Daikin Industries, Ltd.
Q1 Financial Results Briefing for the Fiscal Year Ending March 2027
August 4, 2026
Event Summary
[Company Name]
Daikin Industries, Ltd.
[Company ID]
6367-QCODE
[Event Language]
JPN
[Event Type]
Earnings Announcement
[Event Name]
Q1 Financial Results Briefing for the Fiscal Year Ending March 2027
[Fiscal Period]
FY2027 Q1
[Date]
August 4, 2026
[Number of Pages]
26
[Time]
16:00 – 17:01
(Total: 61 minutes, Presentation: 15 minutes, Q&A: 46 minutes)
[Venue]
Webcast
[Number of Speakers]
2
Koichi Takahashi
Yuri Sakamoto
[Analyst Names]*
Yuichiro Isayama
Kentaro Maekawa
Satoshi Taninaka
Tsubasa Sasaki
Kenjin Hotta
Graeme McDonald
Hirosuke Tai
Member of the Board and Senior Executive
Officer, CFO
General Manager, Investor and Shareholder
Relations Office
Goldman Sachs
Nomura Securities
SMBC Nikko Securities
UBS Securities
BofA Securities
Citigroup Global Markets
Daiwa 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.
Presentation
1
Tanaka: We will now begin Daikin Industries, Ltd.’s earnings briefing for Q1 of the fiscal year ending March
2027. Thank you very much to everyone who took the time to attend despite your busy schedules.
As mentioned in the email we sent earlier, the presentation material is available on our website under
Shareholder and Investor Information. Please have it on hand as needed.
I’d like to introduce today’s two speakers.
Koichi Takahashi, Member of the Board and Senior Executive Officer, CFO; in charge of Accounting, Finance,
and Budgeting; and Investor Relations (IR) and Shareholder Relations (SR).
Takahashi: Hello.
Tanaka: Yuri Sakamoto, General Manager, Investor and Shareholder Relation Office.
Sakamoto: Thank you.
Tanaka: I, Tanaka from the Investor and Shareholder Relation Office, will be serving as the moderator. Thank
you very much.
Today, Takahashi will first give a presentation of just over 10 minutes on the highlights of our Q1 financial
results and the progress of FUSION30, followed by a question-and-answer session. The end time is scheduled
for 17:00.
Senior Executive Officer Takahashi, please proceed.
Takahashi: Thank you for taking the time to attend our financial results briefing despite your busy schedules.
Today, I would like to begin by providing an overview of our Q1 financial results, as well as an update on the
current status of the air conditioning businesses in the Americas, China, and Asia-Oceania—areas of particular
interest to you. Next, I’d like to explain the progress of FUSION30, which we announced in May.
Under FUSION30, we are committed to transitioning to a management approach that prioritizes profitability
and efficiency, and we are implementing each initiative with a strong determination to make this a reality.
We will provide regular updates on the progress and specific initiatives moving forward.
In this presentation, I will focus on three themes for growth—particularly in high-margin areas: one,
transforming into a solutions provider; two, improving the profitability of the North America air conditioning
business; three, strengthening our chemicals business—as well as two themes for building a more resilient
earnings structure: four, resolutely implementing cost structure reforms; and five, revitalizing low-margin
businesses. I will discuss the progress and outlook for our key initiatives.
2
First, please turn to page four.
In Q1, both net sales and operating profit reached record highs.
Amid issues such as the Middle East crisis, currency depreciation in emerging markets, additional US tariffs,
and soaring raw material prices—all of which caused cost increases to exceed initial projections—we drove
growth in high-value-added products, implemented pricing strategies, and pursued comprehensive cost
reductions. As a result, operating profit in absolute terms increased YoY, including the impact of the weak yen
on foreign exchange conversions and refunds from US tariffs. This exceeded the Company's internal target.
On the other hand, the operating profit margin decreased by 0.8 percentage points compared to the previous
year. We were unable to fully offset the impact of cost increases—which exceeded our initial projections as
mentioned earlier—within the three months of Q1 alone. In addition, during Q1 of the previous fiscal year,
the effects of pricing strategies and cost-cutting measures took precedence over cost increases caused by
soaring raw material prices and US tariffs, resulting in higher profit levels. These are the main factors behind
the decline in profit margins this period. However, given that the effects of this fiscal year’s cost-reduction
measures will begin to materialize in earnest starting in Q2, we assess that progress as of Q1 was generally in
line with our plans.
The negative impact of rising costs is expected to grow even further in the future. However, throughout the
year, while we will continue to steadfastly implement pricing strategies and cost-cutting measures, we will
also rapidly roll out additional measures in light of changes in the business environment, with a focus on
3
growth in high-margin areas and strengthening our earnings structure—as outlined in FUSION30. We will use
this to drive improvements in profit margins starting in Q2.
