fusion25 · net sales: 3 trillion yen or higher operating profit margin: 11% or higher in fy 2023...

FUSION25

Offer new value for the environment and air to realize both contributions to a sustainable society and Group growth

June 7, 2021

Contents

I. FUSION 20 Achievements

II. Goals and Mid-term Implementation Plan

III. Key Group Strategies

I. FUSION 20 Achievements

4

FUSION 20 Achievements

Through key strategies to expand our business domains, reform our business structure, and enhance our existing businesses, net sales and operating profit progressed as planned up to FY 2018.Although our business has been significantly affected by the COVID-19 pandemic since FY 2019, we have implemented both proactive and defensive measures as well as measures to strengthen our business structure. In FY 2020, as a result, we largely recovered and exceeded the original forecast we announced in May 2020 (net sales of 2,330 billion yen and operating profit of 150 billion yen).

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Result Result Result ResultFUSION 20

latter-half plan Result

Net sales(100 million yen)

20,440 22,906 24,811 25,503 29,000 24,934

Operating profit(100 million yen)

2,308 2,537 2,763 2,655 3,480 2,386

Operating profitmargin (%)

11.3 11.1 11.1 10.4 12.0 9.6

5


1) Expansion of the Air Conditioning (AC) Solutions business➢ Energy Service Solutions business

Business foundation strengthened through investing in sales and service networks as well as developing technology for solutions businessFull-scale business development primarily in North America, which is the largest market

➢ Indoor Air Quality (IAQ) and Air Environment (AE) Engineering businessIAQ and AE business expanded in response to growing needs for safe and secure air and spaceAiming to provide air and space value, advance own technology through external collaborative creation such as technology development and demonstration tests

2) Leading initiatives for the environmentEnvironmental Vision 2050 established in 2018 with the target of reducing greenhouse gas emissions to net zero by 2050Widespread uptake of R32 refrigerant and high-performance energy-saving equipment Development started for next-generation refrigerants and equipmentSupport for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) announced in 2019, and disclosure of financial information and ESG information including on climate change started

3) Expansion of business domains➢ Space and Water Heating business

No. 1 market share in heat pump units achieved in Europe, the largest market➢ Commercial Refrigeration business

Foundation established for the Refrigeration Solutions business in Europe through acquisition of Zanotti and AHT and other measures

Business domain expansion/business structure conversion

6

4) AC business in North AmericaSales and market share expanded by increased sales of unitary, VRV, and Applied equipmentInitiatives promoted for transforming the business structure into the Service Solutions business in addition to equipment sales

5) AC business in AsiaNo. 1 position achieved in the residential and commercial Direct Expansion business in many countriesMeasures implemented to expand the Solutions business and become the No. 1 in the Applied business

6) Chemicals businessRecord-high profit achieved in FY 2018Investment decisions made for future growth (establishing a 2nd plant in China, augmenting the U.S. plant, establishing the Innovation Center in Europe)Business expanded through applications development and polymer alloy/non-fluorine materials

7) Filter businessFilter Division established and the North America, Europe, and Power & Industrial (P&I) businesses reformedNew product development started to respond to IAQ needs

Enhancement of existing businesses


7

Net sales/operating profit: Approximately a five-fold increase over the past 20 yearsOperations in over 160 countries, with more than 80,000 Group employeesA more robust global business foundation than ever

FUSION 15FUSION 10FUSION 05 FUSION 20

70

500

1,000

1,500

2,000

2,500

3,000

0

5,000

10,000

15,000

20,000

25,000

30,000

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Net sales

Operating profit

Increased sales for 10 consecutive years since FY 2010

Recorded new highs in net sales and operating profitfor 6 consecutive years since FY 2013

(Fiscal year)

Increased profit for 14 consecutive years since FY 1994

Acquisition of OYL Group

Global financial crisis

Global COVID-19 pandemic

Net sales(100 million yen)


Acquisition of Goodman, a U.S. residential AC manufacturer

Be a company that attracts people, capital, and information

Be the global No. 1 AC company

Be a truly global and excellent company

Co-create new value in the air and environment fields with wisdom and passion

Reference: Change in Performance

II. Goals and Mid-term Implementation Plan

FUSION 25 Overview

Offer new value for the environment and air to realize both contributions to a sustainable society and Group growthChanges in the external

Circumstances

3 growth strategy themes

Increased importance of environmental andsocial contributions

Economic value

Vie

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9 key strategy themes Ideal value creation

