Daikin Industries,Ltd.
Financial Results Briefing for the Fiscal Year Ended March 2026 and the Strategic
Management Plan "FUSION30"
May 12, 2026
Event Summary
[Company Name]
Daikin Industries,Ltd.
[Company ID]
6367-QCODE
[Event Language]
JPN
[Event Type]
Earnings Announcement
[Event Name]
Financial Results Briefing for the Fiscal Year Ended March 2026 and the
Strategic Management Plan "FUSION30"
[Fiscal Period]
FY2026 Annual
[Date]
May 12, 2026
[Number of Pages]
58
[Time]
17:30 – 19:10
(Total: 100 minutes, Presentation: 51 minutes, Q&A: 49 minutes)
[Venue]
Webcast
[Number of Speakers]
6
Masanori Togawa
Naofumi Takenaka
Koichi Takahashi
Hiroaki Ueda
Kazuhiro Matoba
[Analyst Names]*
Tsubasa Sasaki
Kentaro Maekawa
Yuichiro Isayama
Graeme McDonald
Kenjin Hotta
Sho Fukuhara
Satoshi Taninaka
President and CEO, Member of the Board
President and COO, Member of the Board
Member of the Board, Senior Executive
Officer, Responsible for Finance, Accounting
and Budget
Executive Officer, In charge of DX Strategy,
General Manager of Corporate Planning
Department
Head of Investor Relations Management
Group, Corporate Communication Office
UBS Securities
Nomura Securities
Goldman Sachs
Citigroup Global Markets
BofA Securities
Jefferies
SMBC Nikko Securities
1
*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 presentation of Daikin Industries, Ltd.'s Financial Results for the Fiscal Year
Ended March 31, 2026, and the Strategic Management Plan FUSION 30.
Explanatory materials are available on the Company's website under investor relations, as indicated in the
email.
First, I would like to introduce today's speakers.
Masanori Togawa, Chairman of the Board and CEO.
Togawa: This is Togawa. Thank you.
Sakamoto: President and COO, Naofumi Takenaka.
Takenaka: This is Takenaka. Thank you very much.
Sakamoto: Koichi Takahashi, Member of the Board, Senior Executive Officer, Responsible for Finance,
Accounting and Budget.
Takahashi : My name is Takahashi. Thank you.
Sakamoto: Hiroaki Ueda, Executive Officer, in charge of DX Strategy, General Manager of Corporate Planning
Department.
Ueda: This is Ueda. Thank you.
Sakamoto: These are the four speakers.
I, Sakamoto of Investor Relations Management Group, will be the facilitator. Thank you.
Today, in addition to the financial summary, we will be explaining FUSION 30, as you have been informed.
After a brief introduction by Mr. Togawa, Chairman and CEO, Mr. Takenaka, President, will give an overview
of the financial results, FUSION 30, capital policy, and organizational structure to promote the implementation
of FUSION 30.
Please allow a total of 50 minutes for the presentation, followed by a question-and-answer session. The event
is scheduled to end at 19:00.
Now, Mr. Togawa, Chairman, please proceed.
Togawa: Thank you all for coming today. Today, we are pleased to announce our strategic management plan
FUSION 30.
This is a new management plan that demonstrates Daikin's management intent and commitment to what it
will protect, what it will change, and what it will continue to win with in these uncertain times.
In the 30 years since we began FUSION management in 1996, we have continued to manage our business by
combining short-term earnings with medium- and long-term growth. I believe that we have been able to
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achieve results by strategically balancing an emphasis on immediate profits and a proactive approach to
medium- to long-term growth, while keeping a close eye on changing conditions.
FUSION 30 is also based on this concept, but with a strong awareness of evolving into a management plan
that further enhances quality.
We will first look back on the previous five years of FUSION 25. In the midst of a challenging business
environment, including the COVID-19 pandemic, US tariffs, and conflicts in various regions, we were able to
achieve record results in sales and operating profit by strengthening sales and marketing capabilities,
accelerating the launch of differentiated products, and implementing thorough cost reductions.
On the other hand, management takes very seriously the fact that we have not achieved our operating margin;
in other words, our earning capacity has declined. We believe that the rapid changes in the environment,
including a significant slowdown in demand and rising costs in the residential air conditioning and heating and
hot water supply markets, as well as the emergence of Chinese manufacturers and other intensifying
competition, did not allow us to keep up with the speed at which we deployed measures to strengthen our
business, and as a result, we are left with issues such as investment recovery. Reinforcing earning power is
the most important issue for FUSION 30.
The management goals will focus on rate indicators. As part of our efforts to re-strengthen earning power, we
aim to restore the operating margin to 10% by 2028 and then to exceed 12% by 2030. In addition, to improve
capital efficiency, we aim to achieve a return on equity (ROE) of 12% by 2028 and over 15% by 2030, in line
with our US rivals.
We are committed to further reforming our business model and management in order to achieve these goals.
First, we will focus on increasing the profitability of the solutions business, which is a highly profitable area,
in order to re-strengthen our earning power. At the same time, we will work to achieve high profitability in
the North American air-conditioning business, our most important market, and to further strengthen our
highly profitable chemicals business.
Next, in order to strengthen our earnings structure, we will decisively implement cost structure reforms,
including an optimal production strategy across the globe and operational efficiency improvement through
operational reforms. Our top management will also be involved in the leveraging of low-profit businesses to
assess progress at an early stage, make decisions on how to advance or retire the businesses, and implement
them.
We will also work to expand our business in areas that will become the next pillar of our business growth. In
particular, we will strengthen our business base and compressors in IMEA, such as India, the Middle East, and
Africa, which will become a major air conditioning market after 2030, and take on the challenge of the
compressor sales business.
In addition, we will pursue a thorough capital policy to further promote management that emphasizes the
improvement of capital efficiency. As a management decision, the Company is also engaged in share buybacks,
starting with a JPY 350 billion buyback this time.
In addition, we will strengthen our executive structure to promote priority themes. At the same time, we will
further enhance transparency and objectivity by increasing the number of outside directors and establishing
a CFO to build more disciplined governance. We will also renew the executive compensation system as a
driving force to promote rate management and strive to complete FUSION 30.
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We believe that one of the key management axes in taking on the challenge of FUSION 30 is to continue to
refine our own strengths.
Our strengths include our proprietary technologies for environmental energy conservation and air quality,
such as inverters, heat pumps, and refrigerants; as well as our global sales and service network and on-site
development and production capabilities based on a business model of local production for local consumption,
all based on "people-centered management" that thoroughly leverages the strengths of each and every
employee. We are proud to say that these are not things that other companies can imitate so easily. We will
refine these strengths I have just mentioned to further enhance our competitiveness.
We believe that the ability to make judgments and decisions that change what needs to be changed without
hesitation, while refining what needs to be protected, is also an important management axis. In response to
sudden changes in the environment, we will review our once-determined plan as necessary and practice more
flexible and speedy management.
In formulating FUSION 30, we have also engaged in dialogue with various stakeholders, including the capital
markets. Everyone expressed their expectations for reforms such as re-strengthening earning power,
improving operating margin, increasing ROE, launching a capital policy, appointing a CFO and outside directors
who have the same perspective as investors, having a majority of outside directors, and revising the executive
compensation system linked to capital efficiency.
