東海カーボン（5301） – Q1 FY2022 Earnings Presentation

Q1 FY2022Earnings Presentation2022/5/12Table of ContentsⅠ Q1 FY2022 Financial Summary Reference materialP 3-14P 15-18ⅠQ1 FY2022Financial SummaryFY2022 Business Topics (January-March 2022)The International Monetary Fund (IMF) revised the outlook for the global economic growth rate for 2022 downward from 4.4% inJanuary to 3.6% and continued to revised it downward by 0.2% to 3.6% for 2023. Amid the global economy having not yet fullyrecovered from the COVID-19 pandemic, Ukraine crisis and the resulting economic sanctions against Russia have caused soaringresource prices, leading to concerns regarding further inflationary pressure and major disruptions in supply chains. Amid the emergence of geopolitical risks and soaring costs for raw materials and energy around the globe, the company’s performancefor Q1 saw a substantial YoY increase in both net sales and operating income, with 28.8% for net sales, 94.7% for operating income,110.2% for ordinary income, and 105.5% for quarterly net income.Progress was generally in line with the 1st half forecasts, which are weighted heavily toward Q2, with rates of 46.7% for net sales, 46.7%for operating income, 52.5% for ordinary income, and 40.4% for quarterly net income.In the graphite electrode business, demand for electrodes was strong particularly in the U.S., backed by robust steel production and thestartup of new electric furnaces designed to reduce CO2 emissions. Amid rising raw material costs due to high prices for crude oil andcoal, selling prices reversed after having remained sluggish due to the global economic slowdown caused by U.S.-China trade frictionand reduced demand resulting from the COVID-19 pandemic.In the carbon black business, although partially affected by the cold wave that hit the southern U.S. in February last year and theresulting large-scale power outages, operations are now at full capacity thanks to a rapid recovery in global demand for auto and tireproduction.In the fine carbon business and the industrial furnaces and related products business, continued strong demand remained backed byincreasing growth in the EV, 5G, and IoT related markets. Overall performance was driven by components for semiconductormanufacturing equipment produced at the company’s subsidiary in Korea.In the smelting and lining business, despite being partially affected by Ukraine crisis, global aluminum production and relining demandin aluminum smelters was strong. Carbon electrodes for polysilicon and aluminum alloys for semiconductors performed well anddemand remained strong.Tokai Carbon Q1 FY2022 Earnings Presentation44Summary of Consolidated Results Reversal in the market for graphite electrodes and continued strong markets for other businessesled to YoY increases in net sales and operating income Net sales ¥69.5b, Operating income ¥7.9b, ROS 11.4% (significant improvement YoY from ROS7.6%)Jan-Mar 2021Jan-Mar 2022YoY Change%ChangeNet sales53,96869,512+15,544Operating incomeOrdinary incomeNet income attributable toowners of the parent company4,0773,9991,9687,9388,4064,044+3,861+4,407+2,076Millions of yen +28.8%+94.7%+110.2%+105.5%Group companies (As of March 31, 2022) Consolidated subsidiaries: 31 Equity method affiliates: 1Average exchange rates: 2021USD1= ¥105.90 EUR1= ¥127.69 2022USD1= ¥116.20EUR1= ¥130.39Tokai Carbon Q1 FY2022 Earnings Presentation55Net Sales, Operating Income and EBITDA by Segment Net sales and operating income increased in the 5 main segmentsMillions of yen Net salesOperating incomeEBITDAJan-Mar 2021Jan-Mar 2022YoY ChangeJan-Mar 2021Jan-Mar 2022YoY ChangeJan-Mar 2021Jan-Mar 2022YoY ChangeGraphite Electrodes7,957Carbon BlackFine Carbon21,5958,826Smelting and Lining10,7661,9822,13467034Industrial FurnacesandRelated ProductsFriction materialsAnodematerialsOtherOperationOthersTotal OthersInter segmenteliminationsReturn on sales12,36229,43010,93511,6052,5232,290330344,4047,8352,10883854015634001832231,8072,146425211383554,0777.6%1,2583,0492,912677632013147,93811.4%1,4821,2427662424163413,861+3.8%7703,2373,4762,98958226421511,10620.6%2,5354,6164,3823,17182031218515,65322.5%+1,765+1,379+906+182+238+48+30+4,547+1.9%62,8392,655Total53,96869,51215,544※EBITDA =Operation income + Depreciation + Goodwill amortizationTokai Carbon Q1 FY2022 Earnings Presentation6Graphite Electrodes The steel industry recovered as inventory of graphite electrodes in the market continued to level.The electrode market reversed after bottoming out last year. Orders for high-quality electrodesare strong particularly in Europe and the U.S., and the company’s bases in those locations areoperating