Daikin Industries, Ltd.
Q3 Financial Results Briefing for the Fiscal Year Ending March 2026
February 4, 2026
Event Summary
[Company Name]
Daikin Industries, Ltd.
[Company ID]
6367-QCODE
[Event Language]
JPN
[Event Type]
Earnings Announcement
[Event Name]
Q3 Financial Results Briefing for the Fiscal Year Ending March 2026
[Fiscal Period]
FY2026 Q3
[Date]
February 4, 2026
[Number of Pages]
34
[Time]
16:00 – 17:09
(Total: 69 minutes, Presentation: 20 minutes, Q&A: 49 minutes)
[Venue]
Webcast
[Number of Speakers]
3
Koichi Takahashi
Kota Miyazumi
Kazuhiro Matoba
Member of the Board, Senior Executive
Officer, Responsible for Finance, Accounting
and Budget
Senior Executive Officer, Responsible for
Corporate Communication
Department Manager of Corporate IR Group,
Corporate Communication Dept.
[Analyst Names]*
Yuichiro Isayama
Goldman Sachs
Tsubasa Sasaki
UBS Securities
Sho Fukuhara
Jefferies
Kentaro Maekawa
Nomura Securities
Graeme McDonald
Citigroup Global Markets
Satoshi Taninaka
SMBC Nikko Securities
Hirosuke Tai
Daiwa Securities
Kenjin Hotta
BofA Securities
*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or
whose questions were read by moderator/company representatives.
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Presentation
Sakamoto: We will now begin the briefing on the financial results of Daikin Industries, Ltd. for Q3 of the fiscal
year ending March 31, 2026. Thank you very much for joining us today.
The explanatory material is available on the Company's website under Investor Relations, as announced today
by e-mail. Please have it on hand if you need it.
Today's speakers are: Koichi Takahashi, Member of the Board, Senior Executive Officer, Responsible for
Finance, Accounting and Budget; Kota Miyazumi, Senior Executive Officer, Responsible for Corporate
Communication; and Kazuhiro Matoba, Department Manager of Corporate IR Group, Corporate
Communications Dept.
I am Sakamoto of Corporate IR Group will be facilitating the meeting. Thank you.
Today, Mr. Takahashi will give a 15-minute overview of the financial results, followed by a question-andanswer session. The end time is scheduled for 5:00 PM.
Now, Mr. Takahashi, Senior Executive Officer, please begin.
Takahashi: My name is Takahashi. Thank you very much for taking time out of your busy schedule to attend
today's financial results briefing.
I would like to present an overview of the Q3 financial results along with the presentation material.
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First, please see page three.
In Q3, net sales increased and operating profit decreased.
In addition to the sluggish US housing market and the prolonged real estate recession in China, demand also
declined in Asia due to the economic slowdown and unfavorable weather. In this difficult business
environment, we worked to strengthen our sales and marketing capabilities in each region and implemented
various measures, including strategic selling price measures and cost reduction efforts, but these efforts were
unable to offset the impact of a greater-than-expected decline in demand.
Although the US tariffs had a direct negative impact of approximately JPY29 billion on operating profit, this
was fully absorbed by price increases and cost reductions.
The exchange rates were JPY149 to the US dollar, JPY172 to the euro, and JPY20.8 to the Chinese yuan. The
foreign exchange impact versus the previous year was negative JPY38.5 billion on net sales and negative JPY14
billion on operating profit.
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See page four. Results by business segment.
In the air conditioning and refrigeration equipment business, sales and profit increased on a real basis,
excluding exchange rate effects. While sales were affected by declining demand for residential applications in
the Americas and China, economic stagnation in Asia, and unseasonable weather, we expanded sales in
businesses where demand was strong, such as applied and commercial. In addition to the significant recovery
of market share for Ducted Unitary for Houses in the Americas and sales expansion of high value-added
products in Japan, we also concentrated our resources on sales of residential multi-split air conditioners in
China.
On the other hand, the chemicals business reported higher sales and lower profit. The environment
surrounding our core business was very severe, with sluggish demand for semiconductors and delayed
recovery of demand for automobiles. Despite efforts to expand sales of wire coating materials for data centers
and other applications through the development of new applications, profits decreased significantly from the
previous year due to a decline in sales of PFA, a high value-added material for semiconductor manufacturing
equipment, and an increase in depreciation expenses from increased production investments made in the
previous fiscal year.
Foreign exchange rates had a negative JPY37 billion impact on net sales and a negative JPY13 billion impact
on operating profit in the air conditioning and refrigeration equipment business. In the chemicals business,
they had a negative impact of JPY2.5 billion on net sales and a negative JPY0.8 billion on operating profit.
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The status of each business and the regional status of the air conditioning and refrigeration equipment
business will be explained later.
Page five is an analysis of the YoY change in operating profit for the nine months ended December 31, 2025.