While contributing to the environment and society, expand business and improve profitability

9

Increased needs for IAQ and ventilation

Innovative advances in digital, AI, 5G, and other technologies

Consumption shift from goods to experiences

Our strengths

Our Group Philosophy

Environmental and

social value

Assumptions

1 theme for focus regions

5 themes to enhance the management foundation

Energy-saving, environmental, IAQ technologies

Globally expanding robust sales network

Local production for local consumption model

People-Centered Management, diversity

management

Obtain investment resources for the growth strategy through accelerated global development and enhanced profitability

Reinforce the management foundation to support business transformation and growth

9 key strategy themes

成長戦略３テーマ

Improving HR capabilities through advanced diversity management

Growth strategy

Challenge to achieve carbon neutrality

1Promotion of Solutions business connected with customers

2Creating value with air

3

9

8Creating market value/enhancing advocacy activities

7Promoting digital transformation for innovation

65Strengthening technology developmentcapabilities

Air Conditioning business in North America

Achieve the No. 1 in the AC market in North

America, the largest market with great

opportunities

4

10

Businesses supporting our growth

Focus region

Management foundation enhancement

Establishing a robust supply chain

11

売上3.5兆円～

営業利益4,200億円～

営業利益率12％～

Directly connect with customers and satisfy individual application needs

Contribute to reducing food loss

Offer safe, reliable, comfortable IAQ/AE

Free humankind from heat and cold

25年全社目標（イメージ）

経済価値

Participate in international rule-making

Net CO2 emissions reductions

2025 target (from BAU)

30%+

Contribute to the growth of employees and local communities

Sales

Operating profit margin

Approx. 12%

FY 2025 Group targets(Image)

Economic value

3.6 trillion yen

Operating profit 430 billion yen

Ideal value creation

Environmental and social value

12

Group-wide Quantitative Targets

V-shaped recovery in FY 2021, record high financial results in FY 2022 and FY 2023

➢Net sales: 3 trillion yen or higher

➢Operating profit margin: 11% or higher in FY 2023 while ensuring upfront investments aimed at further business expansion

FY 2020result

FY 2021plan

FY 2023plan

Net sales (100 million yen)

24,934 27,500 31,000


2,386 2,700 3,250

Operating profit margin (%)

9.6 9.8 10.5

ROE (%) 10.1 10.8 11.0

FCF (100 million yen)

1,235 ー3,400

(3-year cumulative for 2021–2023)

USD/JPY ¥106 ¥105 ¥105

EUR/JPY ¥124 ¥125 ¥125

RMB/JPY ¥15.7 ¥16.0 ¥16.0

(100 million yen)

3-year cumulative

(FY 2021–23)

Capital investments 4,460

R&D 2,260

Digital investments (*)

1,370

Investment plan

*Major investment themes

・Building a platform to obtain/analyze business data・Reforming ECM/SCM processes to reduce

development/supply lead time・Building systems to upgrade the management

foundation・Streamlining indirect operations using digital

technologies

Business Expansion Through Growth Strategy

Approx. 36,000

24,934

FY 2020 FY 2025 image

Carbon neutrality(Heat Pump Space and Water Heating

business)

Value with air

Solutions

Existing businesses

(100 million yen)

Approx. 50% of the total sales increase earned from the 3 growth strategy themes

Net sales increase over 1 trillion yen in the 5 years until FY 2025

➢50% (more than 500 billion yen) from the 3 growth strategy themes

➢Existing businesses to grow centering on AC equipment sales in each global region

13

III. Key Group Strategies

15

Challenge to Achieve Carbon Neutrality

Reducing greenhouse gas emissions throughout the product lifecycle to achieve carbon neutrality in 2050➢ Targets: With the base year set at 2019, reduce net CO2 emissions* by 30% or more in 2025

and 50% or more in 2030, compared with emissions without measures (business as usual (BAU)) *Net CO2 emissions = Emissions − Contribution to emissions reductions

➢ Fulfilling our social responsibility while leading the industry by expanding sales of heat pump space and water heaters and inverter units, proposing energy-saving solutions, and implementing other environmental initiatives

1

2019(Base year)

20302025

Emissions

2050

Contribution to emissions reductions

Reduce by30%+

Reduce by 50%+

Net emissions(emission－contribution)

