Risk Factors

Beverage Business

Risks in New Product Development

Although it is a common practice that all new beverage products must pass various processes of quality testing during production, including manufacturing, packaging designs, tasting, advertising and promotions, which cost a substantial amount of money, some new products were unable to penetrate the market due to the intense competition in beverage market. As a result, the Company has intensified the preparation of new product launching in terms of the customer demand, product quality control, as well as cost price, selling price, and the marketing activities in order to ensure that new products are able to successfully penetrate the beverage market.

Limitation in Raw Material Sourcing

Due to the Company’s commitment to producing only quality products made from premium materials, the Company has no policy to purchase raw materials from only one supplier which might cause the risks of material shortage or disadvantage in price negotiation. Therefore, the Company’s R&D and Purchasing Departments have been looking for more qualified suppliers to reduce the possible risks and maximize the Company’s ability in raw material sourcing.

Fluctuation in Raw Material Costs

Certain factors have caused the rise in production cost e.g. the rise in fuel cost, transportation, paper pulp, and petroleum packaging, which are fluctuated according to the demand and supply of the market. Thus the Company secured medium to long term contracts with some suppliers to avoid possible difficulties.

Competition Risks

Competition in beverage business is quite intense and there have always been new high-potential entrepreneurs with aggressive marketing activities to penetrate the market. However, the Company has strengthened its competitiveness through its brand and product image by means of effective advertising, marketing, and promotional activities. The Company believes that the competition offers advantages to consumers and beverage industry as the growth of the market will help improving the Company’s performance in the business.

Tax Risks

According to the beverage excise tax on the cost and amount of sugar which were effective since September, 2017, Ready to Drink tea is considered one of the beverage products with excise tax. This affects the production cost of Ready to Drink tea, and as a result, the business operators must adjust the selling price of the products. Such factor is the main reason for the decline of Ready to Drink tea market in the past year. However, the Company has set strategic plans for possible tax risks in advance by setting distribution plan and packaging that align with the selling price as to maintain the appropriate selling price for specific distribution channels. R&D for new healthy products are also conducted according to the intention of the Company to produce healthy products that meet the market and customer demand as well as effectively manage manufacturing costs and other expenses. These strategic plans help mitigate the impacts of tax risks to some extent.

Food Business

Restaurant Business

Location for Outlet Expansion and Current Location Retention

Location is the key factor for successful restaurant business while the competition is quite intense. This is considered the limitation for those who aim to increase new outlets, especially in department stores or a specific community. Normally, short-term location rental contracts last for 3 years and are able to be renewed occasionally. There is a risk that some of the Company’s rental contracts might not be renewed or that the rental fee might be increased. However, the Company has planned to maintain the current locations by making and keeping good relationship with the lessors. We also keep searching for other good locations to ensure that the Company will have the places to continuously support its outlet expansion.

Raw Materials and Products Obsolescence

Good quality and freshness of raw materials and products are the key success factors for restaurant business. Over 50% of raw materials and products such as meat, seafood, vegetables, fruits and bread are perishable. For this reason, effective raw material management greatly affects production cost. In order to avoid such risk, the Company has adopted policies to make raw material purchase on a daily basis and store the materials in temperature-controlled rooms for preservation purposes. In addition, the First-In-First-Out (FIFO) inventory control scheme is also being used.

Limitation in Raw Material Sourcing

Due to the Company’s commitment to producing only quality products made from premium materials, the Company has no policy to purchase raw materials from only one supplier which might cause the risks of material shortage or disadvantage in price negotiation. Therefore, the Company’s R&D and Purchasing Departments have been looking for more qualified suppliers to reduce the possible risks and maximize the Company’s ability in raw material sourcing.

Fluctuation in Raw Material Costs and Production Costs

Some materials are highly popular among the consumers. Unexpected situations such as epidemics in plants and animals cause material shortage and price fluctuation. However, the Company has entered into medium to long contracts with some suppliers to avoid such difficulties. This factor, therefore, has very little impact on the Company’s business.

Competition Risks

Many new Japanese restaurants operators emerge constantly due to the increasing popularity of Japanese food in Thailand. Certain competitors open their stores with the same menu and at nearby locations. However, the Company has policies to compete in terms of product quality, advertising, and promotional activities without cutting the price. The Company believes that business competition offers advantages to food industry as the growth of the market will help improving the Company’s performance in the business.