at full capacity which supports the company to achieve higher selling pricesMillions of yen Net Sales DifferenceOperating Income DifferenceJan-Mar 2021Jan-Mar 2022YoY Change%ChangeNet sales7,95712,362+4,404+55.3%Operating income2231,258+1,482%Volume+1,371Sales Price+2,501FX+532ROS2.8%10.2%Jan-Mar 20217,957Jan-Mar 2021223Jan-Mar 202212,362Volume+205Margin+1,645FX+115Other483Jan-Mar 20221,258Tokai Carbon Q1 FY2022 Earnings Presentation77Carbon Black Overall sales volumes decreased YoY due to the sale of Tokai Carbon (Tianjin) Co., Ltd in China.The net sales and operating income although increased by the improved selling prices due tothe recovery of replacement tires particularly in Europe and the U.S. Global supply of carbon black is becoming increasingly tight, and the company will continue toinvest in facility upgrades and environmental facilities to ensure a stable supply Raw material oil is also projected to remain tight, and ensuring stable procurement will be animportant issue for the businessMillions of yen Net Sales DifferenceOperating Income DifferenceJan-Mar 2021Jan-Mar 2022YoY Change%ChangeNet sales21,59529,430+7,835+36.3%Operating income1,8073,049+1,242+68.8%ROS8.4%10.4%Volume1,427Sales Price+7,913FX+1,349Margin+2,436FX+31Other954Jan-Mar 202121,595Jan-Mar 2022Jan-Mar 2021Volume27129,4301,807Jan-Mar 20223,0498Tokai Carbon Q1 FY2022 Earnings Presentation8Fine Carbon The semiconductor and solar power generation markets were strong. The generalindustrialmarket also shifted toward recovery Overall growth was driven by solid SiC (Silicon Carbide) focus rings used in the semiconductorproduction etching process. Growth investments were accelerated to accompany rapid marketexpansionMillions of yen Jan-Mar 2021Jan-Mar 2022YoY Change%ChangeNet sales8,82610,935+2,108+23.9%Operating income2,1462,912+766+35.7%ROS24.3%26.6%Net Sales DifferenceOperating Income DifferenceVolume+1,809Sales Price+16FX+283Jan-Mar 20218,826Jan-Mar 2022Jan-Mar 202110,9352,146Volume+726Margin+282FX+160Other402Jan-Mar 20222,9129Tokai Carbon Q1 FY2022 Earnings Presentation9Smelting and Lining Despite uncertainties surrounding the impact of Ukraine crisis, demand for cathode relining wasstrong overallMillions of yen Net Sales DifferenceOperating Income DifferenceJan-Mar 2021Jan-Mar 2022YoY Change%ChangeNet sales10,76611,605+838+7.8%Operating income4267+24+57.4%ROS0.4%0.6%Volume+116Sales Price+482FX+240Jan-Mar 2021Jan-Mar 202110,766Jan-Mar 202211,60542Volume+49Margin+36FX+3Other64Jan-Mar 202267Tokai Carbon Q1 FY2022 Earnings Presentation1010Industrial Furnace and Related Products Both industrial furnaces and ceramic heaters performed well due to strong demand from theelectronic components industry and energy related industryMillions of yen Net Sales DifferenceOperating Income DifferenceJan-Mar 2021Jan-Mar 2022YoY Change%ChangeNet sales1,9822,523+540+27.3%Operating income521763+241+46.3%Volume+407Sales Price+68FX+65ROS26.3%30.2%Jan-Mar 20211,982Jan-Mar 2022Jan-Mar 20212,523521Volume+320Margin+7FX+19Other105Jan-Mar 20227631111Tokai Carbon Q1 FY2022 Earnings PresentationCash FlowMajor Cash Flow itemsCash flows from operating activitiesNet income (loss) before income taxesDepreciation and amortizationAmortization on goodwillDecrease (increase) in trade receivableDecrease (increase) in inventoriesIncrease (decrease) in accounts payable-tradeIncome tax paidCash flows from investing activitiesPurchase of property, pant and equipmentCash flows from financing activitiesNet increase (decrease) in short-term Loans payablePayment of dividends3,9354,0135,3181,7103422,3672334,6309,6547,4764,8331,4343,1974,3248,3355,9511,7623,0718,9858624,9488,1277,6735,3341,8943,197Jan-Mar 2021Jan-Mar 2022SummaryMillions of yen Working capital: 6,776 million Jan-Mar 20212,476 millionFree cash flow: 3,803 million Jan-Mar 2021 5,718 millionCash and cash equivalents at end of period49,05857,507Working capital = Trade receivables + Inventories – accounts payable-tradeTokai Carbon Q1 FY2022 Earnings Presentation1212Balance SheetMajor Balance Sheet ItemsTotal assetsNet income (loss) before income taxesCash and cash equivalentsNotes and accounts receivableInventoryFixed assetsTangible fixed assetIntangible fixed assetsInvestments and other assetsTotal liabilitiesCurrent liabilitiesLong term liabilitiesTotal net assetsShareholder’s capitalOther accumulatedComprehensive incomeNon controlling interestsTotal liabilities and net assetsDecember 31,2021March 31,2022SummaryMillions of yen Cash/monthly sales: 3.1 times End of FY2021: 3.7 timesInventory: (+¥10,616 million from End of FY2021)Tangible fixed assets: (+¥6,167 million from the