Zero or below

Emissions increase as business expands with the BAU scenario

■Net CO2 emissions reduction target

*Contribution to emissions reductionsEfforts to reduce CO2 emissions that contribute to society, including promotion of Daikin equipment with lower CO2 emissions (replacing other companies’ equipment with higher CO2 emissions), energy creation, and forest conservation activities*

1,306

2,040

0

500

1,000

1,500

2,000

2,500

FY 2020 FY 2023 16

1) CO2 reductions during manufacturing (development/production processes)

Reduce emissions of energy-induced CO2 and HFCs/PFCs in development andproduction processes➢Make factories carbon neutral

2) Power consumption reductions during product use

Global acceleration of conversion to inverter units to lead other companies

with environmental products (energy-saving equipment)➢ Residential AC (RA) inverter ratio: 75% in 2019 ➡ 98%+ in 2025

➢ Develop elemental technology with high energy efficiency

3) Heat Pump Space and Water Heating business

Positioning Europe and North America as

the priority regions to accelerate conversion of

combustion heaters to heat pump space and

water heaters➢ Europe: Aim to achieve No. 1 share in major countries

➢ North America: Accelerate sales of inverter heat pumpunitary products

Heating units’ energy source composition

Europe

North America

Source: 2019 BRG

■Heat Pump Space and Water

Heating business sales

Electric

Electric

Challenge to Achieve Carbon Neutrality1

(100 million yen)

Combustion

(Gas/oil)

Combustion

(Gas/oil)

4) Refrigerant initiatives supporting the AC business

Various measures connecting to refrigerant-induced CO2 emissions reductions to lead the environmentally conscious society and industry➢ Globally promote switching to R32

- R32 ratio in the global residential AC market : 83% in 2019 ➡ 95%+ in 2025➢ Establish the refrigerant eco-cycle (recovery, reclamation, destruction)➢ Develop next-generation refrigerants/equipment

5) Challenge to create new environment-related business

Initiatives toward market expansion and CO2reduction contributions➢ Smart cities: Participate in projects around the world

➢ Energy creation: Enhance product lineup of micro-hydroelectric power generation

6) Technology development to realize a carbon neutral society

Research on leading-edge technologies on CO2 decomposition, recovery, and reuseSpecific measures to obtain those technologies➢ Explore technology for ambient temperature CO2 separation, direct recovery, and reuse

(collaborative innovation with Doshisha University)

➢ Establish a hypothesis for a net-zero CO2 emissions society (collaborative innovation with the University of Tokyo)

17

■Smart city project in Singapore

Challenge to Achieve Carbon Neutrality1

18

Promotion of Solutions Business Connected with Customers2

■Experience-based sales business model■AC Solutions business sales

4,319

5,600

0

1,000

2,000

3,000

4,000

5,000

6,000

FY 2020 FY 2023

1) AC solutions

Three solutions for service/inspections, value-added proposals during equipment operation, and retrofits/replacements to establish a business model that provides customers with experiences

[1] Basic service solutions: Repair service, supply of parts and materials, customer support

[2] Value-added service solutions: Service, maintenance, IAQ diagnosis and improvements

[3] Replacement/turnkey solutions: Total replacement solutions responding to customer needs such as engineering services combined with non-AC equipment and controls

(100 million yen)

19

Reinforcing proposal and response capabilities for each vertical marketProviding solutions menu satisfying diverse customer needs➢ Individually optimized air conditioning by managing and analyzing customer information

and equipment operational data

➢ Safeguarded spaces where air quality is visible and ventilation, disinfection, and other IAQ technologies are combined

➢ Total facility energy management through external collaborative innovation etc.

Offices

Comfort from airflow, even temperature distribution, ventilation, sound insulation

Schools

Facility management and technical support where there is no dedicated facility caretaker

Hospitals

Prevent entry and spread of viruses/bacteria, reduce the risk of cluster infection

Hotels

Individual temperature controland advanced operability, i.e., multilingual support

Factories

Nonstop, highly reliable operations/energy savings toward achieving net zero carbon


20

■Value offered through Daikin’s business entry

■Refrigeration Solutions business sales

1,108

1,600

0

500

1,000

1,500

2,000

FY 2020 FY 2023

<Temperature/humidity>

<Temperature/humidity, freshness

control>

<Temperature/humidity>

<Temperature> 安全・安心な食生活に貢献

Production sites Transportation Transit points Consumption sites Consumers

Initiatives towards CO2 emissions reductions, food loss control/reduction throughout the entire supply chain

