Risks & How We Mitigate Them 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 in the industry are relatively low based on capital requirements since most of the functions in the publishing processes may be outsourced to third parties. However, product development and operating costs can be high as there is a long lead time between conceptualisation to completion in product development. Our competitive strengths such as our established track record of 37 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 months approaching the beginning of the school academic year. As a result, the seasonal sales patterns may adversely impact the Group’s quarterly revenues, profit and cash flow. 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 digital solutions 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 favourable. 18.72 19.25 32.80 (continued) MANAGEMENT DISCUSSION AND ANALYSIS 18 SASBADI HOLDINGS BERHAD
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