Natural Disaster Risks

The 2011 great flood in Thailand had caused severe damage to the Company’s business. Thus, the Company has become more aware of the need to divert and prevent the risks of natural disasters. As a result, the Company relocated its Central Kitchen to Ban Bueng District, Chon Buri, as well as allocated new investments on the locations secured from flood and convenient for transportation. We also set up the contingency plans to ensure the continued operations in the event of a natural disaster or emergency.

Economic Risks

Economic risks may affect consumption level and consumer confidence. Business operations may face with the rise of raw material costs, labor costs, and other expenses due to the fluctuation and uncertainty of the economic status. This results in the rise of household expenses and the reduction of consumer’s consumption. These factors have an influence on the overall benefits of food business.

Despite the effect from the abovementioned risks, the Company continues to monitor the situations carefully and set appropriate strategic and marketing plans which, therefore, cause no impact to the Company’s business.

Ready to Cook and Ready to Eat Business

Fluctuation in Raw Material Costs and Production Costs

At present, the sales volume of Ready to Cook and Ready to Eat products are considered not quite high compared to the size of the overall market. Therefore, the production management in the manufacturing plants of OISHI group is not utilized to its full capacity which results in high production cost. The Company set up guidelines for all the relevant units e.g. Purchasing, R&D, Production, and Sales to corporate in managing the production capacity and budget control effectively. Furthermore, the Company also expands the distribution channels to generate more sales volume which may result in the reduction of production cost and other expenses.

Competition Risks

The competition in Ready to Cook and Ready to Eat business is quite intense. The distributors from our distribution channels started to produce the products under their own brands. For the business owners, not only they have to perform product research and development, but they must also have the bargaining power in trade negotiation. In order to avoid and prevent such risks, we give priority to the development and maintaining quality of the products as well as promoting our brand’s popularity and creditability.

Risks in New Product Development

As the convenience stores are still the main distribution channels for our Ready to Cook and Ready to Eat products, the need for constant product development is required. Despite such awareness, the consumer consumption behavior is very dynamic so that certain products and flavors may not meet the market demand and the target groups. Therefore, our product development team focuses on the innovation and development of the products in order to reach the market demand and satisfy the dynamic consumption behavior.

Limitation of Distribution Channels

At present, as the Company’s distribution channels mainly rely on the convenience stores, negotiation power and benefits are, thus, limited. The Company has attempted to reduce such limitations by expanding the distribution base and increasing sales volume in other channels such as modern trade stores: super market, department store, and hypermarket as well as other potential distribution channels such as food service and exporting.

Logistics Risks

As the Company’s products are mainly in either chilled or frozen condition, the storage after production and logistics management to maintain the quality and taste of the products are profoundly significant. As our business growth has continuously increased, we emphasize on logistics infrastructure e.g. the expansion of cold storage to properly preserve the products for domestic and international distribution. The cold chain logistics system should always be carefully considered and its efficiency should support the Company’s business growth as well as prevent and reduce any unforeseeable risks.

Strategic risks

The Company has initiated “Vision 2020” strategic roadmap to become one of the leading food and beverage business operators in ASEAN. Although the strategic roadmap has been carefully reviewed, there could still be internal and external factors which may affect the execution of the strategy and cause the Company’s operating performance to fail to reach the planned targets.

However, the Company’s Board has considered and approved the Annual Action plans which are in accordance with the Company’s long-term strategic plans. In addition, the Company has carefully monitored and assessed the results in every stage to ensure that the operations are according to the strategic plans. The strategies and operational plans are constantly being reviewed and updated in accordance with the changing situations.

Risks from dependence on the major shareholder or companies in major shareholder's group

The Company has estimated distribution proportion to companies within Thai Beverage Public Company Limited group of companies (“ThaiBev Group”) of approximately 90% of total sales revenue in beverage business which is considered one of the most efficient distribution channels with the most area coverage. However, Thai Beverage Public Company Limited (“ThaiBev”) is the major shareholder of the Company with 79.66% shares. Thus, distribution of beverage product segment is dependent on channels of the major shareholder’s group which may possess some risks and affect the Company’s operation in case there are changes in shareholding structure by the major shareholder or refusal in the Company’s product distribution.