Amid the significant impact of declining demand, the Company strived to expand sales of high value-added
products, increase market share, and thoroughly implement selling price measures, while promoting total
cost reductions, including manufacturing cost reductions and efficient management of fixed costs.
The direct impact of the US tariff measures of approximately JPY29 billion was fully absorbed by the effects
of measures to increase selling prices by approximately JPY21 billion and cost reductions by approximately
JPY8 billion.
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See page six.
Based on the Q3 results, we have revised our annual operating profit plan to JPY413 billion. The downward
revision was made because demand for the air conditioning and refrigeration equipment business has been
more severe than expected. However, operating profit will increase significantly in the three months of Q4,
and we intend to secure an increase in profit for the year.
The business environment in Q3 was very difficult, but we expect it to ease somewhat in Q4. For example, in
the US housing market, the adjustment of distribution inventories is progressing, and in Asia, the effects of
the natural disasters that occurred in various regions are beginning to dissipate. In Europe, despite the
ongoing economic slowdown, demand is emerging in the commercial market for replacement with energyefficient equipment.
We will accelerate the creation of results from the measures we have taken so far, specifically the six crosscompany themes under the direct control of top management, such as sales expansion of high value-added
products, improvement of the solution business ratio, strategic sales price measures, and cost reduction,
while developing additional measures to respond to changes in the business environment.
We also intend to promote measures to strengthen our business structure, such as reducing fixed costs and
optimizing inventories, leading to FY2026, the first year of the next strategic management plan.
The year-end dividend forecast remains unchanged from the previous announcement. We will consider this
matter again in light of the full-year business results.
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Page seven details six themes across the entire company.
This is reference information and will not be explained.
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See page eight. Segmental outlook.
In the air conditioning and refrigeration equipment business, the sales forecast was increased by JPY82 billion
from the previously announced forecast, while the operating profit forecast was reduced by JPY19 billion. In
the chemicals business, the sales forecast has been reduced by JPY10 billion from the previous announcement,
and the operating profit forecast has been reduced by JPY3 billion. In the other business, the sales forecast
has been increased by JPY8 billion from the previous announcement, while the operating profit forecast
remains unchanged.
The foreign exchange impact is expected to be negative JPY10 billion on net sales and negative JPY12.7 billion
on operating profit in the air conditioning and refrigeration equipment business. In the chemicals business,
we expect a negative impact of JPY2 billion on net sales and a negative impact of JPY0.6 billion on operating
profit.
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See page nine.
The factors for YoY changes in the annual operating profit plan have been changed, as shown in the chart.
We plan to absorb the direct impact of the US tariffs of approximately JPY41 billion by increasing selling prices
by approximately JPY30 billion and reducing costs by approximately JPY11 billion.
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See page 10.
The direct impact of the US tariffs on our business results for the fiscal year ending March 31, 2026 is currently
estimated to be approximately JPY41 billion.
Although the situation may change in the future, our policy remains the same: we will take countermeasures
each time and absorb the impact by increasing selling prices, reducing costs, and changing suppliers and
production sites.
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See page 12. This page shows sales by region for the air conditioning and refrigeration equipment business.
In real terms, excluding exchange rate effects, sales in Europe were 102%, in China 94%, in the Americas 106%,
and in Asia 92% of the previous year's level.
The annual plan is as stated.
Excluding the effect of foreign exchange rates, YoY sales in real terms are expected to be 102% in Europe, 93%
in China, 107% in the Americas, and 97% in Asia.
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See page 13. This page shows sales by region for the chemicals business.
Excluding the effect of foreign exchange rates, YoY sales in real terms were 134% in the Americas, 100% in
China, and 97% in Europe.
The annual plan is as stated.
Excluding the effect of foreign exchange rates, sales are expected to be 125% in the Americas, 100% in China,
and 96% in Europe of the previous year's level.
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See page 14. This section provides an overview of the air conditioning and refrigeration equipment business
by region.
In Japan, demand for air conditioners for both residential and commercial use exceeded the previous year
due to high temperatures nationwide and improved capital investment, as well as a tailwind from subsidies
provided by local governments.
Against the backdrop of rising electricity rates and expanding needs for energy conservation, we worked to
strengthen our sales and marketing capabilities and expanded sales of high value-added products, as well as
thorough implementation of selling price measures, resulting in sales of 106% of the previous year's level.
In the residential market, our focus on profitability resulted in a decrease in market share, but in the
commercial market, we have managed to both expand sales and secure market share.
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See page 15.
Sales in the Americas air conditioning and refrigeration equipment business were 103% of the previous year's
level. Amid a difficult business environment in which industry demand for residential applications remained
sluggish due to prolonged inflation and high mortgage interest rates, we promoted selling price measures in
residential applications in addition to expanding sales of applied.
