|Risk Management Policy
| 1. The Company’s expected revenue and net income growth is highly dependent on the expansion of its store network and it may be adversely affected by the following factors:
• identifying, hiring and training qualified employees for each site;
• punctual commencement and completion of construction activities;
• engaging qualified independent contractors;
• managing construction and development costs of new stores, particularly in competitive markets;
• securing required governmental approvals, permits and licenses (including construction and business permits) in a timely manner and responding effectively to any changes in applicable laws and regulations that adversely affect the Company’s costs or ability to open new stores;
• unforeseen engineering or environmental problems with leased premises; and,
• avoiding the impact of inclement weather, natural disasters and other calamities.
The Company has properly planned its expansion program and has worked cooperatively with the parent company to put in place contingency and corrective measures where issues especially in the construction of new stores occurred that would delay said expansion. There is no guarantee, however, that these corrective measures would totally eliminate the risk of delays in the implementation of the expansion plans.
|2. The Company may encounter significant competition in key provincial cities outside Metro Manila. A significant portion of the Company’s medium-term expansion strategy is to open new stores in the various regions of the Philippines, particularly in areas outside of Metro Manila. The retail market in these areas is dominated by independent local operations. Expansion into these areas exposes the Company to operational, logistical and other risks of doing business in new territories.
|The Company has studied the demographics and the competitive environment in the areas it has planned to enter to overcome challenges of entering new markets. There is no guarantee that the strategies the Company will employ will result in the immediate and sustainable profitability or the branches to be opened in these new areas.
|3. The success of the Company’s business is reliant on the Company’s continuing capability to source and sell the appropriate mix of products that meet customer preferences. The Company’s success is dependent on its ability to source and sell products that meet quality standards and at the same time satisfy customer’s preferences.
|The Company has a team of employees primarily responsible for sourcing the right portfolio of products, studying and anticipating trends in customer behavior, and appropriately responding to these trends. It’s ability to source and market such products, or to accurately forecast or quickly adapt to changing customer preferences, will affect the level of customer transactions in the Company’s stores, which could have an effect on the Company’s business.
4. The Company may not be able to maintain and develop good relationships with its current and future suppliers, and failure to do so may adversely affect its business.
|The Company’s success is a reliant on its relationships with current and future suppliers. The Company has had long-standing relationships with multiple local and foreign suppliers. The ability of the Company to build relationships with new suppliers and to maintain or further strengthen existing relationships with suppliers is important in enabling the Company to source its desired portfolio of products at the preferred price.
|5. The Company currently relies on distributors and service providers for its logistics requirements. The Company relies on distributors and third party service providers for transportation and deliveries of products to its stores. Any deterioration in its relationships with these distributors or service providers or other changes in supply and distribution chains, could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company has been able to establish and continues to improve its solid long-standing relationships with its service providers throughout the years. There can be no assurance, however, that these efforts will be successful.
|6. Changes in the retail and real estate market environment in the Philippines could affect the Company’s business. The Company’s home improvement business is dependent on the favorable growth and performance of the retail and real estate markets. The largest retail market of the Company is Metro Manila. The Company’s stores in Metro Manila account for more than half of its total sales. Demand for the Company’s products is driven by new and existing real estate projects in the market including, but not limited to, residential houses, condominiums, offices and commercial buildings.
The Company however, as it has done throughout the years, monitors and analyzes these markets in order for it to successfully anticipate changes and sufficiently respond to any development and continue to provide more and various choices to its customers.