Although the sales and distribution of water purifiers have not been controlled by any particular state agencies thus far, some agencies indirectly involve in the Company’s business. Office of the Consumer Protection Board, for instance, has a duty to prevent hire purchasing service providers from taking advantages over consumers. In addition, the Ministry of Commerce has imposed a law to control the direct sale business, requesting all direct sellers to obtain a particular license before launching their direct sale business. Another relevant state agency is Ministry of Industry, which oversees the extension of a license to operate industrial factories. The Company always takes the rules and regulations set by relevant state agencies seriously. However, it will be rather risky for the Company if relevant agencies add more stringent rules and regulations. Being aware of this risk, the Company thus sets operation guidelines to suit the current state rules and regulations. Meanwhile, the Company always monitors updates on any changes of relevant rules and regulations in order to ensure that the Company’s business is operated in compliance with state rules and regulations.
The Company distributes its products mostly through the single level direct sales channel, by direct sales teams. The sales revenue generated by this sale channel accounted for about 95% of the revenues from sales of goods. With its long expertise in the single level direct sales, the Company strongly believes that this sale channel remains an appropriate channel. To sell water purifiers, sales personnel are required to provide detailed technical explanations about product specifications, and conduct product demonstration to highlight advantages of the products in order to stimulate customers’ buying decisions and ensure that the sale is successfully closed. These sales techniques are unique ability of each salesperson. Therefore, talented salespersons are attractive as well as are interested by other companies, and may be bought by any company that have higher attractive benefits package. To retain our talented sales personnel, the Group is committed to offering attractive remuneration packages and benefits as well as training in order to engage sale staff, and enhance the sales teams’ efficiency.
However, the Group is aware of risk regarding heavy dependency on the direct sales channel. They also have distributed products via other channels, to broaden its customer coverage, e.g., modern trade, telesales & telemarketing, E-commerce and online media including Facebook, Line, Lazada and etc. Furthermore, the Group has also appointed sales representatives to present products and services, covering all target customer groups. Finally, there are other sale method, e.g., producing and distribution on an OEM basis for other direct sales operator.
The trade liberalization and the emergence of ASEAN Economic Community (AEC) in 2015, economic cooperation in the region of Southeast Asian countries (ASEAN) which includes 10 member countries, will result in relocations of funding resources, manpower, and international trades among the member countries. As a result, there might be some low-cost products from other countries to beat Thai products. Therefore, the Company has planned to expand its distribution channels and create more varieties of products to meet customers’ demand and reach more customer targets. Moreover, the Company also has a plan to expand to overseas markets, including AEC member countries after studying relevant factors and marketing possibilities. The company has started to sell products in the Lao People's Democratic Republic. Distributed through dealer in Cambodia. We are also studying to bring the products to other AEC countries.
The manufacturing of a water purifier requires varieties of components and devices, both for the body and filtration substances. Some items can be produced domestically but some have to be imported by major importers. The prices of material and equipment vary according to market prices and exchange ranges for the case of imported items. The Company may be partially impacted by the fluctuation in material and equipment prices, as well as exchange rates. To manage the exchange rate risk, the Company utilizes financial instruments in order to mitigate the impact on exchange rate fluctuation.
One of the Company’s plants is located in an orange zone, i.e., a densely populated area. The plant received an operating license on 10 October 2007, under the condition that the license will be revoked anytime whenever relevant agencies lodge a complaint or the plant causes any troubles to the community. Details are as following:
There is risk that the license may not be extended. However, the Company’s management is confident that the license will be extended because the Company has neither been given any significant warning by any relevant agencies nor complained by residents in the area.
The Group’s water purifiers and electric appliances are sold mostly through the direct sale channel on a hire purchase basis. The quality of hire purchase receivables is a key factor for the recognition of revenue. As of 31 December 2017, the hire purchase receivables with outstanding balance overdue for consecutive three months accounted for 5.39% of total hire purchase receivables from sales of water purifier. For electric appliances, outstanding balance overdue for consecutive six months accounted for 3.12% of total hire purchase receivables from sales of electric appliance. The major customers of the Group are in the medium to low-end market segments. The Group has established sales policies that enable those two customer segments to reach the Group’s products and services. To mitigate the credit risk, the Group has strict policies to review and control debts. In terms of overdue receivables, the Group set allowances for doubtful accounts at a sufficient level, taking into account the history data of bad debts. In case a receivable has outstanding balance overdue more than three months, the Group will stop recognizing the full amount of interest income from that particular hire purchase account before taking legal actions. In light of this, the Group will send two warning notices before writing off the account. Given that the Group’s gross profit margin was rather high at 75.73% in 2017, the Group still enjoyed impressive operating profit from installment sales even after the deduction of sales expenses and bad debt and doubtful debt expenses. In 2017, the net profit margin of the Group was 4.51%.
Measures to prevent and mitigate risks in case the receivables fail to follow payment conditions and agreements which stated in the hire purchase contracts, are as follows:
The Group drawn down short-term and long-term loans from financial institutions to fund its business operations. As of 31 December 2017, outstanding balances of short-term loans from financial institutions amounted to Baht 129.91 million, and of long-term loans of Baht 21.97 million. Regarding the management of finance costs, the Group considers to utilize sources of funds which bearing floating interest rates. Comparison of interest rates offered from financial institutions will be done and considered based on money market conditions at a time. Given that all loans came with floating interest rates, the Group may encounter risks in regard to the fluctuation in the interest rate; this may result in higher funding costs and thus have a negative impact on the Group’s operation. However, the Group has been granted credit facilities from several financial institutions to reserve for necessary funds required. Should the Group need some funding, it shall be able to seek funding from some methods in accordance with the economic condition, as well.
Risks in regard to the fact that the major shareholders have control power over management policies.
The Changyoo family is the Company’s major shareholder group (further details can be obtained from Part: Listing Securities and Shareholding Structure). As of 29 December 2017, Changyoo group held 339,105,053 shares or 65.63% of issued shares. As a result, the Changyoo group is able to control almost all resolutions of shareholders’ meeting, including the appointment of directors or any matters that require the majority votes of shareholders. The power of the major shareholder, however, does not include the issues related to laws or regulations, for which three-fourths of the shareholders are required. Given the control power of the major shareholder, other shareholders are unable to gain votes enough to balance the power of the major shareholder group for some particular issues proposed by the major shareholder. Being aware of this risk factor, the Company arranges the management structure, consisting of the Company’s Board of Directors, Executive Committee, and the Audit Committee. The members of these committees are those with high experiences. 5, out of 10, are independent directors from outside, of which four independent directors act as the members of the Audit Committee. These members provide comments in regard to connected transactions prior to proposing to the Company’s Board of Directors and shareholders’ meeting.