Annual Report 2019
Fiscal Year Ended March 31, 2019
INTRODUCTION
INTRODUCTION
Daikin combines technical strengths
with unique strategies to create new value and
find solutions to social problems.
Founded in 1924, Daikin has continued to expand with a focus on the Air-Conditioning and
fluorochemicals businesses. We are the world’s only general air-conditioning equipment manufacturer
with in-house divisions covering both air conditioning and refrigerants.
Daikin has more than 100 production bases around the world, and conducts business in more than
150 countries and regions.
Under its strategic management plan “FUSION 20,” Daikin achieved record high sales and operating income
in fiscal 2019 for a sixth consecutive fiscal year. Looking ahead to the final year of this plan in fiscal 2021,
we are expanding our business domains, strengthening existing businesses, and making proactive
investments for the IoT and AI era, while also further accelerating measures to be an environmental leader
and support the realization of a sustainable global society.
By providing solutions to social problems and achieving business growth, Daikin is creating new value
for the air and environmental fields, and enhancing its corporate value.
CONTENTS
CONTENTS
Our Core Values/
Our Group Philosophy ............................... 1
A Path to Unique Solutions ....................... 2
Process of Value Creation .......................... 4
Financial Highlights .................................... 6
At a Glance ................................................. 7
Message from the CEO .............................. 8
Review of Operations
Air Conditioning ...................................... 14
Chemicals ............................................... 18
Oil Hydraulics .......................................... 20
Defense ................................................... 21
Corporate Governance ............................. 22
Directors, Audit and Supervisory Board
Members, and Executive Officers ............. 25
Interview with the CEO ............................ 10
CSR Management System ........................ 26
CSR (Corporate Social Responsibility) ..... 28
Financial Section
Eleven-Year Financial Highlights ............... 36
Financial Review ...................................... 38
Consolidated Balance Sheet .................... 46
Consolidated Statement of Income .......... 48
Consolidated Statement of
Comprehensive Income ......................... 49
Consolidated Statement of
Changes in Equity ................................. 49
Consolidated Statement of Cash Flows .... 50
Notes to Consolidated
Financial Statements .............................. 51
Independent Auditors’ Report ................. 75
Corporate Data ....................................... 76
Forward-Looking Statements
This annual review contains statements regarding the future plans and strategies of Daikin Industries, Ltd. (the Company), as well as the Company’s future performance. These
statements are not statements of past facts but are based on judgments made by the Company on the basis of information known at the time. Therefore, readers should refrain from
drawing conclusions based only on these statements regarding the future performance of the Company. The actual future performance of the Company may be influenced by
economic trends, strong competition in the industrial sectors where it conducts its operations, foreign currency exchange rates, and changes in taxation and other systems. For these
reasons, these forward-looking statements are subject to latent risk and uncertainty.
Our Core Values
Absolute Credibility
Enterprising Management
Harmonious Personal Relations
Our Group Philosophy
1. Create New Value by Anticipating the Future Needs of Customers
2. Contribute to Society with World-Leading Technologies
3. Realize Future Dreams by Maximizing Corporate Value
4. Think and Act Globally
5. Be a Flexible and Dynamic Group
1. Flexible Group Harmony 2. Build Friendly yet Competitive Relations with Our Business Partners to Achieve Mutual Benefit
6. Be a Company that Leads in Applying Environmentally Friendly Practices
7. With Our Relationship with Society in Mind, Take Action and Earn Society’s Trust
1. Be Open, Fair, and Known to Society 2. Make Contributions that Are Unique to Daikin to Local Communities
8. The Pride and Enthusiasm of Each Employee Are the Driving Forces of Our Group
1. The Cumulative Growth of All Group Members Serves as the Foundation for the Group’s Development
2. Pride and Loyalty 3. Passion and Perseverance
9. Be Recognized Worldwide by Optimally Managing the Organization and Its Human
Resources, under Our Fast & Flat Management System
1. Participate, Understand, and Act 2. Offer Increased Opportunities to Those who Take on Challenges
3. Demonstrate Our Strength as a Team Composed of Diverse Professionals
10. An Atmosphere of Freedom, Boldness, and “Best Practice, Our Way”
Annual Report 2019
1
A Path to Unique Solutions
A Path to Unique Solutions
Founded in Osaka in 1924, Daikin operates in more than 150 countries worldwide, focusing on the Air-
Conditioning business. By providing solutions to the problems society and communities are facing while
achieving business growth, Daikin supports healthy and comfortable lifestyles. As a global corporation
creating new value in the air and environmental fields, Daikin continually meets the expectations and trust
of people throughout the world.
Three Core Technologies
Daikin has developed three advanced air-conditioning technologies
that form the basis for next-generation technology.
Heat
Pump
Absorbs and transfers
heat from the air
Inverter
Contributes to greater
energy saving and
comfort
Refrigerant
Control
Efficient
heat transmission
Business Scale (at March 31, 2019)
Net Sales (Fiscal 2019)
Employees (Consolidated)
Group Companies
Global Business Presence
Worldwide Production Bases
¥2,481.1 billion
76,484
Consolidated
Subsidiaries: 291
(Japan: 30, Non-Japan: 261)
More than 150
Countries
More than 100
Factories
Business Results (at May 9, 2019)
Net Sales
Operating Income
538.8
42.0
FUSION 05
1925
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
1924
Founding of Osaka Kinzoku Kogyosho Limited
Partnership
Business and
Technology
Development
1935
Development of fluorocarbon refrigerant
1937
Development of Japan’s first Freon-type
refrigerator
1942
Freon production begins
1951
Launch of Japan’s first packaged air conditioner
1958
Entry into the room air-conditioning business
1975
Launch of “Hikari Kurieru” air purifier
1982
1999
2002
Launch of Japan’s first multi-type air-conditioning
system for buildings
Launch of “Ururu Sarara” world’s first waterless
humidifying room
Nationwide expansion of the fluorocarbon
recovery and destruction business
2002
Launch of “ECOCUTE” heat-pump water heater
2007
2008
Acquisition of OLY Group, a major global air-
conditioning manufacturer
Business alliance with Gree Electric Appliances,
China’s top air-conditioning manufacturer
Daikin’s
Evolution and
Strategies
2008
2011
2012
Acquisition of German heating manufacturer
ROTEX
Acquisition of Turkish air-conditioning
manufacturer Airfel
Acquisition of U.S. residential air-conditioning
manufacturer Goodman
2
Daikin Industries, Ltd.
FUSION 05 to 20 (Fiscal 2002 – Fiscal 2021)
FUSION 05
FUSION 10
FUSION 15
FUSION 20
Be a Company that Attracts
People, Capital, and Information
Establish a position as the global No. 2 in
mainstay businesses, and build a
foundation for future growth, including
reaching an aggregate market value of
¥1 trillion.
Be the Global No.1 Air-
conditioning Company
(cid:129) Expand environment-related
businesses
(cid:129) Business alliances and tie-ups,
M&A
Be a Truly Global Excellent Company
(cid:129) Full-fledged entry into emerging markets
and volume zone products
(cid:129) Solutions Business / Environment
Innovation Business
(cid:129) Accelerate growth through business
alliances and tie-ups, M&A
Strengthen Existing Businesses
and Expand Business Domains
2,481.1
276.3
Operating Income
(¥ billion)
300
2,290.6
253.7
Net Sales
(¥ billion)
3,000
2,000
1,000
1,787.7
156.5
Acquisition of U.S.
Acquisition of U.S.
residential air-conditioning
residential air-conditioning
manufacturer Goodman
manufacturer Goodman
1,291.1
128.1
Acquisition of
Acquisition of
OYL Group
OYL Group
Financial crisis
Financial crisis
2014 – 2019
2014 – 2019
Achieved six consecutive years of record high sales
Achieved six consecutive years of record high sales
and operating income
and operating income
14 consecutive years of
14 consecutive years of
increased earnings starting in 1995
increased earnings starting in 1995
Achieved nine consecutive years of increases
Achieved nine consecutive years of increases
in net sales and operating income from 2011
in net sales and operating income from 2011
FUSION 10
FUSION 15
FUSION 20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Plan
2004
2005
2006
2007
2009
World’s first successful application of streamer electric
discharge technology
Opening of China’s first dedicated showroom for large-
scale air conditioners
Launch in Europe of “Daikin Altherma” air-to-water heat
pump system
Launch of “DESICA” world’s first humidity control air
conditioner without water drainage or supply pipes
Establishment of the Daikin McQuay Applied Development
Center in the U.S.
2010
Establishment of the Shanghai R&D Center
2011
Opening of the Solution Plaza Fuha Tokyo
2012
Launch of “Urusara 7” world’s first residential air conditioner
using new R32 refrigerant
2013
Opening of the Solution Plaza Fuha Osaka
2014
Launch of cooling-only inverter air conditioners for
developing countries
2015
Establishment of Technology Innovation Center
2015
Granting of worldwide free access to basic patents for
using R32 refrigerant
2016
Acquisition of U.S. filter manufacturer Flanders
2016
Acquisition of Scandinavian filter manufacturer Dinair
2017
Establishment of Daikin Texas Technology Park, new
Goodman factory in U.S.
2016
Acquisition of Italian refrigerator/freezer manufacturer
Zanotti
Annual Report 2019
3
250
200
150
100
50
0
(Years Ended
March 31)
Process of Value Creation
Process of Value Creation
Through efforts to find solutions to social problems
through our business, Daikin provides new value,
and aims for sustainable growth.
Global society is continually changing, and directly faces many problems related to climate change and other issues.
Through its business, Daikin Group provides society with new value, and by contributing to the realization of a
sustainable society, seeks growth for itself as well.
