5942.T

Company Overview

• Founded in 1916 as Japan's only manufacturer of papermaking wires, marking its 110th anniversary in 2025, and has expanded into four core business segments.

Review of 2023-2025 (FY2023-FY2025 November term) Medium-Term Management Plan

• The plan was formulated based on a forecast of gradual market recovery post-COVID-19, prioritizing profit recovery alongside focus on sustainability (ESG management) and human capital development.
• Industrial Functional Filter & Conveyor Business: Failed to meet sales and operating profit targets due to faster-than-expected demand decline in the domestic papermaking product segment; the industrial conveyor belt & filter segment delivered near-target results on the back of firm domestic demand.
• Electronic Materials & Photomask Business: Met both sales and operating profit targets driven by strong demand for communication device applications. Key challenges include aging drawing and inspection equipment in the photomask product segment; one key unit per process was updated by FY2025, leading to higher depreciation burden. Management determined to continue business and investment due to expected long-term demand growth despite the FY2025 impairment charge.
• Environment & Water Treatment Related Business: Missed sales and profit targets due to post-COVID construction delays that forced simultaneous execution of multiple large projects, leading to sharp labor cost increases and operational strain; unprofitable competition pool projects were further pressured by yen-driven imported material price spikes. While all unprofitable projects were resolved by FY2025, active new business development was temporarily paused, leading to missed targets.
• Real Estate Leasing Business: Maintained stable earnings while executing planned large-scale repairs for aging properties, meeting performance expectations.
• Group-wide target performance: The ROE 5%+ capital efficiency target was met in 2023 but became unachievable after 2024; the shareholder return target (payout ratio 30%+ and DOE 2.4%+) has been maintained as planned. Profit recovery, the company's top priority, was not achieved due to faster-than-expected market contraction in the papermaking product segment.

2026-2028 (FY2026-FY2028 November term) New Medium-Term Management Plan

• Long-term vision: "As a centennial company, we will continue to create products and services needed by society for the next 100 years."
• Identified materialities: (1) Improve social convenience and reduce environmental impact through provision of essential products; (2) Sales capabilities matching customer needs and high-quality products; (3) Human capital development; (4) Strengthen group governance.
• Core management priorities:
  • 1. Profit Recovery (continued top priority): Focus on improving earning power rather than scale growth, implement fundamental reviews of current operations, and prioritize bold execution without fear of failure. As part of pre-plan structural reform, the company has already implemented expanded early retirement at the Shizuoka plant, reorganized European operations, and recorded impairment in the Electronic Materials & Photomask Business.
  • 2. Human Capital Development: Focus on developing self-directed, proactive employees rather than just task-focused staff, and provide more opportunities for employees to take on new challenges.
  • 3. Strengthen Group Governance: Improve governance through review of meeting operations and ad-hoc committee activities; re-optimize the governance structure to align with ongoing subsidiary reorganization and restructuring.

Segment Strategies for 2026-2028 Medium-Term Plan

• Industrial Functional Filter & Conveyor Business:
  Papermaking product segment: Shift to a profitable overseas sales structure, focusing expansion on higher price, higher margin regions; reorganized European operations by liquidating the French sales subsidiary and opening a new subsidiary in Germany to target non-woven product demand; capture domestic market share by launching product lines aligned with customer needs for reduced machine load, fewer breaks, and less contamination; relocate production from Shizuoka plant to lower-cost Thai subsidiary to improve productivity, cut costs, reduce working hours/inventory/lead times, reduce SKU count, introduce labor-saving equipment, and improve yield; no large capital investments planned for this segment during the plan period.
  Industrial conveyor belt & filter segment: Leverage position as Japan's leading industrial wire mesh provider with broad distribution to meet domestic customer demand, and expand sales in Asia using products from overseas subsidiaries; plan to rebuild the aging Osaka main plant building on its current site for completion by the end of FY2028, a critical investment for core product manufacturing.
• Electronic Materials & Photomask Business:
  Etching processed product segment: Capture new demand that was previously unaddressable and pursue mass production projects, leveraging increased technical and production capacity from prior period capital investment, despite the industry's long development lead times and high project cancellation risk.
  Photomask product segment: Strengthen sales of high-frequency device and sensor photomasks (which currently have strong customer demand); build in-house optical design capabilities to support customer development for glass processed application products and drive expansion.
  The 2028 medium-term operating profit target already incorporates lower depreciation from the FY2025 impairment; plan to sequentially update aging core equipment in the photomask segment to address end-of-life maintenance risk and meet expected future demand growth.
• Environment & Water Treatment Related Business:
  Focus on capturing school pool demand in the near term, driven by increased inquiries after the exit of the dominant market competitor; prepare for the long-term shift to private-sector demand by leveraging the unique strength of combined pool and filtration system sales to expand into hotel and condominium pools, and strengthen production and construction capacity.
• Real Estate Leasing Business:
  Continue planned large-scale repairs for aging central Tokyo properties to maintain rent levels and pursue rent increases on contract renewal.

