Top Message

Top Message

We will boldly take on thechallenge of investing in cuttingedge fields while cultivating thepillars of our earnings
With a sense of urgency, we will raise Tokai Carbon to a higher level. Whileenhancing the profitability of our core businesses, we will continue to invest incutting-edge fields for stakeholders and the next generation of employees whowill be responsible for Tokai Carbon in the future.

Hajime Nagasaka
President and CEO7

Tokai Carbon Co., Ltd.

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Top Message

Top Message

Our Structural Reforms and BusinessPortfolio Transformation to Date
Nine years have already passed since I became Presidentof Tokai Carbon in February 2015.
During my second year in office in 2016, I devoted myself tothorough structural reforms, and from 2017 onward, I shifted
my focus to a growth strategy, leading to multiple overseas
M&As. As a result, Tokai Carbon’s business portfolio has
been diversified, and the scale of its business has expanded
to approximately three times in terms of sales and ten times
in terms of operating income compared to 2014.
Tokai Carbon is a global company with a 105-year
history. If you follow the Company’s trajectory so far, it canbe said that our business has developed along with theautomobile industry, which has flourished over the years.
Japan’s automotive industry accelerated in the late 1970s
as the country shifted its main focus from the steel industry
and heavy industry to the auto industry. Many automotive
parts manufacturers have continued to grow in line with thedevelopment of finished goods manufacturers, with some
suppliers now exceeding 500 billion yen in sales and some
top suppliers now witnessing sales in excess of 1 trillion yen.
In contrast, our company’s sales remained stagnant ataround 100 billion yen even in 2014. Our Graphite Electrodeand the Carbon Black businesses, which were our corebusinesses at the time, complemented each other’s market
fluctuations and produced relatively stable profits. At thattime, we did not have a keen awareness of the issue ofbusiness stagnation. However, upon assuming the positionof President, I once again felt a sense of crisis which told
me that the Company needed to change its direction.
Although our business performance was stable, I knew fromexperience that we would not be able to gain the trust ofinvestors and financial institutions if we remained to be acompany with sales of just around 100 billion yen. Therefore,I felt it was my mission to draw up a clear growth strategy for
our Company and work tirelessly to implement it.
In an equipment industry like ours, the bottom line isachieving profits of scale. A company needs to be a certain
size when a large amount of funds are needed for future
capital investment or research and development and toattract excellent human resources. With this in mind, I
decided that our medium-term target would be to achieve
net sales of 300 billion yen.

Decisive implementation of structural reforms

Results right in front of us

At first, we decisively implemented bold structural reforms
without being preoccupied with immediate sales and profits,
and focused on the thorough elimination of waste within
the company. As a result, revenue and profits fell sharply
in 2016, which resulted in a negative net income. Naturally,
although people around me began to criticize me more andmore, I continued with my reforms believing that the results
would follow rather than being concerned about the shortterm numbers.
I thought it would be a good idea to proceed with structuralreforms all at once. We accomplished 60% of the structuralreforms that we had originally envisioned in about one year.
However, I determined that the remaining 40% of reforms,
especially for changing internal awareness, would take sometime, so I decided that the Company should move on to thenext stage while continuing to work on the remaining reforms.

In 2022, while the multi-year COVID-19 pandemic began
to show signs of abating, supply chain disruptions triggeredby the crisis in Ukraine, the global inflationary trend, and theresulting tightening of monetary policy were major downward
pressures. Uncertainty regarding the global economic
outlook increased once again. Under these circumstances,in accordance with our basic policies of “returning corebusinesses to a path of growth,” “optimizing the businessportfolio (selection & concentration),” and “strengthening
the consolidated governance structure” set forth in therolling medium-term management plan “T-2024” announced
in February, the Company expanded its business activities,
and was able to achieve significant increases in both revenue
and profit compared to the previous fiscal year. I believethat the reason why we were able to exceed our initial plantargets despite the challenging business conditions is that
our structural reforms and business portfolio transformation
have gradually begun to show results.
As for 2023, we aim to achieve net sales 484 billion yen,an operating income of 69 billion yen, and an operating
income to net sales ratio of 14% in 2025 in accordancewith our basic policies of “returning core businesses
to a path of growth,” “optimizing the business portfolio(selection & concentration),” and “establishing a foundation
for sustainability management” set forth in the new rolling
medium-term management plan “T-2025.”
With regard to shareholder returns, Tokai Carbon willcontinue to focus on consistent, stable dividends whilesetting the target dividend payout ratio at 30%. Although
the current business environment is quite severe and does
not allow for optimism, we will continue to be vigilant.

Business portfolio transformation
From 2017 to 2020, the Company implemented five
M&As overseas. We focused on increasing the sizes of ourearnings pillars with the aim of moving away from a profit
structure that relies on our Graphite Electrodes and Carbon
Black businesses. Until that time, the Company had been
operating virtually debt-free. However, as a result of actively
raising funds from financial institutions as well as directlyfrom the capital markets and investing a cumulative total ofapproximately 180 billion yen, our balance sheet structurechanged significantly. Despite this, I believe we havesuccessfully diversified our business portfolio, making us
less susceptible to fluctuations in the graphite electrode andcarbon black markets.