Social Problems Daikin Can Help Solve
INPUT
Daikin Group’s Business Activities
Financial Capital
(cid:129) Stable and sound financial
structure
(cid:129) Proactive R&D investment
Manufactured Capital
(cid:129) Optimal market-oriented
production and development
structure
(cid:129) PDS manufacturing style for
multiproduct mixed production
(cid:129) Efficient production structure
utilizing module manufacturing
lines
(cid:129) Building of digital factories
(cid:129) Advancement in “small-scale
monozukuri”
Intellectual Capital
(cid:129) Heat pump, inverter, refrigerant
control technologies
(cid:129) Development centers in 25
locations worldwide
Human Capital
(cid:129) Diverse workforce
(cid:129) Local and integrated business
operations
(cid:129) Global human resource
development
(cid:129) Human asset diversity
Social and Relationship Capital
(cid:129) Sales and service network
(cid:129) Proactive collaboration with
industry, government and
academia
(cid:129) Trust and brand
(cid:129) Well-established relationships
with stakeholders
Natural Capital
(cid:129) Optimal energy utilization
(cid:129) Environmental resources
related to business activities
(cid:129) Materials, water, energy,
electricity
Daikin aims to be a corporate group that creates
new value in the air and environment fields.
Air Condnditiiti
oning
CCheemicals
Filters
OtOtheher
(Oil hhydrdraulics,
Defennse,
electrononics)s)
After-sales
Service, Recovery,
Recycling
Recovery and recycling
of refrigerants
Usage
Reduce environmental
loads
Enhance quality of life
Improve interior
environments
Strategy
FUSION
Sales,
Transportation,
Installation
Address environmental issues
such as refrigerant leakage
Training for all employees
and sales offices
worldwide
ES
Intensification of
climate change
Expansion and
concentration of
energy and
power demand
Worsening of air
pollution
4
Daikin Industries, Ltd.
OUTPUT (Fiscal 2019)
Daikin’s Aims for Value Creation
(cid:2) Environmentally conscious
products
Procurement
Mitigate procurement risks
across the entire global
supply chain
(cid:2) Energy service solutions
(cid:2) IAQ/Air Environment
Engineering
(cid:2) Expansion into
next-generation
automotive field
(cid:2) Development of
Development,
Design
Superior comfort and
environmental performance
Product development to
meet local needs
20
composite materials
(cid:2) Development of
new refrigerants
(cid:2) Air filter business
(cid:2) Power and industrial
(P&I) business
(cid:2) IAQ products utilizing
synergies from air-
conditioning and
chemicals
Manufacturing
Improve production
efficiency and
manufacturing quality
Reduce environmental
loads
(cid:2) Range of energy-
efficient oil hydraulic
equipment
(cid:2) New business in fields
with private demand
(cid:2) Visual R&D systems
G
(cid:2) Pursue CSR Management
Net sales ¥2.48 trillion
Operating
income margin 11.1%
Equity ratio 52.4%
ROE 13.9%
Free cash flow (FCF)
¥84.2 billion
Environmentally conscious
products as percentage of
sales (residential air
conditioners) 93%
Ratio of highly skilled
engineers 1 in 2.9
(Daikin Industries only)
No. of patent applications
More than 1,300
(Fiscal 2018, Daikin Industries only)
No. of female managers
59 (Daikin Industries only)
Ratio of non-Japanese
subsidiaries with local
nationals as president
46%
Customer satisfaction
(Base year = 1.00)
Japan = 1.13
(Compared to Fiscal 2016)
Reduction in greenhouse
gas emissions due to
adoption of environmentally
conscious products
67 million tonnes of CO2
Reduction in greenhouse gas
emissions from production/
development stage
75% reduction
(compared to Fiscal 2006)
Reduction in CO2 emissions
due to forest conservation
7 million tonnes of CO2
Provide new value that makes peo-
ple and space healthier and more
comfortable while at the same time
reducing environmental impact.
Value Creation for the Earth
Reduce environmental impact through all
business activities and contribute alleviat-
ing climate change
Value Creation for Cities
Contributing to solving energy-related
issues arising from urbanization and con-
tribute to the creation of sustainable cities
Value Creation for People
Pursue new possibilities for air and con-
tribute to healthy, comfortable lifestyles
Human Resource Development
Supports Value Creation
Foster human resources who spur
innovation and who spread newly
created value around the world.
Contribute to the growth of
employees and local citizens
(cid:129) Training of highly skilled personnel
(cid:129) Job creation
(cid:129) Contribution to local economic
development
(cid:129) Creation of new products and services
that help raise people’s lifestyles
Sustainable Development
Goals (SDGs) Daikin is
Contributing to
6 of the 17 Sustainable Devel-
opment Goals Daikin is Contrib-
uting to through Its Business
Ensure healthy lives and pro-
mote well-being for all at all
ages
Prevention of heatstroke and
infectious diseases, measures
against air pollution, increase in
productivity, etc.
Ensure access to affordable,
reliable, sustainable and
modern energy for all
Increase in energy efficiency,
use and spread of renewable
energy, etc.
Build resilient infrastructure,
promote sustainable industri-
alization and foster innovation
ZEB (net-zero energy buildings)
initiatives, promotion of energy
management and demand
response, etc.
Ensure sustainable consump-
tion and production patterns
Initiatives for energy efficiency
during production, recycling,
resource efficiency, etc.
Take urgent action to combat
climate change and its impacts
Spread of inverter products,
refrigerants with lower global
warming potential, and heat
pump products
Annual Report 2019
5
Financial Highlights
Financial Highlights
Daikin Industries, Ltd. and Consolidated Subsidiaries
Years Ended March 31
Operating Results (for the year):
Net sales
Gross profit
Operating income
Net income attributable to owners of the parent
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note 1)
Net cash used in financing activities
Financial Position (at year-end):
Total assets
Total shareholders’ equity
Per Share Data (yen):
Net income (basic)
Shareholders’ equity
Cash dividends
Cash flow per share
Ratios (%):
Gross profit margin
Operating income margin
Return on shareholders’ equity (ROE)
Shareholders’ equity ratio
Millions of Yen
2018
2019
¥2,290,561
¥2,481,109
798,829
253,740
189,052
¥223,740
(127,459)
96,281
(93,955)
868,923
276,255
189,049
¥250,009
(165,773)
84,236
(68,721)
¥2,475,708
¥2,700,891
1,296,553
1,416,075
¥ 646.53
¥ 646.39
4,433.62
140.00
329
4,841.15
160.00
288
34.87%
35.02%
11.08
15.70
52.37
11.13
13.94
52.43
Notes: 1. Free cash flow = Net cash provided by operating activities + net cash used in investing activities
2. Effective from April 1, 2018, the consolidated financial statements for the fiscal year ended March 31, 2018 have been revised in accordance with a change in accounting
policy.
Net Sales, Gross Profit,
and Gross Profit Margin
Operating Income and
Operating Income Margin
(¥ billion)
2,500
2,000
1,500
1,000
500
0
(%)
50
40
30
20
10
0
(¥ billion)
300
250
200
150
100
50
0
ROE
(%)
16
12
8
4
0
(%)
18
15
12
9
6
3
0
2015 2016 2017
2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
Net Sales
Gross Profit
Gross Profit Margin
Operating Income
Operating Income Margin
6
Daikin Industries, Ltd.
At a Glance
At a Glance
Air Conditioning
89.6%
Percentage
of Net Sales
Chemicals
8.1%
Oil Hydraulics
1.7%
Defense
0.6%
Net Sales and Operating Income
Major Products
Description
Air Conditioning
(¥ billion)
2,500
237.6
2,222.2
2,222.2
(¥ billion)
250
2,000
1,500
1,000
500
0
200
150
100
50
0
2015
2016
2017
2018
2019
Chemicals
(¥ billion)
200
32.532.5
200.8
200.8
(¥ billion)
35
160
120
80
40
0
2015
2016
2017
2018
2019
Oil Hydraulics
(¥ billion)
40
4.5
39.639.6
30
20
10
0
28
21
14
7
0
(¥ billion)
4
3
2
1
0
2015
2016
2017
2018
2019
Defense
(¥ billion)
20
15
10
5
0
0.30.3
13.6
(¥ billion)
0.8
0.6
0.4
0.2
0
2015
2016
2017
2018
2019
(cid:129) Room air-conditioning
(cid:129) Absorption refrigerators
systems
(cid:129) Air purifiers
(cid:129) Heat-pump hot-water-
supply and room-heating
systems
(cid:129) Packaged air-conditioning
systems
(cid:129) Multiple air-conditioning
systems for office buildings
(cid:129) Air-conditioning systems
for facilities and plants
(cid:129) Freezers
(cid:129) Water chillers
(cid:129) Turbo refrigerator
equipment
(cid:129) Air-handling units
(cid:129) Air filters
(cid:129) Industrial dust collectors
(cid:129) Marine-type container
refrigeration
Since becoming the first in Japan
to manufacture packaged air-
conditioning systems in 1951,
Daikin has supported comfortable
living based on the strengths of
technologies that it has itself
nurtured as the world’s sole
manufacturer to create a full line
of products from refrigerants to
air conditioners.
(cid:129) Fluorocarbons
(cid:129) Fluoroplastics
(cid:129) Fluoroelastomers
(cid:129) Fluoropaints
(cid:129) Fluoro coating agents
(cid:129) Semiconductor-etching
products
(cid:129) Oil hydraulic pumps
(cid:129) Oil hydraulic valves
(cid:129) Cooling equipment and
systems
(cid:129) Inverter controlled pump
motors
(cid:129) Water and oil repellent
agents
(cid:129) Pharmaceuticals and
intermediates
(cid:129) Dry air suppliers
(cid:129) Hydrostatic transmissions
(cid:129) Centralized lubrication
units and systems
In 1933, Daikin was the first
in Japan to engage in research on
fluorinated refrigerants. Today,
our activities range from research
and development to
commercialization, and we offer a
lineup of 1,800 fluorine
compounds including gas, resin
and rubber.
Daikin’s unique hydraulic
technologies offer outstanding
energy-conservation performance
and are contributing to the
development of industry by
unleashing the potential of power
control.
(cid:129) Warheads for Japan’s
Ministry of Defense/
Warhead parts used in
guided missiles for training
purposes
(cid:129) Home-use oxygen therapy
equipment
Daikin’s superior machining
and quality control technologies
are used in the production of
defense-related products and
other industries where high levels
of precision and performance are
critical.
