NIPPON FILCON CO., LTD.

Business Details

This segment comprises the papermaking products field, which manufactures and sells forming wire used in paper and pulp production, and the Industrial Conveyor Belts & Filters field, which manufactures and sells industrial wire mesh used for sifting, filtration, and conveying. The segment has a broad manufacturing and sales network both domestically and overseas, with group companies such as the Thai subsidiary (FILCON FABRICS & TECHNOLOGY CO., LTD.) and Kansai Kanaami Co., Ltd. handling manufacturing. In the first half of FY2026 (ending November 2026), external customer sales were ¥10,187 million, accounting for approximately 71% of consolidated sales, making this the core segment.

Recent Overview

First-half sales up 7.0% and operating income up 39.8%, marking substantial improvement

In the first half of FY2026 (ending November 2026) (December 2025 to May 2026), external customer sales were ¥10,187 million (up 4.7% year on year), and segment operating income was ¥606 million (up 39.8% year on year). In the papermaking products field, domestic sales declined while overseas sales (for paperboard, sanitary paper, and nonwoven fabric applications) remained solid. In the Industrial Conveyor Belts & Filters field, sales to the food industry in the Chinese market increased. In addition, a decrease in retirement benefit expenses following a change to the retirement benefit system at a domestic consolidated subsidiary also contributed to the improvement in operating income.

Key Products

Growth Drivers

• Increased sales of conveyor belts to the food industry, mainly in the Chinese market
• Solid demand for paperboard, sanitary paper, and nonwoven fabric applications in the overseas papermaking products field
• Improved profitability due to a decrease in retirement benefit expenses following a change to the retirement benefit system at a domestic consolidated subsidiary
• Cost reduction and profitability recovery through the transfer of production from the Shizuoka plant to the Thai subsidiary
• Streamlining of European operations through reorganization of European sales bases (liquidation of the French subsidiary and establishment of a new German company)

Risks

• Structural decline in domestic paper demand (paperless trends) and accelerating reduction in paper manufacturers' production capacity
• Prolonged demand slowdown due to economic downturn in the European market
• Pressure on operating margin from rising labor and manufacturing costs
• Soaring costs of imported materials and equipment due to yen depreciation
• Increased capital expenditure and depreciation burden associated with the rebuilding of the Osaka plant (scheduled for completion by the end of fiscal 2028)
• Impact on overseas demand from geopolitical risks such as US trade policy and Middle East tensions

Business Details

This segment manufactures and sells products made by etching metal materials and composite film materials (Etching Processed Products field), as well as photomasks used in the manufacture of semiconductors, displays, printed circuit boards, and MEMS (Photomask Products field). Manufacturing and sales are handled by Nippon Filcon itself and its Taiwanese subsidiary, Photronics-DNP Mask Corporation Taiwan, while SDI Electronics Japan Co., Ltd. handles the import and sale of electronic components. Demand for AI-related and communication device applications serves as the main growth driver, while demand for automotive and industrial machinery applications remains in a recovery phase.

Recent Overview

Strong demand for communication devices drove first-half sales up 10.9% and operating income up 234.9%, marking substantial improvement

In the first half of FY2026 (ending November 2026) (December 2025 to May 2026), sales of products for communication devices were strong, with sales in both the Etching Processed Products field and the Photomask Products field increasing year on year. Segment sales were ¥2,399 million (up 10.9% year on year), and operating income was ¥486 million (up 234.9% year on year), a substantial improvement. In addition to the increase in sales, this improvement in income was supported by a decrease in depreciation expense following the impairment loss recorded at the end of the previous fiscal year. Meanwhile, an impairment loss of ¥131 million was also recorded in the Electronic Materials & Photomask Business segment during the current first half. Demand for automotive and industrial machinery applications overall remains in a recovery phase.