Furthermore, since the peak season for the air conditioning business is Q2, we did not revise the annual plan
at this time. We intend to ensure that the initiatives we are currently working on are carried out effectively
and, first and foremost, to see our annual plan through to completion. Building on that, we intend to strive to
achieve even greater results.
See page nine. I would like to provide an overview of the Q1 performance of the air conditioning and
refrigeration equipment business in the Americas.
Daikin Comfort Technologies North America's sales were 112% of the previous year's level on a yen basis and
102% on a local currency basis.
In addition to persistent inflation and persistently high mortgage rates, uncertainty about the economic
outlook due to the situation in the Middle East has limited the recovery in demand for residential air
conditioning.
Amid these circumstances, the Company is expanding sales by focusing on supporting existing dealers and
developing new ones. Market share stood at approximately 23% for the three months of Q1, an increase of
about 3 percentage points compared to the same period last year. On the other hand, sales of the eco-friendly
Fit product line and ductless air conditioners remained sluggish.
4
Daikin Applied Americas' revenue was 129% of the previous year's level on a yen basis and 117% on a local
currency basis.
In addition to expanding sales of equipment such as heat sources and secondary-side units, our service
solutions business is also growing steadily. In the data center sector in particular, sales grew significantly as
we capitalized on strong demand by increasing production capacity and expanding our product lineup.
See page 10.
In our air conditioning and refrigeration equipment business in China, the business environment remains
challenging due to the real estate slump and a slowdown in consumer spending. Sales of residential multisplit air conditioners also fell to 86% of the previous year's level. However, by leveraging our sales strength—
which is one of our core strengths—we have outperformed market growth.
Although the sales outlook remains challenging, we intend to maintain high profitability by expanding sales
of high-value-added products, strengthening our residential solutions, and working to reduce overall costs.
5
See page 12. The air conditioning and refrigeration equipment business in Asia and Oceania.
In the air conditioning business in India, revenue on a local currency basis grew significantly to 128% of the
previous year’s level, partly because sales in the prior fiscal year had been low due to unfavorable weather
conditions.
Meanwhile, in the ASEAN region, rising energy prices and inflation—driven by the situation in the Middle
East—led to a decline in consumer spending across various countries, as well as delays in large-scale
construction projects due to soaring prices and shortages of building materials. Furthermore, profitability in
the air conditioning and refrigeration equipment business in Asia declined, partly due to the depreciation of
emerging market currencies.
Starting in Q2, we will work to improve profitability by expanding sales of mid- to high-end residential models
and products for data centers—a sector where demand remains strong—while also strengthening our
solution offerings.
6
See page 16. I’d like to discuss the progress we’ve made on the key themes outlined in FUSION30.
As I mentioned earlier, we will be providing regular progress reports on key themes related to FUSION30 going
forward. This time, I will focus on explaining the details of the key initiatives we implemented during Q1.
First, let’s discuss our transformation into a solutions provider, which is a key growth theme in high-margin
areas.
In the residential solutions business, sales of residential multi-split air conditioners in China have declined due
to the real estate downturn, resulting in challenging business conditions. Meanwhile, in the commercial
solutions business, sales have expanded due to strong sales of data center products in the Americas, as well
as efforts to strengthen bundled proposals for equipment and instrumentation in Japan.
Please note that we plan to disclose the percentage of the solutions business within the air conditioning
business’s revenue starting with our next Q2 earnings report, so we ask for your patience for the time being.
7
See page 17.
In the North America air conditioning business, we made improving profitability our top priority and worked
to expand sales of high-value-added products; however, due to US tariffs, the situation in the Middle East,
soaring market prices, and cost increases resulting from currency depreciation in emerging markets, as well
as due to increased investment in development within the applied solutions business, the operating profit
margin declined by 2 percentage points compared to the previous year.
However, as I mentioned earlier regarding the decline in the company-wide profit margin, the YoY decline in
the profit margin of the North America air conditioning business in the Americas in Q1 of this fiscal year was
in line with expectations, and there is no significant delay in progress relative to our plan.
Sales of our eco-premium product Fit got off to a slightly slow start in April and May, but the measures we’ve
been implementing are gradually paying off, with sales reaching 112% of the previous year’s level in June and
approximately 150% in July.
Starting in Q2, we will work to improve profitability by offsetting the impact of rising costs through pricing
strategies and efforts to reduce total costs, while continuing to implement measures such as providing sales
promotion tools and strengthening our dealer support system. At the same time, we will steadily increase the
number of dealers carrying Fit, a high-margin product. Additionally, DNA North America’s operating profit
margin for Q1 of FY2026 was 11%, while DAA North America’s operating profit margin was 9%.
8
See page 18.
In the chemicals segment, sales of high-performance resins for semiconductor manufacturing equipment and
coating materials for high-speed communication cables used in data centers remained strong, resulting in a
significant improvement in profitability compared to the same period last year.
We will continue to focus on sales in the "essential market," where we expect to maintain high profitability.