We intend to meet your expectations through action, deliver results to build trust, and fulfill both our
responsibility for growth and our social responsibility.
Your continued understanding and support will be greatly appreciated.
Sakamoto: Next, President Takenaka, please go ahead with your presentation.
Takenaka: Thank you very much for joining us today.
First, I would like to explain the financial results for FY2025.
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In FY2025, both sales and operating profit exceeded the previous year's levels, achieving a new record
performance.
In addition to a larger-than-expected demand slowdown, factors such as geopolitical risks, tariffs, and cost
increases have combined to create a very difficult business environment over the past year. Even under such
circumstances, we have been accelerating the creation of results by setting cross-company themes under the
direct control of top management, such as strengthening sales and marketing capabilities, thorough
implementation of strategic selling price measures, and cost reduction efforts with a thorough emphasis on
profitability. As a result, we returned to profit growth in Q4 and achieved our annual plan.
Sales exceeded JPY 5 trillion for the first time, up 6% from the previous year to JPY 5,015 billion. Operating
profit increased 3% to JPY 415 billion and net profit increased 4% to JPY 275.2 billion. Both net sales and net
profit reached record highs.
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Segment performance. In the air-conditioning and refrigeration equipment business, net sales increased 5%
from the previous year to JPY 4,621.1 billion, and operating profit increased 7% from the previous year to JPY
377 billion, marking record highs in both sales and operating profit for the air-conditioning segment. The
operating margin also improved by 0.2 percentage points.
Although we were affected by declining demand for residential applications in North America and China, as
well as economic stagnation and unseasonable weather in Asia, we worked to expand sales in businesses
where demand was strong, such as applied and commercial air conditioning. We recovered a large share of
the North American residential unitary market and expanded sales of high value-added products in Japan. In
China, where demand was severe due to the real estate recession, we concentrated our resources on sales of
residential multi-split air conditioners and maintained high profitability. The US tariff measures had a direct
impact of approximately JPY 41 billion on an operating profit basis, which was fully absorbed by price passthrough and cost reductions.
In the chemicals business, net sales increased 7% YoY to JPY 281.5 billion, while operating profit declined 28%
to JPY 33.1 billion.
The chemicals business was affected by delayed demand recovery in the semiconductor and automotive
sectors and the resulting distribution inventory adjustments. Against this backdrop, we worked to expand
sales in areas where demand was relatively strong, such as fluoropolymers for the gas and information and
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telecommunications sectors, and sales increased YoY. However, operating profit declined sharply due to the
significant impact of lower sales of high-value-added resins for semiconductors.
In other businesses, net sales increased 7% YoY to JPY 112.4 billion, and operating profit rose 8% to JPY 4.9
billion.
For FY2026, we project net sales of JPY 5,150 billion, up 3% from the previous year; operating profit of JPY
436 billion, up 5% from the previous year; and net profit of JPY 278 billion, up 1% from the previous year.
We have formulated our strategic management plan, FUSION 30, and have begun to re-emphasize our earning
power. We have set targets of 10% operating margin and 12% ROE for FY2028. This fiscal year is the first year
of the plan, and we aim to achieve record results by improving profitability and capital efficiency.
The outlook for the business environment is expected to remain uncertain due to the slow recovery in demand,
the deteriorating situation in the Middle East, and additional tariffs in the United States. However, even in
this environment, we will strive to increase sales and profits and improve profitability by promoting measures
to strengthen competitiveness and profitability on a global basis.
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Regarding the impact of the situation in the Middle East on our business, we have secured parts and materials
so as not to cause any inconvenience to our customers, and we expect to be able to continue supplying
products for the time being. The effects that have already become apparent, such as business stagnation in
the Middle East, soaring component prices, and rising logistics costs, have been incorporated into this fiscal
year's plan, along with countermeasures.
Although the situation is difficult to predict, we have estimated the impact of multiple scenarios, ranging from
cases where the situation is resolved in Q1 to cases where the impact continues throughout the year. In the
event that the impact expands in the future, we are prepared to minimize the impact by taking flexible
measures in response to changes in the situation, such as price pass-on measures to absorb cost increases,
expanding sales of energy-saving equipment and strengthening system proposals, searching for alternative
parts and suppliers to maintain stable supply, and emergency cost reductions.
We also believe it is necessary to review our management plan flexibly as well as to prepare contingency plans
for major changes in the environment, such as economic downturns and rapid declines in demand. We see
the difficult business environment as an opportunity to look at our strengths and strengthen our structure.
We will work to improve our business structure so that we can surely reap the fruits of the demand recovery
phase, which will lead to growth and development during the FUSION 30 period.
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Details on the status of operations in each region are provided in the document. I will explain only the key
points.
The first is the air-conditioning business in the Americas.
For DNA, the residential unitary market stagnated in FY2025 due to high housing interest rates, and the
backlash from the rush demand associated with the refrigerant switchover and the resulting adjustments in
distribution inventories made for a challenging environment. However, we concentrated our efforts on
regaining existing customers, mainly through self-supplied wholesalers, strengthening our channels by
developing new dealers, and differentiated sales efforts centered on R32 refrigerant and the Fit, a strategic
product equipped with an inverter. This allowed us to recover our share in FY2025 to 24%, which is more than
we had before we lost market share, i.e., two years ago in FY2023.
We feel that our competitiveness has certainly increased due to the strengthening of our dealer network. By
spreading the superiority of the R32 units to the distribution system, we aim to expand sales in FY2026 and
beyond.
For the strategic product Fit, in addition to developing new dealers, we will further expand sales by
strengthening support for dealers, including the establishment of an installation support system.
We will improve cost competitiveness by transferring production to Mexico, expand sales of high value-added
products, and enhance profitability.
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DAA, which is engaged in manufacturing and sales of the applied products, is expanding sales by capturing
strong demand in the data center field. In addition, DAA has steadily built a foundation for growth in the
applied solutions field by expanding equipment sales by increasing production capacity at its new plant in
Mexico and existing plants in the United States, and by strengthening its solutions business by leveraging
Alliance Air, a company with strengths in custom air handling units.
In FY2026, we will launch a data center hub to expand sales of equipment in the data center market, where
demand is strong. In addition to this, we will utilize the technology and commercial materials of the acquired
companies to provide total solutions by heat source plus air handling unit plus server cooling plus liquid
cooling.
Both DNA and DAA had an operating margin of 8% in FY2025. We expect both companies to improve their
profit margins by one percentage point in FY2026.
In China, we are concentrating our resources on user-direct sales in the face of a continuing difficult business
environment. Through sales of high value-added products, strengthening of the solutions business, and cost
reduction efforts, the operating margin remained high at 22% in FY2025.
We differentiate ourselves from our competitors by proposing new air value to our customers through system
products that use data acquired from sensors to provide optimal air for each living situation, such as air
conditioning, ventilation, heat pump floor heating, air sensors, and airflow.
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In FY2026, we will continue to maintain high profitability by focusing on the home renovation and existing
home markets in addition to new housing market and strengthening our solutions.
In Asia and Oceania, in FY2025, we have been working to strengthen our dealer development and consumer
sales measures in each country amid intensifying price competition due to the economic slowdown in
countries in the ASEAN region, the impact of unseasonable weather in India, and distribution inventories.
