1.  Risk Factors

Directors and executives of SE-EDUCATION Public Co., Ltd. are well aware
of their responsibility in operating the business with good governance.
In order to maximize the benefits for the Company’s shareholders, they
also have to manage risks in the business systematically and
continuously so that risk factors such as operation risk, business risk,
financial risk, production risk, will remain at an acceptable level.

Directors and executives of the Company appointed Audit Committee to
supervise on the risk management and make sure that the management
follows the policy and reports directly to the Company’s directors so
that the Company’s risk management is properly controlled. However,
there could be some risk factors affecting the Company and stakeholders
as follows :

1.  Operation Risk

-   Risk from problems in key operation ground :

    -   Warehouse Most products sold in SE-ED Book Centers and
        distributed to other bookstores are delivered from the Company’s
        warehouse. The warehouse is, therefore, a very important factor
        in business operation.

    -   Plearnpattana School Buildings is a vital factor in the
        operation of the subsidiary company.

  In case of natural disasters, accidents or other uncontrollable events
  on the Company’s warehouse or Plearnpattana school buildings, the
  business operation of the Company and its subsidiary may be
  unavoidably affected.

  However, the Company has sought to insure all the assets and products
  and consistently adjust the insurance coverage to be in line with the
  asset value. The Company also sets up a security measure to reduce
  unexpected risks from disasters which might occur at the warehouse and
  Plearnpattana school buildings.

  In addition, should there be a problem at the warehouse, the Company
  is in the process of developing a back-up system that will allow the
  warehouse to operate temporarily and still be able to deliver products
  from publishers and suppliers to the branches across the country.

-   Risk from Fire, Flood and Other Natural Disasters Being in the
    publishing business, the Company’s assets and products can be easily
    damaged and broken from various causes, which can potentially harm
    the business operation of the Company. Even though the Company and
    its subsidiary have adequate insurance coverage, the Company has
    always improved the precautionary measures against such dangers.

  In order to reduce a risk from such circumstances, the Company has
  prepared a clear action plan. First of all, the Company provided
  trainings for employees and a detailed guideline about an action plan
  and responsibilities of each employee and department in case of a
  threat. There were also trainings about how to use fire extinguishers
  and how to maintain electrical appliances to prevent an accident from
  a short circuit. The Company also did a research and developed a flood
  prevention plan. So far the Company purchased water pumps, determined
  the sandbag lines and where to build a brick wall. The Company also
  had a long-term international standard fire prevention plan for the
  new warehouse.

-   Risk from product loss : As the Company operates a retail bookstore
    business with over four hundred branches nationwide, it has been
    dealing with the loss of products from theft and other causes in the
    similar manner to what other retail businesses have encountered.

  The Company realizes the importance of establishing a proper product
  loss and prevention effort. The Closed-Circuit Tele-Visions (CCTV)
  have gradually been installed since the end of fourth quarter in 2006,
  and later completed the installation in all branches in the middle of
  2007. The Company also established a Loss Prevention Department (LPD)
  to address the issue and set up measures to prevent the book loss
  specifically. This results in the significant reduction of product
  loss at the storefronts from 1.4% in 2006 to 0.3% from the sales
  volume of 2011. Moreover, along with the use of CCTV, the Company has
  installed the electronic article surveillance system in the branches
  prone to thefts.

-   Risk from errors or malfunctions in computer and information
    technology system : The Company and its subsidiary installed the
    computer and information technology system for all operation points
    such as the storefront selling system, distribution management
    system, purchasing system, and accounting and financial system. The
    computer and information technology system is regarded as crucial to
    supporting effective company operation. Therefore, errors and
    malfunctions of the system may have an effect over the Company’s
    management.

  Therefore, to reduce the impact of such computer and technology system
  errors and malfunctions at the branches, warehouse, head office and
  subsidiary company, the Company and its subsidiary has set up a
  protection and back-up system at the generally accepted standard. The
  Company also sets up a preparation and back-up plan for any
  circumstances. This includes the regular trainings in case of an
  unexpected event.

  In addition, the Company and its subsidiary have developed a complete
  system with “high availability” to support an ever increasing sales
  transaction, provide a virus protection system and handle a greater
  number of visitors to the Company’s website. However, the
  fast-changing technology pushed the Company to continuously develop
  its entire networking system in order to maintain its stability and
  ability to support the new business expansion.

-   Risk in shortage of specialists : Experts in the fields and
    specialized personnel are the most important resource of the
    Company’s operations including the production of academic books and
    magazines. It is vital to search for specialist teachers who can
    provide knowledge for students effectively and experts who can
    create useful works for the Company and its subsidiary’s businesses
    which are mostly pioneer businesses.

  The Company and its subsidiary have to endure the economic crisis as
  well as the problem of high fuel price and inflation that results in
  higher cost of living problem which the Company’s staff has to deal
  with, particularly foods and travel expenses.