9
See page 19. I would like to discuss the progress on the two key initiatives aimed at strengthening our profit
structure.
First, regarding the implementation of cost structure reforms, we have clarified the measures to be
undertaken during FY2026, and have already begun implementing some of them.
For example, at our manufacturing plants in the air conditioning business, we are proceeding with the transfer
of SKY production from Thailand to the United States in order to minimize the impact of US tariffs. In addition,
to meet the strong demand for data center cooling while keeping investment in check, we are working to
establish a production system that utilizes leased factories.
10
As part of our operational reforms, as described on page 20, we are also working to consolidate back-office
functions with the aim of improving operational efficiency.
11
See page 21.
With regard to revitalizing low-profitability businesses, we have identified more than a dozen businesses for
this initiative, set performance targets such as operating profit margins, and are currently formulating and
implementing restructuring plans to achieve those targets.
With regard to our filter business and European refrigeration business—which are of particular concern—we
intend to implement the measures outlined here and assess the potential for improved profitability and future
growth within a short period of time.
As explained above, we are making steady progress on initiatives related to our key priorities, such as our
solutions business and cost structure reforms. Starting in Q2, in addition to reporting on the progress of our
initiatives, we will gradually disclose information—beginning with those for which we can provide quantitative
results—to enhance the quality of our disclosures.
We will continue to make strengthening our earning power our top priority and steadily implement each of
our initiatives. We also look forward to keeping you informed of the progress and results of the transformation
outlined in FUSION30 through regular updates.
That's all from me.
12
Question & Answer
Tanaka [M]: We will now begin the Q&A session.
Although our time is limited, we would like to answer questions from as many people as possible. We kindly
ask that you limit your questions to two at a time, and refrain from asking follow-up questions as much as
possible. Thank you for your understanding.
First, Mr. Isayama of Goldman Sachs, please go ahead.
Ishiyama [Q]: Thank you for your continued support. I am Isayama from Goldman Sachs. Thank you.
First of all, I’d like to ask Mr. Takahashi once again for his assessment of the Q1 financial results. There were
comments indicating that, thanks in part to the tariff refund, the results slightly exceeded expectations. If
there had been no tariffs, would the results have been in line with the plan? Given the talk of the heat wave
in Europe and my expectations for a turnaround in your North American operations, I have to say, quite frankly,
that I feel the results didn’t grow as much as I had expected. Even so, you say that the actual results slightly
exceeded the plan. So, I'm curious to know what level of profit your company had anticipated for Q1.
Is there still a lot of stock left? We were told that since Q2 and beyond is the peak season, you should be able
to make up for it. Based on the Q1 earnings results, do you think profits will increase further in Q2? I realize
this is a rather short-sighted question, but could you please go into a little more detail regarding your
assessment of recent financial performance and your outlook for the future?
Takahashi [A]: First, regarding our assessment of the Q1 financial results, as I mentioned at the outset, we
achieved very strong results in Q1 of last year. This is because we were able to absorb the negative impact by
thoroughly implementing pricing strategy from an early stage as a countermeasure against cost-increasing
factors, particularly the impact of tariffs. In contrast, since those positive factors are absent this year, we had
set our forecast slightly lower. Even in the budget we formulated at the beginning of the fiscal year, we had
anticipated that the profit margin would decline slightly.
As Mr. Isayama just mentioned, while the tariff refund was a positive factor, there was also a negative impact
from the additional tariffs. In particular, additional tariffs have been imposed on iron, copper, and aluminum,
and tariffs are now also being applied to imports from Mexico. As a result, the negative impact—primarily due
to soaring market prices—was greater than anticipated. However, by factoring in not only the tariff refunds
but also the foreign exchange conversion effects resulting from the weak yen, we were able to offset the
negative impact; overall, results were in line with expectations and slightly exceeded our plan.
The heat wave provided a boost to sales, particularly in Europe, during parts of May and June. Although the
situation varies slightly from country to country, sales are growing mainly in certain countries, such as France.
On the other hand, the price pressure from Chinese manufacturers is extremely intense. We do not focus
heavily on mass-market products; instead, even in the residential sector, we are expanding sales of high-valueadded products such as multi-split air conditioners. Therefore, our growth may be slightly lower than that of
the industry as a whole. However, from the perspective of operating profit margin, there has been a positive
impact.
In certain regions, such as Japan and Europe, actual results exceeded projections. However, in some regions,
such as the United States, where the rollout of these measures has been somewhat delayed, the results fell
13
slightly short of the targets. Taking all of these factors into account, the overall results were largely in line with
the plan.
Ishiyama [Q]: I believe there was a report that manufacturer inventory is increasing in some regions,
particularly in the United States. What is the situation like?
Takahashi [A]: The reduction of inventory at the end of June is proceeding steadily as planned. You might
think that inventory hasn't decreased much in terms of value, but this is due to exchange rate fluctuations. In
terms of inventory turnover, we are already operating more efficiently than originally planned, and I believe
we will be able to scale up production in proportion to sales growth going forward.