Annual Report 2019
7
Message from the CEO
Masanori Togawa
President and CEO
We are steadily promoting measures including Group strategies, growth
investments, and M&As under the strategic management plan,
“FUSION 20,” while working to further boost its already
high performance by responding flexibly to change and
a business environment that is rapidly deteriorating.
In fiscal 2019, the first year of the latter three-year half of Daikin’s strategic management plan “FUSION 20,”
business conditions were extremely harsh. Taking steps to boldly confront change and this harsh operating
environment, the Daikin Group achieved record high net sales and operating income. With the aim of
becoming a corporate group that “co-creates new value in the air and environment fields,” we are
committed to enhancing our corporate value by taking the dual approach of balancing solutions to social
issues and achieving business growth.
8
Daikin Industries, Ltd.
Latest Results
In fiscal 2019, the first year of the latter three-year half of The Daikin
Group’s five-year strategic management plan “FUSION 20,”
formulated in fiscal 2017, business conditions were extremely harsh.
In addition to the sharp rise in raw material prices and the negative
impact of a depreciation in emerging country currencies, the
operating environment was affected by such factors as the sudden
slowdown in the rate of economic growth in China from the start of
the second half. Despite these difficult conditions, we achieved a ninth
consecutive year of increases in net sales and operating income and
a sixth consecutive year of record high sales and operating income
by flexibly carrying out a variety of measures in response to this
changing environment. Among a host of endeavors, the Company
took steps to strengthen its sales and marketing capabilities,
introduce high-value-added products, and reduce total costs
focusing on its mainstay Air Conditioning and Chemicals businesses.
Looking at fiscal 2020, business conditions are expected to
become increasingly uncertain. In addition to the growing impact
of trade friction between the United States and China and a
slowdown in Chinese demand, the operating environment is
projected to suffer due to a slowdown in investment activities in
the semiconductor market. Under these circumstances, and in
connection with the Company’s business results forecasts for fiscal
2020, Daikin estimates that net sales will come in at ¥2,670 billion.
On the earnings front, operating income is expected to total ¥285
billion. Building on this outlook, we will work diligently to further
expand sales by flexibly addressing changes in our business
environment and maintain the upward trajectory in net sales and
operating income while accelerating the pace of strategic investments
in a bid to secure high business results that surpass established plans.
Taking Up the Challenge of “FUSION 20”
Under “FUSION 20,” Daikin is looking to secure net sales of ¥2,900
billion and an operating income margin of 12% in fiscal 2021.
Based on the assumptions that underpin our outlook for the
macroeconomy and future operating conditions, including an
economic slowdown in China, additional U.S. customs duties,
and a downturn in foreign currency exchange rates, a gap is
projected to emerge compared with numerical targets as actual
results fall substantially short of forecasts set at the time the plan
was initially formulated. Rather than review “FUSION 20” as it
currently stands, we have decided to address the challenges that
lie ahead by undertaking a raft of additional measures. Moving
forward, we will take into consideration the need to secure a
higher level of profitability that is appropriate for a global and
excellent company.
Within the Group-wide strategies identified under “FUSION
20,” two additional themes designed to address changes in the
external environment are progressing steadily. First, we are
converting our revenue structure in the Air Conditioning business
to a configuration that not only achieves unit sales of energy-
saving equipment, but also earns revenue throughout the entire
value chain. On top of this, the advance of IoT and AI technologies
is enabling the low-cost development of infrastructure that
analyzes accumulated data. Leveraging these technologies, we
are also promoting air-conditioning systematization and
networking to create new customer value.
Second, we are strengthening our environment-leading
initiatives by utilizing our position as the only manufacturer
providing both air-conditioning equipment and refrigerant to
promote the conversion to R32 and the development of energy-
saving equipment. By further refining our strengths in heat
pump, inverter, and refrigerant technologies, we are contributing
to the realization of a low-carbon society while both solving
social issues and expanding business.
Working Toward Sustainable Growth Through Three
Structures of Collaborative Innovation
With the growing trend toward digitalization, the structure of
industry and society is changing. We are also seeing signs of a
shift in consumption patterns from goods to services and from
ownership to use. Recognizing this change as an opportunity for
growth, we are positioning the three structures of customer,
internal, and external collaborative innovation at the heart of its
business reform activities.
In a bid to promote collaborative innovation with customers,
we will accelerate our transition to a business model that
maintains direct points of contact. In addition to putting in place
mechanisms that establish mutual lines of communication that
allow us to accurately grasp customer needs, we will create
products and services that make the most of customer feedback.
From an internal collaborative innovation perspective, we will
increase the pace of issue resolution. In specific terms, we will
learn from areas of commonality throughout the Group by
drawing on those strengths, know-how, and other attributes
inherent in each region and market. We will also heighten the
sense of unity and vigorously engage in Group-wide activities
that leverage collective strengths.
Turning to the third structure of external collaborative
innovation, we acknowledge the critical need to accelerate the
pace of technology and product development through open
innovation in an era of digitalization, which continues to evolve
rapidly. If the Company places too much emphasis on self-
sufficiency, clearly it will fail in its efforts to adapt to changes in
its business environment and technological advances. Guided by
an awareness of current and potential issues, Daikin has dubbed
open innovation activities as “external collaborative innovation,”
and is stepping up efforts to promote industrial collaboration
including tie-ups with industry-academia, venture companies,
and other entities. In short, these endeavors are expected to help
capture differentiated technologies and hasten commercialization.
Looking ahead, the Daikin Group will continue to resolve social
issues through its business activities as an organization that
“co-creates new value in the air and environment fields.” As we
work toward achieving our goals, we will also endeavor to meet
the expectations of stakeholders.
On this note, we kindly request your continued support and
understanding.
June 2019
Masanori Togawa
President and CEO
Annual Report 2019
9
Interview with the CEO
Interview with the CEO
Strengthening profitability and building a resilient corporate structure
through aggressive investment in future growth
Daikin saw improved sales in the mainstay Air Conditioning and Chemicals businesses in fiscal 2019,
resulting in net sales and operating income growth for a ninth consecutive year.
Promoting its strategic management plan “FUSION 20,” Daikin is advancing management
that continues to meet the expectations of stakeholders.
Q1
Please tell us about earnings in fiscal 2019.
Ninth consecutive year of sales and operating income growth; sixth consecutive year of record net sales
and operating income
Fiscal 2019 was characterized by negative factors such as
currency depreciation in emerging countries, sharply higher raw
material prices, and the adverse effects from growing trade friction
between China and the United States. Despite these factors,
consolidated sales for Daikin Group improved 8.3% year on year
to ¥2,481,109 million, which was up 10% year on year when
excluding forex factors. The expansion in sales was attributable to
improved sales in all major operating regions in the Air Conditioning
business and an increase in sales of high added value products to
the semiconductor and automotive markets in the Chemicals
business. Backed by our efforts to bolster profitability through
total cost reductions, operating income in fiscal 2019 expanded
8.9% year on year to ¥276,255 million and 14% year on year
when excluding forex factors. Net income attributable to owners
of the parent was roughly flat year on year at ¥189,049 million,
largely in a reaction to the positive effects in fiscal 2018 from
lower corporate taxes in the United States. When excluding this
factor, net income attributable to owners of the parent was up
12% year on year. Sales and income exceeded our targets and rose
for the ninth consecutive year, with the Group booking record-high
net sales and operating income for the sixth year in a row.
By segment, sales and income rose in the Air Conditioning,
Chemicals, and Other businesses.
Despite the adverse impact from additional tariffs in the United
States and a sharp spike in raw material prices, the Air
Conditioning business saw improved sales in each of its operating
regions, and with the company also working to reduce costs,
sales and operating income in the business when excluding the
impact for forex factors improved 10% and 12% year on year,
respectively. Cost reductions and favorable sales growth on
expanding demand in automotive and semiconductor products
contributed to sales and income in the Chemicals business,
excluding the impact for forex factors, respectively rising 10%
and an impressive 28% year on year.
In the Other business, sales were up 7% year on year while
operating income improved 29%. Within the business, sales in
the oil hydraulics business for industrial and construction
equipment were firm in both Japan and the Americas.
Q2
The first year in the three latter years of the strategic management plan
“FUSION 20” has concluded. What is the current state of progress?
Promoting proactive measures in line with the strategic themes for each field of business
The basic policies for the latter three years of the “FUSION 20”
Strategic Plan focus on: 1) strengthening the core businesses; 2)
expanding business domains and reforming the business
structure; and 3) investing for growth. We are making steady
progress in implementing measures in line with these three
themes.
In terms of strengthening our core businesses, we have been
able to secure strong sales in the North American and Asian Air
Conditioning businesses, as well as a sharp improvement in the
operating income margin for the Chemicals business. The North
American Air Conditioning business saw sales in fiscal 2019 rise a
strong 13% year on year, and the business is making favorable
progress toward meeting its fiscal 2020 sales growth target of
10%. Amid ongoing strength in the market, we are bolstering
our abilities in sales by enhancing our sales network and
strengthening local product development through the
establishment of R&D centers, allowing us to enhance our lineup
of inverter-based products and promote the shift to inverters in
the U.S. market, where the spread of energy-saving technologies
appears to have been somewhat delayed. On the production
front, U.S. subsidiary Goodman completed construction on
Daikin Texas Technology Park, integrating four factories and two
logistics sites for the company in the United States. The facility
will not only increase production capacity, but also serve as a
global production base as an enhanced digital factory that utilizes
the latest production technologies.
10
Daikin Industries, Ltd.
Against a backdrop of an expanding middle class in the region,
we expect the Asian Air Conditioning business to see an ongoing
increase in air-conditioning demand. Sales in the business in fiscal
2019 rose 11% year on year, and are expected to rise 12% year
on year in fiscal 2020. Given the strength of demand, the
business is investing to rapidly increase production capacity, with
investment being used to build a new plant in Vietnam for the
production of room air conditioners. the Daikin Group is also
moving forward on the development of a line-up of differentiated
products based on the needs of each region, including sales of
inverter units for an expanding middle class and growing its
sales network in each of the countries in the region in which it
operates, including both large and less-populated outlying cities.