Shareholder Returns
Dividends Per Share and Net Income Attributable to Owners of the Parent Company
Dividends per share(Yen/share)(Million yen)

70

70,000

Forecast

50,000

3630

2430

30

30

30,00012
6 yen/share

66

6

10,00000(10)(10,000)

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Total dividends
1,280(Million yen)

1,280

1,280

1,280

2,556

5,114

10,230

6,395

6,395

6,395

7,674

Dividendpayout ratio

50%52%−21%

7%

32%

628%

40%

29%

30%

Fiscal Year

Tokai Carbon Co., Ltd.

4850109Net income attributable to owners of the parent company (right axis)106%

2023(forecast)Integrated Report 2022

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Further Strengthening Our CoreBusinesses to Realize Our Long-term
VisionIt goes without saying that I could not carry out structuralreforms and business portfolio transformation on my own.
I am very grateful for the deep understanding and supportof the management team and the efforts of our employees.
Going forward, I will continue to work together withmanagement and employees to achieve even higher level
results aimed at our long-term vision for 2030: “Contributeto a sustainable society through advanced materials andsolutions.”

Top Message

with M&A, so the contribution to profit is yet to come.
However, I have high expectations for the expansion of our
Smelting and Lining business.
Fine carbon is a product made from tiny carbon particles
broken down to the micron level. More than 70% of finecarbon is used for semiconductor-related applications.
Although memory semiconductors used in PCs and mobilephones are currently in an adjustment phase, demand for
power semiconductors used in EVs and other applications
is growing significantly. I see our Fine Carbon business as
another highly profitable business with great potential.

Nurturing our businesses and generating stable
cash flows

The 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-termbusiness opportunity is the shift from blast furnaces toelectric furnaces, which is aimed at reducing CO2 emissions
in the steelmaking process. Although the blast furnace
manufacturing method emits a large amount of CO2, theelectric furnace manufacturing method is said to reduce
the amount of CO2 emissions to about 25% of that amount.
Since the shift from blast furnaces to electric furnaces is a
global trend, particularly in the United States, we expect
business opportunities for the Company to expand further.
About 70% of the carbon black produced is used fortires. The automotive industry is undergoing a majortransformation with the shift from gasoline and diesel
vehicles to EVs moving forward. However, the demand fortires will not diminish as long as the vehicles are runningon the ground. We are working with a sense of mission toensure that we can meet demand, which is expected tocontinue to grow, with high-quality products.
Smelting and Lining is a business closely related toaluminum smelting and is mainly performed at our plants
in Poland and France. Although I expect that demand foraluminum vehicles and wheels will grow as a result of theshift to EVs, the aerospace industry will be the key to thefuture. There is currently goodwill amortization associated11

Tokai Carbon Co., Ltd.

First, I would like for the Company to fully nurture these
existing businesses and generate stable cash flows while
allocating some of the cash we earn to cutting-edgebusiness fields. It goes without saying that the researchand development of cutting-edge businesses involves ahigh level of risk. However, I would like for the Company
to continue taking on challenges looking toward nextgeneration business expansion. Although I do not expectthat we will easily succeed, we will move forward with asense of speed by grasping the changes of the times, andwill indicate the direction in which we are headed whileconsidering not only internal management resources but
also co-creation with like-minded external partners.

Increasing Management Sustainability
In terms of contributing to the sustainability of society,our efforts are just getting started. The most important
issue that we face is carbon neutrality. Of the Company’s
six businesses, the Carbon Black business accounts forthe largest amount of CO2 emissions, so reducing CO2emissions in this business is an urgent issue. In addition toconventional, steady efforts to save energy and improve theyield ratio, we will pursue with a sense of urgency innovativetechnologies such as product recycling and CO2 recovery,
as well as dream technologies such as the development ofcarbon products that utilize recovered CO2.
With regard to governance, we have viewed thestrengthening of governance of domestic and foreign groupcompanies as a key issue that must be prioritized. Since
overseas sales account for approximately 80% of our sales
in our company, governance is particularly important for ouroverseas subsidiaries. While many Japanese companies
appoint Japanese nationals as the CEOs of their overseas
subsidiaries, we appoint local personnel as CEOs of all of
our overseas subsidiaries except one in Thailand and one
in the United States. This is because we are convinced of
the superiority of our style of delegating what needs to bedelegated based on a relationship of trust with competent

local personnel. Naturally, this does not mean that we canjust appoint anyone that is local to the position of CEO.
However, I believe that each of our subsidiaries has a goodCEO right now.
Three of our eight directors are external directors. In orderfor them to guide our Board of Directors, it is important forthem to know us well. Therefore, we also invite them toattend the weekly meetings of the Management Committee
so that they can better understand the status of businessexecution. Since the outside directors have extensive
experience in their respective fields, we place a high degreeof trust in them.

Tokai Carbon Will be Further Expandedfor the Next Generation
While achieving our net sales target of 484 billion yen andoperating income target of 69 billion yen for 2025 will bechallenging, my dream is to take our business scale to aneven higher level in the not-too-distant future beyond “T2025.”
As we continue to invest in cutting-edge businesses
and continue to conduct research and development, themost important thing is that those efforts lead to businessexpansion. However, it is also true that the hurdles toovercome are high. Currently, working on post-merger
integrations related to past M&As is a top priority, and M&As
will continue to be an option for the Company.
I want Tokai Carbon to be a company that is trusted andrecognized by society by doing what we can do now for thenext generation of employees who will be responsible for
Tokai Carbon in the future.
I welcome you to look forward to the future initiatives ofTokai Carbon, a company that boldly takes on challenges
for the future.

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