SASBADI HOLDINGS BERHAD 24 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. Barriers to entry in the industry are relatively low based on capital requirements, as many functions in the publishing processes may be outsourced to third parties. However, product development and operating costs can be high, given the long lead time from conceptualisation to completion in product development. Our competitive strengths such as our established track record of 40 years in the industry, strong brand awareness among students, teachers and parents, extensive distribution network, large customer base, diverse product range, in-house content development, experienced management and editorial teams, economies of scale and, in particular, our in-house digital technology and AI capabilities 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 a new 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 school segment which follows a different academic year period from that of our national schools. To smoothen out the effects of seasonality, the Group will also use strategic Mergers & Acquisitions such as the acquisition of a 60% stake in Edu Paper and Stationery Sdn Bhd to tap into new revenue streams. 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 global paper price fluctuations. In the event that the increase in paper prices is too steep or prolonged, there is a risk that we may be unable to pass the entire cost increase to our consumers for fear of pricing our products beyond their affordability. This may then adversely affect our financial performance. Management Discussion and Analysis
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