ARE Holdings, Inc.

Prices of precious metals and rare metals fluctuate due to international supply-demand conditions, political and economic trends, foreign exchange rates, monetary policy, and other factors, and directly affect the Group's operating results and financial position. While the basic policy is to hedge through forward transactions and other means, rhodium has limited liquidity and few available hedging instruments, which may result in incomplete risk mitigation. A system has been established to report fluctuations in major precious metal prices to management in a timely manner.

The Group is subject to a wide range of laws and regulations both in Japan and overseas, including business licensing, import/export restrictions, environmental conservation, taxation, and intellectual property rights, and there is a risk that business operations may be constrained by non-compliance with regulations or by the introduction of new regulations or tightening of standards. In particular, the tightening of environmental and climate change-related regulations by governments in various countries may lead to increased business costs or operational constraints. While a system has been established to centrally manage information on legal amendments and ensure thorough dissemination to operating sites, this does not guarantee complete compliance.

In the Precious Metals Business and Environmental Conservation Business, the business environment may change significantly due to major shifts in customer needs resulting from changes in laws, regulations, or licensing requirements, customer companies relocating overseas, or industry restructuring. In addition, heightened geopolitical tensions and the tightening of import/export restrictions on strategic materials associated with economic security policies in various countries pose a risk of unexpected disruption to the supply chains of the Group and its customer companies. Risks may also materialize when challenges in new businesses and new fields encounter a business environment that differs from initial expectations.

As overseas business expands in North America, Asia, and other regions, inherent risks include changes in tariff systems, political and economic events, labor disputes, uncertainty in securing personnel, social unrest, and improper intervention by authorities. In the North America Refining & Processing Business, value-added services such as trading and financing are being expanded, and risks may materialize when economic conditions or the creditworthiness of business partners deteriorate. Although management systems such as involvement of the risk management department and discussions at Board of Directors meetings have been established, disruptions to global logistics networks may also affect the continuity of local operations.

The Group positions corporate acquisitions as a pillar of its growth strategy and intends to continue pursuing them actively; however, if the integration of personnel and assets does not proceed as planned, there is a risk that the anticipated integration effects may not be achieved. Although thorough due diligence is conducted at the time of acquisition from financial, legal, personnel, and equipment perspectives, if an acquired company fails to achieve its initially planned performance due to changes in market conditions or other factors, impairment of goodwill or fixed assets may occur, materially affecting operating results and financial position. It should be noted that the financial impact of impairment risk increases as the scale of acquisitions expands.

Increasingly sophisticated and elaborate cyberattacks may result in virus infections, hacking, or system failures, potentially leading to unforeseen incidents such as destruction, falsification, or leakage of critical data, or interruption of production and business operations. In addition, the use of new digital technologies such as generative AI presents risks including unintended external transmission of confidential internal information and misjudgments based on erroneous AI outputs, which could lead to a decline in social credibility. While maximum security measures and regular employee training are implemented, these do not guarantee complete prevention.

As a transition risk, the introduction of carbon pricing systems, including carbon taxes, may increase business costs, while as a physical risk, the intensification of natural disasters due to extreme weather may cause severe damage to the Group's facilities, potentially resulting in prolonged suspension of business activities. The Group has set a target of reducing CO2 emissions by 42% by 2030 compared to 2023, has declared carbon neutrality by 2050, and is disclosing information and responding in line with TCFD recommendations. Although Scope 1, 2, and 3 CO2 emissions are measured and third-party verified, the pace of regulatory tightening could result in response costs exceeding expectations.

If serious compliance issues occur or are discovered in the precious metals supply chain, such as human rights violations, money laundering, terrorist financing, bribery, fraudulent transactions, or violations of economic sanctions, this may hinder the maintenance of certifications or the continuation of transactions. Although a management system compliant with international guidance has been established and third-party audits and certifications have been obtained and maintained, a delayed response to tightening or revision of related laws, regulations, or certification standards could affect operating results and financial position through a decline in social credibility. This risk is fundamental to the Precious Metals Business, and continuous strengthening of supply chain management is essential.

As the pace of business expansion accelerates, if the Group is unable to secure excellent personnel or build the necessary workforce in a timely manner, this may affect operating results and financial position. While the Group promotes diversity, equity & inclusion, health management, work-style reforms such as a four-day workweek model, recruitment activities, and talent development programs, there is a risk that intensifying competition for talent both in Japan and overseas may make it difficult to secure sufficient personnel. Given that medium- to long-term growth depends on the contributions of diverse personnel, continued strategic human resource management is important.

Large-scale earthquakes, typhoons, and other natural disasters, as well as the emergence of new infectious diseases, may cause severe damage to production, logistics, sales, and information management-related facilities and other business sites. While measures such as the establishment of a business continuity management (BCM) system, flood countermeasures, disaster drills, and employee safety confirmation systems have been implemented, these cannot completely eliminate such damage. In particular, damage to manufacturing sites poses a risk of directly affecting sales and profits through the suspension of production.