Tokai Carbon : Consolidated Financial Statements for the first quarter ended March 31, 2017

Q1 2017 Consolidated Financial Results

(Japanese Accounting Standards)

May 9, 2017

Company Name: Tokai Carbon Co., Ltd.

Listings: Tokyo Stock Exchange, first section

Code No.: 5301

URL: http://www.tokaicarbon.co.jp/ Representative: Hajime Nagasaka, President and CEO

Contact: Kazuhiko Matsubara, Executive Officer and General Manager, Accounting Department

TEL: [phone]

Scheduled dates

Schedule date of submission of quarterly report: May 10, 2017

Commencement of dividend payments: -

Supplementary reference documents to support the quarterly financial statements: Yes Conference call presentation of the Q1 results: Yes

(Amounts rounded down to the nearest millions of yen)

1. Consolidated Financial Results for the First Quarter FY 2017 (January 1 - March 31, 2017)

2. Consolidated Operating Results (First three month period)

   (Percentage figures represent year-on-year changes)

   Net sales	Operating income	Ordinary income	Quarterly profit/(loss) attributable to owners of the parent company
   At the end of First Quarter of the year ending December 2017	millions of yen % 24,104 6.5	millions of yen % 1,781 219.3	millions of yen % 2,014 282.6	millions of yen % 1,604 -
   At the end of First Quarter of the year ending December 2016	millions of yen % 22,643 (18.1.)	millions of yen % 557 (47.5)	millions of yen % 526 (49.6)	millions of yen % 36 (92.5)

   (Note) Comprehensive income

   Three months ended March 31, 2017 JPY 810 million (-%)

   Quarterly profit per share	Quarterly profit per share - fully diluted
   At the end of First Quarter of the year ending December 2017	Yen	Yen
   	7.53	-
   At the end of First Quarter of the year ending December 2016	0.17	-

   Three months ended March 31, 2016 JPY (3,734) million (-%)

3. Consolidated Financial Position

   Total assets	Net assets	Shareholders' equity ratio
   Millions of yen	Millions of yen	%
   At the end of First Quarter of the year ending December 2017	151,785	112,077	73.2
   Year ending December 2017	158,824	112,989	69.9

   (Note) Shareholders' equity:

   As of March 31, 2017 JPY111,063 million As of December 31, 2016 JPY 110,990 million

4. Dividends

   Annual dividend
   End of 1st quarter	End of 2nd quarter	End of 3rd quarter	End of term	Total
   Year ending December 31, 2016	Yen	Yen	Yen	Yen	Yen
   	-	3.00	-	3.00	6.00
   Year ending December 31, 2017	-
   Year ending December 31, 2017 (Forecast)	4.00	-	4.00	8.00

   (Note) Amendment of dividend forecast that have been disclosed lastly: No

5. Forecast of Consolidated Earnings for the Fiscal Year Ending December 31, 2017 (January 1 - December 31, 2017)

   (Percentage figures represent year-on-year changes)

   Net sales	Operating income	Ordinary income	Profit/(loss) attributable to owners of the parent company	Profit per share
   At the end of 2nd quarter (cumulative)	Millions of yen %	Millions of yen %	Millions of yen %	Millions of yen %	Yen
   	47,000 4.7	3,100 -	3,500 -	4,700 -	22.05
   Full year	95,000 7.2	6,700 492.1	7,800 358.2	8,200 -	38.47

   (Note) Amendment of earnings forecast that have been disclosed lastly: Yes

   *Notes

6. Changes in significant subsidiaries during the consolidated total period of the quarter (that accompanied changes in the scope of consolidation): None

7. Application of accounting principles peculiar to quarterly consolidated financial statement preparation: No

8. Changes in accounting policies and estimates, and retrospective restatements

   (1)	Changes in accounting policies due to revisions of accounting standards, etc.:	None
   (2)	Changes in accounting policies other than item (1) above :	None
   (3)	Changes in accounting estimates :	None
   (4)	Retrospective restatements :	None

9. Number of shares issued (common stock)

10. (1)	Number of shares issued at end of term (including treasury stock)	1Q of the year ending December 31 2017	224,943,104 shares	Year ending December 2016	224,943,104 shares
    (2)	Number of shares in treasury stock at the end of the period	1Q of the year ending December 31 2017	11,783,457 shares	Year ending December 2016	11,782,847 shares
    (3)	Average number of shares during the period (quarterly cumulative period)	1Q of the year ending December 31 2017	213,159,916 shares	1Q of the year ending December 2016	213,184,438 shares

    • Fourth quarter financial results are not included in the fourth quarter review

    • Explanation for appropriate use of Earnings Forecast and other special items (Precautions regarding descriptions about the future prospects)

    Descriptions of the Earnings Forecast regarding the future, these materials contain various forward-looking statements and other forecasts regarding performance and other matters. Such statements are based on information available at the time of preparation as well as certain reasonable assumptions. Actual results may differ materially from those expressed or implied by forward-looking statements due to a range of factors.

