TOHO TITANIUM COMPANY, LIMITED

Each segment depends on specific applications—Titanium Sponge for aircraft, THC catalysts for polypropylene, and Ultrafine Nickel Powder and High-Purity Titanium Oxide for electronic components—so sales volumes and product prices fluctuate significantly depending on the conditions of the relevant industries. Most recently, a decline in demand for the Catalyst Business and Chemicals Business has become apparent due to the slowdown in the Chinese economy, while at the same time demand to replace Russian-origin titanium has expanded rapidly following the conflict in Ukraine, illustrating how significant the impact of changes in the external environment can be. The Company seeks to minimize such impact through business diversification, development of new applications, and provision of competitive products, but the risk of adverse impact on business performance remains.

Raw material and electricity costs account for a substantial portion of the manufacturing cost of Titanium Metal, with raw ore prices linked to economic trends in other industries and geopolitical risks in producing regions, and electricity costs linked to fluctuations in energy prices such as crude oil, LNG, and coal. The rise in raw material and energy prices triggered by the conflict in Ukraine is a prominent example. If price increases continue to exceed cost-reduction efforts such as the use of low-grade ore and energy conservation, or if such increases cannot be sufficiently passed through to product prices, business performance will be adversely affected. Nickel ingot, a key raw material for the Chemicals Business, is linked to international market conditions, and time lags in price pass-through or difficulties in negotiations can significantly affect period profit and loss; the Company addresses this by utilizing hedges through futures transactions.

Exports account for a large proportion of sales volume for Titanium Sponge and THC catalysts, with the export ratio reaching 60.6% of consolidated net sales in the fiscal year under review. As most exports are denominated in US dollars, the structure is such that a stronger yen has a direct adverse impact on business performance. While the Company hedges against short-term fluctuations through forward exchange contracts, it cannot completely eliminate the risk in the event of a substantial appreciation of the yen.

As most products are manufactured in-house, damage to plant facilities from natural disasters would directly impede production and sales. In particular, the main Chigasaki Plant is located within a designated area for intensified earthquake disaster countermeasures for the Tokai earthquake, resulting in high concentration risk. In addition to reinforcing seismic resistance of equipment, establishing disaster prevention systems, and conducting disaster drills, the Company is also considering diversifying production facilities across multiple sites (BCP), but depending on the scale and nature of a disaster, business performance and financial condition could still be adversely affected.

At the Chigasaki Plant, where facilities are aging, the Company is advancing a medium-term facility infrastructure renewal plan along with company-wide investment in safety measures; however, should an accident or disaster occur, operational suspension or restrictions, as well as environmental and countermeasure costs, would adversely affect business performance. In addition, the Titanium Sponge production facilities are currently operating at high utilization rates due to strong demand, and an unexpected operational suspension could result in failure to achieve planned sales volumes or failure to meet supply obligations to long-term contract customers. The Company continues to make fundamental investments in safety measures to maintain safe operations and protect the environment.

ATTM (in which the Company holds a 35% stake), located in Saudi Arabia, experienced delays in start-up due to the impact of the COVID-19 pandemic and other factors, resulting in negative net worth as of the end of December 2020. The Company recorded an investment loss under the equity method in FY2021 (ended March 2021) and reduced the carrying value of the investment to zero. As the Company currently takes delivery of most of ATTM's Titanium Sponge production, making it an important procurement source, any technical problems or constraints in ATTM's production would adversely affect the Company's sales. Furthermore, if AMIC's downstream titanium business is launched in the future and begins taking delivery of sponge, this could constrain the volume the Company is able to take delivery of.

JX Metals Corporation holds a majority of the Company's voting rights and is in a position to exert significant influence over the Company's management decisions, including through the appointment and dismissal of directors, raising the possibility that its exercise of voting rights could conflict with the interests of minority shareholders. Note that ENEOS Holdings, Inc. ceased to be a parent company of the Company following the partial sale of shares in connection with JX Metals Corporation's listing on March 19, 2025. Should JX Metals Corporation's shareholding ratio in the Company change in the future, this could affect the liquidity of the Company's shares and share price formation.

The Company is subject to a wide range of laws and regulations both in Japan and overseas, including those relating to licensing, trade, the environment, taxation, and antitrust law, and future enactment or amendment of such laws and regulations could result in business suspension or restrictions and the incurrence of countermeasure costs. In particular, there is a risk of stricter regulations such as carbon taxes amid the global acceleration of decarbonization, and the Company aims to achieve carbon neutrality through CO2 emission reduction technologies in production processes and the use of renewable energy. Should any violation of laws or regulations be found, business performance could be adversely affected due to sanctions from regulatory authorities, litigation, or loss of public trust.

Under its medium-term management plan, the Company has adopted "strengthening its earnings base through focused investment in growth areas" as a basic strategy and continues to make capital investments such as capacity expansion. While the Company carefully assesses profitability based on demand forecasts and competitiveness before making investments, accurate forecasting of the future is difficult, and if investment returns fall short of initial plans, increased depreciation expense burden or the recording of impairment losses could adversely affect business performance.

If the Company is unable to secure the human resources essential for sustainable growth, declines in the levels of production, sales, and services could affect its financial position and business results. As countermeasures, the Company extended the retirement age from 60 to 65 in April 2023, and from fiscal 2024 has introduced a posting system (internal job posting program) and career challenge program, while actively pursuing recruitment of diverse talent. The Company is also concurrently promoting improvements in labor productivity through investment in labor-saving and rationalization of equipment.