Growth is particularly strong in India, and the Group is expanding
its market share in the country as it develops products specifically
tailored to the market. We are also accelerating the establishment
of a sales network focused on small to medium-sized regions and
cities, and aim to further expand our business by bolstering
development of commercial products to satisfy growing
condominium demand.
While we expect overall demand for fluorochemical products
to remain essentially flat year on year in fiscal 2020, we target
improved sales in the Chemicals business on the back of an
expansion in sales of high added value products, and improved
sales in the field of batteries and in the field of information and
communication, which are currently performing well. We also
target improved income in the business for the year on the back
of cost reductions and the implementation of sales price strategies.
For the filters business, we target an expansion in sales in the
automotive market and in high-end markets such as biopharma
and pharmaceuticals markets, which are expected to show
favorable growth in Japan, Europe and Asia.
In regard to expanding our business domains and reforming
our business structure, we have established three key goals: 1)
accelerating growth in operations utilizing IoT and AI technologies
in the Energy Service Solutions and IAQ/Air Environment
Engineering businesses; 2) becoming a leading environmental
company by working to reduce global warming potential (GWP)
and promoting our long-term environmental vision for 2050; and
3) expanding the commercial refrigeration and heating/water
heater businesses in the new business domains category. In terms
of specific initiatives, for the first goal we launched sales in
November 2018 of “Assisnet Service,” which provides comprehensive
inspection and maintenance support for commercial air conditioners
subject to the Law Concerning the Discharge and Control of
Fluorocarbons. In China, we are expanding through close contact
with customers sales of “Intelligent VRV” systems, which through
centralized monitoring allows the management of maintenance,
repairs and replacements and offers the potential for a variety of
value propositions. In North America, we are working to expand
the market for services and solutions as we bolster our in-house
sales and service networks through the acquisition of contractors
and service companies. We are focused on using IoT and AI
technologies to advance to systemization and networking of air
conditioners, and target the creation of new value and a
complete line of services, from energy saving proposals for entire
buildings, to design and engineering, as well as repair,
maintenance, and troubleshooting services. In regard to the
second goal, we are expanding sales of air conditioners using
HFC refrigerant gas R32, which does not contribute to ozone
depletion. We also aim to reduce CO2 emissions by reducing
power consumption when an air conditioner is used by
advancing the spread of highly efficient inverter units on a global
basis and promoting the use of room air conditioners that adopt
R32 in emerging markets, where air-conditioning demand
appears likely to expand sharply moving forward. Lastly, in line
Annual Report 2019
11
Interview with the CEO
Interview with the CEO
with our responsibility as a manufacturer of both air conditioners
and refrigerants, we are taking steps to prevent the release of
refrigerants into the atmosphere over the life cycle of our
products. In terms of the third goal, the Paris Agreement has
increased environmental awareness in Europe and the accelerated
development of heat pump products with minimal CO2 emissions
from combustion heating has contributed to a sharp expansion in
related sales at Daikin. We launched a new model in 2018 that
uses R32 and boasts even stronger environmental performance.
Turning to investment for growth, the Daikin Group acquired
AHT Cooling Systems GmbH, an Austrian refrigerating and
freezing showcase manufacturer for 881 million (about ¥114.5
billion). The acquisition itself was in line with the “FUSION 20”
goal of bolstering the Group’s commercial refrigeration business.
Adding AHT showcases to its own wide range of products
enables the Group to become a one-stop provider offering a
complete line-up of air-conditioning and refrigeration products.
The acquisition also contributes to an expansion in integrated
services that handle everything from equipment installation to
commissioning and maintenance. Daikin aims to expand through
the acquisition its solutions business, which offers store-wide
design and remote monitoring, control functions,
troubleshooting, and proposals for optimum control in multi-
store management.
Q3
Cooperative creation has become a buzzword as rapid progress in digitalization
contributes to the transformation of industry and company structures.
Please tell us about Daikin’s cooperative creation efforts and goals for the future.
Establishing global leadership in technology with development centered on cooperative creation
In order to quickly adapt to changes in the business environment
brought on by the advance of digitalization, we are reforming
our business structure, with a focus not only on self-sufficiency,
but also on cooperative creation.
Our cooperative creation efforts involve collaboration with a
number of different organizations, including other companies, as
well as universities and research institutes. More specifically, we
are working with companies such as NEC Corporation (NEC),
Hitachi, Ltd., NIPPON TELEGRAPH AND TELEPHONE WEST
CORPORATION, Mitsui & Co., Ltd. and venture firm ABEJA, as
well as educational institutions such as The University of Tokyo,
Kyoto University, Osaka University, Kansai University, and
Tsinghua University in China. We are also working with research
institute RIKEN.
As an example of cooperative creation, Daikin launched the
collaborative creation platform “CRESNECT,” which uses data
obtained from air conditioners and through cooperation with
various partner companies has created new value and services
related to air and space. As we cooperate with our partner
companies to secure a wide variety of air-conditioning data, we
are working to create new value and services by using this data
to improve productivity and maintain health within the offices in
which the equipment is used. As an example of our collaboration
with universities, we signed Japan’s largest industry-academia
agreement, with The University of Tokyo, in December 2018. The
agreement involves the promotion of three collaborative
programs1 focused on innovation and a “value of air” theme,
and will include the exchange of human resources between the
12
Daikin Industries, Ltd.
two organizations. The effort focuses on envisioning society in
the future and estimating the needs of that society based on the
“value of air, ” while simultaneously targeting solutions to a
variety of issues using Daikin’s strengths in mechatronics
technology and knowhow alongside the technologies and
specialized knowledge of researchers at The University of Tokyo.
In another collaboration, our comprehensive agreement with
Osaka University includes professors at the University providing
education to our employees and holding an in-house “Daikin
Information and Communications Technology College” lecture to
train human resources in the utilization of AI. Course participants
are selected from internal departments throughout the Company
to attend the nine-month program. Through this program, we
expect to lift the number of employees working in AI from about
100 in 2017 to about 700 by 2020.
1 The three collaboration programs are: 1) Cooperative creation of future vision; 2)
Co-creation of future technologies that are centered on the “value of air”; and 3)
Implementing new value in society through collaboration with venture companies.
Q4
A company’s stance on ESG has become an important issue in regard to achieving
sustainable growth. Could you please tell us about Daikin’s priorities in this respect?
Targeting zero greenhouse gas emissions in real terms by 2050 as part of our
long-term environmental vision
The increased use of air conditioners, our leading product, has
transformed both labor and lifestyles in particularly hot regions,
bringing with it economic growth and an improved way of life.
Air conditioners can indeed be said to be one form of
infrastructure supporting modern society. On the other hand,
increased air conditioner utilization has also brought an increase
in the use of electricity and a growing impact on the
environment. In addition to focusing on reducing the
environmental impact from our air conditioners, we recognize
current conditions as an opportunity to develop our business and
are committed to popularizing environmentally conscious
products that use energy-saving inverter technology and R32
refrigerant that has a lower global warming potential.
The Daikin Group established its “Environmental Vision 2050”
as part of its long-term perspective on the issue of the
environment. In addition to focusing on the development and
distribution of refrigerants less likely to contribute to global
warming as well as energy-efficient products and manufacturing
activities, we are making progress in lowering greenhouse gas
emissions by offering energy-saving solutions based on IoT and AI
technologies. We also expect the promotion of refrigerant
recovery and recycling operations to contribute to the Company
achieving zero greenhouse gas emissions in real terms by 2050.
It would appear that the focus of investors when selecting
companies now includes not only how strong earnings are, but
also how the company is contributing to the resolution of social
issues based on global goals such as the SDGs and the Paris
Agreement. I expect stakeholders will in the days ahead be focused
more than ever on our stance toward solving social issues.
Daikin announced its support and agreement with the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD2) in May 2019. International attention is
currently focused on responding to social changes brought on by
climate change, and we believe that business development
moving forward will be impossible without resolving these social
issues. As an advanced environmental company, Daikin analyses
the risks and opportunities posed to its business by climate
change, reflects them in its management strategy, and promotes
the enhanced disclosure of information in line with
recommendations.
2 TCFD is an abbreviation for Task Force on Climate-related Financial Disclosures. It is a task
force established by the Financial Stability Board (FSB), which consists of central banks and
financial regulators in major countries worldwide.
Q5
What are your thoughts on returns to shareholders?
Targeting stable and continuous shareholder returns
Backed by strong earnings, we increased the annual dividend in
fiscal 2019 ¥20 per share year on year to ¥160. For fiscal 2020, we
target an annual dividend of ¥160 per share, including an interim
dividend of ¥80 and a year-end dividend of the same amount.
We will strive to maintain a consolidated dividend on equity
(DOE) ratio of 3.0% based on a policy aimed at securing stable
and continuous dividend payments. While focusing on improving
market capitalization, accelerating the shift to an even stronger
business structure, and expanding our business while enacting
strategic investment in line with our goal of advancing future
growth, Daikin also aims to further enhance shareholder returns.
With this in mind, we intend to continue meeting the
expectations of our stakeholders as a company contributing to
the creation of a sustainable society.
June 2019
Masanori Togawa
President and CEO
Annual Report 2019
13
Review of Operations
Review of Operations
Air Conditioning Current
Steadily expanded overseas sales mainly in Europe,
the United States, and Asia; healthy results also in
Japan with sales approaching the ¥2.2 trillion mark
Despite the negative impact of soaring raw material prices and additional U.S. custom duties attributable to
trade friction between China and the United States, results in the Air Conditioning business surpassed those of
the previous fi scal year in terms of both sales and operating income. These negative impacts were absorbed
due to sales growth in each region and successful efforts to promote a reduction in total costs.
Japan
Sales in Japan rose 107% year on year.
In addition to brisk personal spending, the effect of an extremely
hot summer helped drive up demand for residential-use air
conditioners. Continuing to promote a sales strategy that
focuses in profi tability, sales grew for mid-range and high-end
models such as “Urusara 7,” a fl agship product, and “risora,”
which pursues both functionality and design.
For commercial units, Daikin fully utilized its wide product
lineup that includes “FIVE STAR ZEAS,” “Eco-ZEAS,” and the
slim design “machi Multi” and strengthened proposal-type
sales. Sales increase in each market segment from stores and
offi ces to factories.