In FY2026, we will introduce new products that meet new energy-saving standards in India. In the ASEAN
region, in addition to strengthening our sales force, we will develop products that meet the needs of affluent
and young consumers and develop sales strategies for high value-added products.
For example, in Indonesia, we will open proposal-based sales outlets to expand sales of mid- to high-end room
air conditioners. In Vietnam and Thailand, we will work to strengthen proposals for room air conditioners plus
air purifiers plus applications to strengthen the enclosure of the MZ generation, and to expand sales of
products for affluent residences.
In the commercial market, we will also aim to expand sales of small- and medium-sized projects in regional
areas and focus on services and solutions to capture renewal demand.
The profit margin in India is still at a low level due to prior investments to expand production capacity and
sales, but it has increased to around 8% in FY2025.
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The chemicals business experienced a difficult performance in FY2025 due to the slow recovery of demand in
the semiconductor and automotive sectors. We plan to achieve a significant recovery in this area in FY2025
and to improve the profit margin.
Although distribution inventory adjustments in the automotive sector continue, we will strive to improve
profitability through sales of high value-added products such as resins for semiconductor manufacturing
equipment and development of applications in growing markets such as FEP for use in wires for data centers.
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I would like to discuss shareholder returns.
With regard to the dividend for the previous fiscal year under review, we are proposing a year-end dividend
of JPY 340 per share, an increase of JPY 10 from the current announcement, as net profit exceeded the
announced figure in the financial results and we were able to achieve the highest business performance.
During the current fiscal year, we will strengthen our earning power and expand our business performance,
despite the uncertain outlook for the Middle East and other issues. Based on past dividend performance, we
will strive to realize continuous dividend increases while maintaining an awareness of the dividend payout
ratio level and emphasizing stability. Based on this basic policy, we plan to increase the annual dividend by
JPY 20 to JPY 360 per share for the current fiscal year.
We would like to continue to reward our shareholders for their support of our management.
Regarding the expansion to FUSION 30, the FY2025 results and FY2026 plans explained so far are directly
related to the FUSION 30 concept, which will be explained later. We will focus on profit margins and capital
efficiency instead of chasing volume. We will thoroughly strengthen business structure, including in North
America. We will also execute aggressive investments for future growth, such as tapping into the next growth
markets, including India. I will continue to explain our vision for 2030 and the measures we are taking to
achieve it.
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Please refer to this document on FUSION 30.
About the strategic management plan FUSION 30. FUSION is a strategic management plan, which, as
mentioned earlier by Togawa, focuses on action plans, their implementation and results, based on an
understanding of the external business environment and our current situation, and sets the direction of the
Group's development that we aim to achieve over the next five years.
Based on this, we have established company-wide priority strategies, set a five-year target image, and set
quantitative targets and an action plan as our commitment for the first three years.
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Introduction. Based on our unique strengths in air conditioning and air-related technologies, our robust sales
and service network around the world, our production system for local production for local consumption, our
people-centered management, and our flat and fast organizational management, we will pursue a prosperous
future with the power of people, while achieving both economic and social values.
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This is the table of contents.
First, a review of FUSION 25 will be provided.
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As I explained earlier, company-wide sales exceeded JPY 5 trillion, far exceeding our target of JPY 4.5 trillion.
Sales growth exceeded the plan, driven by applied's growth due to the acquisition of fast-growing North
American data center demand and the impact of foreign exchange rates.
On the other hand, operating margin and ROE fell short of our second-half targets.
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The first reason for the decline in operating profit margin was the decline in equipment profitability due to
lower selling prices caused by commoditization and intensified price competition, higher costs due to soaring
market prices, and delays in recovering capital investment due to slowing demand, which were not fully
absorbed by cost reductions and higher selling prices.
The second factor is that although we have made progress in building a foundation in North America by
investing in strengthening the sales network and products necessary to strengthen the business solutions
business, the phase of reaping the rewards is just beginning. We also recognize that we lack the speed to
develop the sales and product capabilities to bounce back against rapid changes in the external environment.
FUSION 30 will focus on re-strengthening earning power.
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Although a certain level of market growth was expected in each region when FUSION 25 was formulated, in
reality, as shown here, the external environment has changed significantly in many regions, including North
America and Europe, and market growth has slowed. These changes in the market environment also had a
significant impact on our business performance. I will spare you the detailed explanation.
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Next is the framework of FUSION 30.
The first point is the important environment in which we operate.
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Based on the major macro environment and industry changes, such as the shift of economic power to
emerging economies, social changes due to digitalization, and the transformation of customer needs and the
HVAC industry, we have defined the direction of growth we aim for under FUSION 30.
As shown here, FUSION 30 will address five items and 11 key themes.
First, we will accelerate our transformation into a Solution Provider as we grow in high-profit areas. We will
focus on increasing the profitability of the solutions business by leveraging the business base acquired through
FUSION 25. At the same time, we will work to achieve high profitability in the North American air-conditioning
business, our most important market, and to further strengthen our highly profitable chemicals business.
Next, to strengthen our earnings structure, we will decisively implement cost structure reforms and leverage
low-margin businesses.
While placing the highest priority on re-strengthening our earning power, we will also work to expand our
business in areas that will become the next mainstay of our business growth. In particular, we will strengthen
our business base in IMEA, which will become a major air conditioning market after 2030, and take on the
challenge of reinforcing compressors and the compressor sales business.
In order to achieve both the abovementioned re-strengthening of earning power and further business growth,
we will promote the thorough utilization of AI on a global basis and maximization of human resource value
based on people-centered management as themes for upgrading the management foundation. Furthermore,
we are committed to a capital policy aimed at sustainable growth and enhancement of corporate value.
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By implementing the 11 key themes mentioned earlier, we aim to provide new value through the environment
and air and become a sustainable company that continues to be the world's choice.
As a specific economic value, we aim to achieve an operating margin of 10% in 2028 and 12% in 2030. We aim
to achieve ROE of 12% in 2028 and 15% in 2030. We aim to achieve an average sales growth rate of 6% for
the period.
In order to enhance social value as well as economic value at the same time, we will set quantifiable indicators
for each item and promote them. The target values are as shown.
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In particular, I will explain the measures we are taking to improve operating margin and capital efficiency,
which are the most important issues facing our company.
Under FUSION 30, we aim to raise the operating margin to 10% by 2028. As an assumption, we expect market
conditions to deteriorate by another 2.5%. Under priority theme A, achieving growth in high-profit domains,
we will improve the operating profit margin by a total of 2.8% through business expansion and volume growth
in high value-added areas such as solutions.
Furthermore, in addition to the cost reductions we have been focusing on, we will achieve a total 2%
improvement by curbing fixed costs, improving low-profit businesses, and other measures under priority
theme B, building a more resilient profit structure. Even after deducting up-front investments, we expect the
operating profit margin to improve by double digits level by 2028.
In addition, we aim to improve the turnover ratio of invested capital from the current 1.2 times to 1.25 times
by 2028. We will implement measures under the priority theme B, building a more resilient profit structure,
and by effectively utilizing existing facilities, we will curb the ratio of capital investment to operating cash flow,
reduce inventory turnover and accounts receivable turnover, and promote the transformation to a business
structure that efficiently generates value with slim assets.
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Here is a breakdown of growth investments over the FUSION 30 period.
We will strengthen our investment discipline and allocate resources in a well-structured manner, focusing on
key domains.
