Tokai Carbon : Newsletter for shareholders Spring 2023(5MB)

Newsletter

for Shareholders

Spring 2023

January 1, 2022-December 31, 2022

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

Message from the CEO

We are accelerating management targeting the next stage of growth

Business results for 2022

I would like to sincerely thank our shareholders for your constant support.

2022 was a turbulent year. As the COVID-19 pandemic entered its third year, the proliferation of vaccines helped to calm the spread of infections to a certain extent. However, just as economic activity was beginning to recover, we were hit by the truly unexpected situation in Ukraine. In addition to supply chain disruptions, inflation, and the rapid tightening of monetary policies putting an emergency brake on the global economy, we also have to contend with the manifestation of geopolitical risk, making the global economic outlook more uncertain than ever.

Within this environment, we continued to develop our business in accordance with the basic policies of T-2024, our rolling medium-term management plan. The three basic policies are: "returning core businesses to a path of growth," "optimizing the business portfolio (selection and concentration)," and "strengthening the consolidated governance structure." We are ensuring reasonable profits by reflecting the increase in cost

prices in sales prices in our graphite electrode, carbon black, and other businesses.

As part of our selection and concentration efforts, in February 2022, we divested all shares of the specified subsidiary Tokai Carbon (Tianjin) Co., Ltd., our carbon black business in China. In April, we acquired additional shares of Tokai Carbon Korea Co., Ltd. and in September, we announced that we will be relocating Thai Tokai Carbon Product Co., Ltd. to a new plant. We have also made plans to develop our lithium-ion battery anode materials business in Europe.

Although the Ukraine crisis and accompanying rises in energy and raw material prices have been a large downward pressure, the rapid weakening of the yen has been beneficial. As a result, in our 2022 full-year results, net sales rose 31.5% year on year to

1. billion yen, operating income increased 64.7% to 40.6 billion yen, and net income attributable to owners of the parent company increased 39.2% to

1. billion yen. ROS, which is one of our main management indicators, was 12%.

2022 Highlights

February

• Released theT-2024medium-term plan
• Completed the transfer of all shares ofTokai Carbon (Tianjin) Co., Ltd.

May

• Acquired additional shares of Tokai Carbon Korea Co., Ltd.

September

• Decided to relocateThaiTokai Carbon Product Co., Ltd.,
  a carbon black manufacturing company

Hajime Nagasaka

President & CEO

Business Results and Forecast

Management focused on sustainability

In 2022, we formulated and announced our new long-term vision of "contributing to a sustainable society through advanced materials and solutions." This made it a year in which we also clarified our intent to practice sustainability-focused management.

Together with this new long-term vision, we announced our aim to become carbon neutral by 2050 and set the target of reducing CO2 emissions by 25% of 2018 levels by 2030. We also emphasized management that is considerate of human capital, which includes practicing human rights due diligence and ensuring health and productivity management. While this experiment of linking together sustainability and management strategy has only just begun, we are confident that it will improve corporate value in the long term.

Overview of the T-2025 Rolling

Mid-Term Management Plan

As part of efforts to realize our long-term vision, we have released our rolling mid-term management plan T-2025, which covers a three-year period from 2023.

We are predicting growth in the industries we engage in, such as the electric furnace industry, which is gaining attention due to its low environmental impact, the automobile and tire industries, which are expecting to see increased adoption of electric vehicles (EV), the semiconductor industry, which is anticipating the progress of digitalization driven by AI and IoT, and the aluminum industry, which is responding to the increasing need for lighter weight in areas such as EV. We forecast that this growth will not only cover the T-2025 plan period, but also into the medium- to long-term future.

T-2025 will take maximum advantage of this economic environment through its basic policies of: 1) returning core businesses to a path of growth, 2) optimizing the business portfolio (selection & concentration), and 3) establishing a sustainable management base. Our targets for 2025, the final year of the plan, are net sales of ¥484 billion, operating income of ¥69 million, ROS of 14%, and EBITDA of ¥113 billion.

In order to implement T-2025, we must address carbon neutrality head on. The Carbon Neutral Committee established in February 2022 is leading our efforts to reduce consolidated CO2 emissions and we have launched multiple subcommittees and research teams that are working on exploring and investigating relevant technologies. Ultimately, we cannot pursue this difficult goal alone, so we will work together with customers and business partners while

leveraging the Group's collective capabilities to tackle this issue with a sense of urgency.

