due to the amortisation of income over the period of its performance obligation. The Group recorded an actual sales value of RM4.439 million for the FYE 31 August 2020 as compared to RM4.056 million in the previous financial year, representing an increase of RM0.383 million (equivalent to 9.4%). The MCO acted as a catalyst for the digital transformation of education, as students are increasingly adopting digital platforms for their learning. Our flagship digital learning product, i-LEARN Ace, which has been enhanced with new features to meet the dynamic needs of students and teachers today is much suited for this purpose. Besides being comprehensive, i-LEARN Ace is fully aligned with the national curriculum of Malaysia from Year 1 to Form 5 levels. The Group's digital and direct selling segment has shown resilience throughout the duration of the MCO. The Group has seen an increase in demand and inquiry from end-users and businesses alike. As announced on 30 June 2020, the Group has entered into a Memorandum of Collaboration with Huawei Technologies (Malaysia) Sdn Bhd. This collaboration enables the Group to further strengthen its digital capabilities and enhance its competitiveness as an education solutions provider. Moving forward, the Group will continue to pursue meaningful partnerships and collaborations that enable us to leverage on collective strengths and provide better value to our customers and stakeholders. Applied Learning Products and STEM Education Services (“ALP”) The Group’s ALP segment recorded a decrease in revenue from RM4.170 million for the FYE 31 August 2019 to RM2.702 million for the FYE 31 August 2020 (equivalent to 35.2%). The decrease was mainly attributable to the closure of schools and robotics training centers during the MCO period and also the cancellation of physical robotics competitions, leading to a reduced demand for our products. Despite the cancellation of physical competitions during the year, the Group continued to pursue its flagship applied learning programme with the MOE, i.e. the National Robotics Competi- tion, virtually and has continued to win international accolades despite the current constraints. The Malaysian contingent has emerged as the overall champion at the first-ever prestigious World Robot Olympiad Robot Virtual Games 2020 (“WRO RVG”). WRO RVG was well participated by more than 1,357 participants from 32 countries. The National Robotics Competition has consistently generated interest in the STEM field among students, parents and teachers. Anticipated or Known Risks Competition We face competition from existing competitors as well as potential new entrants to the educational publishing industry. The barriers to entry into the industry are relatively low based on the capital requirements since most of the functions within the publishing processes may be outsourced to third parties. However, the product development and operating costs can be high as there is a long lead time between conceptualization to completion of product development. Our competitive strengths such as our established track record of 35 years in the industry, brand awareness among students, teachers and parents, extensive distribution network, large customer base, diverse product range, in-house content development, experienced management and editorial personnel, economies of scale and, in particular, in-house technology development put us in a strong position to fend off competition. Seasonality The Group’s business operations are exposed to seasonality patterns as the Group generally experiences significantly higher quarterly sales in the second financial quarter (December to February) and lower quarterly sales in the fourth financial quarter (June to August) compared to the other two (2) financial quarters. This is primarily attributed to the timing of the national schools’ academic year period. As a result, the seasonal sales patterns may adversely impact the Group’s quarterly revenues, profit and cash flow. MANAGEMENT DISCUSSION AND ANALYSIS 11 ANNUAL REPORT 2020 (continued)