Towards a sustainable business modelKuroda: If we consider the sustainability of companies, Tokai Carbon stands out for its history of over 100 years. What kind of value has the company offered over such a long time? Nagasaka: Our main products are carbon materials. Ordinary consumers have few opportunities to see these products directly, but they are vital for key industries like the auto and steel industries, and are highly relevant for reusing and recycling resources at the early stages of product manufacturing. Graphite electrodes, for example, are indispensable for recycling steel. Blast furnaces or electrical furnaces are used to produce steel, but compared with using a blast furnace to make steel from iron ore, using an electric arc furnace to make steel from scrap emits only around one-fourth the amount of CO2. From that perspective, our Graphite Electrodes business is indirectly contributing to the environment by supplying materials for such electric arc furnaces. As another example, one of Tokai Carbon’s main products is carbon black, which is produced from coal tar remaining after coal is carbonized by coke manufacturers. Coal tar had either been discarded or used to coat railroad ties, but we found a way to reuse it as feedstock and commercialize it as carbon black, thereby facilitating recycling.Kuroda: Carbon tends to have a negative image because it is often confused with CO2. On the contrary, however, providing environmental benefits is at the heart of Tokai Carbon’s business, and that seems to be what will drive the company’s sustainable growth over the medium and long terms.Nagasaka: The company’s financial results rose substantially in 2018, largely due to surging demand for graphic electrodes in recent years, which is driven by the widespread adoption of electric arc furnaces in China following stricter environmental regulations. Looking ahead, our growth businesses will focus on materials that directly or indirectly contribute to clean energy, such as core components for solar and wind power plants as well as lithium batteries for electric vehicles. Tokai COBEX, a new subsidiary acquired in 2019, provides materials to the aluminum smelting industry, by which it is helping the industry meet demand for lightweight auto parts, thereby contributing to reducing environmental burdens throughout society. Progress and outcomes of growth strategiesKuroda: Steel makers are major customers of graphite electrodes, and the volume of steel produced using electric arc furnaces is projected to rise. On the other hand, with the push to reduce the weight of automobiles, airplanes, and so on, steel consumption may be reaching its peak. Both of these factors appear to have been reflected in the recent acquisition of COBEX HoldCo (now Tokai COBEX), which has been positioned as key provider of environmental benefits for the Group. Tokai Carbon has been pursuing mergers and acquisitions as a growth strategy for accelerating the expansion of its portfolio since you were appointed as president. Could you discuss this?Nagasaka: When I was appointed as president in 2015, Tokai Carbon’s net sales were around 100 billion yen. For a company involved in Japan’s steel and auto industries, which have been driving the country’s economy for a long time, the scale of our operations seemed too small in my view. When considering the company’s prospects for sustainable growth in the future, I was concerned that it had not established a strong enough presence with major customers and business partners, and would not be able to compete Kazutaka KurodaSustainable nance specialist, Center for the Strategy of Emergence, The Japan Research Institute, LimitedExecutive committee member, Japan Sustainable Investment ForumAdjunct lecturer, Aoyama Gakuin UniversityFormer senior analyst, Ethical Investment Research Service LimitedBefore working as a senior analyst at Ethical Investment Research Service, a UK-based corporate research institute, Mr. Kuroda was a Japanese equity strategist for Okasan Securities, Co., Ltd. In 2012, he was ranked as the world’s fourth best individual analyst for SRI and corporate governance research, respectively, by the Independent Research in Responsible Investment Survey. Mr. Kuroda is a certified member analyst of the Securities Analysts Association of Japan, and has recently published a book for business people on ESG investment and investment strategies taken in the United Kingdom.Helping core industries reduce their environmental burden for over a centuryExpanding and bolstering the business portfolio through M&A31TOKAI CARBON ANNUAL REPORT 2019Vision and StrategyBusiness ReportData SectionSustainability Report
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