Isayama [Q]: Thank you very much.
The second question is about the United States. Could you break down DNA's YoY growth of 102% on a local
currency basis by factors such as selling prices and volume mix? Looking at the sales figures for Fit, I think it
will still take some time to improve the mix. I would appreciate it if you could comment on that point as well.
Takahashi [A]: Thank you very much.
First, our volume exceeds the industry average, and we are also increasing our market share.
Unfortunately, however, due to the effects of inflation and high interest rates, demand itself is not particularly
strong. Furthermore, due to inflation, an increasing number of customers are seeking out lower-priced
products. In other words, the sales weight of the volume segment is increasing. As a result, sales of Fit got off
to a slightly slower start than originally planned, which had a negative impact on the product mix in Q1.
Isayama [Q]: Thank you very much.
Could you provide a quantitative breakdown?
Sakamoto [A]: Let me add a few points. Volume contributed a positive 10 points, pricing strategy contributed
a positive 2 points, product mix and other factors contributed a negative 10 points, and there were no effects
from M&A or similar activities during this period.
Isayama [M]: I understand very well. Thank you very much. That's all from me.
Tanaka [M]: Thank you very much.
Next, Mr. Maekawa from Nomura Securities, please go ahead.
Maekawa [Q]: My name is Maekawa from Nomura Securities. Thank you for your explanation. I’d like to ask
two questions as well.
14
I’d like to ask about the change in profit on page six. It appears that the sharp rise in market prices had a
significant impact this time. I believe that among the negative impact from raw materials on profit includes
the negative impact of tariffs and the positive effect of tax refunds. I would appreciate it if you could provide
a breakdown of this.
In addition, sales expansion—particularly in the air conditioning and refrigeration equipment business—
contributed a positive impact of JPY14 billion this time. Based on what you just said, does that mean
production is picking up a bit? Around H2 of last fiscal year, I had the impression that the impact from sales
expansion was weak. I consider the JPY14 billion impact realized in Q1 to be a pretty good figure. If there are
any other factors besides sales expansion that are contributing to this sales growth, I would appreciate it if
you could let me know.
Sakamoto [A]: First, regarding the impact of raw material costs on profit reduction, we have not broken down
the calculations by material, such as copper, iron, or aluminum, this time. We appreciate your understanding.
The direct impact of tariffs and the effect of refunds are included here, as shown at the bottom of page six.
This figure includes a direct negative impact of JPY4.6 billion from tariffs and a positive effect of JPY10.5 billion
from refunds.
Takahashi [A]: While we don’t have specific figures, I hope you’ll understand that, when it comes to raw
material market conditions, copper has by far the greatest impact.
15
Furthermore, regarding production capacity utilization in relation to sales expansion—including inventory—
as I mentioned earlier, we are steadily reducing inventory, so production capacity utilization is increasing in
line with sales. Compared to the same period last year the capacity utilization rate was in the high 60s, but
this year it’s in the low 70s. I think the fact that factory utilization rates are rising is having a positive effect.
Maekawa [Q]: Thank you very much.
Is the utilization rate expected to rise gradually as you move into H2 of this fiscal year?
Takahashi [A]: First, we expect that if we reduce inventory as planned while maintaining sales volumes in line
with our plan, our capacity utilization rate will also increase. However, since performance varies slightly from
product to product, we would like to make a decision after reviewing the results for Q2.
Maekawa [Q]: Understood. Thank you very much.
Second, I’d like to ask about the efforts to revitalize low-profitability businesses, which were presented on
page 21 as part of the FUSION initiative. I believe this involves setting plans for more than a dozen businesses,
determining the measures to be taken in response, and assessing the extent to which those measures are
being implemented. Since it’s only been three months since you started, there may not have been any major
changes since the beginning of the period, but what changes have occurred over the past few months? I
believe the plan itself was formulated at the beginning of the fiscal year, and efforts are underway to boost
more than a dozen businesses. Are you starting to see some results, or is the bar set so high that you need to
implement various fundamental improvements? If you could tell us anything about the changes that have
taken place over the past few months, we would appreciate it.
Takahashi [A]: Thank you very much.
It’s true that only three months have passed, so I can’t really say we’ve achieved any major results. However,
naturally, we have checked the profitability of each of the dozen or so themes. We drew up a budget plan
outlining the extent of the improvements and reviewed the Q1 figures against that plan.
Although the Q1 figures showed an improvement compared to the previous year, they are slightly behind our
target. There is a slight delay in these two businesses, which have been a source of concern, and there are
various reasons for this. While progress is slightly behind schedule when looking at just Q1, overall,
improvements are being made.
Maekawa [Q]: I imagine there are milestones, such as six months from now or one year from now. What kinds
of milestones do you set? If it's not too much trouble, I'd appreciate it if you could let me know.