Sales of Daikin North America were 112% of the previous year's level on a local currency basis. The breakdown
of factors contributing to the increase was minus 10 points from volume, plus 8 points from selling price, plus
8 points from improved product mix, and zero impact from M&A. In addition, the fact that the Latin American
air conditioning companies became part of DNA from this fiscal year contributed to an increase in revenue of
plus 6 percentage points.
Sales of Ducted Unitary for Houses products were affected by last year's rush demand due to changes in GWP
value regulations for refrigerants. Under such circumstances, we focused on winning back customers,
supporting existing dealers, and developing new dealers to expand sales, especially of R32 units, resulting in
a significant increase in market share. In H1, the share was about 22%, but in the three months of Q3, it was
about 25%. We are targeting more than 24% for the year. The Win-back strategy is progressing as planned,
with approximately 60% of the total as of the end of December, and we will continue to strengthen individual
visits.
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Demand for Ducted Unitary for Houses was very sluggish in Q3 as distribution inventories continued to be
adjusted. In Q4, we expect to see a gradual but steady recovery as distribution inventories are reduced and
policy interest rates are lowered.
Daikin Applied Americas, Inc. achieved a significant increase in sales thanks to the steady expansion of its
service solution business, in addition to the sales expansion of heat source equipment and secondary-side air
conditioning equipment.
Although the current slowdown in economic growth is having an impact on demand of applied, we will strive
to win orders in favorable markets such as data centers and corporate capital investment-related markets.
The operating margin for DNA was 9%, an improvement of 1 percentage point YoY, while for DAA it was 8%,
a decrease of 2 percentage points YoY. The decline in DAA's operating margin was mainly due to the increased
burden of amortization of goodwill associated with the acquisition and upfront investment for the expansion
of the solutions business.
See page 16.
In the air conditioning and refrigeration equipment business in China, we focused on user-direct sales
activities amid a continuing difficult business environment, including a deteriorating real estate market and
sluggish consumption. Although sales fell to 92% of the previous year's level, the Company maintained a high
level of operating profit margin by expanding sales of high value-added products, strengthening the solutions
business, and reducing costs.
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Sales of residential multi-split air conditioners were 96% of the previous year's level. In addition to promoting
unique sales activities combining online and offline sales, we introduced a new series of system products to
meet a wide range of customer needs. By demonstrating the strength of our sales force in this way, we believe
we were able to secure maximum sales despite the difficult demand.
See page 17.
Sales in the air conditioning and refrigeration equipment business in Europe were 106% of the previous year's
level. Amid a generally difficult business environment, the Company focused on sales for residential and
commercial use.
Sales in the air conditioning and refrigeration equipment business in the Middle East were 121% of the
previous year's level. In addition to growth in residential sales in Turkey, commercial and applied sales
expanded in Saudi Arabia and the UAE.
Demand for heat pump heaters remains sluggish with no particular change in subsidy programs in various
countries. We are focusing on dealer development and subsidy application support to capture the rapidly
growing demand for R290 units in Germany and increase sales.
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See page 18.
Sales in the air conditioning and refrigeration equipment business in Asia were 91% of the previous year's
level. This was due to the economic slowdown in countries in the ASEAN region and unfavorable weather
conditions in India. Sales in India remained at the same level as the previous year on a local currency basis
due to a decline in residential sales.
Meanwhile, in the air conditioning and refrigeration equipment business in Oceania, sales in Australia
expanded for commercial use, resulting in sales of 101% of the previous year's level.
In the residential sector, we worked to develop dealers and strengthen sales promotion support for
consumers. However, price competition intensified in ASEAN countries due to high distribution inventories.
In India, sales also declined due to the significant impact of unseasonable weather in H1, despite efforts to
recover benefiting from the consumption tax cut.
On the other hand, in the commercial use, we focused on developing and nurturing dealers and increased
sales in India and Australia amid project delays and investment reviews.
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See page 19.
In the filter business, demand remained strong, but the negative impact of foreign exchange rates resulted in
sales of 100% of the previous year's level.
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See page 20.
Sales in the chemicals business were 102% of the previous year's level. Amid sluggish demand in the
semiconductor sector, delayed recovery of demand in the automotive sector, and accompanying distribution
inventory adjustments, the Company strove to expand sales by identifying areas where demand was strong.
In the fluoropolymers business, we increased production and expanded sales of FEP for use in wires for data
centers, but were affected by a decline in demand for use in semiconductor manufacturing equipment.
Sales of fluoroelastomers grew in the automotive field.
Sales of fine chemicals increased from the previous year due to the effect of new consolidation in the field of
etching agents for semiconductor processes, although sales of surface antifouling coatings and oil and water
repellants for textiles decreased.
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See page 21.
The results of capital expenditures, depreciation and R&D expenses for the first three quarters are shown in
the table.
That's all from me. Thank you very much.
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Question & Answer
Sakamoto [M]: We will now have time for questions and answers.
