OSAKA Titanium technologies Co.,Ltd.

The primary application of export-bound metallic titanium is for aircraft, so fluctuations in orders from aircraft manufacturers and the trends of overseas competitors directly affect operating results. Since domestic sales are also exported overseas via wrought product manufacturers, there is a risk that fluctuations in the global economy, multilateral trade issues, and energy price surges stemming from the situation in the Middle East could spread to affect the entire business. As countermeasures, the Company is working to develop new applications and provide attractive products.

In the fiscal year under review, the export sales ratio was 76.3%, almost entirely denominated in US dollars, resulting in a structure of net US dollar receipts even after deducting indirect dollar payments for imported raw materials and electricity/LNG, etc. In a yen appreciation phase, there is a risk that sales and profits will be significantly squeezed; although hedging is conducted through forward exchange contracts, complete elimination of this risk is difficult.

The balance of interest-bearing debt at the end of the fiscal year under review was ¥49.8 billion, and financial costs will increase in a rising interest rate environment. Although the majority of long-term borrowings are procured at fixed interest rates to hedge this risk, rising interest rates due to medium- to long-term changes in financial conditions may affect operating results.

Because the Titanium Sponge manufacturing process consumes large amounts of electric power, there is a risk that restrictions on power supply, reconsideration of power generation mix by electric power companies, and significant revisions to electricity rates due to crude oil price fluctuations could directly impact production costs. A worsening situation in the Middle East could affect both power supply and rates, and the Company is continuously working to improve power efficiency through equipment improvements.

The purchase prices of titanium raw materials and other materials are affected by international market conditions, foreign exchange, laws and regulations, natural disasters, and geopolitical risks, and imbalances in supply and demand may result in constraints on procurement volume or significant fluctuations in purchase prices. Although the Company strives to diversify and strengthen relationships with suppliers and to pass on costs to product prices, if it cannot fully absorb rising raw material costs, profitability will deteriorate.

Since all products are manufactured at the Company's own plants, in the event of a large-scale natural disaster such as an earthquake or typhoon, or a large-scale outbreak of infectious disease, there is a risk of direct damage as well as disruptions to logistics and supply networks and infrastructure failures, leading to decreased sales and orders and increased production costs. Although the Company has implemented measures such as establishing and training for emergency response, diversifying suppliers, securing appropriate inventory, and thorough hygiene management, the risk of business restrictions due to resurgence of new variants, etc., remains.

Although the Company strives to strengthen preventive maintenance, safety reviews, and safety management systems for its equipment, in the event that a major production trouble occurs, it may not be possible to secure the prescribed production volume or product quality, which could have a material impact on operating results. Unexpected inadequacies in equipment adjustment or operating condition malfunctions can also be causes of production trouble.

The syndicated loan led by the main bank includes financial covenants, and if these covenants are violated, the Company could lose the benefit of the grace period, which could have a material impact on its financial position and operating results. With the balance of interest-bearing debt at a high level of ¥49.8 billion, attention must be paid to the risk of covenant violation in the event of a downturn in business performance.

The introduction of carbon pricing and other tightening of environmental regulations, such as carbon taxes, could increase the cost burden on the titanium manufacturing process, which consumes large amounts of electric power. In addition, the intensifying trend of floods and typhoons is expected to cause reduced production volumes and supply chain disruptions, meaning both physical risks and transition risks could affect operating results.

The Company holds customer information as well as confidential business and technical information, and if unauthorized access or information leakage occurs due to a cyberattack or similar incident, there is a risk of multifaceted damage, including compensation for damages, loss of social credibility, loss of competitive advantage, and production stoppages. Although the Company has established a management system and implemented appropriate security measures, complete defense is difficult due to the increasing sophistication of cyber threats.