Newsletter for Shareholders | Autumn 2022 |
January 1, 2022-June 30, 2022 |
Special feature
Strengthening
Resilience to
Market Volatility
Tokai Carbon's
Growth
Potential
Contents
01. Message from the CEO 05. Feature Tokai Carbon's Growth Potential-Strengthening Resilience to Market Volatility
11. Shareholder Benefit Information 13. Segment Overview
(Message from the CEO)
Message from the CEO
Various measures for recovering business results are bearing fruit
Business results for H1 2022
In the first six months of 2022, countries around the world made progress on balancing economic activity with anti-infection measures. On the other hand, uncertainty in the global economy is increasing again as global inflation and the resulting monetary tightening have become major downward factors driven by supply chain disruptions triggered by the situation in Ukraine.
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. We are also working to reinforce production capabilities to meet growing demand. As part of our selection and concentration efforts, in February 2022, we completed the transfer of all shares of the specified subsidiary Tokai Carbon
(Tianjin) Co., Ltd., our carbon black business in China to Cabot (China) Limited and in May 2022, we acquired an additional 350,000 shares of our consolidated subsidiary Tokai Carbon Korea Co., Ltd.
As a result, in H1 2022, net sales rose 33.8% year on year to 157.0 billion yen, operating income increased 52.7% to 16.7 billion yen, and net income attributable to owners of the parent company increased 62.1% to 9.2 billion yen. The graphite electrode business returned to profitability after recording an operating loss in the previous year. In addition to this, the carbon black, fine carbon, smelting and lining (S&L), and industrial furnaces and related products businesses all recorded year on year increases in earnings and profits, meaning that all five of our main businesses achieved growth. ROS, which is one of our main management indicators, also improved significantly from 9.3% to 10.6%. As a result of our M&A activities over the past few years, I think we have moved a step closer to realizing a resilient business portfolio that can withstand a certain amount of volatility in the markets.
Our forecast for the full-year consolidated results is for net sales to increase 17.8% year on year to
Hajime Nagasaka
President& CEO
H1 2022 Highlights
February Completed the transfer of the Chinese carbon black subsidiary
February Disclosed our target of achieving net zero CO2 emissions by 2050 (establishment
of carbon neutral promotion infrastructure)
February Released theT-2024 rolling medium-term management plan
May Acquired additional shares of Tokai
Carbon Korea Co., Ltd.
June Issued Integrated Report 2021
Overview of Business Results
Net sales | Operating income |
(Billions of yen) | (Billions of yen) |
157.0 | 16.7 |
117.3 | 10.9 |
2021 | 2022 | 2021 | 2022 |
H1 | H1 | H1 | H1 |
01 | 02 |
(Message from the CEO)
- billion yen, operating income to increase 42.0% to 35.0 billion yen, and net income attributable to owners of the parent company to increase 24.2% to
- billion yen.
Optimizing the business portfolio (selection and concentration)
In November 2021, the Board of Directors set our Business Portfolio Management Basic Policy. Targets for profitability and capital efficiency, which are based on
a long-term perspective, we will work to realize our | The Carbon Neutral Committee established in February |
vision of "contribute to a sustainable society through | is taking the lead on initiatives to strengthen our |
advanced materials and solutions." | competitiveness in the medium to long term. |
Return core businesses to a path of growth
The crisis in the Ukraine has made it difficult to predict the business environment, including the impact on our businesses. While we must keep a close watch on how the situation unfolds, our highest priority is to properly respond to growing demand in the industries that our core graphite electrode and carbon black businesses are engaged with. Rises in raw material prices are a concern and we must be careful to agilely reflect these in sales prices to ensure reasonable profits, but if we can firmly capture anticipated growth in demand, we will be able to return both businesses to a path of growth, leading to a large improvement in business results.
capital cost, are set and monitored by the Board, and each year it will deliberate on the direction of business portfolio management, while taking both consistency with our long-term vision and medium- to long-term growth into consideration. We approach selection and concentration from various angles, including businesses, products, product types, and location, in pursuit of a business portfolio that will sustainably enhance corporate value. Our target is to achieve a return on invested capital (ROIC) of over 10% by 2024.