Key Products

Growth Drivers

• Expanding demand for energy-efficient, highly integrated products amid the AI-related and data center construction boom
• Robust demand for photomask products and Etching Processed Products for communication devices
• Continued reduction in depreciation expense burden following the impairment loss (¥1,579 million) recorded at the end of the previous fiscal year
• Promotion of new mass-production project acquisitions in the Etching Processed Products field
• Targets set in the next medium-term management plan (fiscal 2026–2028) of ¥5,504 million in sales and ¥733 million in operating income

Risks

• Risk of aging drawing and inspection equipment in the Photomask Products field (risk of manufacturers discontinuing maintenance services)
• Pressure on profit from increased depreciation and maintenance costs associated with equipment renewal
• Continued occurrence of impairment losses (¥131 million) in the current first half, leaving risk related to the recoverability of assets
• Risk of prolonged periods from prototyping to mass-production certification in the Etching Processed Products field (including risk of project loss)
• Continued softness in demand for automotive and industrial machinery applications
• Soaring acquisition costs of production equipment and maintenance service fees due to inflation and yen depreciation
• Risk of difficulty passing on cost increases through pricing in a market with multiple competitors

Business Details

This segment is handled by Aqua Product Co., Ltd. and mainly involves the design and sale of Pool Structures and Water Treatment (Filtration) Equipment, as well as the sale of Insulating Joints that prevent corrosion and gas leaks in natural gas pipelines. The segment serves a wide range of customers, including schools, hotels, condominiums, and leisure facilities, and has the strength of being the only comprehensive domestic pool manufacturer that handles both pools and filtration equipment in-house. During the previous medium-term management plan period, the segment was affected by unprofitable large-scale projects, but it returned to profitability in FY2025 (ending November 2025), and in the first half of FY2026 (ending November 2026), progress on large-scale construction projects drove substantial sales growth and expanded profitability.

Recent Overview

Progress on large-scale projects for which orders had previously been restrained drove first-half sales up 23.4% and a return to operating profit

In the first half of FY2026 (ending November 2026) (December 2025 to May 2026), progress on large-scale construction projects for which orders had previously been restrained resulted in external customer sales of ¥1,257 million (up 23.4% year on year) and operating income of ¥80 million (compared with an operating loss of ¥35 million in the same period of the prior year), achieving a substantial improvement in earnings. Sales of ¥417 million were recognized for goods transferred over a period of time (percentage-of-completion method), with progress on large-scale construction projects driving results.

Key Products

Growth Drivers

• Increased inquiries due to withdrawal from the business by a major competitor in the school pool market
• Solid demand for pools at private facilities such as hotels and condominiums
• Normalization of the earnings structure following the completion of unprofitable large-scale projects
• Substantial increase in order backlog (¥2,037 million at the end of FY2025, ending November 2025, up 90.1% year on year), building up future sales
• Strengthened sales activities leveraging the unique domestic strength of offering pools and filtration equipment as a set
• Emergence of sales and profit from progress on large-scale projects for which orders had been restrained through the previous fiscal year

Risks

• Structural decline in the school pool market (due to the declining birthrate and expanded outsourcing to private operators)
• Risk of rising labor costs and operational strain when large-scale projects are concentrated in construction timing
• Risk of sharp increases in material costs due to yen depreciation in overseas material procurement
• Risk of delays in construction progress and losses on projects applying the percentage-of-completion method
• Fluctuations in interim earnings due to seasonality and uneven construction progress (risk of losses in the first quarter)

Business Details

This segment involves leasing real estate owned by the company as stores, condominiums, parking lots, and other uses. The business is conducted solely by Nippon Filcon Co., Ltd. Although it accounts for a small proportion of sales, the operating margin exceeds 75%, an extremely high level, contributing to the stabilization of earnings for the group as a whole. Revenue is recognized as real estate leasing income in accordance with accounting standards related to lease transactions.

Recent Overview

Existing leased properties operated steadily, though operating income declined slightly; profitability remains high and stable

In the first half of FY2026 (ending November 2026) (December 2025 to May 2026), steady operation of existing leased properties resulted in external customer sales of ¥515 million (up 0.1% year on year), roughly flat. Operating income declined slightly to ¥386 million (down 1.1% year on year), but the operating margin remained at an extremely high level of 74.9%, continuing to contribute to the stabilization of earnings for the group as a whole.

Key Products

Growth Drivers

• Continuous rental income from the stable operation of multiple properties in central urban areas
• Maintenance of rental levels through planned large-scale renovations addressing property aging
• Potential for earnings improvement through rent increase negotiations at the time of contract renewal
• Maintenance of the operating income target of ¥733 million in the next medium-term management plan (fiscal 2028)

Risks

• Risk of increased repair costs due to the ongoing aging of owned properties
• Risk of decreased rental income due to tenant departures and rising vacancy rates
• Impact on rent levels from fluctuations in real estate market conditions
• Temporary cash outflows associated with large-scale renovation investments