    (How to obtain Quarterly Account Settlement Supplementary Explanation)

    Tokai Carbon plans to hold an explanatory meeting to discuss the financial statements in the form of a phone meeting for institutional investors and analysts on May 9, 2017 (Tue). The materials for this explanatory meeting will be posted on the Company website on the day of the meeting.

    ○Table of contents for the "Attachments" section

11. Qualitative information related to this quarter's settlement 2

12. Explanation regarding business performance 2

14. Quarterly Financial Instruments and Exchange Act and Main Notes 3

15. Quarterly Consolidated Balance Sheet 3

16. Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income 5

    Quarterly Consolidated Statements of Income

    First Quarter Consolidated Cumulative Period 5

    Quarterly Consolidated Statements of Comprehensive Income

    First Quarter Consolidated Cumulative Period 6

17. Notes related to the Quarterly Financial Instruments and Exchange Act 7

18. (Notes concerning the premise of going concerns) 7

    (Notes when there are notable fluctuations in shareholders' stock amount fluctuates) 7

    (Segment Information) 8

19. Qualitative information related to this quarter's settlement

20. Explanation regarding business performance

21. The world economy during the first quarter consolidated cumulative period of 2017 (January 1 to March 31, 2017) was experiencing a continuous gradual recovery trend, especially in Europe and the United States. However, there is a high level of uncertainty in the world economy due to matters such as policy operation of the US President, trends in the

    Chinese economy, political status of North Korea and Brexit, and hence, it is necessary to focus on these trends from now on.

    In this state of affairs, this period marks the second year of the three-year Mid-Term Management Plan T-2018.

    The Tokai Carbon group took advantage of the results of the structural reforms arranged the previous year. Tokai Carbon is focusing on a Growth Strategy in which 2018 target figures are sales of JPY 110 billion, operating income of JPY 9 billion, ROS (Net sales operating income ratio) of 8% or more and ROIC (Return on Invested Capital) of 6% or more.

    As a result, sales increased 6.5% year on year for the first quarter consolidated cumulative period of

    2017, reaching JPY 24.104 billion. Operating income showed year on year growth of 219.3% at JPY 1.781 billion. Ordinary Income showed year on year growth of 282.6% for JPY 2.014 billion. Net Income/ (Loss) attributable to the parent company increased greatly over the previous year reaching JPY 1.604 billion.

    Segment-wise results are as follows. [Carbon Black]

    Increase in sales in the Carbon Black business and the accompanying improved operability contributed to increase in sales and operating income.

    The result of this was year on year sales growth of 19.6% in this division reaching JPY 11.344 billion and year on year growth for operating income was 32.4% at a total of JPY 1.479 billion.

    [Graphite Electrodes Division]

    Sales price decreased compared to the year before due to the structural supply-demand imbalance of Graphite Electrodes. The result of this was year on year decline of sales in this division of 7.0% dropping to JPY 5.136 billion and year on year decline for operating income was 18.8% at a total of JPY 144 million.

    [Fine Carbon Division]

    While demand for the ability to supply graphite materials for special carbon is still increasing, as the general industry market steadily shifts, the solar battery and semiconductor markets are recovering and prices seem to have hit rock bottom. Furthermore, as part of the Structural Reforms, there were production capacity rationalization effects including the reduction of human resources in the previous year in this business division and business improved compared to the previous year.

    The result of this was a year on year decline of sales in this division of 1.2% reaching JPY 3.394 billion and operating income reached JPY 47 million (Operating loss in the previous year had been JPY 804 million).

    [Industrial Furnaces and Related Products]

    Sales for industrial furnaces shifted in line with the previous year for information and technology related industries where the highest demand lies, but sales in China temporarily decreased. While there was a decrease in demand for heat resistant materials, sales for heat generators and other products steadily shifted with the demand in the electronics and glass industries and for China's electrical power infrastructure.

    The result of this was a year on year decline of sales in this division of 2.7% dropping to JPY 1.207 billion and year on year growth for operating income was 29.0% for a total of JPY 195 million.

    [Other Operations] Friction Materials

    Sales for Friction Materials grew for construction equipment due to the recovery of China's hydraulic shovel market and grew for agricultural equipment due to increase in production of tractors for North America.

    The result of this has that Friction Materials sales showed year on year growth of 5.6% for JPY 2.033 billion.

    Anode Materials

    Year on year sales of anode materials forsecondary lithium ion batteries decreased 6.1%

    dropping to JPY 930 million due to the sales volume dropping below client manufacturing procurement. Other

    Real estate rental sales showed year on year growth of 42.7% for JPY 58 million.

    Therefore, year on year growth of sales in this division of 2.2% reaching JPY 3.021 billion and year on year growth for operating income was 38.0% for a total of JPY 209 million.