Takahashi [A]: First, in this fiscal year’s business plan, we have clearly defined profitability targets for each
business segment. We will review our business plan before H2 of the fiscal year begins, so we will check it
again at that time. We'll take a closer look at this in the Q2 interim financial results. We review this as a key
focus area every time we finalize our financial results or revise our business plan, and we share the details
with the Board of Directors.
Maekawa [M]: Understood. Thank you very much. That's all from me.
Tanaka [M]: Thank you very much.
Next, we’d like to hear from Mr. Tanaka of SMBC Nikko Securities.
Taninaka [Q]: I am Taninaka from SMBC Nikko Securities. Thank you. There are two points.
16
First, the sales expansion is expected to contribute JPY91 billion to full-year earnings; in Q1, this figure was
JPY17.8 billion. Of course, this is a YoY comparison, and I expect the figures to fluctuate starting in Q2, but can
you say that this is in line with the Company’s plan to achieve JPY91 billion? Could you please explain once
again the likelihood of achieving the JPY91 billion target?
Takahashi [A]: Looking at Q1 alone, there are slight differences depending on the business segment. For
example, in the fluorochemicals business, this had a positive impact that exceeded expectations. The
fluorochemicals business is highly profitable, so this had a positive effect.
However, as I mentioned at the outset, in North America, sales expansion of our eco-friendly premium
product, Fit, lagged slightly in Q1, which had a negative impact.
In addition to expanding sales in the chemicals business, the annual plan also incorporates significant growth
in the environmental premium business in North America. As I explained earlier, while sales of Fit were slow
in April and May, they have been progressing at a level significantly higher than the previous year since June,
so we plan to make up for this starting in Q2.
Taninaka [Q]: Thank you very much.
Since the section on optimizing the global production structure on page 19 wasn't included in the FUSION30
materials, I believe it was newly attached. Has this already been factored into the profit margin in the midterm business plan? Also, could you explain the likelihood that these initiatives can be carried out in a timely
manner?
Takahashi [A]: This was originally included in FUSION30. We have identified the optimization of our global
production structure as a key focus area within the cost restructuring initiative for FUSION30. I don't believe
we explained the extent of the positive impact this would have in FUSION30, but we did raise this as a topic.
Today, I provided an update on the progress of this topic.
Taninaka [M]: Understood. Thank you very much. That's all from me.
Tanaka [M]: Thank you very much.
Next, we’d like to hear from Mr. Sasaki of UBS Securities.
Sasaki [Q]: My name is Sasaki from UBS Securities. I’d like to ask two questions as well.
First, I think a key point in these financial results is that the negative impact of material costs was particularly
significant. I'd like you to organize this. Earlier, Senior Executive Officer Takahashi mentioned that copper
prices were a particularly heavy burden. I believe you had hedged copper positions using futures. Please tell
us how effective that hedge was. I think the impact of naphtha will also become more significant if the
situation in the Middle East drags on, so please let us know how that’s developing.
Also, in your explanation, you mentioned that you are planning a price increase. Could you please tell me how
likely that is? You mentioned in today’s presentation that, due to the impact of inflation, Daikin is struggling
to sell high-end products—such as its signature multi-split air conditioners and the Fit series. The point of the
question is to confirm the likelihood that a price increase will actually be an effective solution.
Takahashi [A]: As you pointed out, the cost increase due to naphtha has been factored in. As I mentioned
earlier, we do not have the figures for the breakdown of the raw materials impact.
17
Although we primarily hedge our copper positions domestically, we were unable to hedge even half of the
total, so we are being significantly affected by market conditions.
Regarding the question of whether we can implement pricing strategies, decisions have already been made
at the product line and regional levels. That's because raw material prices have risen significantly. In addition,
the negative impact of additional tariffs is having an even greater effect in the United States. Furthermore,
due to the impact of the situation in the Middle East, in addition to naphtha-derived raw materials, factors
such as land transportation costs such as trucking rate are also having a significant negative impact; therefore,
we have already made decisions regarding pricing strategies in each region. Some regions have decided to
implement additional measures, while others are moving up plans originally scheduled for August or later by
about a month; the situation varies slightly by region and project. However, we have already made these
decisions and will carry them out.
The negative impact was concentrated in Q1, and since we implemented our pricing measures in May and
August, the effects of those measures will become apparent later. For that reason, we explained that the issue
would be resolved starting in Q2. We expect this to be resolved by the end of the year.
You are correct regarding the shift toward high value-added products. Currently, in North America, there is a
tendency for cheaper items to sell better. However, our key strategy is to boost the profitability of DNA by
selling Fit and ductless products.
As for the Fit, we continue to provide comprehensive support to dealerships until they sell 10 units of the Fit.
We are also expanding our product lineup to include easy-to-install and simple models. Thanks to the results
of these various initiatives, as I mentioned at the beginning, our sales in June and July grew significantly
compared to the previous year, and we intend to continue building on this momentum.
Sasaki [Q]: I understand perfectly. Thank you very much.
