Sasbadi Annual Report 2020

The Group takes seasonality patterns into consideration for our cash flow planning. In addition, the Group is consistently seeking ways to reduce the impact of seasonality patterns such as stepping up our efforts to grow our non-academic and rights licensing segments, which are less prone to seasonality, and the private and international schools segment which follows a different academic year period from that of our national schools. Fluctuations in the Price of Paper Paper is a major raw material used in our business. As paper is a commodity, it is subject to fluctuations according to world paper prices. In the event that the increase in paper prices is prolonged, there is a risk that we may be unable to pass the price increase to our customers or, if we do, it may affect the affordability of our products. This may then adversely affect our financial performance. To mitigate this risk, we maintain a certain level of paper inventory which can serve our purposes for up to six (6) months while we source for alternative paper sources that are suitable. Foreign Exchange Transaction Risk As paper is a commodity traded worldwide, its prices are quoted in United States Dollar (“USD”). In this regard, even though our purchases of paper are invoiced to us in Ringgit Malaysia (“RM”), the invoiced prices are determined by spot exchange rates. As such, purchasing paper exposes us to foreign exchange transaction risk, albeit indirectly. In addition, our purchases of Lego Education robotics products are also denominated in USD whereas the purchase of MCE products are denominated in Singapore Dollar (“SGD”). Therefore, any unfavourable movements in USD and SGD against RM may have an impact on our profitability. For the FYE 31 August 2020, we did not experience any material losses arising from these transactions. Our Group will use forward exchange contracts to hedge against this risk if necessary. Stock Returns and Obsolescence The Group typically publishes new editions of our educational materials every year. Some of the educational materials that we sell may be returned to us (subject to compliance with our return policy which requires that, among others, our approval is obtained prior to returning the stocks, stocks are returned to us within 12 months after the release of a new edition or when titles become out of print, stocks are returned in good condition, stocks are received at our warehouse within an agreed time frame, etc.) for either a full refund or an offset against future sales. Such returned stocks are commonly resold to other customers. Returned stocks that are not resold after a period of time, as with all other stocks that cannot be sold after a period of time, will become obsolete and may need to be written off and sold as scrap. This may adversely affect our profitability if the volume of obsolete stocks is large. To mitigate this risk, the Group has put in place an inventory management system to monitor the sales and distribution of stocks. This includes analysing historical and current trends of demand for our titles which enables us to plan our supply effectively to reduce the risk of overproduction and sales returns. Infringement of Intellectual Properties (“IPs”) The Group develops and uses various IPs in connection with our business. In this regard, we are susceptible to claims by third parties to have infringed the copyright of their IPs and, similarly, we are also susceptible to the copyright of our IPs being infringed by third parties. As such, in defending our legal rights, the Group may be exposed to suits and counter suits by third parties. Such disputes and the resolution of such disputes may be time consuming and costly. Therefore, the Group requires our authors to indemnify us of any losses and damages that arise should their works be found to have infringed on any copyright. We also own the copyrights to all published versions of our titles, which are protected under the Copyright Act 1987. Changes in Educational Curriculum and Policies As the Group is principally an education solutions provider, any changes in educational curriculum and policies may have an impact on our operations and would require us to react quickly. Nevertheless, the changes are usually announced ahead of time which provides us sufficient time to align our business activities with the changes. In addition, having a pool of experienced editors puts us in a good position to respond in a timely manner. Political, Economic and Regulatory Uncertainties Any adverse development in the political, economic and regulatory environments in Malaysia may materially and adversely affect the financial and operational conditions of the Group. To mitigate this risk, the Group will continue to be prudent in management, remain vigilant and take precautionary measures against the uncertainties. Dependency on Key Management Personnel and Experienced Editors The Group’s continued success will depend, to a significant extent, on the abilities, skills, experience, competency and continuous efforts of our key management personnel (which include our Executive Directors) and experienced editors. As such, the loss of any of our key management personnel and experienced editors, without a suitable and timely replacement, may have a material adverse impact on our business and our continuing ability to compete effectively. The Group recognises the importance of attracting and retaining our key management personnel and experienced editors, and have put in place competitive compensation packages. In addition, the Group provides a healthy working environment, practices a conducive work culture, upholds good work ethics, and fosters good working relationships among our employees. The Group has also put in place succession planning and provides training and career development opportunities to our employees. MANAGEMENT DISCUSSION AND ANALYSIS 12 SASBADI HOLDINGS BERHAD (continued)