Contributing to safe/secure

food life

2) Refrigeration solutions

Global business expansion by deploying energy-saving and environmental technologies Daikin has cultivated in the AC domain

(1) Store Solutions business in Europe➢ One-stop solutions offering refrigeration, AC, and store design as well as

installation, service, and maintenance➢ Business supporting store operations with enhanced solutions menu

- Introduction of remote monitoring systems for food retailers, etc.➢ Total proposals starting from retail stores to cover distribution warehouses and land

transportation

(2) Store Solutions business in Asia/Oceania markets with growth potential

(3) Entire Cold Chain business (from production to consumption)➢ Contribute to resolving social issues including reducing food loss and ensuring food

safety and security by utilizing data


(100 million yen)

1) Establishing a large-scale IAQ/Ventilation business

Market creation from opportunities presented by growing IAQ/Ventilation demandCreation of new products and services to establish a large-scale IAQ/Ventilation business➢ Globally create a market for air purifiers, and sell 1 million units per year in each region➢ Proposal optimal ventilation systems for each vertical market to expand sales of Heat

Reclaim Ventilation (HRV)➢ Launch a global base model for air purifiers, and comply with standards and regulations in

each region➢ Position China as the IAQ mother base, create new products and services, and deploy them

to other global regions- Develop technologies through collaborative innovation with Tsinghua University, etc.

➢ Develop IAQ diagnosis tools

21

Creating Value with Air3

■IAQ/Ventilation business sales

1,977

2,900

0

500

1,000

1,500

2,000

2,500

3,000

FY 2020 FY 2023

■Product portfolio for establishing a large-scale IAQ/Ventilation business

(100 million yen)

2) Creation of IAQ/AE that enrich people’s lives

Accumulating and analyzing air conditioning data and vital data to create value with IAQ/AE for people’s physical and mental well-being➢ Take on the challenge in the healthcare domain for people’s better health

- Offer air environment for hypoxic training- Establish a business through collaboration with universities and startups to establish

methods for analyzing and improving health from obtained vital data

➢ Validate the value with air for each vertical market- Realization of air value for people to get better concentration, relaxation, and good

sleep- PoC verification for commercialization

➢ Pursue new value with air- Examine a social integration course on creating value with air with the University of

Tokyo- Promote industry-academia collaboration with Kyoto University, Osaka University, and

Tottori University

Creating Value with Air3

22

23

Air Conditioning Business in North America4

Increasing sales to 1 trillion yen and achieving the No. 1 in the AC marketin North America in FY 2025

(1) Residential and Light Commercial markets (Goodman)➢ Expand business in the residential volume-zone market by enhancing our sales network

➢ Expand sales of our premium residential products to expand business and promote inverter units

➢ Further reinforce the VRV and Rooftop businesses in the light commercial market

(2) Applied Solutions business (Daikin Applied Americas)➢ Establish a specialist team for each priority vertical market to fully develop the Solutions

business

➢ Enhance the product lineup of large-sized centrifugal chillers and small-sized magnetic bearing centrifugal chillers

➢ Expand the Air-side business including air handling units and fan coils

(3) Market transformation through intra-Group collaborative innovation➢ Using opportunities presented by environmental and

energy-efficiency regulations, promote market shifts to inverter products, heat pump units, and low-GWP refrigerants

➢ Develop integrated controls for VRV and Applied products to meet needs in each vertical market

➢ Conduct joint marketing to increase our brand recognition

5,985

8,000

0

2,000

4,000

6,000

8,000

FY 2020 FY 2023

■ North America AC business sales

(100 million yen)

Strengthening Technology Development Capabilities

Prioritized resource allocation to 4 key domains (3 growth strategy domains + 1 domain with future themes) linked with FUSION 25

➢ Technology and product development through internal and external collaborative innovation projects centering on the Technology and Innovation Center (TIC), the technology control tower of Dakin Group, to accelerate generating results

5

24

➢ Enhanced overseas R&D bases as well as recruitment and development of human resources to promote innovation to accelerate business contributions as the global Group

Control tower

✓ Technology strategy formulation

✓ Core product development

✓ AI/IoT technologies

Cooling-only inverter

For high-ambient-temperature zone

Heat pump space and water heaters

Asia

Europe

India

JapanUSA

IAQ

China

TIC

Applied Solutions

25

Strengthening Technology Development Capabilities5

Major industry–academia collaborations

Together with faculty from the University of Tokyo and university-originated startups, create and deploy in society future technologies and business models that realize “value with air”

