Business and Other Risks

Because of the fact that they can have a serious impact upon the judgment of investors, we regard risks to the business and other areas of the Group as a major issue. However, there are other factors, not necessarily equating to risk factors like these, that can also be viewed as exerting a major influence on the attitudes of investors and we disclose such matters in line with our proactive stance on providing information.

There are items included on this page that relate to the future but they are based purely upon the judgment of the Group about such issues at the time that these financial statements were submitted.

1. Changes in the Product Environment

The Group is subject to product price risks from market fluctuations for products in which we deal in areas related to resources and metallic materials. There is a possibility that, as a result of shortening the periods for which they are stored as inventory, risk can be reduced by negotiating annual sales volumes per product in advance but, in circumstances in which short-term market fluctuations exceed expectations, this factor may have an effect upon the performance of the Group.

2. Fluctuations in Currency Markets

The Group is vulnerable to risks associated with changes in foreign exchange rates because sourcing and sales activities are denominated mainly in foreign currencies. To reduce exposure to this risk, we use exchange rate hedging contracts for all trading contracts. Consequently, we believe that short-term volatility in foreign exchange rates will have only a negligible effect on our performance. However, in the event of volatility that is more than expected, there may be an impact on the Group’s business performance.

3. Trends in the Economy and Capital Investment

The products in which the Group deals are related to industrial and construction machineries and environmental equipments, and they are mainly used in factories operated by manufacturing industry and by waste-water treatment facilities run by local authorities, etc. Because demand, not only for sales of machineries and equipments, but also in maintenance-related areas is constant, and also because our customer base is principally in private sector demand-related and concentrated in manufacturing industry and spread across a wide range of sectors, we think that a certain degree of stability in earnings can be maintained. However, the possibility remains of the Group's earnings being affected by trends in the general economy and by fluctuations in levels of capital investment. Moreover, because the products that the Group handles in chemical-related areas are supplied as raw materials to clients in a wide range of fields including automobiles, construction materials, electric power, and electronics, the Group's earnings may be subject to the impact of fluctuations in economic trends both in Japan and overseas.

4. Seasonality in Earnings

The Group's earnings performance is related to industrial and construction machineries and environmental equipments and so is also related to the implementation of capital expenditure budgets at its clients and so there is a tendency for both revenues and earnings to be concentrated in the 4th quarter.

5. Natural Disasters, etc.

The performance of the Rasa Group may be affected by the occurrence of catastrophic damage to infrastructure or suppliers of the specific products mentioned below due to unpredictable natural disasters such as earthquakes and floods, accidental disasters such as fires and power outages, or social disruptions such as terrorism; damage to Rasa Group facilities that requires extensive reconstruction; or global pandemics that cause social activities to stagnate or the economy to deteriorate.
While the facilities of the Rasa Group undergo daily and periodic maintenance and safety measures, physical or human damage due to unforeseen accidents may affect Group performance.

6. Reliance upon Specific Products

• 1. Zircon Sand
  Most of the zircon sand is sourced from the world-leading Australian mineral sands producer Iluka Resources, Ltd. with which the Group has concluded a exclusive agency contract for Japan. We have established a firm relationship with this company but, since zircon sand is a mined resource, in circumstances in which stable volumes of mined material from the company is not secured, or if there should be an alteration in the business policies of the company, there is a possibility that this could have an impact upon the Group's earnings.
• 2. WARMAN® Pumps
  The Group has concluded an Exclusive Distributorship Agreement for the sale of WARMAN® pumps with the Pacific Machinery & Engineering Co., Ltd. which is a related company of the Group. In addition to its capital relationship with the company, the Group also acts as import/export agent for it and sends out executives to the company, etc. Consequently, there is a very strong connection between the two companies but if there were to be a change in the relationship between the Group and the company, then this might affect the Group's business performance.

7. Legal Restrictions

All businesses related to the Rasa Group are subject to regulations related to business permits, environmental law, trade law, intellectual property law, labor law, and countless other laws.
To comply with these legal regulations, the Rasa Group has established a Compliance Manual, instills awareness among all group officers and employees of the behavioral standards they must abide by, and implements a compliance program each year to promote and establish a mindset of compliance.
However, the performance of the Rasa Group may be affected in the event that legal regulations are revised or abolished or new legal regulations are established in the future, or if situations arise that violate laws and regulations despite efforts by the Group.

8. Securing of Human Resources

Because it is essential to the maintenance of the Group's operations to employ staff with specialist skills and experience, we concentrate very heavily on training engineers and similar staff possessing high levels of product knowledge and technical ability. However, if we should find that we are unable to secure the human resources that we plan to employ then this could well have a exert a significant impact on the performance of the Group.

9. Risks due to Climate Change

The movement to curb climate change is gaining strength such as with the rationalization of energy use and legal regulations to combat global warming on a worldwide scale. Our group also recognizes the importance of climate change. Climate change transition risks (including the risk of rising procurement and energy costs due to environmental regulations for measures to combat global warming such as the introduction of carbon taxes) and physical risks (including the risk of damage to business sites, supply chain interruptions and logistics operation stoppages) may affect our group's business results.

Our group has formulated the Basic Policy on Sustainability in response to those risks. We are discussing measures against those risks based on a promotion structure centered on our Sustainability Committee. The details of those discussions are also being reported to the Board of Directors as necessary.

Moreover, we endorsed the Task Force on Climate-related Financial Disclosures (TCFD) in March 2023. We are now working to assess the impact of climate change and to disclose information on that.

10. Geopolitical Risks

The impact of geopolitical risks on corporate activities is gaining attention. These risks include Russia's invasion of Ukraine in 2022 and the resulting concerns about energy supplies in Europe, and the growing conflict between the U.S. and China over the Taiwan issue.

Our group imports and exports mineral products, primarily zircon sand, and other materials. Together with this, we import some machineries in the environmental equipment business field. If international supply and demand trends change because logistics structures and supply chains are affected by the economic situation in various countries and geopolitical risks, our group's purchasing costs may soar. Together with this, we may be unable to fulfill our product supply responsibilities due to geopolitical risks or incidents at suppliers. In that case, our group's business results may be affected.

11. Information Security Risks

Our group retains a lot of confidential information when engaging in our businesses. This includes technical information on our products, sales information on our customers, and personal information on our officers and employees. Our group enacts information security management rules to prevent this information from being leaked externally, tampered with or lost. At the same time, we provide training on information security to our officers and employees and strive to appropriately manage and operate our information systems. Nevertheless, if unauthorized external access, ransomware or other cyberattacks, or system outages due to natural disasters or large-scale power outages occur and it becomes difficult to continue business, our group's business results may be affected.