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 purchases. 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. 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, including Employees’ Share Option Scheme (“ESOS”). 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. Compliance Management During the course of business, the Group is subject to the risk of legal or regulatory sanctions, financial loss or damage to reputation resulting from failure to comply with laws, regulations, rules, other regulatory requirements or codes of conducts. To mitigate this risk, the Group actively identifies and assesses all applicable laws, regulations, rules and policies (including internal policies) applicable to all our operating activities to ensure compliance. Furthermore, we take active steps in implementing good corporate governance in compliance to the Malaysian Code on Corporate Governance (“MCCG”) to promote corporate accountability and to build sustainable value. 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. Therefore, any unfavourable movements in USD against RM may have an impact on our profitability. For the FYE 31 August 2022, 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. 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. (continued) MANAGEMENT DISCUSSION AND ANALYSIS 19 ANNUAL REPORT 2022
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