As the world trends toward decarbonization, in the medium-term it will be important to continue focusing on carbon-related businesses, such as graphite electrodes, while also adding new businesses to the portfolio that are not reliant on fossil fuels. From
Strengthening the consolidated governance structure
As a company that is growing its overseas subsidiaries, strengthening our consolidated governance structure remains a short-term issue that we need to address urgently. We intend to implement every conceivable measure, including strengthening the governance structures of the subsidiaries themselves, strengthening the Group's cross-organizational functions, and dispatching a greater number of employees overseas. At present, we are also focusing on becoming carbon neutral, so our efforts to collect and manage non-financial data on a consolidated basis, which had been lacking in the past, will also contribute to strengthening the consolidated governance structure.
Maintaining an annual dividend of 30 yen
Over the three years of the T-2024 plan, we aim to generate 185.0 billion yen in cash flow from operating activities, and 114.0 billion yen of this will be allocated for investment in growth 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.
In 2022, we plan to maintain stable and continuous shareholder return by paying an annual dividend of 30 yen, the same amount as in 2021. I look forward to your continued understanding and support in the future.
Hajime Nagasaka
President & CEO August 2022
T-2024 Quantitative Targets
We aim to achieve these targets by returning core businesses to profitability and continuing to invest in growing markets
Net sales | Operating | EBITDA | |||||||||||||||||
income | ROS | ROIC | |||||||||||||||||
(Billions of yen) | (Billions of yen) | ||||||||||||||||||
(Billions of yen) | 16% | 10% | |||||||||||||||||
356 | 91 | ||||||||||||||||||
57 | |||||||||||||||||||
356.0 | 16% | 91.0 | |||||||||||||||||
305.0 | |||||||||||||||||||
258.9 | 57.0 | 11% | 66.0 | ||||||||||||||||
10% | 10% | 54.5 | |||||||||||||||||
24.6 | 35.0 | 4.8% 6.5% | |||||||||||||||||
2021 | 2022 | 2024 | 2021 | 2022 | 2024 | 2021 | 2022 | 2024 | 2021 | 2022 | 2024 | 2021 | 2022 | 2024 | |||||
(forecast) | (forecast) | (forecast) | (forecast) | (forecast) |
ROS (Return on Sales): Ratio of operating income on sales (operating income/net sales)
ROIC (Return on Invested Capital): Ratio of income on invested capital = Operating income after tax/(working capital + fixed assets)
Business portfolio management
The Board of Directors will discuss how to optimize management of
the entire Group from various angles to maximize medium- to long-term corporate value.
Perspective | Reflection in management strategy |
Consistency with vision | Revisions to businesses, products, |
Management environment | product types, and business locations |
ROIC/WACC | New business development, M&A |
Synergies | Reflection in equipment and |
Potential | facility investment plans |
03 | 04 |
Feature
Tokai Carbon's Growth Potential
-Strengthening Resilience to Market Volatility
ESTI | |||
U | O | ||
N | |||
Q | We have eliminated | ||
Q | What does business restructuring involve? | ||
an over-reliance on | |||
specific businesses |
A | We have shifted to a structure of multiple businesses that engage |
different industries and cover for each other during downturns |
Over the last few years,Tokai Carbon has been restructuring its business. The social and economic environments are transforming at a dizzying pace, so in this feature we respond to shareholders' questions
about our current and future responses and showcase
how we have strengthened.
Our restructuring efforts are a strategy to avoid an over-reliance on our core graphite electrode and carbon black businesses. A long-term issue we have faced is that these two businesses mainly cater for the steel and auto industries, so they are easily affected by changes in market conditions. To address this, we have been building up our smelting and lining(S&L) and fine carbon businesses, which engage different industries,in order to stabilize revenues.
In actual fact, from 2020 to 2021, the COVID-19 pandemic and economic downturn that accompanied
it heavily impacted our two core businesses. However, in 2021, our fine carbon and industrial furnace businesses, as well as the recovering S&L business, contributed to lessening the downward pressure on business results. By increasing the number of strong sources of revenue, we have realized an overall structure that offers resilience to market volatility.