However, The Company always has good business cooperation with the major shareholder’s group and the Company’s operation is in alignment with the international standard. Moreover, the product distribution of the Company through the companies within ThaiBev Group is considered very efficient in terms of resource management and utilization for the best interests for the Company and all shareholders. In addition, the Company has entered into medium-term distribution agreements with the major shareholder. Should there be any restructures within the shareholder’s group, they will be obliged to be our distributors according to the terms of agreements. The Company, therefore, will have time to prepare and assign new distributors without interrupting the business operation.

Risks of investors in the Company's securities

Risks from the Control of Major Shareholder

As of October 3, 2018, Thai Beverage Public Company Limited or ThaiBev is the major shareholder of the Company with 79.66% of shareholding in the paid-up capital. ThaiBev, therefore, is able to control the resolutions of the Shareholder’s Meeting including the Director’s appointment, approval on other matters that require a majority vote from the Shareholder’s Meeting and agendas which by laws or by the Articles of Association of the Company, require 3 out of 4 votes of the Shareholder’s Meeting. Hence, other shareholders might not be able to collect enough votes to counter the agendas raised by the major shareholder.

However, in order to achieve business transparency and good corporate governance, the Company has set an organizational structure consisting of potential and knowledgeable employees and provided them with clear roles and responsibilities. The Company has also appointed the Audit Committee consisting of 3 independent directors, which have no interests in the Company in order to monitor and review the Company’ operations and protect the interests of minority shareholders resulting in appropriate check and balance and verifiable system.

Risks from Low Free Float of the Company’s Securities, Which May Result in Transaction Liquidity in the Stock Exchange of Thailand (SET)

As of October 3, 2018, the Company has free float of 20.34% which results in relatively low liquidity transaction of the securities listed in the Stock Exchange of Thailand (SET). Shareholder may have some risks of not being able to sell the Company’s shares immediately at desired price.

Nevertheless, the Company will continue to monitor and maintain appropriate free float level for shareholders on an on-going basis.

The Security Risks Of Information Technology Systems.

Information technology is an important tool for business operations as it helps elevate the efficiency of production process, customer service, communication, data collection, and data assessment and analysis. Therefore, such difficulties and the risks of cyber security are considered important as they may affect the continuity in system and computer usage as well as the stability, information security and the risks of computer-related crime. The occurrence of such risks requires the monitoring process, which may cause business interruption.

To avoid such risks, the Company has prepared action plans, systems, and preventive measures for risk mitigation and management.

  1. Provide the security protection of information and legal punishment as well as continuously raise the employees’ awareness and responsibility regarding the use of technology via e-mail, functional training programs and activities to ensure that they thoroughly understand the use of technology, and are secured from cyber threats or illegal cyber actions.

  2. Provide a security system for the network and computers as well as the devices that may trigger the risks of external cyber threats.

    • Set up a Firewall as the basic preventive measures and only authorized users shall be allowed to access the Company’s information technology systems.

    • Install computer anti-virus program on every computers and connect all network to the central system for the purposes of remote access and troubleshooting. The causes of cyber threats shall be determined in order to solve and avoid repeat problems.

  3. Set up different access levels to define the information confidential level. Effectively manage the data access to prevent confidential data access and data espionage, as well as set up the information access system in order to effectively review and monitor the data access.

  4. Establish data center and back up important data to support the Company’s business operations in case of system failure or problem as well as to ensure the information recovery and the continuity of business operations.

  5. Collect internet access data according to Computerrelated Crime Act and monitor visited websites that might be considered illegal or trigger the risks of data espionage.

  6. Install all computers with the programs that monitor any illegal software in order to avoid copyright or intellectual property right infringement. In addition, the Company’s server must have a license and it has to be renewed yearly.

Brand Reputation Risks.

At present, the organization’s reputation and image are factors that greatly affect the customer buying decision process, especially for food and beverage business. OISHI group has always been aware of its brand reputation and image and, thus, operates its business with good corporate governance, transparency, and reliability. The Company also pays attention to all stakeholders including community, society, and the nation. However, the Company, sometimes, encounters inevitable external factors which pose a threat to its reputation. As social media has become a popular communication channel for people to exchange their thoughts and comments on products and services, these online channels allow negative comments to spread quickly in a matter of minutes and may easily affect the organization’s reputation and image. Therefore, the Company has set policies and risk management plans as described below:

  1. Manage the Crisis Management Team to cope with any possible events that might affect the organization’s reputation and image as well as appropriately and immediately manage and prevent any difficulties that might occur.

  2. Provide an effective communication system with modern technology to assess the customers’ action, satisfaction, expectation as well as provide them with immediate information and responses.