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The main risk factors described below may affect our business activities and financial results. Factors that may not be regarded as substantial risks but may materially affect investors’ decisions are described as well in terms of timely disclosure. Information presented herein is based on our decisions as of June 26, 2009 when we submitted our annual securities report to Financial Services Agency.
Being well aware of conceivable occurrences of such risks, Asahi Industries Group will take precautions and measures against them.

Asahi Industries Group has a unique business structure based on two different businesses, steel business (electric furnace steel-making) and agribusiness. The steel business, in terms of raw material and product prices, is affected by the market and our financial results fluctuate significantly according to it. Fortunately, we have maintained a profitable position as shown by posting ordinary income since 1992 when the old Asahi Industries was split and the new management started. However, our profitability may be low compared with that of other electric steel manufacturers when the steel industry is booming and compared with that of other fertilizer manufacturers when the steel industry is in a slump. As ensuring stable profitability is our management policy in the steel business although the steel market is fluctuating, we have developed a wide range of products such as plain steel, structural steel and threaded deformed bars. As a result of such development, our customers have ranged from contractors to automobile and machine parts manufacturers. Accordingly, we are financially stable compared with other electric steel manufacturers of which the main product is structural steel. However, when the structural steel market is active, the profitability of our steel operations may be low compared with that of other electric steel manufacturers.
Asahi Industries Group will continue to aim at stable profitability as our management policy.

In the steel business, our main business (accounting for 59.7% of the consolidated net sales), both raw material and product prices are significantly affected by the market. Therefore, when there is a decrease in product prices, or product prices can’t be raised in proportion to raw material price rises, our financial results may be adversely affected substantially. In the agribusiness sector, recently raw material prices increased sharply due to some factors including the oligopolistic raw material market and foreign currency exchange rate fluctuations, but it wasn’t possible to raise fertilizer prices reasonably and satisfactorily. In such a case, our financial results may be adversely affected.

The fertilizer business (accounting for 23.1% of the consolidated net sales) may deteriorate markedly in the case of abnormal weather conditions such as unusually cool weather, a drought and a long spell of rainy weather during the time of fertilizer applications to be planned on the basis of growth of plants. The hay business (accounting for 3.7% of the consolidated net sales) may be greatly affected by the weather conditions in Australia. This is because we import hay mainly from our joint venture company in Australia and a drought and rain during the cutting stage affect quality and yields of hay.

The dealings in products and raw materials with National Federation of Agricultural Cooperative Associations (Zen-Noh) account for 66.6% of the net sales of the agribusiness sector. We basically enter into contracts for sales quantities and prices of products and raw materials with Zen-Noh once a year, but don’t make any long-term contract. Regardless of whether a long-term contract is made or not, it is reasonable to regard. Zen-Noh as our main business partner from the perspective of its influence and creditworthiness in the agricultural industry and a long-term relationship between Zen-Noh and Asahi Industries. However, if Zen-Noh is reorganized or there is a change in its management policy, our agribusiness will be significantly affected.

In the steel operations, an electric arc furnace, a continuous caster and a rolling mill are connected in a line. Therefore, a full shutdown of the production facilities can be expected for a long period of time when a part of each facility has a trouble or is out of order. Although we conduct maintenance including preventive maintenance and spare parts inventories, we may be obliged to shut down the production plant for a long time in the case of the occurrence of a disaster such as a fire, a storm and a flood or an unexpected accident. In such a case, our financial results will be adversely affected significantly.

The fertilizer operations are subject to the Fertilizer Control Act that governs, among other things, production, distribution, products (fertilizers) and raw materials. We haven’t had any issue affecting continuation of the operations in relation to this Act until now. However, if we receive an administrative punishment or violate any provision of the Act, there will be a possibility that we cannot continue the operations relating to production and distribution and the registration of the products will become invalid. In such a case, our financial results may be adversely affected markedly.
Recently, people emphasize the importance of food safety and the effects on the environment and there is a growing trend towards strict restrictions on the use of raw materials that contain a certain amount of substances such as heavy metal. If the use of any raw material we use is restricted, we will be obliged to seek alternative raw materials and some raw material prices may rise due to a shortage of them. The outbreak of BSE (Bovine Spongiform Encephalopathy) in March, 2002 is an example. The use of imported bone meal, which had been a common fertilizer raw material, was prohibited. The sale of products derived from bone meal was banned and they were incinerated. Our financial results may be significantly affected by the tightening restrictions or regulations when social problems relating to food or agriculture happen.
Moreover, the fertilizer operations are also subject to Waste Management and Public Cleansing Law. This is because that we, as a licensed industrial waste contractor, process industrial waste pursuant to the Law and use it as an organic fertilizer material. We haven’t violated the Law. However, if we fail to comply with any provision of the Law, our license may be revoked. As a result, we need to pursue alternative raw materials and those prices may rise due to a shortage of them. In such a case, our financial results may be adversely affected significantly.
In the steel operations, we manufacture steel products certified to be affixed with a JIS (Japan Industrial Standards) pursuant to Industrial Standardization Act. However, if we fail to comply with any provision of the Act or our technical production conditions are judged improper by a plant inspection, the JIS mark certification may be revoked. In such a case, financial results may be adversely affected due to restricted sales activities.