First, we plan to invest a total of JPY 1.3 trillion in capital expenditures, of which JPY 620 billion is expected to
be invested in capacity expansion in key theme areas such as applied, chemicals, and India. At the same time,
we will also reduce fixed costs and maximize the use of existing assets through consolidation of production
sites and other measures to improve the efficiency of new investments.
Next, M&A investments are expected to total JPY 500 billion. M&A will be utilized as a means to accelerate
growth, mainly in the solutions area, after determining strategic compatibility.
In addition, we expect to invest JPY 1 trillion in R&D and JPY 200 billion in DX. Specifically, we will develop
differentiating technologies to expand our solutions business and build infrastructure to enable thorough
utilization of AI and data, thereby promoting investments to strengthen our competitiveness to support future
profitability.
Thus, under FUSION 30, we will concentrate resources in priority areas to achieve sustainable growth and
improved profitability while enhancing investment efficiency.
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I will now explain each of the key themes in detail.
The first point of A, achieving growth in high-profit domains, is the transformation into a Solution Provider.
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In order to further accelerate profitability, we will determine the size and growth potential of the market and
our unique winning strategies, and will focus on business expansion in the four priority application markets
of data centers, factories, offices, and residences.
We will differentiate ourselves from the competition by providing solutions that match the needs of each
application market by combining design, construction, maintenance, and operation management that
leverage our technological and product strengths as an air conditioning manufacturer, rather than just
equipment alone.
For example, in data centers, we will develop solution offerings based on the strength of the cooling systems,
global supply network, and service system acquired during FUSION 25. Other applications will also be
developed based on the Company's winning strategies.
In lifecycle solutions for HVAC systems, we will evolve our existing equipment solutions and service solutions
into solutions that solve issues throughout the customer's life cycle. This will strengthen monetization in the
after-sales service areas of engineering, maintenance and parts, and operations management.
In lifecycle solutions for entire buildings, we will leverage our strengthened customer-direct sales channels
and business foundation, including applied services, to enhance engineering that combines equipment and
provides systems, and operational management support that leverages data and AI.
Furthermore, we aim to provide added value by addressing building-wide challenges that go beyond HVAC
equipment and by creating new valuation of air quality.
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By implementing the strategies explained above, we will increase the share of the solutions business in the
air-conditioning business from the current 28% to 40% by 2030, as shown in the graph on the left. We will
strengthen and improve the profitability of our solutions business by expanding sales, especially in highly
profitable projects to replace existing facilities, maintenance and preservation services, energy management,
and other operations and management services.
To achieve this growth and profit reform, we expect to invest approximately JPY 400 billion in M&A over a
five-year cumulative period to acquire digital and engineering capabilities that will add value to our solutions
business.
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The second theme of A, building growth in high-profit domains, is to make the North American airconditioning business highly profitable.
In the residential business, we will increase earnings by expanding sales of Fit inverter unitary, an
environmental premium product, and by strengthening residential solutions by raising the level of our sales
and proposal capabilities.
The applied solutions business will grow revenue by promoting business solutions, including offices and
schools, in addition to the expanding data centers. At the same time, we will aggressively invest in the applied
business, which is expected to grow, including the establishment of a data center hub as a CoE function to
support the data center market strategy.
In addition, we will establish a highly profitable structure comparable to US-based companies by promoting
coordination and commonization of management systems through shared services for back-office functions,
as well as upgrading business management by utilizing core systems.
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Next is the air-conditioning business in other regions.
In Europe, for example, we will increase earnings by strengthening products and services in the residential
market to capture the recovery in demand for heat pump heating, and in the commercial market by
broadening the lineup of natural refrigerant-compatible air conditioning and expanding applied systems in
anticipation of tighter refrigerant regulations.
In China, we will develop the premium market with our integrated housing solution Luxury Air Land in the
residential market, and maintain high profit margins in the commercial market with a sales model that
combines online and on-site sales.
In addition, we will improve operating margin in each global region.
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The next point is strengthening the chemicals business.
Three strategies are planned to raise the operating margin to 20% by 2030.
First, in the rapidly growing essential markets of semiconductors and data centers, we will maintain and
expand our top share in the industry by expanding sales of existing fluorine products and introducing new
products that meet increasingly sophisticated customer needs. This will further evolve this business into an
earning business with an operating margin of 30%.
Next, in the high-functional materials business other than fluorine, we will expand our product lineup while
leveraging our development technology and customer base, and furthermore, through alliances and M&A,
we will work to expand business in growth areas.
In addition, we will leverage the synergy between air conditioning and chemistry to promote the adoption of
new refrigerants that reduce environmental impact in various parts of the world.
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In B, building a more resilient profit structure, the first step is to reform the cost structure. The HVAC
production division acts as a control tower, planning and executing a production system that optimally
combines localized and centralized production. This will allow us to maximize the capacity of our existing
plants and improve plant utilization on a global basis .
Furthermore, we will innovate factory and procurement operations by introducing automation and AI using
cutting-edge technology. Through these measures, we will curb the increase in capital investment.
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In cost structure reforms, we will work to reduce overhead costs through operational reforms centered on
indirect operations. We aim to achieve a cumulative effect of JPY 200 billion over a five-year period by
promoting commonization of systems through global interdepartmental collaboration and streamlining
operations through the thorough use of AI.
Furthermore, we will promote top-down structural reforms in low-profit businesses. As a result, the operating
margin is expected to improve by 0.4 percentage points for the Company as a whole. We will thoroughly
rebuild businesses that have a path to improvement, but if there is little prospect for improvement, we will
make a decision to withdraw or sell the business during the first three years and implement the decision.
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The next theme is C, enhancing key domains to achieve further growth.
The first point is building a business foundation in IMEA.
In India, the world's most populous country, we will strengthen our sales network and service system, increase
production capacity, and establish an R&D base in order to capture market growth , thereby achieving both
the number one share in the air conditioning market and strengthening profitability.
In the Middle East, we will expand the applied business with a focus on data center demand, and promote
demand expansion through products that can handle high outside temperatures and the establishment of a
new plant.
In Africa, we will develop a business development unit and export bases in anticipation of future demand
growth.
Through these efforts, we will build a business foundation ahead of others in IMEA, which will grow into a
major air-conditioning business after 2030, and prepare for future business growth and profit expansion.
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The next point is enhancing compressors and pursuing commercialization.
With the growing needs for energy saving and compliance with refrigerant regulations, we would like to take
on the challenge of a global sales business for our high-efficiency compressors. To this end, we have
established a business promotion office to enhance our core technical capabilities and strengthen our system
for compressor sales.
35
From this point on, D, enhancing the management foundation.
First is the extensive use of AI.
During the FUSION 30 period, we will invest a cumulative total of JPY 150 billion over five years in related
growth investments, including the establishment of a foundation to promote the use of AI and data
throughout the Company, and to strengthen human resources. These will support the promotion of the
solutions business and other priority themes. Along with this, we will promote sophistication and efficiency
in internal processes, leading to a JPY 200 billion reduction in overhead costs.
The next point is the maximization of human capital value.
Under the slogan of People-Centered Management, we will globally strengthen our human resource base to
execute the FUSION 30 growth strategy. We will place particular emphasis on strengthening the executive
and leadership candidates, solutions personnel, and digital personnel who will drive business transformation.