Partner with information science departments at Osaka University to create safe and reliable IAQ/AE and realize next-generation smart buildings using the new campus (at Minoh, Japan)

University of Tokyo Osaka University

26

Establishing a Robust Supply Chain

Further solidifying our supply system while uncertainties such as global supply chain disruptions and increasing decoupling on a global scale are rapidly growing

➢ Shift to region-based procurement to achieve local production for local consumption

➢ Establish concurrent production and backup systems to avoid risks

➢ Centralize supply chain information utilizing digital tools to realize optimized SCM

6

dataData

Europe

India

China

Asia

JapanNorth America

Latin America

27

Promoting Digital Transformation for Innovation

Creation of new products, services, and business models and fundamental operational process innovations with significantly enlarged digital investmentsDevelopment of 1,500 human resources in digital fields through the Daikin Information and Communications Technology College and other initiatives

(1) Business innovation➢ Build a platform for linking and analyzing data to expand the Solutions business

- Build a system to manage customer information and utilize it to offer value throughout the AC equipment lifecycle, etc.

➢ Increase connected equipment to obtain equipment dataIn addition, obtain data on people, buildings, and others that lead to future business development through external collaboration

(2) Process innovation➢ Reform processes for ECM and SCM

➢ Reform development processes- Develop products and materials by applying materials informatics, etc. in Chemical

business

➢ Construct systems for upgrading the management foundation (human resources, accounting, legal affairs, CSR, and others)

➢ Increase the efficiency of indirect operations using robotic process automation and AI

7

Appendix

29

Other Focus Regions in AC Business

Japan

Europe

China

Establish new sales models by utilizing digital technologies that capture changes in market conditions to accelerate growth.Enhance IAQ/Ventilation products and solutions proposals responding to customer needs to achieve the No. 1 share in all areas and markets.

Launch and expand sales of differentiated products by capturing demand presented by growing interest in the environment and continuous investment in dwelling environments.While substantially expanding the Heat Pump Space and Water Heating business leveraging the European Green Deal, also enhance the one-stop store Solutions business including air conditioning and ventilation in the refrigeration domain. Aim to become a solutions provider capable of flexibly responding to the customers’ IAQ and energy needs for all HVAC&R markets.

Responding to the information-oriented society, shift to a new business model combining offline and online sales. With residential multi-split AC and VRV at the core, enhance proposals to create value with air and expand business in all markets. As the only global AC brand in China, create markets to achieve continuous growth.

Asia/Oceania

Enhance sales networks and product lineup in Asia anticipating its further market growth potential. In addition to sales expansion, enhance cost competitiveness to improve profitability. In India, aiming to make it the next major base for our business, achieve the No. 1 share in RA to further solidify our No. 1 position in total sales share.

30

Other Businesses

Chemicals

Filter

Stay close to customers with a focus on the 4 key markets (semiconductors, automotive, information communications, information devices).Expand business by enhancing sales of existing products, developing new products, and obtaining non-fluorine materials.Lead the industry by creating markets through applications development and resolving environmental and social issues.

Reform business structures mainly in North America, Europe, and the P&I business to secure stable profit.While expanding the IAQ business by enhancing collaboration with the AC business aiming to become the global No. 1 share, offer air with value in people’s daily lives and society to promote resolving social issues.

31

AC Business Sales Targets by Region

(100 million yen)

Japan Europe China Americas Asia/OceaniaMiddle East/

Africa

FY 2015 4,169 2,513 3,136 4,963 2,847 652

FY 2020 4,960 3,945 3,277 6,748 3,273 535

FY 2023 plan 5,600 5,100 3,700 8,600 4,500 650

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Notes on forecastThis data is compiled for informational proposes and is not to be construed as a solicitation of any action.This data (includes management plan) was compiled by Daikin Industries., Ltd. (the Company) based on reliable information available at the time of compilation. It may include some risks and uncertainties. The Company is not responsible for its accuracy or completeness.The Company asks for your own discretion in using this data. The Company accepts no liability for any loss or damage of any kind arising out of judgment for investment made solely relying on the business forecast or target figures described in the data.

fusion25 · net sales: 3 trillion yen or higher operating profit margin: 11% or higher in fy 2023...

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