Annual Report 2007
Thai Beverage Public Company Limited
88
89
Risk Factors
Operation Risks
Strategic Risks
Raw-material or container material price hikes or shortages could raise production costs, potentially hurting the company’s business
If the company cannot expand its business to markets for beer and spirits of higher prices, or cannot expand to international markets, the company’s growth may be affected A major strategy is brand base expansion through the launch of new brands of higher prices, which will lead to greater sales revenue. It is believed that beer and spirits of higher prices in the domestic market have considerable potential for expansion, and that consumers have altered their behavior of consuming economy beer and spirits to those of higher prices. That said, business expansion into such markets is very challenging for the company because of intense competition, thereby calling for massive investments associated with marketing, brand promotion, distribution development, and product sale, and the company is relatively new to marketing of products under this group. However, without development, promotion, and sale of higher-priced products under new brands, the company may lose opportunities for growth, particularly if the demand for premium beer rises at the expense of economy products. Equally important, this may harm the company’s financial status, performance, and business opportunities.
As a rule, raw materials and container materials critical to production and distribution are sold by third-party distributors, making it questionable whether such distributors can deliver them as required. In other words, the company’s operation could be affected by shortages or price hikes of such materials, namely molasses, malt, hops, water, glass bottles, labels, caps, and other packaging products. In addition, some raw materials and container materials are sold in currencies other than the Baht, therefore making their prices susceptible to changes in foreign-exchange rates, currency controls, government controls, world-market demand-supply changes, and climate. The higher the prices of these materials, the higher the production costs. Unless such cost rises are passed on to consumers, the company’s margins will shrink. And if delivery of these materials cannot be sustained, their prices are bound to sharply rise or affect production processes. All these could raise production costs, which may harm the company’s financial status, performance, and business opportunities. To mitigate such risks, the company has purchased critical raw materials and container materials in advance. As regards foreign-exchange risks, the company is going to use suitable financial tools together with the policy prohibiting a speculation on the foreign exchange.
Taking due care of crucial senior executives and succession plan Completed in 2007, expansion at the Kamphaengphet brewery has raised the company’s total capacity to 1,550 million liters per year. One possible strategy is to export the additional volume of beer to countries like Cambodia, Laos, and neighboring countries. However, with relatively little experience in selling consistently high volumes of beer in foreign countries, the company is unsure if it can raise its beer sales overseas. Besides, the company cannot guarantee sale of the above - mentioned additional volume of beer, which accompanies greater fixed costs. Still, the sales prices of such beer may not yield commercially acceptable profits - or yield potential losses. If so, the company may need to cut production, which will lower its capacity utilization of the brewery in question as well as its profit margin. In short, being unable to sell the above-mentioned additional volume of beer may harm the company’s financial status, performance, and business opportunities. To mitigate such risks, the company has set up an international sales team under the International Beverage Holdings Limited to take charge of international business expansion. In addition, to raise sales efficiency, domestic sales personnel have received training on ways to sell higher-priced products.
The company’s business today is executed by a group of senior executives and management team members with extensive experiences in its beverage subsidiaries, the loss of whom without equally competent successors could hurt the company’s business. For continued growth and success, the company needs to retain qualified and experienced personnel in management, sale, marketing, and production, and to train personnel to efficiently carry out production and product distribution. If the company cannot attract, retain, or motivate the above-mentioned personnel, or cannot find a suitable replacement for them, it is bound to lose customers and revenue. Still, should it successfully attract and retain such personnel, brain-drains are a distinct possibility, causing the company to pay these personnel elevated compensation to keep them, which may in turn harm the company’s financial status, performance, and business opportunities. The Office of Human Resources has initiated projects to continuously and sustainably raise the efficiency and effectiveness of recruitment, development, and retention of personnel critical to the company’s business.