We will secure and develop these human resources and deploy them flexibly to growth areas. At the same
time, we will accelerate the creation of FUSION 30 results by creating an environment in which each individual
can challenge and grow.
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For technology and product development in FUSION 30, we have identified systemization, commercial
solutions, applied business, and solving social issues as priority areas. We will also work to improve our
production technology capabilities necessary for manufacturing. We will launch differentiated products one
after another in the market, with the ratio of new products each year to be at least 25%.
37
The next point is creating environmental value.
We will actively promote initiatives to reduce emissions across each value chain toward carbon neutrality, as
well as initiatives for the circular economy, which is a long-term use of important resources for a recyclingoriented society.
38
Next is the capital policy.
First, the basic policy. To date, the Company has worked to strengthen its financial base by steadily repaying
interest-bearing debt. Based on the results of these efforts, we will continue to maintain financial soundness
while placing greater emphasis than ever on capital efficiency and promoting management that balances
business growth.
In order to more clearly state such management policy, we have clearly stated our basic policy on mediumand long-term capital policy as shown on the right. There are four points in particular that I would like to share
with you about the capital policy we have formulated.
The first is to give priority to growth investments. The Company places the highest priority on growth
investments that will contribute to future earnings growth. We will allocate resources in a balanced manner
after identifying priority areas, leading to sustainable growth.
The second point is to ensure investment capacity for future growth opportunities. Based on the premise of
maintaining financial soundness with an awareness of current credit ratings, we will ensure that we have the
financial capacity to respond flexibly to promising investment opportunities.
The third point is stable and continuous dividend increases. With regard to dividends, we will continue to
emphasize stability as in the past, while striving to realize continuous dividend increases. We will continue to
emphasize dividend stability as the foundation for shareholder returns.
The fourth point is the flexible and continuous implementation of share repurchases. Share repurchases will
be utilized with comprehensive consideration of investment opportunities, financial soundness, and capital
efficiency.
By managing the above four points in an integrated manner, we will strive to achieve sustainable
enhancement of corporate value through both investment in growth and improvement of capital efficiency.
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As a result, we aim to achieve ROE of 12% in FY2028 and 15% in FY2030. On top of that, we will look toward
even higher ROE levels and continue to improve them.
Next is the capital allocation approach for the FUSION 30 period.
In the FUSION 25 period, a portion of the five-year cumulative operating cash flow remained as repayment of
interest-bearing debt and buildup of cash and cash equivalents on hand.
On the other hand, FUSION 30 further expanded operating cash flow and established a policy for allocating
the cash generated as shown in the figure on the right. The priority for fund allocation remains growth
investments. We will continue to invest in growth that will lead to future earnings expansion. In making such
decisions, we will assess each deal based on its profitability and strategic importance, while being fully aware
of investment efficiency. In the FUSION 30 period, we will further promote management emphasizing capital
efficiency, and at the same time, we will increase shareholder returns.
40
First, I will discuss share repurchases.
This time, we have reviewed our entire approach to shareholder return. While maintaining dividends as the
foundation for stable shareholder returns, we have also positioned share repurchases as an important means
of improving capital efficiency.
The Company's policy is to conduct share repurchases in a flexible and continuous manner, taking into account
factors such as the Company's financial capacity after dividend payments, investment opportunities, and stock
price levels.
In order to demonstrate our clear and strong intention to improve capital efficiency, we have decided to
repurchase JPY 350 billion of our own shares. We will execute a one-time share repurchase for the same
amount by FCSR.
We regard the sustainable enhancement of corporate value as our most important management issue. This
share buyback is based on our capital policy approach of balancing financial soundness and shareholder
returns while placing the highest priority on investment for growth. The Company decided to conduct the
share buyback at this time, judging that it would contribute to the enhancement of corporate value.
The Company will continue to flexibly and continuously implement share repurchases as an important means
of improving capital efficiency.
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Next, I would like to explain our dividend policy.
We have been following a policy of 3% DOE, but we have reviewed our entire approach to shareholder returns,
including the flexible and continuous implementation of share repurchases. As a result, the Company has
changed its dividend policy to one that aims for continuous dividend increases while emphasizing stability.
This review does not impair dividend stability. This is to make the dividend policy more in line with the actual
situation, based on profitability and cash generating ability, as we manage investment for growth, financial
soundness, and shareholder returns in an integrated manner.
The specific level of dividends will be determined by taking into consideration the Company's ability to expand
profitability and generate cash, based on the idea of steadily continuing the trend of continuously increasing
dividends.
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Finally, I would like to explain the execution structure of FUSION 30.
With regard to governance, we will increase the ratio of outside directors to 50%, strengthen monitoring of
financial strategies and capital policies, and incorporate their advice on investment decisions and dialogue
with capital markets.
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In addition, a position of CFO has been newly established. We will promote IR/SR strategies and information
disclosure more than ever to enhance our financial strategy, capital policy and corporate value.
The executive compensation system will be revised to increase the ratio of performance-linked bonuses and
stock-based compensation, and to introduce new evaluation indicators that promote sustainable profitability
and improved asset efficiency.
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The assumptions for this plan are as shown.
That is all for the explanation.
45
Question & Answer
Sakamoto [M]: We will now begin the Q&A session. Mr. Sasaki of UBS Securities, could you ask your question?
Sasaki [Q]: My name is Sasaki from UBS Securities. Thank you very much for your explanation today. Let me
ask you two questions.
First, as President Takenaka and Chairman Togawa have explained, I believe that, in putting together this
strategic management plan, you have made some major policy shifts, including the strengthening of the
Company's structure. Specifically, you set forth measures to manage the Company with an awareness of
capital efficiency, to strengthen earning power, and to improve OP margins and ROE as a result. You have also
put in place measures to strengthen governance, such as strengthening outside directors, establishing a CFO,
and linking executive compensation to capital efficiency.
I remember that when Chairman Togawa was president before, his message was more like "We will focus on
operating profit." In the current strategic management plan, you have announced a policy of emphasizing
ROE, OP margin, and shareholder returns. What is the background behind these decisions? In particular, I
would like to know, if you don't mind, what kind of discussions took place within the Company, and what kind
of decisions were made to come up with this kind of content.
Togawa [A]: For one thing, in order to increase our corporate value, I think it is more important than anything
else how we increase our economic value and, along with that, how we increase our social and environmental
value.
As for economic value, in FUSION 25, we did not achieve the goals we had set out. Based on this reflection, in
considering FUSION 30, we discussed whether it is really sufficient to pursue sales growth alone and whether
it is essential to improve operating margin and ROE. Based on that discussion, we decided to aim for what we
have described today.
Sasaki [Q]: What is your opinion, President Takenaka?
Takenaka [A]: As Togawa just said, our corporate value, including our stock price, has not been fully evaluated
as a result of our track record. Based on our recognition of these issues, we have decided on these strategies
as a result of our discussions on how to improve profitability and capital efficiency, which will ultimately lead
to higher corporate value.
Sasaki [Q]: Thank you very much.
In other words, in FUSION 25, you had quite a few headwinds from the external environment, which led to a
decline in profit margins and consequently, a decline in ROE. Is it correct to understand that based on that
reflection, the Company made this announcement in order to demonstrate its intention to address this issue?
