Tokai Carbon : Newsletter for shareholders Autumn 2023(4MB)

P r e s i d e n t 's m e s s a g e

Message from the CEO

We are steadily building our business base so that we can seize the growth opportunities that will drive us forward

Hajime Nagasaka

President & CEO

Business results for H1 2023

In the first six months of 2023 (January 1 to June 30, 2023), the global economy witnessed a downturn in spending power due to inflation and rises in interest rates, and although there was a decelerating trend, positive factors such as improvements in the supply situation and the resumption of economic activity in China meant a severe recession was avoided. On the other hand, the geopolitical situation became even tenser due to trade friction between the U.S. and China and the prolonging of the situation in Ukraine, and this, as well as risk factors such as changes in the financial and fiscal policies of major countries, mean the outlook remains uncertain.

Within this environment, in February 2023, we announced T-2025, our rolling medium-term management plan for the three years from 2023 to 2025. Under the plan's three basic policies of "return core businesses to a growth trajectory," "optimize the business portfolio (selection and concentration)" and "establish a sustainable management base," we will work toward quantitative targets for 2025. These are net sales of 484 billion yen, operating income of 69

2023 H1 Highlights

billion yen, ROS of 14%, and EBITDA of 113 billion yen. To achieve these, we will work to ensure reasonable profits by reflecting the increase in cost prices in sales prices, and to steadily raise productivity and strengthen production capacity with a view to capturing future demand, particularly in our core graphite electrode and carbon black businesses. We are also working toward achieving carbon neutrality and in February 2022, we established the Carbon Neutral Committee to lead our efforts to reduce consolidated CO2 emissions and we have also launched multiple subcommittees and research teams that are working on exploring and investigating relevant technologies.

In our H1 2022 business results, net sales rose 13.6% year on year to 178.4 billion yen, operating income increased 30.0% to 21.7 billion yen, and net income attributable to owners of the parent company increased 71.9% to 15.9 billion yen.

Our forecast for the full-year consolidated results is for net sales to increase 20.5% year on year to 410.0 billion yen, operating income to increase 10.9% to 45.0 billion yen, and net income attributable to owners of the parent company to increase 16.0% to 26.0 billion yen.

Business Results

February Released theT-2025 rolling medium-term management plan

April Concluded a partnership agreement with SEKISUI CHEMICAL Co., Ltd. toward the practical application of CCUS technology for capturing, effectively utilizing, and storing CO2

May Rating by Rating and Investment Information, Inc. upgraded to A

June Issued Integrated Report 2022

June ESG Score by ESG evaluation organization

FTSE Russell improved to 4.2

Net sales

(Billions of yen)

Operating income

(Billions of yen)

Potential of our core businesses

Our graphite electrodes are mainly used in electric furnaces where scrap iron is melted down to produce steel for construction and other uses. One medium- to long-term business opportunity is the shift from blast furnaces to electric furnaces aimed at reducing CO2 emissions. The amount of CO2 emitted by electric furnaces is said to be about 25% of emissions generated by blast furnaces, which use coke derived from iron ore and coal. Since the adoption of electric furnaces is a global trend, we expect demand for the Company's products to grow.

About 70% of the carbon black we produce is used for tires. The automotive industry is undergoing a major transformation as it shifts from gasoline and diesel vehicles to electric vehicles (EV), so we will focus on meeting demand for tires, which is expected to continue to grow, with high-quality products.

Fine carbon is a product made from tiny carbon

particles broken down to the micron level. More than 70% of fine carbon is used for semiconductor-related applications. Although memory semiconductors used in PCs and mobile phones are currently in an adjustment phase, demand for power semiconductors used in EVs and other applications is growing significantly. Our fine carbon business is a highly profitable business with great potential.

Smelting and lining is a business closely related to aluminum smelting. Aluminum contributes to making vehicles lighter, so I have great expectations for our smelting and lining business due to anticipated growth in demand from the aviation industry, as well as demand driven by the shift to EVs in the automotive industry.

Nurturing our businesses and generating stable cash flows

We plan to generate stable cash flows through these existing businesses while allocating some of the cash

we earn to cutting-edge business fields. Although research and development involves a high level of risk, we will move forward with a sense of speed while also looking for opportunities to co-create with like-minded external partners.

Increasing management sustainability

Carbon neutrality is one of the most important issues we must address in terms of contributing to the sustainability of society. Out of our businesses, the carbon black business accounts for the largest amount of CO2 emissions, so reducing CO2 emitted by this business is an urgent challenge. In addition to conventional steady efforts to save energy and improve yield ratios, we will pursue innovative technologies with a sense of urgency. Potential technologies include product recycling, the use of plant-based primary materials, and CO2 recovery.

Investment in growth

Over the three years of the T-2025 plan period, we are working toward generating a cash flow from operating activities of 210 billion yen. We will reinvest 123 billion yen of this into projects focused on growth, the environment, and business continuity. This includes renewing equipment and facilities in preparation for the future, upgrading fine carbon and industrial furnace equipment and facilities, and carrying out environmental investments.

Increasing the annual dividend to 36 yen

We plan to raise the annual dividend up to 36 yen per share in 2023, an increase from 30 yen per share in 2022. We look forward to the continued support of our shareholders.

Hajime Nagasaka

President & CEO

August 2023

T-2025 Quantitative Targets

We aim to achieve these by returning core businesses to a path of growth, optimizing the business portfolio,

and establishing a sustainable management base.

Potential of our core businesses

Dividend per share

How isTokai Carbon

connected to

the environment?

Feature

Stop global warming!

Initiatives at our global business sites

What is Tokai Carbon

doing to help build

Greenhouse gases, particularly carbon dioxide (CO2), are a major cause of the global warming that is driving climate change. All around the world, movement to reduce CO2 emissions and realize carbon neutrality is accelerating.

Tokai Carbon is also actively advancing initiatives, such as switching to fuels with a lower environmental

impact and using renewable energy, at Group business sites in Japan and overseas. Going forward, we aim to use innovative technology to capture, store, and effectively utilize CO2, and we will strive to measure and reduce global CO2 emissions generated by usage of the Group's products.

a sustainable society?

"Contribute to a sustainable society through

advanced materials and solutions."

This is Tokai Carbon's long-term vision for 2030.

Realizing net-zero CO2 emissions by 2050

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-Carbon black

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-Graphite electrodes

Electric furnaces can reduce CO2 emissions by about 75% of the volume generated by blast furnaces. In recent years, there has been a global shift from blast

One of the uses of carbon black is to make tires. We are developing leading edge technologies that

reduce environmental impact, such as materials that extend the service life of tires and methods for reusing used tires.

Strive to develop environmentally friendly technologies!

Installing ordinary cathodes into an electrolytic furnace is a cumbersome process for customers, but our unique product RUC®

Recycle

Electronic components

-EREMA heating elements

EREMA heating elements are essential to the manufacture of electronic components for smartphones and vehicles. We have been collecting and recycling

furnaces to electric furnaces to reduce environmental impact, so demand for graphite electrodes is expected to rise.

It's great that they can be used to recycle steel!

That's helping our convenient lifestyles!

ordinary cathodes reduces the workload involved in this task. RuC® cathodes also offer superior electrical characteristics, which enables a 3% reduction in power consumption during

the aluminum smelting process. Spreading the use of RuC® cathodes will directly contribute to reducing environmental impact.

Safe to use and with less energy. Looks like the product has the potential to spread!

used elements since 2023.

Collecting, processing, and reusing the cold ends of used EREMA heating elements

Thumbs

up!

Technology for recycling

hot zones is currently under development

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