In Applied Systems, the Company achieved an industry fi rst
with the launch of new products featuring the low-GWP
refrigerant R32. Sales increased by capitalizing on redevelopment
demand in the Tokyo metropolitan area.
China and the United States, the Company initiated measures,
such as raising sales prices and reducing costs, to ensure profi tability.
In the residential unitary product market, Daikin expanded its
own dealer network in important regions. In addition to promoting
education and support for dealers, the Company’s market share
grew signifi cantly thanks largely to the introduction of new
inverter products for the middle zone (SEER* 15-17).
In the ductless market, sales grew signifi cantly for multi-air
conditioners for residential-use mainly in the Northeastern
region, which is the largest market. Here, the Company realized
an increase in market share.
Applied Systems experienced growth in equipment sales. This
mainly refl ected efforts to strengthen the sales network and
expand the product lineup. The After Sales Service business also
witnessed growth.
“risora,” which
pursues both
functionality and
design
* SEER: An acronym describing the Seasonal Energy
Efficiency Ratio for cooling performance
Production picks
up in earnest at a
new factory in
the United States
Americas
Sales in the Americas rose 113% year on year.
Brisk personal spending arising from the large-scale tax cuts in
the United States energized the market. Sales grew substantially
on the back of efforts to upgrade and expand the sales network
and launch new products. Facing higher prices for raw materials
and the impact of additional tariffs due to trade friction between
China
Sales in China were unchanged from the previous fi scal year.
The severe market environment continued due to the economic
slowdown resulting from trade friction between China and the
United States coupled with the Chinese government’s policy to
curb new housing. Despite these diffi cult conditions, Daikin
worked diligently to enhance its product lineup and expand sales
in regional cities. Based on these endeavors, successful steps
14
Daikin Industries, Ltd.
were made to secure sales at the previous fi scal year’s level. By
reducing costs through in-house production and automation,
the Company also maintained high profi ts.
In residential-use air conditioners, Daikin increased the number of
“PROSHOP” specialty stores, primarily in regional cities, while
boosting sales of the “New Life Multi” series targeting mid-
dle-to-upper class residences. In large cities, the Company launched
new products for general residences in response to market changes.
In the commercial-use market, Daikin utilized a wide product
range and captured brisk restaurant, data center, and other
demand. For large cities in mature markets, the Company
launched the “Intelligent VRV” system, which links to customers
via the Internet, while capturing replacement demand.
For Applied Systems, Daikin undertook detailed sales activities
that extended from small- and medium-sized proposals to
large-scale projects. In addition to higher equipment sales on the
back of efforts to upgrade and expand the product lineup, sales
also grew in the After Sales Service business.
“New Life Multi”
series, residential
multi-split room
air conditioners
that propose a
variety of
lifestyles for
customers
Europe/the Middle East/Africa
Sales in Europe, the Middle East, and Africa climbed 107% year
on year.
In residential-use air conditioners, despite the lingering effects
of unseasonable weather in Spain, sales of R32 units and other
high value-added products increased mainly in France and Italy.
In the commercial-use market, Daikin strengthened spec-in
activities for “VRV” systems in a bid to counter price markdowns
by competing companies. Although sales of “SkyAir” (air condi-
tioning for shops) grew in Europe for R32 units and other high
value-added products, orders in the Middle East saw a decline.
In Heating, the Company expanded sales and after sales
service networks and signifi cantly pushed up sales of heat pump
type hot water heating systems.
In Applied Systems, products including R32 chillers were
launched in response to environmental regulations. At the same
time, Daikin strengthened the sales system in each country. Sales
grew signifi cantly in the largest market of the Middle East as well
as in France and Germany.
Asia/Oceania
Sales in Asia and Oceania increased 110% year on year.
In residential-use air conditioners, sales grew substantially
mainly in Thailand, Indonesia, and India as a result of the roll out
of such differentiated products as cooling-only inverter units that
meet stronger energy-saving regulations.
Sales in the commercial-use market expanded in all countries,
and especially Vietnam, Thailand, and India. In addition to training
dealers enabling them to handle everything from design to
installation and sales, this sales growth was largely due to successful
efforts aimed at strengthening sales and spec-in activities.
In Applied Systems, sales increased signifi cantly on the back of
improvements in product supply capabilities. This was mainly
due to new plant operations in Malaysia.
Expanding sales
in Asia which is
exhibiting
demand growth
Daikin’s Unique Solutions
Increasing market share through the develop-
ment of products and strategies aligned to
each region
Daikin is the leader in sales in the air conditioning business in
India, which is the second largest market in Asia after China.
While India is the seventh largest country in the world, ranked
by land area, both weather and infrastructure conditions differ
dramatically from region to region. In this regard, Daikin has
classifi ed India into four distinct regions. The Company’s
competitive advantage is derived from the development of
products that address the conditions of each region, and the
implementation of region-specifi c strategies.
India is recognized for its extreme weather conditions, which
depending on the region can range from heavy snowfalls to
summer temperatures that exceed 50°C. Under these circum-
stances, Daikin markets air conditioners that can operate even
at 54°C in high temperature areas. At the same time, the
Company sells affordable air conditioners that can accommo-
date the short winter periods that are common in the moun-
tains and plateaus of central India. In response to domestic
wastewater issues and the increasingly severe impact that air
pollution is having on the areas surrounding New Delhi, the
nation’s capital, Daikin has developed air conditioners that do
not corrode even in environments that contain sulfuric acid. For
the southeast coastal region, the Company markets products
that do not break even if dropped from a height of one meter.
This is important given the many bad roads that transverse the
area and the prevalence of damage during transportation. By
developing products that take into account the attributes of
each region and match local conditions, Daikin is steadily
expanding its market share.
Annual Report 2019
15
Review of Operations
Review of Operations
Air Conditioning
Future
Addressing changes in the business environment in
a timely and fl exible manner
Maintaining our trend of increased sales and profi ts
Daikin is projecting an even more challenging business environment due to such factors as the growing impact of
trade friction between China and the United States and a slowdown in demand in China. Under these circumstances,
the Company will maintain its trend of increased sales and profi ts by further improving profi tability while at the
same time continuing to undertake forward-looking growth investments. Every effort will be made to achieve
targets set at a high level while responding fl exibly to changes in the business environment.
Japan
Industry demand for residential use is expected to decline
compared with the previous fi scal year. This represents a
reaction to the sharp surge in demand last fi scal year as a result of
the summer heat wave. Meanwhile, industrial demand for
commercial use is anticipated to increase year on year due to
brisk capital investments and special procurements by schools
for air conditioners. In addition to the sales promotion of high
value-added products, Daikin will continue with efforts aimed
at increasing profi ts. This includes promoting cost reductions
and strictly maintaining selling prices.
In residential-use air conditioners, we will promote sales of
such high value-added products as “Urusara 7” and “risora.”
In commercial-use air conditioners, we will expand sales of
differentiated products including “MULTI CUBE,” a product that
enables individual control even in large spaces like factories,
and “Outer Tower,” an air conditioner that is invaluable for use
outdoors as a measure against heat. Furthermore, production
and installation capabilities are being strengthened to respond
to demand by schools for air conditioning.
In Applied Systems, the After Sales Service business will be
strengthened in addition to the sales promotion of R32 units.
Company will look to increase market share by enlarging its own
dealer network and launching new products. With the completion
of production transfer to the new Goodman factory projected
during 2019, productivity is expected to improve even further.
In the residential unitary product market, Daikin will promote
the inverter market by boosting sales of middle-zone (SEER 15-17)
inverter units launched in the previous fi scal year in addition to
further expanding sales in the volume zone market. A smart
thermostat will also be newly launched, and steps will be taken to
pursue energy savings from not only equipment, but also a
software perspective.
In the ductless market, Daikin will enhance its product lineup
for cold regions and work to increase sales over those of the
previous year for residential-use products in the Northeast,
Northwest and Canada, which are all cold regions.
In Applied Systems, the Company will work to boost sales of
equipment such as chillers and air handling units in addition to
reinforcing its service network. Even in Latin America, Daikin
will strengthen its sales system centering on Mexico and work
to bolster the Engineering business.
Daikin Texas
Technology Park
where production,
development,
logistics, sales,
marketing and
indirect depart-
ments work
together to create
a constant fl ow of
innovation.
China
In light of market uncertainty, Daikin will conduct fl exible business
operations in line with market changes and work to build a new
business model for continued business growth.
In the residential-use market, the Company will enlarge its sales
“Outer Tower,” an
air conditioner
that is invaluable
for use outdoors
as a measure
against heat
Americas
Amid bullish demand, Daikin aims to expand business and improve
profi tability. While residential investment is expected to slow, the
16
Daikin Industries, Ltd.
networks in regional cities where growth is expected. At the same
time, energies will be directed toward strengthening the product
lineup for general residences, which are rapidly increasing in large
cities. Customer search will be linked to sales and solutions through
such activities as brand appeal of unique Daikin products available
on newly established E-commerce sites that are directly managed as
well as the creation of customer centers in March 2019.
In the commercial-use market, Daikin will expand sales of “Intelli-
gent VRV” systems that use the Internet to connect with customers
and provide value to customers over the entire air conditioning
lifecycle, including energy-saving diagnostics, failure prediction,
and replacement proposals. Furthermore, the Company will roll
out a new sales model that extends beyond equipment sales
with servicing and maintenance.
In Applied Systems, efforts will be made to promote proposals
in the markets that are expected to grow such as those for data
centers and semiconductor factories. In addition to equipment
sales centered on chillers, Daikin will expand the After Sales
Service business.
Wuhan New Life
Station, newly
opened to
promote the
Daikin brand in
the Midwest
region
Europe/the Middle East/Africa
The business environment in Europe is being affected by such
factors as an economic slowdown in Germany and Italy as well as
the U.K.’s decision to withdraw from the EU. Amid the growing
trend toward increasingly strict environmental regulations, Daikin
will work to expand high value-added products.
In the residential-use market, the Company will upgrade
and expand its product lineup of R32 units in addition to
boosting sales.