Due to time limitations, please limit your questions to two at a time. Also, please keep your questions brief.
We appreciate your cooperation.
First, Mr. Isayama of Goldman Sachs, please proceed.
Isayama [Q]: Thank you very much for all your help. My name is Isayama from Goldman Sachs. Thank you.
First, please let me ask how much the Q3 results deviated from the plan. I have been in charge of your
company since 2012 and I do not recall any downward revisions during the period. So far, your company has
achieved the plan by implementing cost reductions and other measures at all costs. So I am personally very
surprised at this downward revision.
By segment, the downward revision in the air conditioning and refrigeration equipment business is large.
According to the company-wide increase/decrease analysis, the sales expansion effect was lowered by about
JPY44 billion compared to the value announced in November. Sales have not deviated much from the plan,
even after factoring in foreign exchange. If so, is this due to production adjustments? What were the factors
that caused the Q3 operating profit results to be so far off track? Have you squeezed out the pus and will
things be easier in the next fiscal year? I would love to get your comments on that.
Takahashi [A]: Thank you very much.
Q3 results were significantly below internal plans. We considered making up for that shortfall in Q4. However,
since there are only three months remaining in the current fiscal year, we have decided not to change our
fourth quarter plan and have had to revise our annual forecast downward to reflect the decline in Q3.
Isayama [Q]: What were the reasons for the decline in Q3?
Takahashi [A]: There was an increase in expenses to strengthen sales and marketing capabilities. In Europe
and North America, sales progress was behind schedule, and production cuts and adjustments were made in
Q3. Various adjustments are necessary due to the decline in demand, but we are implementing measures
such as strengthening sales and marketing capabilities, increasing selling prices, and reducing costs as planned.
We hope to reap those benefits in Q4 as originally planned. Demand, especially in North America, as you all
know, was more sluggish than expected.
Isayama [Q]: Thank you very much. It has been a very long time since the annual plan was revised downward
last time. You must have been very hesitant about this action.
Takahashi [A]: Internally, this was a difficult decision. Demand was particularly bad at the end of Q3, when
the measures were not very effective. As a result, actual results fell far short of the plan.
I believe you have asked if we will be able to recover from that in Q4. The effects of the various measures
have been incorporated into the plan considerably from the beginning. Since it is difficult to recover from the
decline in Q3 in addition to this, we have revised downward for the amount of the shortfall in Q3.
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This is due to the fact that the impact of the decrease in demand was too great, not that the measures were
less effective or that measures could not be taken. Our internal assessment is that we were not able to fully
cover the impact of the unexpected decline in demand.
Isayama [Q]: Thank you very much.
My second question is about the United States. I understand your win-back strategy and margins. On the
other hand, through your company's briefings to date, I had thought that the distribution inventory would
begin to dissipate from the second half of the year onward. However, I got the impression that you were
struggling more than I had imagined. What is the background behind the lack of correct understanding about
the business environment with regard to the business in North America?
Takahashi [A]: It is true that the sales performance has not reached the internal plan. The reason for this, I
repeat, is a greater-than-expected deterioration in industry demand. I believe that demand for Ducted Unitary
for Houses in October and November dropped to about 50% of the previous year's level. It was close to that
level in December. The main reason is that industry demand was very poor in Q3.
Our sales volume is slightly below the previous year, but as I explained earlier, our market share has increased
significantly. However, we did not anticipate that demand would fall so far.
Isayama [Q]: Would you say that the market has bottomed out?
Takahashi [A]: I don't think we can say that it has bottomed out yet. However, inventory adjustment has
progressed, and our customers' distribution inventories are now below the previous year's levels. We believe
at this point that in the industry as a whole it will take a little more time.
Isayama [M]: I understand very well. Thank you very much. That's all from me.
Sakamoto [M]: Thank you very much.
Next, Mr. Sasaki of UBS Securities, could you ask a question?
Sasaki [Q]: My name is Sasaki from UBS Securities. Let me ask you two quick questions as well. This time,
demand was lower than planned, especially in North America. Once again, please tell us how the Q3 results
compared to the plan three months ago, broken down by demand environment and market share.
One more thing, as mentioned in Mr. Takahashi's presentation at the beginning of this meeting, compared to
the previous plan, the growth rate of sales in local currency terms, especially for air conditioning, is down in
China and Asia, in addition to North America. Let me ask if that was also a factor in the downward revision
this time. Can you also tell us quantitatively how much of the downward revision was due to the US, Chinese,
and Asian markets, respectively?
Takahashi [A]: First of all, we expected that demand in North America, especially unitary demand, would be
about 80% of the previous year's level in Q3. Actual demand was 60% or slightly less, and that was the biggest
impact.
The share is up almost as planned. I think we have been able to increase our share slightly above the plan. In
Q3 alone, the market share was about 25%, which is a 6-percentage point increase over the previous year. In
the single month of December, the market share rose to about 28%. I think the biggest factor was that we
experienced a greater-than-expected decline in demand.