Given that the price increase has already been implemented, is it certain that you will be able to recoup some
of the benefits from it?
Takahashi [A]: Since there are various phases involved—including those starting in August—I wouldn’t go so
far as to call this “implemented”; I would ask that you understand that a decision has already been made.
Sasaki [Q]: The impact of that will be certain, and while there were negative effects on Fit and other areas in
May and June, you took various measures to recover from that in June and July, so you are confident that it
can be achieved. Is this understanding correct?
Takahashi [A]: Yes. We expect the effects of various measures to gradually become apparent.
Sasaki [Q]: Thank you very much. I understand very well.
Second, could you tell us about the chemicals business? As was mentioned in the previous question, I believe
the chemicals business performed exceptionally well in Q1. I understand that demand has been sluggish for
the past two years or so; could you confirm whether the situation has improved?
The material also includes information on PFA, a high-performance material used in semiconductor
manufacturing equipment, as well as data centers. Can you expect business performance to improve going
forward, driven by strong sales of high-value-added materials fueled by recent trends in AI, data centers, and
semiconductors? Please let us know your thoughts on this as well.
18
Takahashi [A]: What Mr. Sasaki just said is our response. First of all, the semiconductor sector is performing
exceptionally well. Sales of fluoropolymers products for semiconductor manufacturing equipment,
fluoropolymers used in actual production, and fine chemicals products are all performing exceptionally well,
and PFA—which is primarily used in semiconductor manufacturing equipment—is highly profitable.
Furthermore, sales of FEP—a fluoropolymers used in cables for data centers—are also performing very well.
Actually, when it comes to the semiconductor sector, we gave the opposite explanation last year and the year
before. Although demand hadn't actually declined much, distribution inventories had built up significantly,
leading to inventory adjustments, and we struggled greatly last year and the year before. However, we are
currently seeing the opposite trend.
First, actual demand has grown significantly and is expected to continue rising, so our customers—who in the
past insisted they would not increase inventory at all—are now saying they want to carry a certain amount of
inventory. In addition to actual demand, demand for building up distribution inventories is also very strong.
Given that the chemicals business is highly profitable, we have high hopes for Q2 and beyond.
Sasaki [M]: I'm looking forward to it. Thank you very much. That's all from me. Thank you very much.
Tanaka [M]: Thank you very much.
Next, Mr. Hotta of BofA Securities, please go ahead.
Hotta [Q]: This is Hotta from BofA Securities. Thank you very much.
I have just one question: Could you tell me about North America? Earlier, we were given the figure of a 10%
increase in volume as part of the breakdown of factors affecting the increase or decrease in DNA. Please break
down this 10% increase into retail and wholesale figures. I'm pretty sure that around this time last year,
distributors and the like were adjusting their inventory, so could the increase in volume this time be a rebound
effect now that those adjustments are complete? Or perhaps—although I didn’t get the impression from what
was said earlier that retail demand is particularly strong—since it is gradually recovering, are distributors
increasing their inventory slightly in response? Could you please explain the retail and wholesale markets in
North America, including the current inventory situation?
Takahashi [A]: I do not have any data that directly answers your question. However, first of all, our wholesale
inventory levels are roughly on par with last year’s, so I believe the adjustment of distribution inventory has
largely completed.
I believe "retail" and "wholesale" refer to our own sales network and wholesale channels, respectively. Our
analysis shows that actual retail sales have been significantly higher than the previous year's figures since
around February.
While both have improved compared to the previous year, our assessment is that the growth is not
particularly strong.
Hotta [Q]: I understand perfectly.
Another point is the price. Earlier, there was mention of plans to pass on price increases, even though demand
is weak. What I’d like to know is whether you prioritize profitability based on price, or whether, if demand is
weak, you’d lower the price slightly to maintain sales volume. Could you give us any indication of which of
these your company is currently prioritizing?
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Takahashi [A]: Not just in North America, but generally speaking, we prioritize price. However, for certain
regions and businesses, we have simulation data based on historical trends showing how much sales volume
decreases when prices are raised by a certain amount. If the simulation results indicate a loss, we may need
to revise our pricing strategies in certain regions. However, our company's basic policy is to steadily raise
prices.
Especially in the US, Fit products are indeed expensive, and so are the installation costs. Therefore, as I
mentioned at the beginning, one of our strategies is to combine sales efforts with proposals such as the
compact Fit model or easy-to-install kits, in order to reduce the impression that the initial costs are high.
In addition, we are steadily implementing measures to make it easier for customers to purchase the Fit,
including utilizing financing options—some of which involve leases—and running a campaign where the
monthly payments for the Fit can be covered almost entirely by the savings on electricity bills. I don't think
American manufacturers would do something like this. We hope to fully reap the benefits of these measures
starting in Q2 and beyond.
Hotta [M]: I understand very well. Thank you very much. That's all from me.
Tanaka [M]: Thank you very much.