Togawa [A]: Considering what kind of company we want to be and what kind of company we want to become,
in comparison with other companies, I think we need at least a double-digit operating profit margin and, of
course, at least 12% ROE. Based on this recognition, we decided that we should set such numerical targets in
this FUSION and make it a reality.
Sasaki [Q]: I understand very well. Thank you very much.
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Second, what is your view of the profit margin in the US for FUSION 30? In the last fiscal year, both DNA's and
DAA's operating profit margins were 8%, and I believe the target for this fiscal year is about 9%. You have set
an ambitious goal that this will jump all the way up to 13% by FY2028.
But three years is a reasonably short time. What is the background behind the expected 5% jump in profit
margins in the US in three years? In particular, what will change in DNA and DAA, respectively? Will it really
increase profit margins as much? I wonder if you could give us some background, rationale, or logic behind
the jump in profit margins in North America by FY2028 and FY2030.
Togawa [A]: As mentioned in the explanatory material, DNA aims to expand sales of Fit, a residential unitary
with inverter, which is an environmental premium product. As for Fit, sales have steadily increased during
FUSION 25 and have been very profitable. So, we will extend that to another level. That is why we have been
working for the past several years to strengthen our dealer network that can handle the Fit. By 2028, we
expect that what we have been strengthening will finally start to pay off.
As for applied, the data centers are the top priority. We have invested in quite a few things, including the
acquisition of sales representatives and an instrumentation engineering company, to strengthen that position.
While I believe that further strengthening is still necessary, I also believe that some foundation building has
emerged. We recognize that we are finally entering a stage where we will reap the benefits of the investments
we have made.
Sasaki [Q]: Thank you very much.
So, you expect that the Fit and data centers that you have been doing so far will be a significant part of your
business performance for the next three years, and that you will be in the payout period for the next five
years.
Togawa [A]: You are right. For further future growth, we believe that investments, including acquisitions, will
continue to be necessary. However, we have built a foundation through considerable investment over the
past several years, and we think we are finally entering the stage of reaping the rewards of that investment.
Sasaki [M]: I understand very well. That's all from me. Thank you very much.
Sakamoto [M]: Thank you very much.
Thank you very much for the many hands raised. I will nominate you in order. Due to time limitations, please
limit your questions to two. Also, please keep your questions brief so that we can answer more of your
questions.
Mr. Maekawa of Nomura Securities, please proceed.
Maekawa [Q]: My name is Maekawa from Nomura Securities. Thank you for your explanation. Let me ask you
two questions, both about FUSION 30.
First, regarding the operating margin on page 14, I would like to ask about three points in particular: higher
value-added, volume increase, and low-profit business turnaround. I think you have been focusing on
solutions and high value-added products in the past. As Chairman Togawa mentioned earlier, now that you
are at the stage of recovering the investments made so far, will the effects of these investments come
naturally?
Until now, I think you have been rather encouraged by market conditions. Although the impact of market
conditions has been factored into your plans, I believe that in order to raise the profit margin this much, you
47
will need to make one or two more efforts that are different from what you have done so far. I would like to
ask what low-profit businesses have been factored into as well.
Especially with regard to these three points, if the foundation is in place and it will work as it is, then that is
fine. If there is anything else, I would appreciate it if you could tell us how this differs from the past, including
with regard to low-profit businesses.
Togawa [A]: One thing we are trying to do is to shift from selling single pieces of equipment to so-called
systems and to strengthen system sales more, which will lead to higher profits.
To be more specific, for example, in the residential market, we cannot compete with Chinese manufacturers
in terms of room air conditioner equipment alone. Our specialty is systemization. We will make money by
proposing to combine the room air conditioners with all things such as ventilation, hot water, heating, etc.,
to create customer value.
The difference between us and Chinese manufacturers is that we have long cultivated a strong sales and
service network capable of proposing such solutions. We will take advantage of this and earn money through
higher added value. This is the first point.
The second point is to increase the solution ratio. Especially in the solution business in F30, we will further
expand applied's solution area and create a structure to make money from it. Typical examples include data
centers in North America.
We have been strengthening the acquisition of sales representatives as a sales network that can propose
solutions and the acquisition of instrumentation engineering, which are necessary for this kind of thing.
With F30, we are now in an area where we can take advantage of this and reap the rewards. I believe that
further investment is also needed. But we will proceed first to reap what we have invested so far.
Takenaka [A]: In addition to what Togawa mentioned, we have invested considerably in our core system. In
addition to this, AI will be used to control the increase in personnel. Furthermore, over the past five years, we
have been investing in equipment, primarily in direct expansion air handling units. We will also strongly
promote the lowering of the so-called fixed cost-to-sales ratio and SGA ratio, such as by curbing depreciation
costs through effective utilization of existing facilities.
Maekawa [Q]: Thank you very much.
There has been quite a bit of in-depth discussion about improving low-profit businesses, including withdrawal
from some of them. Will you make such decisions for M&A that have been implemented to date and have not
been very effective? If so, perhaps the improvement in the operating margin from leveraging low-margin
businesses could be more than 0.4%. I would be glad to know your stance on that as well.
Togawa [A]: Examples of a low-margin business are the filter business, especially P&I, and the European lowtemperature businesses, AHT and Zanotti, which we hope to settle within the next three years. We are
committed to making these decisions and executing them, including the sale.
Maekawa [Q]: Understood. Thank you very much.
Second, since the Company has announced a 350 billion yen share buyback, I would like to ask about cash
flow. Specifically, I would like to hear about the expansion of operating cash flow. Referring to page 32, the
Company's operating cash flow is expected to increase significantly to JPY 3 trillion, including ongoing
48
shareholder returns in the future. I believe this includes the improvement in profit margins you just mentioned,
as well as improvements in B/S such as inventories.
On the other hand, you have also indicated a CAGR of 6% as one of the indicators for the company-wide target
for FY2028. You mention that sales are weak, but without top-line growth, it will be difficult to achieve the
targets. What are your future plans for expanding operating cash flow to JPY 3 trillion? I know you have
mentioned some of these in your presentation so far. I would appreciate it if you could tell us about this, as I
believe its expansion is the most important foundation.
Togawa [M]: We are already having him do what is essentially a CFO-type job, but at the end of June we will
officially establish a position of CFO and have Vice President Takahashi take on that responsibility. So,
Takahashi will answer your current question.
Takahashi [A]: First point, we will increase the operating margin and increase cash flow from base profits.
Second, as noted on page 14, we will primarily work to improve our invested capital turnover ratio, which is
working capital. With regard to capital investment, in the past, capital investment was made mainly for
capacity expansion. In FUSION 30, we intend to increase the overall turnover rate by narrowing our focus and
lowering the ratio of capital investment to the overall cash flow to some extent. We would like to aim for JPY
3 trillion in these two points combined.
It is true that this is a challenging goal, but to achieve it, we will thoroughly implement the measures I just
mentioned.
Maekawa [Q]: Is the sales expansion included in the expansion of operating cash flow to JPY 3 trillion? As
CAGR is 6%, I think it is reasonably included.
Takahashi [A]: The 6% CAGR naturally includes sales expansion, but the calculation is not based on the
assumption that double-digit growth will continue unabated.
Maekawa [M]: Understood. That's all from me. Thank you very much.
Sakamoto [M]: Thank you very much. Next, Mr. Isayama of Goldman Sachs, please ask your question.