  From the above-mentioned problems, the management of the Company and
  its subsidiary realized that they had to provide support for the staff
  that is the most important resource. The management then organized a
  meeting to find a solution to alleviate the effect from continuously
  rising inflation for the staff so that they can continue their works
  for the Company and its subsidiary. The Company and its subsidiary
  then reviewed and adjusted the compensation structure that includes
  living expenses and maintenance allowance. The Company also provides
  annual health check-up, health insurance, accident insurance and other
  coverage to be at a sufficient level. The objective is to create
  stability for the employees and their families while supporting them
  throughout the state of higher living cost so that they can compete in
  the labor market.

  Besides, the Company and its subsidiary determine to recruit potential
  employees to support the future growth while continue to develop the
  staff’s academic knowledge, mental stability and provide opportunities
  for the employees to grow along with the Company and its subsidiary.
  The culture of organization is also developed to improve the
  employees’ skills and allow them to work more comfortably.

-   Risk from renting an estate for the operation of the subsidiary
    company : At present the Company’s subsidiary, Plearnpattana School,
    is operating on Buddhamonthon 2 Road in the area of over 32,000
    square meters (20 Rai). The estate is rented from the shareholder of
    the subsidiary under two contracts of 30-year term and worth 10
    Million Baht. It is agreed in the contracts that the lessor will not
    sell the estate to any person without a consent from the subsidiary
    company. If the lessor absolutely needs to sell the estate without
    any alternative measure, the lessor agrees to offer the estate to
    the subsidiary at the same price the lessor offers to the outside
    party. If the subsidiary company does not accept the offer in 60
    days from the date of the offer, the lessor can sell the estate to
    the outside party. Nonetheless, the subsidiary company is reviewing
    the terms and conditions in order to sign an additional contract
    regarding the rental of the estate in order to reduce any possible
    risk.

    1.  Business Risk

-   Risk from products being outdated, damaged or superseded by other
    media : At present the book business has grown significantly. There
    are more newly released books, resulting in the competition for the
    limited selling space, causing a rising rate of returned books. It
    is more difficult to find a sale channel for returned books while
    damaged books also increase in number. The Company then set up an
    order guideline for customers and appropriate credits for purchasing
    orders. Special promotions and efforts are also put in place to
    release outdated or damaged products. Moreover, the computer
    technology has been developed very quickly. The sales duration of
    computer books in which the Company is one of the leaders, is
    shorter than before. Electronics media has begun to replace books in
    some categories and some applications. The Company has adjusted the
    production policy to publish books with long life cycle at a higher
    proportion while trying to release slow-moving books. The Company
    websites, www.se-ed.com and m.se-ed.com, are also set up for
    customers to be informed of new books released and trendy books at
    particular times faster.

  Although electronic media has been rapidly developed and the market of
  “eBook” and “eBook Reader” has opened, the Company still believes that
  the market will take a considerable time to change the majority of
  Thais behavior who are not used to reading through electronic media to
  that point that it is strong enough to effect the book business in
  significant way. When the time for such a trend arrives, the Company
  is certain that it will be able to adapt to the trend very quickly,
  due to a certain level of supporting structure the Company already has
  in place.

-   Risk in distribution channels : Currently, a change in technology
    happens very fast. The competition in retail business is increasing.
    There is a competition to offer customers more choices, causing the
    consumer behavior to change all the time. The Company must make
    certain that all Company’s available market channels are adequate
    enough to facilitate the market behavior and the customer’s needs at
    all times, and great enough, while allowing channel development to
    serve the changes on a timely basis.

  In the past, the Company has diversified risks of distribution
  channels through several channels apart from existing traditional
  bookstores, by opening up its own bookstores called “SE-ED Book
  Center” and network stores in the leading department stores,
  supercenters, local shopping centers, IT centers, higher educational
  institutes, both in Bangkok and other provinces. SE-ED Book Center has
  the shared income of 85% of the 2011 total revenue. In addition, the
  Company opened a book outlet as a mean to manage outdated or damaged
  products.

  In opening up new bookstore branches, the Company has the policy to
  improve branches periodically to best suit and serve the market in
  each locality, to prepare for greater competition at all times. The
  Company also diversifies risk by not attaching itself or opening the
  bookstores in only one particular group of shopping centers. But it
  seeks to open stores through several different shopping center owners.
  Several big branches are under a long-term leasing contract ensure
  sales stability in each location. Therefore, if any department stores
  or supercenters encounter problems or cannot operate for any reasons,
  or changing the leasing policy, the Company’s income will not be
  significantly affected.

  The Company has acquired all the assets and products insurance to
  reduce an unexpected risk that might occur.