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About the markets in China, Asia, and Oceania. The Chinese market certainly continues to be sluggish, but this
is not to say that it is more sluggish than expected; we assess it internally that demand continues to be weak.
In Asia and Oceania, as explained at the beginning of this report, we were unable to ship due to unseasonable
weather in Q1 and natural disasters such as flooding in Q3. In addition, the overall Asian economy is showing
signs of weakness, and actual sales are not progressing well. Due to both of these causes, we have also revised
downward our forecast for the Asian air-conditioning business this time.
Sasaki [Q]: In summary, one of the main reasons for the downward revision was that demand for residential
air conditioning in North America was actually worse than expected, at 60% compared to the forecast of 80%
of the previous year's level. Another negative factor was the Asian market, although not to the same extent
as North America. However, market share was higher than expected. Is this correct?
Takahashi [A]: As you mentioned, we have greatly increased our market share in North America. In Asia and
Oceania, the market share is also increasing slightly according to the local management staff.
Sasaki [Q]: I understand very well. Thank you very much.
Second, please tell us about the impact of recent market conditions. Specifically, about copper and aluminum
prices. Recently, the price of copper has risen very high, and I think this will have an impact on air conditioning
business because it uses a lot of copper, iron, and aluminum. I recall that in the past, market conditions were
a negative factor in FY2021 and FY2022. Once again, I would like to know what your company is currently
discussing and what measures you are taking to deal with the impact of the sharp rise in copper and aluminum
prices.
In the past, I believe that this was absorbed in the medium to long term through price increases and hedged
in the short term. Could you tell us how you are currently looking at and addressing the impact of the current
market conditions?
Takahashi [A]: This fiscal year, we are almost hedged against the remaining two months, so I don't think there
will be much of an impact. It is the policy of the Company to hedge for the next fiscal year and to some extent
for the long term, reflecting the previous failure. However, in some areas this has not been fully executed.
Some of the amount to be used in FY2026 has already been hedged, but more of the amount is currently
unhedged. As a result, as you have just pointed out, it is true that there is a negative impact.
However, as I mentioned earlier, demand has dropped significantly this fiscal year, and sales volume has also
fallen short of projections. So, there is a small amount left over that we have hedged for the current year. We
will use a little of that next year, therefore we expect the impact to be somewhat mitigated. However, we
have begun to build our business plan for the next fiscal year on the assumption that it will be significantly
affected by soaring copper and aluminum market prices. As a countermeasure, we are considering both cost
reductions and a slight price pass-through to customers.
Sasaki [M]: I understand very well. Thank you very much.
Sakamoto [M]: Thank you very much.
Next, Mr. Fukuhara of Jefferies, could you ask a question?
Fukuhara [Q]: My name is Fukuhara from Jefferies. I have two questions.
The first point is the phrase "demand is bottoming out" on page six. Specifically, in which areas and for what
reasons do you judge that signs of bottoming out have been seen?
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Takahashi [A]: I would not say that demand has completely bottomed out, but the momentum of demand
decline is easing. One is residential air conditioning in North America. Our customer’s inventory is now slightly
below the level of the previous year. Looking at competitors' trends as well, inventories have been
consistently coming down, and the rate of decrease is gradually slowing. While it may be a bit different from
what you might strictly call a "bottoming out," we are seeing a bottom in North America.
In Asia, where demand has been very sluggish so far, we expect that from Q4 onward, the impact of the
natural disasters that affected us this quarter will disappear. In addition, Asia is about to enter its top season,
and we expect that demand will probably improve, including inventory buildup ahead of that season.
In Europe, as I mentioned earlier, sales for commercial use, etc., have started to pick up. The overall view of
the demand is still expected to remain weak, and we do not expect demand to rise, but we do expect the Q4
decline to be considerably better than Q3.
The chemicals business is also having a very difficult time adjusting distribution inventories. However, molders’
inventories are dwindling. The consensus in the industry is that demand for semiconductors will return in the
future, although demand for semiconductors is still seen as sluggish at present. In the past, this industry has
experienced shortages when demand picked up. We are currently talking to our distribution clients about
rethinking how they hold inventory in preparation for when industry demand recovers. With all of this in mind,
rather than saying demand has already “bottomed out,” we would say that we are now starting to see the
bottom.
Fukuhara [Q]: Understood. Thank you very much.
My second question is about the business in China on page 16. What I am concerned about is that for the
China business, we tend to focus on residential while the top line is not growing very fast. However, as I recall,
in China, commercial and applied sales account for about a quarter of total sales. Are there any bright spots
in the non-residential sector?
Takahashi [A]: As you mentioned, I think it is difficult for residential use to recover unless the real estate
market itself returns. Under such circumstances, there is a great need in China for energy-saving and carbonneutral products for commercial use, including in factories. We are aggressively developing our business-use
products to capture the carbon-neutral trend. However, while demand for commercial use is not as weak as
residential use, it is not strong either.