Furthermore, we have withdrawn from our carbon black business in China. This decision was based on factors such as increasingly fierce competition and operational limitations from
What is | How about | What is the |
the impact of | ||
the situation | outlook regarding | |
the COVID-19 | ||
Sales and Profit Composition Comparison
Before | We are targeting growth markets such as steel and semiconductors | After |
to realize a structure that is resilient to sudden changes | ||
Over-reliance on the | in the business environment! | Diverse sources of |
two core businesses | revenue |
pandemic? | in Ukraine? | business results? |
05
Other Businesses | |
7% | |
Industrial Furnaces | |
and Related | |
Products Business | |
5% | |
Fine Carbon | 2018 |
Business | |
11% | |
Carbon Black | |
Business | |
33% |
Graphite
Electrode
Business
44%
Other Businesses | |
5% | |
Industrial Furnaces | |
and Related | |
Products Business | |
7% | |
Smelting and | 2021 |
Lining Business | |
19% | |
Fine Carbon | |
Business | |
15% |
Graphite
Electrode
Business
16%
Carbon Black
Business
38%
06
tightening environmental regulations. Also, while | business results is insignificant. Some of our raw | |
there is worldwide concern regarding the situation in | materials are imported from Russia, but we are | |
Ukraine, our sales to Russia account for less than one | working to swiftly identify and switch to alternative | |
percent of overall sales, so at present, the effect on | procurement routes. | |
ESTI | ||
U | O | |
N | ||
Q | A leap forward | |
Q | ||
ESTI | ||
U | O | |
N | ||
Q | We are working | |
In recent years, there has been an increase in | ||
to significantly | ||
Qunexpected events. How are you preparing for these? | improve | |
production agility! |
A | We are growing as a global manufacturer that is resilient to change |
through a production structure that can respond swiftly to market change |
What is your outlook for the future? | in each |
business! |
A | We are reinforcing our bases in two core businesses to raise |
profits and realize a huge increase in revenues in 2024 |
Alongside restructuring to improve resilience to economic downturns, we are also optimizing our global production and supply structures. This includes raising adaptability through an agile structure that can respond swiftly to changes in the markets and society and that addresses local production for local consumption needs.
of the graphite electrode, fine carbon, and S&L businesses, which means we are able to respond to changes in demand by adjusting production processes between businesses and regions. We are also creating technological synergies among business locations, such as by sharing anode material production
Following a path of growth and recovery from 2022, we forecast record high sales in 2024.
As the semiconductor market grows, driven by the spread of 5G and IoT and a shift to EV in the auto industry, we are expanding stable revenue bases in
market and is forecast to record an operating profit before the amortization of goodwill of about 13 billion yen in 2022. We will also be able to factor in revenues from the graphite electrode and carbon black businesses, which are recovering rapidlyfrom the
For example, one of our strengths is that we have 10 locations that are equipped to carry out high temperature heat treatment in Japan, the U.S., and Europe. This is a shared process that is used by each
expertise with our locations in France to respond to the sudden increase in demand for EV battery production in Europe. We will accelerate growth by leveraging our global network in this manner.
the fine carbon and industrial furnace businesses.We can also expect long-termgrowth in the S&L business, which is performing well in the aluminum
COVID-19 pandemic. If we can reflect global cost price increases in sales prices, we will be in a position to achieve a leap forward in terms of business results.
A worldwide network of carbonization and graphitization heat treatment locations
Outlook for Each Business
Business | Environmental recognition | Strategy |
Graphite Electrode | Steel industry | Increase the ratio of supersized |
Global growth in production using electric furnaces | electrodes, one of our strengths | |
Auto industry | Withdraw from the Chinese market | |
Carbon Black | and concentrate business resources | |
Stable market growth in the U.S. and Asia | ||
in the U.S. and Asia | ||
We are able to utilize ourunique heat treatment technology, whichcan reachtemperatures of 3,000˚C,at each site.Byleveraging this strength and
expandinginthethree regionsof
Japan, theU.S.,and Europe, wecanfirmly respond to global demand.
Japan (three locations) | |
Graphiteelectrodes (2) | 26,000 tons |
Fine carbon materials | 8,000 tons |
LIB anode materials | 10,000 tons |
(electrode facilities) | |
Total | 44,000 tons |
Fine Carbon | Semiconductors | Increase production and grow |
Growth in demand due to 5G, IoT, and shift to EV | our market share | |
Smelting and Lining | Aluminum | Improve the profitability of |
Growth in demand forecast | our locations in France | |
Industrial Furnaces | Energy sector | Expand production capabilities |
Stable growth of demand accompanying | ||
expansion of the semiconductor market |
07
U.S. (two locations) | |||
Graphite electrodes (2) | Europe(five locations) | ||
40,000 tons | Graphiteelectrodes Germany | 30,000 tons | |
Smelting and lining | Poland (2) | 125,000 tons | |
France (2) | |||
Total | 155,000 tons |
08
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Tokai Carbon Co. Ltd. published this content on 13 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 September 2022 08:09:01 UTC.