Atlas Pearls’ approach to managing risk is documented in a Corporate Risk Register reviewed and approved by the Board of Directors. The risk register seeks to ensure that risk management is embedded throughout the business and managed in a structured and systematic manner. It is reviewed regularly by the Board and is evaluated and updated as the Company’s business model evolves and underlying risks change.

The Board has overall responsibility for managing the organisation’s risks, and monitors management’s actions to ensure they are in line with Company policy. The following is a summary of the key continuing significant risks facing the business and the way in which Atlas Pearls manages these risks:

(I) CORPORATE

The Company manages a number of corporate risks such as safety, recruitment and retention of key employees, tax, foreign exchange, purchasing and procurement, potential lower than anticipated return on capital invested, and potential lower underlying earnings. All the aforementioned risks are managed through Atlas Pearls’ risk management framework, which includes review and monitoring by management, and the Board.

(II) MATERIAL CONTRACTS

Atlas Pearls may enter into contracts with suppliers that exceed $1M. Some of the key risks associated with these material contracts include cash flow management, contract management, performance and quality of the services being delivered, and reputation. Atlas Pearls manages these material contracts with steering committee reviews, operating reviews, and other strict project management practices.

External legal counsel may be involved. Atlas Pearls negotiates favourable payment terms and reviews financial risk to manage cash flow as effectively as possible.

(III) CONSUMER PREFERENCES AND PRICING RISK

Atlas Pearls has exposure to pricing risk in relation to the sale of pearls, specifically the weakening of customer demand resulting in the softening of pearl prices. This risk also encompasses the volatility from shifts in consumer preferences. To address these challenges, the Company has implemented a multi-channel sales approach that provides the ability to diversify market presence by creating alternative revenue streams. Additionally, the Company consistently monitors the market, staying attuned to shifts in customer preferences and price trends. By closely tracking these indicators, the Company can proactively adjust pricing strategy and sales and marketing efforts to align with evolving market conditions.

(IV) COMPETITION

To address the risk associated with market competition, Atlas Pearls has developed strategies on multiple fronts. The Company continuously invests in research and development activities, to maintain its reputation as a producer of quality pearls, and to innovate and differentiate products from competitors. Atlas Pearls prioritises maintaining strong relationships with customers, built on trust, quality, and excellence. Atlas Pearls maintains a pricing structure that takes into account market dynamics and competitive positioning. The Company also reviews and assesses industry trends and emerging competitors, allowing Atlas Pearls to proactively adapt strategies to remain one of the world’s largest producers and distributor of South Sea pearls.

(V) OPERATIONAL RISK

Pearl quality is an ongoing risk to Atlas Pearls. The Company’s proactive approach involves measures like reviewing seeding procedures and grow-out times, diversifying hatchery broodstock, refining the hatchery spawning strategy, and genetic analysis of broodstock. These risks necessitate the Company applying continuous procedural control at every phase of spat and pearl production. Complementary initiatives encompass a genetics project, probiotics research, and broodstock conditioning. These strategies are closely monitored, with oyster growth and genetics reporting being actively tracked to ensure effective risk management aligned with the Company’s broader risk framework.

(VI) COST CONTROLS, INFLATION, AND SUPPLY CHAIN CONSTRAINTS

Rising input costs and supply chain constraints have the potential to reduce profit margins where those costs cannot be recovered from customers. Significant input costs include labour, components and materials, and fuel. Atlas Pearls has the ability to recover costs through the selling price of pearls. The Company sources components and equipment from multiple suppliers and vendors, to secure the most competitive pricing on various input components. The Company employs centralised logistics and purchasing personnel to co-ordinate the movement of components and materials across the Company’s pearl farms, and the pricing of those items. Senior management monitors the effectiveness of this process regularly.

(VII) POLITICAL, REGULATORY AND COMPLIANCE

Atlas Pearls is a global company and operates in numerous countries around the world. The Company must comply with a range of governance requirements which are conditions of its ASX listing. New or evolving regulations and international standards are outside the Company’s control and can often be complex and difficult to predict. The potential development of international opportunities can be jeopardised by changes to fiscal or regulatory regimes, adverse changes to tax laws and the application thereof, or changes to existing political, judicial or administrative policies, and changing community expectations. Atlas Pearls seeks to manage and minimise this risk through its existing risk management framework including Board approved governance policies which are subject to regular review.

(VIII) ANTI-BRIBERY AND CORRUPTION

Atlas Pearls’ business activities and operations are located in jurisdictions with varying degrees of political, economic and judicial stability, including an inherently high risk of bribery and corruption. This exposes Atlas Pearls to the risk of unauthorised payments, or offers of payments, to or by employees or agents that could be in violation of applicable anti-corruption laws. Atlas Pearls has a clear Anti-Bribery and Corruption Policy and internal controls and procedures to protect against such risks. However, there can be no assurances that such controls, policies and procedures will absolutely protect Atlas Pearls from potentially improper or criminal acts.

(IX) ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG)

Atlas Pearls has a longstanding commitment to supporting the villages, stakeholders, and communities around the Company’s farms. Building on ongoing environmental initiatives, and in a conscious approach to building a sustainable business, the Board has begun the process of developing a reporting framework to manage and monitor the Company’s ESG impact. The Company has aligned its framework with the Global Reporting Initiative Standard (GRI) to provide transparency and tangible measurable outcomes that adheres to the United Nations Sustainability Development Goals (SDG’s) to ensure that we, as a company, are also keeping in step with global endeavours, and with the Indonesian initiatives around sustainability and environmental stewardship. The Sustainability Roadmap can be found on our website at: www.atlaspearls.com.au/pages/sustainability.