Next, Mr. McDonald of Citigroup Global Markets, please go ahead.
McDonald [Q]: Thank you very much for your explanation today.
When I visited the UK at the end of June, it was extremely hot, and most of the places I stayed at didn't have
air conditioning. I talked to various people while I was there, and they told me that taking the train is
exhausting, and taking the bus is even harder. Hospitals—especially inpatient wards—are facing even greater
difficulties. I've also heard that some schools are closing due to the heat. As mentioned earlier, while the
impact of low-priced Chinese products is a concern in Europe, I believe the opportunities for Daikin lie not in
the residential market but in the commercial and applied businesses. How has your company's sales strategy
for Europe changed recently? I visited the United Kingdom, but I think the effects of global warming and heat
waves can be seen not only in the UK but also in Central Europe and France. Given this situation, I think you
should focus your efforts on commercial, applied, and solutions businesses rather than residential business.
Does Daikin have a strategy like that?
Takahashi [A]: Thank you very much.
As you pointed out, there is currently a heat wave in Europe, and our European operations are seeing very
strong shipment volumes. However, as I mentioned at the beginning, since there has been a large influx of
low-priced products from Chinese manufacturers, competing in that market would not contribute much to
our profits; therefore, in the residential sector, we are significantly increasing sales of multi-split and system
products.
Furthermore, regarding the commercial-use products you mentioned, while we traditionally targeted the
tourism sector—such as hotels—we are now actively promoting sales in other sectors, such as schools and
hospitals, as you just mentioned. We believe these areas are markets that will likely lead to opportunities for
applied as well.
We have identified the global expansion of the commercial solutions business as one of our key priorities. We
are actively working on this not only in the United States but also in Europe. The applied business is growing,
and the commercial business is also growing. We want to use this heat wave as an opportunity to build on
this momentum. As you may recall, there was a similar heat wave around 2002.This led to a major shift in
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Europe’s air conditioning culture, and a rapid expansion of the market. Back then, Chinese manufacturers
had not yet entered the market, so the environment surrounding the residential market is very different today.
Expanding our commercial air conditioning business is one of the company’s key priority, and we have
incorporated this into our budget and are closely monitoring its progress.
McDonald [Q]: Thank you.
Just to confirm, on page 11, sales were 123% of the previous year's figure in yen terms. What was the Q1 yearon-year growth rate on a local currency basis?
Sakamoto [A]: It was 108%.
McDonald [Q]: In the table on the right, commercial units and heat pump heaters are shown on a unit basis,
while applied is shown on a value basis. Although applied is at only 90% of the previous year's level on a value
basis, how has growth been in local currency terms for commercial and heat pump heating?
Takahashi [A]: First of all, both commercial and heat pump heating are on the rise in terms of sales value.
However, as for applied, due to the situation in the Middle East, there were some cases where shipments
were halted, so the number looks weak.
McDonald [Q]: OK.
Three months ago, your company’s indicated that the operating profit margin target for Europe for this fiscal
year was around 4% to 5%. After hearing what Mr. Takahashi said earlier, I’m concerned about the impact of
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Chinese manufacturers. Will you be able to achieve your target profit margin? Is there a risk that you won't
meet your targets?
Takahashi [A]: No, we have not changed our target for this fiscal year’s profit margin in Europe—it remains
at 4% to 5%, which is an increase from last year. Progress is on schedule.
McDonald [M]: I wish you'd try a little harder.
Takahashi [A]: Thank you very much.
However, I hope you understand that we are not focusing much on sales of low-priced residential products,
as they do not contribute significantly to our profits.
McDonald [Q]: You are focusing your efforts on the commercial and applied businesses.
Takahashi [A]: Yes, we are focusing our efforts on the commercial sector.
McDonald [M]: OK. Understood. Thank you very much.
Tanaka [M]: Thank you very much.
Next, we’d like to hear from Mr. Tai of Daiwa Securities.
Tai [Q]: My name is Tai. Just one thing.
This overlaps a bit with the question Mr. McDonald asked earlier. If we look at page 11, we'll see that the
result for the residential business is down 1% and that for the applied is down 10%. Just looking at the numbers,
it gave me a rather weak impression. I think there were frequent reports that window-type air conditioners—
which require no installation and can be set up immediately—were the subject of fierce competition, primarily
with Chinese manufacturers. Could there be a risk that this heat wave will lead to the widespread adoption
of such products, which, in turn, could change the demand environment itself and customer purchasing
behavior and even result in Chinese manufacturers increasing their local presence. What do you think?
Takahashi [A]: That is already happening, and it is not limited to Europe alone. Due to extremely weak
domestic demand in China, Chinese manufacturers are rapidly shifting their focus to exports. Therse exports
are directed primarily toward Europe, Asia, and Latin America. In those markets, the proportion of lowerpriced products is inevitably increasing overall, and we are also feeling the impact.