For applied, we are making a similar proposal to our customers. However, compared with other regions, in
China it is relatively difficult to find new large-scale buildings, and demand is not that strong. However, as you
mentioned, we are currently shifting resources to commercial and applied. In the residential sector, as I
explained earlier, we have also started to offer new value-added products and services. Overall, we are
shifting resources into areas where we expect demand.
Fukuhara [Q]: Understood. How profitable do you expect the China business to be this year?
Takahashi [A]: I think we are maintaining about 22% to 23%.
Fukuhara [M]: Understood. Thank you very much.
Sakamoto [M]: Thank you very much.
Next, Mr. Maekawa of Nomura Securities, could you ask a question?
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Maekawa [Q]: My name is Maekawa from Nomura Securities. Thank you for your explanation. I would also
like to ask two questions regarding the decline in Q3 profit and the recovery in Q4.
To summarize what you have just said, the decline in demand in North America was larger than expected. In
response, production was reduced to some extent in Q3, and profit was not so high. Even though the bottom
of the demand decline is just beginning to appear, there has not been a significant recovery. I have the
impression that it will be difficult to achieve the annual plan without some material factors, such as the return
of production to a certain degree, in order to recover profit significantly in Q4. Are there any material factors
that could provide a basis for a recovery in Q4? For example, it would make the most sense if there was some
transitory negative impact in Q3, not just a production adjustment. I would appreciate it if you could tell me
about the rationale for the recovery in Q4 from the downturn in Q3.
Takahashi [A]: The biggest factor that hurt us in Q3 was the decline in demand. We implemented
countermeasures as planned, but they were not enough to offset the impact. Why do we think it will recover
in Q4? Although demand has not recovered compared to Q3 at this time, we expect the negative impact of
reduced demand to be smaller in Q4. In addition, we have been taking implementing measures since before
Q3, and the effects of these measures are now accumulating. The internal consensus is that both of these
factors will turn the shortfall in Q3 into a reversal in Q4.
As I mentioned, internal measures are being implemented as planned, but if the overall volume decreases,
the effects of cost reductions and sales price increases will also decrease. The apparent impact of these
internal measures can vary depending on how demand develops. What we need to do has proceeded more
than expected, and as I mentioned, our market share increased in North America. In Q4, we will continue to
implement these measures, which will have a significant effect. In addition, the negative impact of demand
will be much less than in Q3.
Maekawa [Q]: Thank you very much.
According to the analysis of changes in operating profit, it appears that fixed cost reductions will curb the
decline in profit and cost reductions will be accumulated in Q4 compared to Q3. Other than increasing market
share, which of these measures in particular do you expect to have an effect on sales expansion in Q4?
Takahashi [A]: We are continuously working on creating dealerships, especially in the air conditioning and
refrigeration equipment business, and cumulatively new stores are being added. Also, as we have been
explaining for a long time, the number of stores has increased cumulatively due to win-backs in North America.
The stores that we have been able to win back have seen significant growth in sales, with 30% or 50% growth
over the previous year. We expect this to flourish more than before in Q4.
Maekawa [Q]: Understood. Thank you very much.
Second, I would like to ask for quantitative information focusing on the copper price. As you mentioned earlier,
I believe that you will be hedging going forward, or determining pricing, for the next fiscal year. This year, I
assume that the price will probably be around USD 9,600 per ton, but if the current market conditions remain
the same, the price may go up by more than USD 3,000 per ton. In the past, I bet you were using about 100,000
tons. The amount of use may have increased, though. I estimated that a hypothetical USD 3,000 per ton
increase would result in an annual cost increase of more than JPY 30 billion, i.e., JPY 40 billion to JPY 50 billion.
What are your thoughts on this impact?
Also, regarding price pass-through. Price shifting of US tariffs has been implemented in the current fiscal year
as well, and the effect is expected to continue throughout the year. However, if there is a JPY 40 billion to JPY
50 billion cost increase in the next fiscal year, it will be difficult to pass on all of it to prices. If the copper price
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were to be USD 13,000, how much of an impact would this have on the next fiscal year, and can this all be
offset through price pass-through, etc.?
Takahashi [A]: As for the next fiscal year, we are in the process of finalizing how much volume we will sell for
each regional product, so I can't give you a definite answer. As Mr. Maekawa mentioned, if the full impact
were to come through, the amount would be about that much. However, as I mentioned at the beginning,
there is a portion that is hedged for the long term. We also have some excess hedges from the current year
because of the drop in production this year. Therefore, we do not believe that the number will be as large as
your rough calculation. However, in my mind, I assume that there will still be a considerable negative impact.