In the commercial-use market, Daikin will promote sales of
“SkyAir” using R32 and focus mainly on the large markets of
Spain and France. For “VRV” systems, the Company will respond
to the tightening of fl uorocarbon regulations by moving ahead
of other companies in the introduction of new products that use
recycled refrigerants.
In the Heating business, the intention is to capture bullish
demand and increase market share by appealing to customers
with the environmental performance of the Company’s heat
pump type hot water heating systems.
In Applied Systems, Daikin will enhance marketing capabilities in
each country centering on the Middle East, the largest market, and
work to expand orders by launching new products of energy-saving
and low-GWP refrigerant equipment that comply with stricter
environmental regulations.
In the Refrigerator and Freezer business, efforts will be made to
mutually use the sales networks and product lineups of Zanotti
and AHT and work to expand the overall business for cold chain.
Accelerating the
pace of overall cold
chain business
rollout through the
acquisition of AHT
Asia/Oceania
With an ever-increasing expansion of the middle class, air condi-
tioning demand is expected to grow. To meet this demand,
Daikin will extend its sales network in every country from large
to regional cities. In addition to launching differentiated products
based on regional needs, the Company will work to expand its
After Sales Service business and signifi cantly increase sales.
In the residential-use market, together with accelerating the
market shift to inverters in each country, Daikin will expand sales
of differentiated products such as residential-use multi-split air
conditioners. In India, the Company will accelerate the estab-
lishment of sales networks in regional cities and signifi cantly
increase sales.
In the commercial-use market, Daikin will continue to focus on
fostering dealers. In “SkyAir,” steps will be taken to promote sales
centering on Thailand and Vietnam for cooling-only R32-refrigerant
inverter air conditioners, which feature greater cost competitiveness.
In “VRV” systems, the Company will develop differentiated products
in line with regional needs and strengthen spec-in activities.
Energies will be directed toward promoting detailed proposal-type
sales by application such as for schools and hospitals.
In Applied Systems, Daikin will strengthen the recruitment and
fostering of system engineering human resources and expand
the After Sales Service business including servicing, inspection,
and maintenance.
Boosting produc-
tion capacity in
Asia where
demand for air
conditioning is
projected to grow
Annual Report 2019
17
Review of Operations
Review of Operations
Chemicals
Current
Attracted strong demand in the semiconductor- and
automotive-related markets
Sales broke through the ¥200 billion mark
The Chemicals Business achieved a substantial increase in sales in Japan and Asia. Buoyed also by robust results in
Europe and the United States, Daikin maintained a high profi t margin despite the surge in market prices for
raw materials.
Daikin greatly expanded sales by capitalizing on demand in the
semiconductor and automotive markets. Amid a surge in market
prices for raw materials, the Company raised selling prices and
promoted total cost reductions. These actions led to gains that
signifi cantly exceeded the previous fiscal year in both sales
and operating income.
Fluorocarbon gas in Europe showed a sharp increase in
distribution stock from the second half of the fi scal year while
sales in Japan and Asia expanded.
For fl uoropolymers, in addition to capturing demand in the
semiconductor market mainly in Japan, China, and Asia, sales
of new products for LAN cables in the United States also
greatly increased.
For fl uoroelastomers, sales expanded mainly in the automotive
market in the United States and Japan.
In fi ne chemicals, although sales decreased for the surface
antifouling agent “OPTOOL,” sales grew for water and oil
repellent agents in China and Asia.
Fluoropolymers
and etching
products
essential in the
manufacture of
semiconductors
Fluoroelastomer
with superior heat
resistance used in
automobile
internal combus-
tion engines
18
Daikin Industries, Ltd.
Chemicals
Future
Working to expand sales in robust fi elds
Targeting increases in both sales and profi ts
Amid forecast sluggish demand for semiconductor- and automotive-related products, Daikin will accelerate
the pace of application development in fi elds that are expected to experience medium- to long-term growth.
This includes an upswing in demand for lithium-ion batteries attributable to the widespread use of electric
vehicles and products that cater to the 5G next-generation communication standard.
There is a chance that the business environment will become
increasingly diffi cult due mainly to a forecast decline in demand as
the semiconductor market enters a readjustment phase. Against
this backdrop, in addition to promoting sales in the favorable
fi elds of batteries as well as information and communications,
Daikin will work to secure profi ts by expanding sales of high
value-added products, reducing costs, and through selling price
measures in order to achieve increases in both sales and profi ts.
Contributing to
the evolution of
next-generation
vehicles through
fl uorine
chemical
products for
battery materials
In fluorocarbon gas, despite the downturn in demand in
Europe, Daikin will globally promote sales of low-GWP refrigerants
for refrigerators and freezers.
In the semiconductor market, together with efforts to secure
an increased share by strengthening marketing capabilities, the
Company is expecting a recovery in demand relating to IoT and
AI from 2020 and beyond and will accordingly reinforce its
capabilities to supply and develop differentiated products.
In the automotive market, Daikin intends to strengthen
spec-in activities and expand sales of the lithium ion battery
materials used for next-generation vehicles.
In the information and communications fi eld, the Company
will work to expand sales to the LAN cable market in which
demand is increasing in the United States.
Daikin’s Unique Solutions
Established a fl uorinated materials informa-
tion center in Shenzhen, China
Representing a new initiative in its Chemicals business,
Daikin established DAIKIN Dream Gallery in Shenzhen City,
China to promote the many outstanding functions inherent in
fl uorine. Rather than merely exhibit each product, Dream
Gallery places greater emphasis on product functionality. In this
instance, the goal is to shine a light on the functions that
products provide and the potential for a wide-range of new
applications born from the functions that these product have.
As opposed to the one product-one function concept, Dream
Gallery allows visitors to view the many functions inherent in
fl uorine in a single location. This facility was set up in conjunc-
tion with client engineers as a space to showcase the use of
composite-type functions. Looking ahead, plans are in place to
attract customers through various initiatives including seminars
on cutting-edge technologies and markets. The facility is expected
to serve as a forum to draw out ideas while examining functions.
Here in Shenzhen, which is regarded as China’s Silicon Valley,
every effort will be made to uncover the potential of new
businesses, promote the development of innovative applica-
tions, and cultivate markets.
Moreover, Daikin will also pursue a variety of endeavors
including the development of optimal battery and substrate
materials for next-generation vehicles in collaboration with
Tsinghua University.
DAIKIN Dream Gallery
Annual Report 2019
19
Review of Operations
Review of Operations
Oil Hydraulics
Current
Continued strong performance in Japan and North America
Following on from the previous fi scal year, reported record
high business results
The Oil Hydraulics business comprises a range of oil hydraulic
equipment to facilitate the smooth movement of various types
of machinery, contributing to energy effi ciency and electrical
power savings. In fi scal 2019, revenue increased on the back
of upswings in industrial and construction equipment sales in
Japan and North America.
In the Hydrostatic Transmissions (HST) business, sales
increased steadily in Japan. The Company reported record high
sales and operating income for the fi scal year under review.
Oil Hydraulics
Future
Solidifying business in Japan and working to
strengthen market in Europe and the United States
Business conditions are projected to remain challenging in fi scal
2020. Despite expectations of growing uncertainty, Daikin will
work to increase its competitiveness in Japan while continuing to
improve profi tability.
Furthermore, energies will be directed toward expanding
business in the global market. In the United States, where Daikin
already has a foothold, steps will be taken to launch e-commerce
activities as a new sales channel aimed at expanding the areas in
which the Company conducts its maintenance, repair, and
operation (MRO) business. In its HST business, Daikin will
work to expand local production models while optimizing
local customer supply.
Industry-leading
g
hydraulic motor
r
that realizes
small size, light
weight and high
h
effi ciency
20
Daikin Industries, Ltd.
Daikin’s Unique Solutions
Developed water-cooled oil
coolers; alleviating air condi-
tioning load in factories
Similar to an air conditioner cooling the
air, an oil cooling unit maintains the oil
used in a given machine at an appropri-
ately cool level. The water-cooled oil
coolers being developed by Daikin have a
number of outstanding features. Firstly,
excluding the heat released from electrical
components, the units release no exhaust
heat, as any heat from the product is
cooled by the water. By limiting the
build-up of heat and reducing the burden
on air-conditioning systems in the factory,
the units contribute to the conservation
of energy. In addition, the water-cooled
oil coolers do not have the air fi lters that
are commonly used in conventional air-cooled oil coolers, thus
reducing man-hours previously spent on cleaning the air fi lters.
Third, the condenser, which is considered the key component
in the unit, has a specialized double tube structure, making it
resistant to clogging.
Water-cooled oil cooler
that conserves energy
by alleviating the
burden on air condi-
tioning systems in
factories
Defense
Current
Strong performance in differentiated home-use
oxygen therapy equipment
Daikin designs and manufactures products for Japan’s Ministry of
Defense based on the defense budget, with products supplied
including various types of artillery shells, warheads, and fuses all
used for drills, as well as aircraft parts. These precision machining
technologies are also leveraged for private-sector purposes,
including the manufacture and sale of home-use oxygen therapy
equipment. Daikin provides respiration synchronizers and
oxygen concentrators, products that require the highest levels
of precision, performance, functionality, and quality.
Despite favorable sales of home-use oxygen therapy equipment,
net sales in this segment declined in fi scal 2019 compared to the
previous fi scal year due to a downturn in artillery shell sales to
Japan’s Ministry of Defense.
Defense
Future
Targeting an expansion in medical equipment sales
by offering the highest levels of technology
Amid expectations for ongoing severity in orders from Japan’s
Ministry of Defense in fi scal 2020, Daikin will continue to focus
on bolstering earnings in its private-sector business.
In the home-use medical equipment business, we expect insurance
to begin covering telemedicine used in home-use oxygen therapy in
fi scal 2021, contributing to an increase in shipment volume for
devices equipped with communication functions. With this in mind,
we are focused on the development of an oxygen concentrator that
is capable of remote monitoring and is also high-quality and price
competitive.