However, to reiterate, we will no longer compete in the volume segment. Instead, we will focus on expanding
sales of system products—particularly multi-split products—in the mid-range and higher segments as much
as possible. We will ensure solid growth in gross profit and added value, even if unit sales growth remains
modest.
Tai [Q]: With extreme heat waves occurring not only in Europe but also in South Korea and other parts of the
world, air conditioners are increasingly being seen not just for controlling air quality, but as essential products
for survival and well-being. In this context, I am concerned that manufacturers who respond quickly to this
sudden heat-driven demand will capture the market, leading to higher sales and a stronger presence when
demand returns in the following years and beyond. I don't think this is just a temporary surge in demand; if
this cycle continues, your position may change rapidly. Is that a bit of an overreaction? Or could we view this
as a difference in the products?
Takahashi [A]: No, the rise of Chinese manufacturers is a major challenge, and you’re exactly right that the
share of the volume segment is increasing. However, for middle-range and higher segments, we operate on a
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local production for local consumption model. We have a system in place that allows us to immediately
increase production if the summer gets hot.
Also, when it comes to room air conditioners, I don’t think we can compete with Chinese manufacturers in
the sale of individual units. Therefore, our strategy is to generate solid added value in the residential business
by strengthening sales of residential solutions and systems sales, such as multi-split systems. In that sense,
there is an ongoing internal discussion that we need to re-evaluate our policy of focusing on unit sales and
market share for residential products.
Tai [M]: Understood. Thank you very much. That's all from me.
Tanaka [M]: Thank you very much.
We still have a little time left before the scheduled end time. Does anyone have any other questions?
Mr. Isayama of Goldman Sachs, please go ahead.
Ishiyama [Q]: I’d like to ask my second question. I have two quick questions.
While the offensive by Chinese manufacturers is certainly a concern, in the commercial sector, this isn’t simply
a matter of selling products at mass-market retailers; I believe your company has a competitive advantage in
areas such as distribution channels. Given Daikin’s significant success in the residential multi-split market in
China, do you believe the Company will continue to hold a competitive advantage in the commercial sector?
Takahashi [A]: I believe our strengths lie not only in the quality of our products but also in non-price
competitive advantages such as after-sales service and installation work. There is ample demand for this, not
only in the commercial sector but also in the residential sector. A business model that simply sells equipment
at low profit margins is not what we are aiming for.
Particularly with regard to commercial products, we have spent a long time implementing initiatives such as
training for dealers who provide after-sales service and installation, as well as strengthening the proposals we
offer to customers, so we believe we have a distinct edge in this area. As a result, as you mentioned, the
Company holds a high market share in the global commercial air conditioning market.
However, we are not resting on our laurels, assuming we can keep winning like this indefinitely. To further
increase the share of solution sales, we are planning to implement initiatives across all global regions—for
example, in the commercial sector—aimed at achieving even higher profitability by adding value through
services such as remote monitoring and predictive maintenance.
In that sense, as Mr. Isayama mentioned, I believe that our medium- to long-term strategic direction will be
to drive significant change in the commercial business and in the applied business.
Ishiyama [Q]: I understand that until a few years ago, commercial products accounted for a higher share of
both sales and profits, but following the COVID-19 pandemic, the share of residential products has increased.
Will the focus shift back to commercial use in the future?
Takahashi [A]: I think it varies slightly by region. For example, in North America, we are focusing not only on
the applied business but also on the residential business, and are moving forward with initiatives to boost
profitability.
However, broadly speaking, as Mr. Isayama mentioned, our approach is to increase the proportion of
commercial-use products.
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Isayama [Q]: Thank you very much.
Finally, let’s turn to the air conditioning business in China. Although sales were down YoY, could you say that
this was simply due to weak underlying demand, and that you haven’t lost market share—and that your
fundamental strengths, such as the product appeal of your residential multi-split systems, your distribution
channels, and your after-sales service, remain unchanged?
Takahashi [A]: Our air conditioning business in China is highly regarded within the Company, and we have
been able to maintain high profit margins even as sales have fallen this much. We are successfully presenting
high-value-added products to our customers. From temperature control to ventilation, humidity control, and
aromatherapy, we provide value tailored to our customers’ lifestyles, and this has been very well received by
them.
On the sales front, we have adopted Daikin’s unique sales strategy, which integrates our physical sales
network—our PROSHOP network, which is one of our key strengths—with online sales activities; these are
major strengths of our company.
Ishiyama [Q]: So, I guess you can say that your market share hasn't dropped at all, right?
Takahashi [A]: It’s difficult to give specific figures since there are no industry statistics, but we believe we’re
making larger growth compared to the industry.
Ishiyama [M]: That's all from me. Thank you very much.
Tanaka [M]: Thank you very much.
Thank you very much for all your questions. Since we have reached the scheduled end time, we would like to
conclude this earnings briefing.
Thank you for staying with us until the very end.
[END]
Document Notes
1.
2.
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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