When resource prices rose sharply due to the war in Russia and Ukraine, we established a policy to pass on
the higher prices to our customers in principle as a precondition of our management plan, and we
implemented this policy in each region. Again, in principle, we ask our customers to bear the burden with
respect to resource price hikes. In conjunction with this, we have continued to reduce costs and were able to
further reduce them this fiscal year. We would like to make it our policy this time to increase the cost
reduction effect and absorb the impact by increasing selling prices and reducing costs.
Maekawa [M]: Understood. Thank you very much.
Sakamoto [M]: Thank you very much, Mr. Maekawa.
Mr. McDonald of Citigroup Global Markets, please proceed.
McDonald [Q]: Thank you very much for your explanation today. I believe you will announce your next midterm plan in May, and I know some investors are expecting a lot of changes. Market share was often
mentioned in today's briefing. You told us that you are working hard to win back dealers in the US. You said
the market share has increased compared to last year. The market is not good at all, but I believe you
mentioned that the market share is increasing.
However, in the next mid-term plan to be announced, investors are expecting a scenario to improve ROE. All
this talk about market share makes me think that Daikin may not change much. What are your thoughts on
this point?
Takahashi [A]: Increasing market share is one example of a measure we are working on. Especially in the US,
we lost market share last year, but I would like to say that our efforts to strengthen our sales capabilities are
having a positive effect. We are not increasing our market share by lowering our selling prices. Basically, we
are maintaining or increasing our market share while maintaining or increasing our selling price.
We believe that our inability to increase profit margins due to production cuts, inventory adjustments, and
other factors resulting from the rapid decline in demand and sales has been a major challenge. The main
objective of the next mid-term plan is to increase the profit margin. However, we would like to increase
profitability, while at the same time being aware of top-line growth. We will increase profitability while
expanding our business. In order to achieve this, we would like to clearly explain how we are going to
strengthen our earning power by increasing the weight of the solutions business and reviewing some
unprofitable businesses in the next mid-term business plan.
McDonald [Q]: I think you have a lot of homework to do for the next mid-term plan. I think there has to be a
good explanation for profitability, ROE, and cost of capital. I have high expectations. Another point I would
like to make is regarding the applied business in the Americas. Sales has grown 10% YoY in local currency
terms, but Trane's sales are growing much faster. Especially in the last three months, Trane's orders seem to
have increased significantly. What is Daikin's current order situation?
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Takahashi [A]: It is difficult to say how we compare with our competitors, but orders in the Americas applied
business are steadily increasing, especially for data centers.
McDonald [Q]: I understand.
Let me make one last point. In the analysis of changes in operating profit in the annual plan released in
November, it was explained that copper and aluminum were factors that increased costs by JPY6.5 billion and
JPY5 billion, respectively. Will the impact amount for the current fiscal year any change significantly from that
figure?
Takahashi [A]: No, it will not change much.
McDonald [M]: Thank you very much. I have high expectations for three months later.
Takahashi [M]: Thank you very much.
Sakamoto [M]: Thank you, Mr. McDonald.
Next, Mr. Taninaka from SMBC Nikko Securities, could you ask a question?
Taninaka [Q]: My name is Taninaka from SMBC Nikko Securities. Thank you. There are two points.
First, I would like to know if you have any hints as to the background behind your ability to maintain JPY120
billion in operating profit from sales price effects in sales expansion effects for the full year, even after
significantly revising downward the outlook for sales expansion effects. In addition, I would like to ask if you
think that this selling price effect will continue even excluding the price pass-through of copper price and
tariffs, based on the assumption that sales volume will recover in the next fiscal year and beyond.
Takahashi [A]: First of all, you asked if we can increase the selling price so much this year. To date, we have
been able to increase the selling price almost as planned. Since costs are rising in the US, we are considering
additional selling price increases. We are considering whether to increase prices at the end of Q4. We expect
to achieve our sales price effect plan for the current fiscal year.
Next, you asked if we can continue that for the foreseeable future. Although there may be some exceptions,
we have a general policy in each region that we will never lower our prices. Prices raised this year during the
period will take full effect next year. We expect that the portion of that increase will automatically be added
as a selling price effect next year.
In addition, as I mentioned at the beginning of this presentation, we would like to pass on the impact of cost
increases in copper, aluminum, and other materials to our prices as much as possible. Therefore, we would
like to increase the selling price in the next fiscal year as we did this year.
Taninaka [Q]: Thank you very much.
As a factor in the increase in profits, you reduced costs by about JPY50 billion last year and JPY80 billion this
year. Can we expect cost reduction effects at this pace in the next fiscal year and beyond? On the other hand,
I imagine it would be difficult to further reduce costs another level from here. Can I know where there is still
room for cost reduction in terms of procurement, production, reduction in number of components in R&D,
etc.?