Capital Return and Shareholder Actions

• 2025 November term full-year dividend is 28 yen per share (14 yen interim + 14 yen final), meeting the 2.4% DOE target; 2026 November term dividend is forecast to remain 28 yen per share, with an expected payout ratio of 120.6%.
• The company will execute a share repurchase of up to 172,000 shares for a maximum of 96.49 million yen via the Tokyo Stock Exchange ToSTNeT-3 off-exchange purchase on January 15, 2026; the projected total payout ratio for FY2026 November term is 154.7%.

• FY2026 November term (next fiscal year) guidance: Total net sales is expected to be nearly flat year-over-year at 27.6 billion yen; operating profit is expected to increase 232 million yen year-over-year to 900 million yen, driven by lower depreciation after the FY2025 impairment charge in the Electronic Materials & Photomask Business and reduced personnel costs from the expanded early retirement program at the Shizuoka plant in the Industrial Functional Filter & Conveyor Business.
• 2026-2028 Medium-Term Management Plan (FY2026-FY2028 November term) targets:
  • Aggregate group target for FY2028 November term: 28.869 billion yen net sales, 1.5 billion yen operating profit, ROE 6.0%+, maintain shareholder return targets of 30%+ payout ratio and 2.4%+ DOE.
  • Segment-specific FY2028 November term targets:
    1. Industrial Functional Filter & Conveyor Business: 19.03 billion yen net sales, 1.305 billion yen operating profit
    2. Electronic Materials & Photomask Business: 5.504 billion yen net sales, 733 million yen operating profit
    3. Environment & Water Treatment Related Business: 3.31 billion yen net sales, 259 million yen operating profit
    4. Real Estate Leasing Business: 1.025 billion yen net sales, 733 million yen operating profit
• Long-term 2034 vision targets: 2.3 billion yen operating profit, ROE 8%+.

1. Industrial Functional Filter & Conveyor Business: In the papermaking product segment, domestic demand for paper decreased and papermakers reduced production capacity, while demand for overseas board, sanitary paper, and non-woven fabric remained firm but demand recovery was stagnant in Europe after the recession. Both domestic and overseas sales decreased year-over-year. In the industrial conveyor belt & filter segment, demand was firm, and sales were flat year-over-year domestically and internationally. Overall segment operating profit decreased year-over-year due to rising personnel and manufacturing costs. 2. Electronic Materials & Photomask Business: Demand for AI-related cutting-edge products was strong, while demand for automotive and industrial machinery applications was soft. In the etching processed product segment, efforts to secure new mass production projects are ongoing but require longer lead times from prototyping to mass production, so sales decreased year-over-year. In the photomask product segment, demand for communication device applications was strong, so sales increased year-over-year. Overall segment operating profit decreased year-over-year due to increased manufacturing costs including depreciation expenses. 3. Environment & Water Treatment Related Business: The segment held unprofitable projects from prior periods and held back on cautious new large project orders, so sales decreased year-over-year. However, all unprofitable projects were completed, so operating profit increased year-over-year. 4. Real Estate Leasing Business: Existing properties operated steadily with stable performance. Aggregate company-wide results for FY2025 November term: Total net sales = 27.842 billion yen (down 796 million yen year-over-year); Operating profit = 668 million yen (down 256 million yen year-over-year); Ordinary profit = 944 million yen (down 186 million yen year-over-year); Net loss attributable to parent company shareholders = 726 million yen (down 1.348 billion yen year-over-year, driven by 1.579 billion yen impairment loss in Electronic Materials & Photomask Business and 544 million yen special retirement allowance in Industrial Functional Filter & Conveyor Business).

• Domestic papermaking product demand is declining faster than originally expected due to paperless trends, creating ongoing pressure on the Industrial Functional Filter & Conveyor Business's revenue and profit.
• Demand recovery in Europe has not materialized after the regional recession, creating ongoing pressure on overseas papermaking product sales.
• Aging production equipment in the photomask product segment is approaching the end of manufacturer maintenance support, creating business continuity risk that requires continued costly equipment updates, increasing depreciation and maintenance costs.
• Inflation and yen depreciation have driven sharp increases in production equipment purchase prices and maintenance service costs, increasing depreciation and maintenance expense that pressure profitability; passing cost increases to customers carries high risk of lost orders.
• The domestic school pool market is experiencing long-term decline due to falling birth rates, reduced pool use from extreme heat, and outsourcing of swimming lessons, negatively impacting the Environment & Water Treatment Related Business.
• Demand for non-woven fabric manufacturing filters is stagnant amid a downturn in the domestic non-woven industry, creating pressure on the industrial conveyor belt & filter segment.
• Development of new etching processing projects takes multiple years from prototyping to mass production, and many projects are cancelled before volume production, creating uncertainty for sales growth in the Electronic Materials segment.
• The aging main building of the Osaka plant for the industrial conveyor belt & filter segment requires costly reconstruction to maintain operations.

The Q&A section is not included in the provided transcript.