  In addition, the Company has developed the distribution channel
  through the Company’s website called www.se-ed.com to support the
  sales of books and products in the E-Commerce system. Additionally,
  the Company has launched its mobile website, m.se-ed.com, for mobile
  devices such as smart phones or tablets to allow customers more
  convenient alternatives to book shopping and finding a greater
  varieties and numbers of book titles. The Company expects that such
  channel will bring in a larger revenue pool for the Company in the
  future as the result of dramatically growing internet usage from
  general public. The new channel will also aid the increasing e-book
  trade in the future.

-   Risk from economic recession affecting the growth of advertising
    industry : Risk from economic recession is affecting the growth of
    the advertising industry and may actually affect the total revenue
    of the Company as magazines published by the Company generate its
    main revenue from advertisements. The Company is aware of the
    problem and seeks to develop new publications that focus on specific
    contents for specific market. At the moment the Company is
    developing a digital magazine that will be sold through an online
    channel and reach the customers more quickly. It is also an
    opportunity to open up new market because of the convenience in
    accessing the contents via electronic and mobile equipments. The
    chance of higher revenue in advertising will also increase as a
    result. In addition the Company has a policy of securing long-term
    advertising contracts with clients and employ the sales promotion
    strategy by stressing special promotion as an incentive for
    customers to invest in advertising with the Company, such as
    deployment of barter system for product-in-exchange-of-advertising
    to expand customer base and support the business growth and reduce
    the effect of risk from media advertising industry which may
    periodically slowdown. Moreover, the company also made from
    organizing seminars and selling IT products to compensate the
    missing revenue.

-   Risk from reselling censored and pirated books : As some of the
    products such as, CDs or other publications may be stipulated and
    restricted by laws, some products must first obtain a permission
    before sales and some are directly related to the copyright. This
    causes the Company to be relatively cautious towards the production
    and acceptance of product distribution both for retail and wholesale
    market, so as to avoid any illegal practice, any violation of
    others’ copyrights, any arising conflicts that may lead to court
    cases and any possibility of protests.

  The Company’s editorial staff has to select the original manuscripts
  more carefully and cautiously in order to avoid the problem of
  copyright infringement. Besides, the Company has specified in the
  contract with authors or manuscript owners that they have confirmed
  that their works or products belong to them and did not infringe upon
  any copyright and will fully compensate all damages incurred to the
  Company if the copyright infringement occurs. This will reduce the
  probability of any damages caused by this problem.

  The Company has a policy to completely object the sales of
  copyright-violated products and has organized trainings for authors
  and general public to understand and be more aware of the laws
  regarding copyright infringement.

However, very few problems occur and the affected value is not
significant.

-   Risk from printing industry : As the Company has not invested in
    printers, the Company has no risk in this aspect and does not
    adversely suffer from price war in the printing industry. The
    Company chooses several printers to support productions so that the
    Company can control expenses properly to the competitive printing
    price offer all the time and can fix the production time duration
    definitely.

    1.  Financial Risk

-   Risk from providing credits : The Company still faces a risk in
    giving credits to trade debtors. However, the Company sets a policy
    to properly limit the credit and establish a system that can
    consistently follow up on debts from debtors. The Company revises
    the credit limit for debtors every year in order to change the limit
    to be at an appropriate level and in line with the current economic
    situation. The Company has a policy of giving a credit carefully and
    shares the debts among debtors. The Company also considers the case
    of possible debt loss appropriately. It is then believed that the
    risk from debt loss is at a low level.

-   Risk from foreign currency exchange : As the Company has signed the
    agreement to be the sole distributor for all Oxford University Press
    (OUP) English Language Teaching (ELT) books in Thailand and also
    holds the right to sell in the territory of Cambodia, Laos, Myanmar,
    and Indonesia in the effort to push forward the English language
    education in Thailand as well as the neighboring countries,
    resulting in problem of currency fluctuation caused by the purchase
    of books in foreign currency. Thus, to minimize the risk at the
    acceptable and optimal level, the Company has the policy to
    carefully select contracts to be committed to in order to prevent
    risks from the exchange rate.

    1.  Production Risk

-   Risk from raw materials and product deficiency : Paper is the
    important raw material in book production and price has changed
    variously according to market demand and production quantity all the
    time. But the books published by the Company have target group with
    purchasing power and are well educated enough for the Company to use
    the policy to set price in accordance with the real cost in that
    period, and this does not cause a considerable impact to the
    Company.

  As the Company has the major revenue in being a publisher, a
  distributor, and a retailer, the Company tries at best to maintain the
  role as respectable neutral element who sells books for every
  publisher which is in demand by the market, and the Company business
  policy is determined on the basis of good ethical standard in business
  practices. The Company has its duty to adhere to the ethical standard
  of business conduct. The cause of trouble or injustice occurring from
  the Company business conducts aiming towards any interest groups will
  not be tolerated. Owing to this, the Company has evidently long been
  supported by most suppliers in book industry, and it also makes the
  Company less dependent on the revenue from one particular supplier.