end of FY2021)Intangible fixed assets: +¥2,155 million from the end of FY2021)Net interest bearing debt: ¥93,693 million ̟+¥4.3 billion from End of FY2021Direct funding ratio:69.1% (End of FY2021: 68.4%), Long term debt ratio: 51.3 % (End of FY2021: 55.6%)Short term credit line:¥65 billion ̟+¥3.0 billion from End of FY2021 : ¥4.0 billion executed ̟+¥2.0 billion from End of FY2021Liquidation of receivables and CP issuance limit ¥68 billionsame as End of FY202150 billion executedsame as End of FY2021Capital to asset ratio: 46.1 (End of FY2021 44.7%)Adjusted Capital to asset ratio* :52,8% (End of FY2021: 51.6%)Net D/E ratio: 0.4 times (End of FY2021: 0.4 times)Adjusted Net D/E ratio: 0.2 times (End of FY2021: 0.2 times)※Adjusted capital-to-asset ratio is the ratio that takes into account the equity qualifications of rating agencies in hybrid financeTokai Carbon Q1 FY2022 Earnings Presentation1313In February 2022, we disclosed our sustainability and carbon neutralinitiatives and growth plan for the next three years under the theme ofbusiness development and organizational structure in line with our long-term vision for 2030 that is “Contribute to a sustainable society throughadvanced materials and solutions”.Turn around of Graphite ElectrodeStabilize CB business at higher marginGrowth investment in FCSelection and concentrationCarbon NeutralSustainability CommitteeTokai Carbon Q1 FY2022 Earnings Presentation1414Reference MaterialNet Sales of Main SubsidiariesSubsidiaryJan-Mar 2021Jan-Mar 2022YoY ChangeNoteMillions of yen Tokai Erftcarbon2,3574,593+2,236Tokai Carbon GE3,4615,128+1,667Contributing to consolidatedresults from November 2017Thai Tokai Carbon Product4,1146,248+2,133Tokai Carbon CB8,89813,404+4,505U.S.Carbon BlackContributing to consolidatedresults from September 2018Cancarb1,9962,146+150Tokai Carbon Korea6,0017,508+1,507Tokai COBEX8,18911,505+3,316Contributing to consolidatedresults from June 2018Contributing to consolidatedresults from August 2019Location/BusinessGermany Graphite ElectrodesU.S.Graphite ElectrodesThailand Carbon BlackCanada Carbon BlackKorea Fine CarbonGermanySmelting and LiningTokai Carbon Q1 FY2022 Earnings Presentation1616Key IndicatorsMillions of yen f=forecastNet salesOperating incomeROSEBITDAEBITDA marginNet income Attributable toOwners of the Parent CompanyROEROICCapital InvestmentDepreciation and AmortizationR&D ExpensesInterest bearing liabilitiesNet D/E ratioAdjusted Net D/E ratioNumber of EmployeesExchange Rate (JPY/USD)2018231,30273,06531.6%85,37436.9%73,39346.8%29.6%11,79410,3901,88349,7100.00.02,944110.432019262,02854,34420.7%77,05329.4%31,99416.0%13.1%24,34118,5032,4600.50.33,714109.052020201,5427,8583.9%35,26217.5%1,0190.5%1.6%28,87320,8902,6820.50.24,178106.822021258,87424,6479.5%54,51821.1%16,1057.5%4.8%30,34722,9002,8230.40.24,289109.802022f305,00035,00011.5%66,00021.6%20,0008.4%6.5%38,00024,0003,000—-110148,030158,643168,249※EBITDA =Operation income + Depreciation + Goodwill amortization ROIC= Operating Profit after Tax (Working Capital + Fixed Assets)Tokai Carbon Q1 FY2022 Earnings Presentation1717Quarterly Segment Results by SegmentQ1Q2Q4Full yearQ1Q2fH2fFull year2021Q3f=forecastMillions of yen 2022Net salesGraphite electrodesCarbon blackFine CarbonSmelting and LiningIndustrial Furnaces and Related ProductsFrictionmaterialsAnodematerialsOtherOperationsOthersTotal OthersOperating incomeGraphite ElectrodesCarbon BlackFine CarbonSmelting and LiningIndustrial Furnaces and Related ProductsOther OperationsInter-segment eliminations▲▲▲▲▲▲▲Tokai Carbon Q1 FY2022 Earnings Presentation1818Disclaimer Regarding Forward-looking Statements Forward-looking statements in this document are based on information obtainable at the time thisdocument was published and assumptions as of the date of publication concerning elements of uncertaintythat could affect future earnings. Actual results may differ substantially, depending on various future factors. Factors that affect businessperformance include, but are not limited to, economic conditions, trends in product demand and marketprices, and fluctuation in exchange rates. The quantitative goals, reference values, investment amounts, and other numerical goals in this documentonly express the medium-term strategy and vision of the company; they are not performance forecasts. Thecompany is not obligated to update such information. Please see the disclosures in the Consolidated Financial Results for the official earnings forecast, based onthe rules of Tokyo Stock Exchange, Inc.IR contact:General Affairs Department TC-IR@tokaicarbon.co.jpCopyright© 2022 Tokai Carbon Co., Ltd. All rights reserved