Isayama [Q]: Thank you very much for all your help. I am Isayama from Goldman Sachs. Thank you.
First, let me ask you about the profit margin targets for FUSION 30. In the explanation from Chairman Togawa
and President Takenaka, they mentioned that they would be flexible to revise the plan as needed. Your
company has a track record of being strongly determined and committed to achieving its profit plan,
regardless of the external environment.
Is the 10% company-wide OP margin target for FY2028 announced this time considered a commitment?
Likewise, what about the OP margins by region listed on pages 20 and 21? When you say that you will review
flexibly, are you talking about regional mix or measures, and is the company-wide quantitative goal a
commitment?
Togawa [A]: Regarding FUSION management, quantitative targets for the next three years have been a
commitment, and that stance will remain unchanged this time around. In FUSION 25, we regret that we were
not able to achieve our final goal due to various changes in the external environment. The policy is to make a
commitment to achieve the FY2028 targets of 10% operating margin and 12% ROE.
49
We have created an action plan to achieve this and have now made a start. This implies that the content of
measures and priorities will be changed flexibly based on the situation.
Isayama [Q]: Thank you very much.
Regarding the withdrawal from so-called unprofitable businesses, such as the filter business and the Freezer
and Refrigerator business in Europe that you mentioned, will you make a decision after looking at the ROIC
by business for three years? In a changing environment, might it be necessary to decide early in the first year?
Togawa [A]: In order to achieve the quantitative target for FY2028, it is of course necessary to achieve ROIC
by business. We make decisions with speed and flexibility in response to changing circumstances.
Isayama [Q]: I understand very well. Thank you very much.
My second question is about the profitability of North American air conditioning business. The plan is to raise
profitability from 8% in FY2025 to 13% in FY2028. I have the impression that measures, mainly of higher
added-value for products, are expected to contribute to this end.
However, to date, both DNA and DAA have struggled to improve profitability. Once again, what measures do
you envision to achieve a 5% improvement in profitability in North America? Will the focus on high valueadded products, or will cost reduction effects become more significant? I would appreciate it if you could
explain with a little more resolution.
Togawa [A]: DAA will improve profitability through increased equipment sales, especially in the data center
market, and through solutions business. It has been aiming for a structure that earns money from the solutions
business in markets such as data centers, schools, hospitals, and offices, and we believe that we are finally in
the phase of reaping the fruits of this effort.
In North America, sales to data centers in FY2025 were about JPY 100 billion or so, and we would like to
increase this to JPY 300 billion or more by FY2030. Toward this end, we have acquired a company called DDCS,
which has differentiated products and technologies in the data center cooling market, and a company called
Chilldyne, which offers liquid cooling, and we are poised to do so. So, we believe that we are finally at the
stage where we can expand our earnings in earnest.
Isayama [Q]: Thank you very much.
The entire HVAC business in North America is planned to have an OP margin of 13% in FY2028. What
percentages do you expect the DNA and DAA OP margins to be, respectively?
Takahashi [A]: We plan to raise both OP margins to 13%.
Isayama [M]: I understand very well. That's all from me. Thank you very much.
Sakamoto [M]: Thank you very much. Next, Mr. McDonald from Citigroup Global Markets, could you ask a
question?
McDonald [Q]: This is McDonald. Thank you very much. I will ask just two simple questions.
The first is about quantitative targets for commitments. Considering that your company's ROE was 9% in
FY2025, I think it is wonderful that you are aiming for 12% in FY2028. On the other hand, the ROE targets of
US competitors, while varying from company to company, average more than 30%.
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From the perspective of an institutional investor in a global fund, I think your company's target is frankly an
inadequate level. What are your thoughts on this point?
Togawa [A]: As you say, it is certainly not an adequate level compared to US competitors. On the other hand,
we would also like you to understand that the business structure and business origins are quite different.
We recognize that other US companies have invested in building their customer bases over the years and are
already at the stage where their investments have run their course. In addition, their applied solutions
business is dominated by sales in North America. Meanwhile, we have a vision to expand our applied solutions
business globally, not only in North America, but also in Europe, Asia, and other regions. Therefore, we have
been actively investing accordingly for the past several years, and I believe that more investment is still
needed in the future. We would like you to understand that the ROE target of 12% is based on such
considerations.
McDonald [Q]: I believe that investors' evaluation of Daikin will be more positive if you can speed up your
efforts to improve ROE.
Togawa [A]: As you say, we want to do it with speed. However, as we have shown in FUSION 30, ROE will not
rise so easily unless we first do both: increase the operating margin and improve capital efficiency.
Therefore, we would like to first ensure that the quantitative targets of FUSION 30 are met. In addition, we
have today announced the implementation of a JPY 350 billion share buyback program. We intends to
continue to purchase treasury stock in a flexible manner while keeping an eye on the situation.
McDonald [Q]: On page 32 of the FUSION 30 presentation, there is a mention of over JPY 700 billion for "share
buybacks/additional M&A." Does this include the JPY 350 billion share buyback announced today?
Takahashi [A]: Yes, it is included.
McDonald [Q]: It's included. As for M&A, I think you will continue to do things like the acquisition of sales
representatives by DAA or the acquisition of instrumentation companies. If the number of acquisitions
increases, do you expect to have a limit of about JPY 50 billion to JPY 100 billion for share buybacks?
Takahashi [A]: No, M&A on the theme you just mentioned is included in the M&A investment of JPY 500
billion. The "additional M&A" mentioned here means that we will be proactive when themes emerge that we
are not able to materialize at this time. If there are no such themes, these funds will be used for share
buybacks.
Please also understand that the JPY 700 billion limit is a guideline, and that we are considering cash allocations
in excess of JPY 3 trillion, if necessary.
McDonald [Q]: OK. Flexible and agile. Thank you very much.
Finally, a quick question. I think the most pressing issue for your company is the need to increase profitability
in the United States. However, you have not been able to improve that much in the past few years, and some
institutional investors have suggested that DNA and DAA management are to blame.
You have made various upfront investments, and I think the external environment has been difficult in some
respects, such as the effects of tariffs and soaring prices for copper, aluminum, steel, and other materials.
How do you feel about such comments from investors?
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Togawa [A]: I do not think that the current DNA and DAA management are no good, although I believe that
human resources need to be strengthened. First of all, with regard to DAA, we are planning to strengthen the
system at the end of June this year in order to achieve the FUSION 30.
At DNA, we believe that, above all, it is essential to strengthen its sales system.
For example, if we want to further expand sales of Fit, we need to expand and strengthen the number of
dealers who can handle it. We intend to focus on strengthening our on-site structure by hiring and training
sales personnel who can support dealers.
McDonald [M]: I hope that the plan you are about to implement will yield positive results. Thank you very
much.
Togawa [M]: Thank you very much.
Sakamoto [M]: Thank you very much.
The time for closing is approaching, and I would like to nominate the three people who have now raised their
hands. Please note that there is a possibility that we may slightly exceed the closing time.
Mr. Hotta of BofA Securities, please.
Hotta [Q]: Thank you very much. I will ask two simple questions.
One is about the SG&A ratio. I think the biggest reason for the recent decline in the operating margin is the
increase in the SG&A-to-sales ratio. Once again, could you be more specific about how you will control the
SG&A ratio in FUSION 30?