Dividends

The annual dividend for 2022 was 30 yen per share, equal to the previous year. We intend to follow a policy of paying a stable dividend based on a 30% payout ratio. The expected dividend payout for 2023 is 36 yen per share, this includes considering in the downward risk of economic decline due to factors such as the crisis in Ukraine, amongst others.

I look forward to your continued understanding and support in the future.

Hajime Nagasaka

President & CEO March 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.

Carbon Neutrality Progress

The Carbon Neutral Committee, chaired by the President & CEO, is taking the lead on Group-wide initiatives.

Tokai Carbon Group's CO2 emissions (1,000 tons)

3,056

Scope1

Scope 1: Direct emissions generated by Tokai Carbon (fuel combustion, industrial processes)

Scope 2: Indirect emissions generated by using electricity,

heat, and steam from external suppliers

Scope 3: Indirect emissions not covered by Scope 1 and 2 (emissions by other companies connected to Tokai Carbon's business activities)

Current initiatives

Energy saving and use of renewable energy

Switch to fuels with lower environmental impact

Research into product recycling

Acquisition of third-party verification of

Scope 1 and 2 CO2 emissions

Building of a framework for collecting Scope 3 data

Launch of various collaborations with customers, business partners, industry organizations, etc., aimed at carbon neutrality and the development and application of related innovative technologies

N E W S

Website

Renewal

Here we introduce the renewal's three main points.

P O I N T 1A renewed design!

The renewed design is themed around our new guidelines of integrity, innovation, challenge, co-creation, and agility.

Look's

good!

Tokai Carbon seems to

be moving forward.

This covers everything

I want to know!

P O I N T 3 Enhanced disclosure of sustainability information

We have reorganized the sustainability-related pages to share our initiatives in a more accessible manner. Tokai Carbon aims to contribute to the realization of a sustainable society and achieve sustainable growth by solving social issues through our business. The website provides detailed information about our approach and initiatives in this area.

So many low-profile initiatives are linked to business results!

Tokai Carbon's Focus Areas 1

Carbon Black Business

Responding to booming demand

with stable supply!

is located in the US. The US is home to many major tire manufacturers, and it is one of the biggest carbon black markets in the world, second only to China. In addition to steady demand for replacement tires, it is also anticipated that demand for new vehicles will recover. Therefore, tire production in the US is forecast to continue growing at a rate of two to three

percent per year.

US and China and the crisis in Ukraine mean that the import of products from China and Russia has declined compared to previous levels. This situation means that the supply-demand gap is expected to widen in the US.

Within this environment, the importance of Tokai Carbon is growing, as we own the largest scale carbon black plants in the US. At the same time, the investment in environmental facilities that we have

A business that is resilient to economic fluctuation

Although factors such as the COVID-19 pandemic and the crisis in Ukraine are creating a global economic slowdown, our carbon black business has continued to record increases in sales and profit. The reason for this is that despite the decrease in new vehicle production, vehicles are used as infrastructure for the transportation of people and goods, wearing down their tires and

thereby creating continuous demand for replacements. In the US in particular, pandemic lockdowns were lifted in 2021 and demand for replacement tires recovered swiftly. We consider our carbon black business to be resilient to economic downturns.

Tackling demand crunch in

the US through stable production

More than half of our carbon black production capacity

Despite a favorable demand situation, increasing supply volumes is no easy matter. Carbon black is lightweight but large in size, so transportation costs are high. This means it is better to produce and consume it in the same area. However, the US has strict environmental regulations, making it a hard market to enter, and carbon black plants that do not meet environmental standards are shut down, which puts limits on the activities of production facilities. In addition to this, the effects of trade friction between the

carried out over the past few years to ensure our plant meets environmental standards will come to fruition in 2023. This means we will have a stable production and supply framework that can meet the needs of tire manufacturers in the US.

Going forward we will work to provide products with even greater added value by reflecting production and facility investment costs in product prices, ensuring a robust increase in profit. Please continue to follow the progress of our carbon black business.

Share of the global carbon black market

(Based on value / 2022 /Tokai Carbon estimates)

Other Asian countries 12%

Eastern Europe 2%

South Korea 2%

EU 12%

The US is

the second

largest market!

Our US carbon black plants

The largest plants

in the US

07

08