Takahashi [A]: We are also working quite hard this year to further reduce costs. This includes the cost
reductions that we have made with the cooperation of our suppliers as part of the measures against US tariffs,
and we expect the amount of cost reductions to be very large this year. In the next fiscal year, we plan to
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continue to build up cost reductions by absorbing the impact of the market surge in raw material prices I
mentioned earlier and by enhancing cost reduction themes as we have been doing in the past.
However, we will now closely scrutinize the contents to see if we can reduce costs by the same amount as
this year. To my surprise as well, cost reductions within the Company expanded significantly this fiscal year
relative to the original plan. In that sense, we believe there is strength in our frontline operations. We look
forward to next year.
Taninaka [M]: Very well understood. Thank you very much. That's all from me.
Sakamoto [M]: Thank you very much. The end time is approaching, but there are three people who have
raised their hands, so we would like to extend the time a little bit.
Next, Mr. Tai from Daiwa Securities, could you ask a question?
Tai [Q]: My name is Tai.
One thing I would like to mention is that looking only at the Q3 results, the negative impact of the sales
expansion effect is very large. I believe that part of the annual guidance has also been revised downward
significantly. I believe you mentioned earlier that the growth rate of the air conditioning and refrigeration
equipment business in local currency terms in Europe is 2%. Comparing the results of Q2 with the numbers
we heard today for Q3, I think Q3 has improved.
The Company may say that demand was terrible, but you did your best in terms of volume, and that's why
you increased your market share. But then I am not sure why the sales expansion effect is so diminished. Is it
simply because of the impact of production cuts?
Takahashi [A]: I am wondering if you have a question about Q3 in particular.
Tai [Q]: Yes, about those three months only.
Takahashi [A]: We have analyzed the situation internally and are aware that this decrease is unexpectedly
large. However, Q3 is an off-season for air conditioning, and the overall volume of goods is not very large.
While the period is short, it can go up or down a bit depending on the product mix and regional mix. Looking
only at Q3, as I mentioned earlier, there was also the impact of production cuts.
There are also rebates that increase in proportion to sales. Since our wholesalers are selling more products,
and rebates are paid according to actual sales, the rebates are higher than for shipments from the
manufacturer, which is a special factor. In addition, the negative impact from the changes in product mix and
regional mix were larger than we had expected in the three months alone.
Tai [Q]: Will you see the same situation in Q4?
Takahashi [A]: Inventory adjustments will decrease considerably, and we anticipate that the special factor
mentioned earlier—the balance between manufacturer shipments and actual sales rebates—will be resolved.
In addition, as we enter the air conditioning season in earnest, we expect to see an improvement in the
regional mix.
Tai [M]: Understood. That's all from me.
Sakamoto [M]: Thank you very much.
Next, Mr. Hotta of BofA Securities, please.
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Hotta [Q]: This is Hotta. Thank you very much. Let me ask you a question.
Back to the production reduction. The balance sheet shows JPY800 billion in merchandise and finished goods,
giving the impression that inventory has increased quite a bit again. On the other hand, retail demand
probably weakened from about October or November, as in North America. This continues to be the case
today, and I get the impression that there is probably not much movement on the part of distributors to build
up more inventory than usual from January to March. Let me ask one more time if there is any need for further
inventory adjustments on your side in Q4.
Takahashi [A]: As you mentioned, the amount of inventory is growing significantly. However, the entire
company is moving forward with efforts to improve inventory efficiency. Inventory is decreasing as planned
in many regions, but we have not been able to reduce inventory in the North American air conditioning
business and in the Asian and Oceania air conditioning business at this time. In the North American airconditioning business, demand is an issue, but we have been increasing production to achieve significant
growth in our strategic products. Production reductions have been made but have been somewhat delayed
and have not yet reached a level commensurate with inventories. We expect that we will able to adjust the
level a bit more in Q4. However, because of the trends I mentioned earlier, it will be difficult to make all
adjustments, and I expect inventory levels to remain relatively high until the end of Q4.
The same is true in Asia and Oceania. However, these areas will now enter the air conditioning season.
Therefore, we would like to adjust our inventory amount based on the balance of stock for the season and
actual sales movement.
I think these two areas are drastically out of the plan.
Hotta [Q]: Thank you very much.
Let me quickly ask additionally. Have you changed your Q4 forecast? The downward revision this time was to
lower the amount that was not achieved in the Q3. However, as you mentioned, the need for a little more
adjustment in air conditioning in North America has not been factored into the Q4 figures?
Takahashi [A]: We are continuing to make inventory adjustments for Q4 but considering the production rampup for the next fiscal year, we cannot make too much of a production adjustment. So, we continue to make
adjustments within certain limits. I believe you are correct that the degree of this will be reduced a bit as the
sales volume will also recover.
Hotta [M]: I understand very well. Thank you very much.
Sakamoto [M]: Thank you very much.
This concludes the financial results briefing. Thank you very much for your participation to the end.
[END]
Document Notes
1.
2.
3.
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