Takahashi [A]: The JPY 200 billion improvement in fixed costs will be achieved by improving efficiency,
especially in indirect operations. I believe that this initiative will go a long way in improving SG&A.
Hotta [Q]: Mainly in North America?
Takahashi [A]: We would like to advance this initiative that in each region. However, we are currently in the
process of developing various systems to specifically integrate the back office of DAA and DNA in North
America. As this integration progresses, back-office efficiency will increase. However, at this point, we believe
that the effects of the FUSION will be felt more in H2 of FUSION.
Hotta [Q]: I understand. Thank you very much.
Second, I would like to ask one point about the current fiscal year. What is the current state of your inventory
in the North American housing sector in retail, wholesale, and distributor markets? And what do you expect
that to look like in the coming Q1 and Q2?
Matoba [A]: This is Matoba. I believe that your question is about market trends for DNA's residential unitary
in North America.
First, inventories in distribution are almost at the standard level as of the end of March, but a little higher than
in the previous year. This is due to the impact of dealers and distributors increasing their inventories for the
season.
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In addition, sell-through and sales from dealers have been positive YoY since February of this year. Despite
certain changes in the market environment, the number of transactions of used homes, the key factor, is still
on a bottoming-out trend. March data were also very poor. Thus, there is a mix of strong and weak areas.
Hotta [Q]: Finally, how about the inventory on your side? At the end of December, it still seemed a bit high.
Matoba [A]: Yes. The level of DNA's inventory itself has not changed. We have not been able to significantly
reduce it. Sales progressed considerably in March, and production adjustments are underway, but inventory
levels have not fallen significantly.
Togawa [M]: Did you ask this question because you are aware of the problem that Daikin has a lot of
inventory?
Hotta [Q]: I heard from the US that inventory levels are a little high not only at your company but also at
manufacturers, so I wanted to confirm this and, based on that, I wanted to get an idea of future trends in
operations.
Togawa [A]: Thank you very much.
We are aware of the inventory problem and are making further progress in inventory reduction. On the other
hand, we should not miss sales opportunities, so we should have some strategic inventory. However, I believe
that we should take further steps, for example, with regard to inventory that has been stagnant for a long
period of time. From this perspective, we are now also working on SCM reform.
So, to put it simply, we would like to greatly reduce our inventory, and we would like to further strengthen
such efforts.
Hotta [M]: I understand. Thank you very much. That's all from me.
Sakamoto [M]: Thank you very much. Mr. Fukuhara of Jefferies, please.
Fukuhara [Q]: I am Fukuhara from Jefferies. I have two questions.
The first point concerns short-term performance. The cost of raw materials this year will increase by JPY 39
billion this fiscal year for copper alone. With the current rise in copper prices, how much of a buffer did you
factor into your earnings plan for this fiscal year?
Matoba [A]: We are planning an assumed rate of USD12,000 per ton for the current year's procurement of
copper. We are hedging about one-third, and for that portion, we have fixed the price lower than the
USD12,000 I mentioned earlier. We made a plan based on the assumption that the price would remain high
to some degree.
Fukuhara [Q]: In other words, even if the price goes up one more level from now on, it will not have much
effect on H1 performance?
Matoba [A]: That's right.
Fukuhara [Q]: Understood.
My second question is about capital policy. In reviewing the materials of the Strategic Management Plan ,
there is not much mention of your company's borrowing. Considering the financial strength of your company,
I don't think it is at all necessary to fund the majority of future investments and shareholder returns with cash.
What are your thoughts on borrowing during this mid-term management plan period?
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Takahashi [A]: First of all, I would like to say that we do not, for example, decide on the D/E ratio or Net
Debt/EBITDA figures first before making a management plan. We make investment decisions from a strategic
perspective and accordingly consider the capital policy as explained today. In this context, one thing we
envision is that the D/E ratio could be around 0.5 times if there are no particularly large M&As. Currently, it is
probably much lower than that, but we believe that there could be a temporary phase during the FUSION 30
period when it is around 0.5 times.
We would also like to consider Net Debt/EBITDA to be around one time at some point. However, it is currently
considerably lower than that, and we would like to make a decision based on the timing of the investment.
Fukuhara [M]: Understood. Thank you very much. That's all from me.
Sakamoto [M]: Thank you very much. Mr. Taninaka of SMBC Nikko Securities, please.
Taninaka [Q]: My name is Taninaka from SMBC Nikko Securities. Thank you. Let me ask you two questions.
First, I would like to ask again about the certainty of the plan for this fiscal year. In the air-conditioning business,
the effect of sales expansion of JPY 81 billion is factored into profit growth for the current fiscal year. I recall
that this was significantly lower than planned last fiscal year. I know that mix, unrealized profit, production
adjustments, and many other things are factored into this and cannot be broken down. Once again, could you
please explain the main reasons for the negative JPY 12.4 billion effect of sales expansion on operating profit
for the fiscal year just ended, and what effect will account for much of the JPY 81 billion in the new fiscal year?
Takahashi [A]: In the period that ended, the negative impact of reduced demand was by far the largest portion.
Internally, we were experiencing a decrease in demand and an increase in market share and sales expansion
effects. Naturally, in the chemicals and air-conditioning businesses, sales expansion had a positive impact, but
the biggest difference from FY2026 was that the impact of reduced demand was the largest.
We do not anticipate a very large uptick in demand in FY2026 either. However, we believe that our efforts will
have a positive effect, turning from a negative to a slight positive. We expect nothing to counteract the effect
of sales expansion in FY2026.
Taninaka [Q]: Understood. Thank you very much.
Second, I would like to ask about improving profitability in the strategic management plan. From your
explanation, I got the impression that you are trying to increase profit margins through top-line or unit price
mix improvement. I imagine the situation is particularly difficult in Europe, where heat pump plants are
operating at low rates. Then, I imagine that the fact that the reorganization of production bases is
incorporated into the strategic management plan is a good keyword for improving profitability.
Could you tell us how much potential there is for improving profit margins through consolidation or other
moves in the future, including the heat pump heating plant and other production facilities?
Togawa [A]: As you say, we stand on the understanding that we have not been able to produce sufficient
investment effects for the investments we have made in FUSION 25, due in part to the subsequent significant
decrease in demand and changes in the environment. With these implications in mind, we are naturally
planning to consolidate and reorganize production.
For example, in Europe, we invested in Poland to establish a factory for heating and hot water products for
R290, but the current utilization rate is extremely low. Now that sales of heating and hot water have bottomed
out in FY2025, we intend to expand them. However, it is quite impossible to raise the occupancy rate to 80%
or 90% within three years.
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For this reason, we are considering having other production at the Polish plant. In Europe, for example, as in
the US, there is a need to strengthen secondary-side products for data centers. We are now considering the
specifics of bringing the production of such products there.
Taninaka [M]: Very well understood. Thank you very much. That's all from me.
Sakamoto [M]: Thank you very much.
This concludes the question-and-answer session. Thank you very much for your participation in today's
meeting.
This concludes today's briefing. Thank you for your participation.
[END]
Document Notes
1.
2.
3.
Portions of the document where the audio is obscured by technical difficulty are marked with [TD].
Speaker speech is classified based on whether it [Q] asks a question to the Company, [A] provides an
answer from the Company, or [M] neither asks nor answers a question.
This document has been translated by SCRIPTS Asia.
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