Daikin’s Unique Solutions
Contributing to the Aviation and Medical
Fields with Advanced Precision Machining
Technologies
Daikin’s unique precision machining technologies continue
to meet the various needs of our customers, including in the
fi elds of medical equipment and aviation-related products,
where there is always demand for the most advanced and
precise technologies available. This expertise is seen in
particular in the Daikin fi re extinguishers installed near the
engines in airplanes. Should a fi re originating in the engine
break out, these devices play a vital role in ensuring aircraft
safety by discharging a fi re extinguishing agent with force to
smother the fi re. In home oxygen therapy equipment, Daikin
supports the lives of patients with chronic respiratory
ailments through the manufacture and sale of respiration
synchronizers and oxygen concentrators.
Annual Report 2019
21
Corporate Governance
Corporate Governance
Basic Policy of Corporate Governance
The role of corporate governance in the Daikin Group is to raise
corporate value. This is achieved by continued vigilance on
increasing the speed, transparency, and soundness of decision
making and implementation in a manner that keeps a step ahead
of both the Group’s management tasks and the changing operat-
ing environment.
Aiming for management with even greater speed, transparency,
and soundness, we will continue to boost corporate value by
seeking and implementing new ways to achieve optimal corpo-
rate governance as we undertake best practices in all facets and
at all levels of the Daikin Group.
Regarding Japan’s Corporate Governance Code set by the
Tokyo Stock Exchange, Daikin has already implemented all the
principles contained in the revisions of June 1, 2018, including
“enhancing information disclosure,” “maintaining the effective-
ness of the Board of Directors and the Audit and Supervisory
Board,” “defining roles and responsibilities of independent exter-
nal directors,” and “the policy of having constructive dialogue
with shareholders.” Going forward, Daikin will continue to
enhance these initiatives.
Management and Operational Execution Systems
Rather than adopting a U.S.-style “committee system” that com-
pletely separates decision making and business oversight from
operational execution, the Daikin Group has adopted an “inte-
grated management” system in its aim to promote a higher level
of management, in view of the special characteristics of the
Group’s business and in judging that this is a more-effective
means of accelerating decision making and operational execu-
tion. This means that the directors jointly take charge of both
management responsibilities and business execution responsibili-
ties. Directors also bear responsibility for the execution and com-
pletion of their own decisions by carrying out their decision
making, business execution, and supervision/guidance in an
“integrated” manner.
In addition, the Group has introduced an “executive officer sys-
tem” to accelerate the speed of execution based on autonomous
judgments and directions in units handling each region, division,
and function. Appointments of executive officers are carried out
by the Board of Directors.
Appointment of Directors
When appointing directors, the Daikin Group gives emphasis to
factors ranging from the globalization of the Group’s businesses
and the broadening of its business fields to a diverse range of
background factors, such as nationality, gender, and career
history.
As of the end of June 2019, there were 10 directors (including
one female and two non-Japanese directors) who carry out expe-
ditious and strategic decision making as well as sound oversight
and guidance throughout the Group.
Daikin’s Board of Directors includes three external directors (as
of June 2019), conditional upon them not having a relationship
of interest with the Company. Daikin seeks outside directors that
can provide oversight and advice from a high-level perspective
based on a wealth of experience and deep insight. To ensure that
the external directors can effectively contribute to Daikin’s corpo-
rate governance system, assistants to the external directors are
22
Daikin Industries, Ltd.
assigned in the Company. They strive to provide the external
directors with information, early notice of Board of Directors
meetings, and prior notice of Board of Directors meeting agenda
items, as well as implementing prior explanations of particularly
important agenda items. In addition, when external directors are
unable to attend a Board of Directors meeting, the assistants pro-
vide them with related materials and subsequent explanations of
meeting proceedings.
Audit System
Daikin employs an Audit and Supervisory Board System and has
established the Audit and Supervisory Board. Daikin endeavors to
appoint two or more external directors to the Board, and, as of
end of June 2019, Daikin’s four Audit and Supervisory Board
members included two external Audit and Supervisory Board
members.
The principal nomination criteria for external Audit and
Supervisory Board members are the same as those for external
directors and include independence from the Company in terms
of not having a relationship of interest with the Company.
The Audit and Supervisory Board members attend meetings of
the Board of Directors, as well as other important meetings, and
receive reports. In addition, they can express diverse opinions.
To ensure effective audit functions, the Audit and Supervisory
Board receives reports on important issues related to manage-
ment and performance when necessary and also investigates rel-
evant units, confirms approval of documents, and regularly
exchanges opinions with representative directors, executive offi-
cers, and the independent auditors. In addition, the Audit and
Supervisory Board Member Office has been established, and the
staff perform their duties under the orders and direction of the
Audit and Supervisory Board members. The opinions of the Audit
and Supervisory Board are respected on matters related to per-
sonnel transfers, work evaluations, and other matters pertaining
to Audit and Supervisory Board Member Office staff members.
Corporate Governance Structure (as of the end of June 2019)
Shareholders’ Meeting
Appointment,
dismissal
Appointment,
dismissal
Appointment, dismissal
Accounting
Auditor
Audit &
Supervisory
Board
Audit
Board of Directors
HRM Advisory Committee
Compensation Advisory Committee
Group Steering Meeting
Group Management Meeting
Group
Auditors
Meeting
Internal Control Committee,
Corporate Ethics and Risk
Management Committee,
Information Disclosure
Committee,
CSR Committee
Appointment,
supervision
Executive
Officers Meeting
(The rest is abbreviated)
External Director/Audit and Supervisory Board Members’ Principal Activities
Name
Position
Principal Activities
Chiyono Terada
External Director
Tatsuo Kawada
Akiji Makino
Ms. Terada attended 14 of the 15 Board of Directors meetings held during fiscal 2019. Based on her
abundant experience and deep insight as a corporate manager, she provides appropriate supervision of
Company management from an independent perspective; provides management with the consumers’
point of view, including the importance of the Company’s corporate brand; and makes proactive propos-
als for measures to further promote achievements of female employees.
Mr. Kawada attended 14 of the 15 Board of Directors meetings held during fiscal 2019. Based on his
abundant experience in management and high-level insight, he can provide appropriate supervision of
management from an independent perspective and actively provides suggestions, from his broad and
sophisticated perspective regarding changes in business models, innovation, and other matters.
Mr. Makino attended 14 of the 15 Board of Directors meetings held during fiscal 2019. Based on his
abundant experience in management and high-level insight, he can provide appropriate supervision of
the Company’s management from an independent perspective and actively provides suggestions from his
broad and sophisticated perspective regarding matters in the fields of energy, the natural environment,
and service businesses.
Ryu Yano
External Audit
and Supervisory
Board Member
Mr. Yano attended 12 of the 15 Board of Directors meetings held and 13 of the 14 Board of Auditors
meetings held during fiscal 2019. Based on his abundant experience and deep insight as a corporate
manager, particularly from his broad and advanced perspective developed over many years of experience
in business overseas, he provides the necessary input in a timely fashion.
Toru Nagashima
Mr. Nagashima attended 14 of the 15 Board of Directors meetings held and 14 of the 14 Board of
Auditors meetings held during fiscal 2019. Based on his abundant experience in management and
high-level insight, he provides the necessary input in a timely fashion based especially on his broad and
sophisticated experience in the management of global companies and manufacturing enterprises.
Reasons for Election as External Director/Audit and Supervisory Board Member
Name
Position
Reasons for Election
Chiyono Terada
External Director
Tatsuo Kawada
Akiji Makino
Ms. Terada has served as president of Art Corporation. Based on her abundant experience and deep
insight as a corporate manager, and with her broad and high-level perspective, she appropriately carries
out her management duties and measures to further promote the achievements of female employees,
taking a consumers’ standpoint, including on the importance of the corporate brand. Ms. Terada was
elected as external director to continue to contribute to the Company’s corporate value looking forward.
Mr. Kawada has served as chairman and CEO of Seiren Co., Ltd., and has abundant experience and deep
insight as a corporate manager. His experience includes changing his company’s business model, innova-
tion creation, and transforming corporate cultures. Mr. Kawada was elected as external director to make
use of this experience and to provide appropriate supervision of the conduct of management from an
independent perspective, and, by offering proposals in relation to the overall management of the
Company from his broad and high-level perspective, to contribute to increasing Daikin’s corporate value.
Mr. Makino has served as chairman and CEO of Iwatani Corporation and has abundant experience and
deep insight as a corporate manager, especially in the fields of energy and the natural environment as
well as the services business. Mr. Makino was elected as external director to draw on this background
and experience to provide appropriate supervision of the conduct of management from an independent
point of view, and, offering proposals regarding management from his broad and high-level perspective,
contribute to increasing Daikin’s corporate value.
Ryu Yano
External Audit
and Supervisory
Board Member
Mr. Yano has served as Chairman of the Board and representative director at Sumitomo Forestry Co., Ltd.,
and has abundant experience and deep insight as a corporate manager. Mr. Yano carries out his duties
from a broad and high-level perspective cultivated, in particular, from his wealth of overseas business
experience. Mr. Yano was elected as external auditor to draw on his experience to supervise overall man-
agement at Daikin and to significantly upgrade the appropriateness of the audit function
Toru Nagashima
Mr. Nagashima has served as an honorary advisor at Teijin Limited, and has abundant experience and
deep insight as a corporate manager, particularly in the field of implementing paradigm shifts from man-
ufacturing to services. Mr. Nagashima was elected as external auditor to draw on his experience to sig-
nificantly upgrade the appropriateness of the audit function.
Note: All of the Company’s external directors and external auditors meet the qualifications for independence established by the Tokyo Stock Exchange.
Annual Report 2019
23
Corporate Governance
Corporate Governance
Agile Management Support System
Daikin’s three main management bodies are the Board of Directors,
the Group Steering Meeting, and the Executive Officers Meeting
and they secure expeditious decision making based on substantial
discussion and keeping the number of directors at a minimum.
The Board of Directors, along with providing healthy business
execution and approprite supervision and guidance, is the deci-
sion-making institution for all matters related to the Group as a
whole, as stipulated by laws and regulations and by the articles of
incorporation. In addition, we periodically conduct a self-evaluation
of the Board of Directors’ effectiveness. Individual interviews con-
ducted with directors confirm the viability of their effectiveness. In
fiscal 2019, the Board of Directors met 15 times, and the average
attendance rates of external directors and external Audit and
Supervisory Board members at those meetings were 93% and
87%, respectively.
The top deliberative unit in the Group’s management system is
the Group Steering Meeting. This unit determines the direction for
important management guidelines and management strategies in
a rapid and timely manner. In fiscal 2018, it met four times.
The Executive Officers Meeting establishes a place where we can
expedite thorough deliberations and prompt implementation of
important management issues, and it met 19 times in fiscal 2018.
In addition, to respect and protect the interests of diverse
stakeholders other than stockholders, Daikin has, based on the
Board of Directors, established its Internal Control Committee,
Corporate Ethics and Risk Management Committee, Information
Disclosure Committee, and CSR Committee.
Evaluation of the effectiveness of the Board of Directors
Daikin analyzes and evaluates the effectiveness and appropriate-
ness of the Board of Directors and the corporate governance sys-
tem through interviews with the Directors and Corporate
Auditors and deliberations by the Board of Directors. As a result,
the Board of Directors of Daikin is assessed on its ability “to per-
form appropriate decision making through open and active dis-
cussions and play an effective role in improving corporate value
over the medium-to-long term”.
Going forward, we plan to further enhance the provision of
information to external directors and raise the effectiveness of
the Board of Directors even further.
Corporate Officer Renumeration
To ensure the transparent management of its corporate officer per-
sonnel and remuneration processes, Daikin has established the
HRM Advisory Committee and the Compensation Advisory
Committee. These committees engage in discussions and delibera-
tions regarding issues including corporate officer nomination crite-
ria, candidates, and remuneration. As of the end of June 2019,
both committees comprised five members, including three external
directors, one in-house director, and one executive officer in charge
of personnel, with the committee chairman being chosen from the
external directors.
The remuneration of directors and Audit and Supervisory Board
members is based on both the maximum limit of total remunera-
tion and on the report of the “Compensation Advisory
Committee”. Based on a report from the Compensation Advisory
Committee, the directors’ remuneration is determined by a reso-
lution of the Board of Directors, while the Audit and Supervisory
Board members’ remuneration is determined by a resolution of
the Audit and Supervisory Board.
24
Daikin Industries, Ltd.
In response to the expectations of shareholders, compensation
for in-house directors is divided into fixed compensation to main-
tain the motivation of in-house directors at a high level continu-
ously over the medium-to-long term so as to contribute to
enhancing the Daikin Group’s value. Performance-linked remunera-
tion reflects short-term Group performance and performance of
divisions in which a director is in charge, and stock options reflect
medium- to long-term performance. External directors and corpo-
rate auditors receive “fixed compensation” only.
Daikin determines compensation levels based on the relative
position of its performance and remuneration levels compared to
other leading manufacturing companies in Japan after reviewing
the data from a specialized external institution on the remunera-
tion of corporate officers active in just under 300 Japanese com-
panies listed on the First Section of the Tokyo Stock Exchange.
The three indices used by the Company are the sales growth rate,
operating income margin and ROE, as well as the medium-to-
long term increase in corporate value.
Total Compensation for Directors
and Audit and Supervisory Board Members (Fiscal 2019)
Position
Total
Compensation
(Millions of yen)
Total of different types of compensation
(Millions of yen)
Fixed
compensation
Stock Options
Performance-
linked
compensation
Persons
paid
Directors (excluding
external directors)
Audit and Supervisory
Board Members (excluding
external Audit & Supervisory
Board members)
External Corporate Officers
1,135
69
76
506
69
76
109
519
—
—
—
—
9
2
5
Corporate Officers with Compensation over ¥100 Million
(Fiscal 2019)
Name
Total
Consolidated
Compensation
(Millions of yen)
Position
Company
Fixed
compensation
Stock
Options
Total Consolidated Compensation
by Type (Millions of yen)
Noriyuki Inoue
Masanori
Togawa
Ken Tayano
Masatsugu
Minaka
Jiro Tomita
418
278
178
133
152
Director
Daikin Industries, Ltd.
Director
Daikin Industries, Ltd.
Director
Chairman
Director
Director
Director
Daikin Industries, Ltd.
Consolidated Subsidiary,
Daikin (China)
Investment Co., Ltd.
Daikin Industries, Ltd.
Consolidated Subsidiary,
Daikin Europe N.V.
Daikin Industries, Ltd.
189
123
97
11
—
74
58
26
26
14
—
14
—
14
Accounting Auditor Compensation (Fiscal 2019)
Auditing expenses
235 million yen
Performance
linked
compen-
sation
202
128
55
—
38
6
79
Group-Wide Governance
To meet governance needs on a Group-wide basis, including
M&A-related companies, Daikin holds meetings of the Group
Steering Meeting to ensure the thorough sharing of important
management policies and basic strategies. Moreover, Daikin
works to promote and strengthen support for the resolution of
challenges of Group companies through activities based on uni-
fied objectives. In addition, to strengthen Group-based auditing
and supervisory functions, Daikin is working to enhance its man-
agement at the Group Auditors meetings, which comprise audit
managers from major Group companies.
From the perspective of further strengthening corporate gover-
nance and Group management as a multinational company,
Daikin has appointed a Chief Global Group Officer, who works to
further improve the Group’s cohesiveness.
Directors, Audit and Supervisory Board Members, and Executive Officers (As of the end of June, 2019)
Position(s)
Name
Responsibilities & Principal Jobs
Chairman of the Board and
Chief Global Group Officer
Noriyuki Inoue
President and CEO,
Member of the Board
Member of the Board
(external)
Member of the Board
(external)
Member of the Board
(external)
Masanori Togawa
Chairman of Internal Control Committee
Chiyono Terada
President of Art Corporation
Tatsuo Kawada
Chairman and CEO of SEIREN CO., LTD.
Akiji Makino
Chairman and CEO of Iwatani Corporation
Member of the Board and
Senior Executive Officer
Ken Tayano
Responsible for Domestic Air-Conditioning Business, Representative of China Region,
Chairman of Daikin (China) Investment Co., Ltd., Chairman of Daikin Fluorochemicals (China) Co., Ltd., and Member of Global
Air-Conditioning Committee
Member of the Board and
Senior Executive Officer
Member of the Board and
Senior Executive Officer
Masatsugu Minaka
Representative of Air-Conditioning Operations in the Europe/Middle East/Africa Region (excluding East Africa),
President of Daikin Europe N.V., and Member of Global Air-Conditioning Committee
Jiro Tomita
Responsible for Global Operations Division, Manufacturing Technology and Promoting PD Alliances
Member of the Board
Yuan Fang
Regional General Manager of Air-Conditioning Business in emerging nations in the ASEAN/Oceania Region of Global Operations
Division, Vice Chairman of Daikin (China) Investment Co., Ltd., Chairman of Daikin Airconditioning (Hong Kong) Limited
Member of the Board
Kanwal Jeet Jawa
Regional General Manager of Air-Conditioning Business in India/East Africa,
President of Daikin Airconditioning India Private Limited
Audit and Supervisory
Board Member (external)
Audit and Supervisory
Board Member (external)
Audit and Supervisory
Board Member
Audit and Supervisory
Board Member
Ryu Yano
Chairman of Sumitomo Forestry Co., Ltd.
Toru Nagashima
Honorary Advisor of Teijin Limited
Kosei Uematsu
Hisao Tamori
Senior Executive Officer
Takashi Matsuzaki
Responsible for Applied Solution Business, R&D in North America, Applied R&D Center,
Responsibility of Daikin Open Innovation Lab Silicon Valley
Senior Executive Officer
Yoshihiro Mineno
Responsible for Filter business training, General Manager of Global Operations Division, Director (non-resident) of Goodman
Global Group, Inc., Director (non-resident) of Daikin Holdings (Houston), Inc.
Senior Executive Officer
Koichi Takahashi
Responsible for Finance and Accounting/Budget Operations, IT Development, IoT and AI business promotion,
General Manager of the Finance and Accounting Division
Senior Executive Officer
Yoshikazu Tayama
General Manager of Budget and Administration Group in Finance and Accounting Division
Senior Executive Officer
Masayuki Moriyama
Responsible for Applied Solution Business in China/ASEAN/Oceania Region, Refrigeration business,
Director of Daikin (China) Investment Co., Ltd., COO of McQuay China
Senior Executive Officer
Satoshi Funada
Responsible for Service Operations, General Manager of Air-Conditioning Sales Division
Senior Executive Officer
Naofumi Takenaka
Responsible for SCM, Logistics, Deputy Manager of Air-Conditioning Sales Division (Responsible for Business Strategy),
General Manager of Business Strategy Department in Air-Conditioning Sales Division, General manager of Tokyo Office.
Senior Executive Officer
Yasushi Yamada
Responsible for Safety
Executive Officer
Executive Officer
Katsuyuki Sawai
Responsible for Corporate Communication, Human Resources, and General Affairs and General Manager of Shiga Plant
Hitoshi Jinno
General Manager of Filter Division
Executive Officer
Kota Miyazumi
Responsible for Corporate Planning, General Manager of Marketing Research Division, Director of Planning Group in Marketing
Research Division
Executive Officer
Tsutomu Morimoto
Responsible for Goodman Group Business, Executive Secretarial Department
Executive Officer
Yuji Yoneda
Executive Officer
Masaki Saji
Executive Officer
Masafumi Yamamoto
Executive Officer
Akira Murai
Executive Officer
Makio Takeuchi
Responsible for Air-Conditioning Product Development (including Applied Solution Business and Refrigeration Business) and
General Manager of Technology and Innovation Center
General Manager of Human Resources Division and Department Manager of Diversity Promotion Group in Human Resources
Division
Responsible for CSR, Global Environment Affairs, Corporate Ethics, Compliance, Legal Affairs, Information security,
General Manager of the Legal Affairs, Compliance and Intellectual Property Center, Chairman of CSR Committee, Chairman of
Corporate Ethics and Risk Management Committee and Chairman of Information Disclosure Committee
Responsible for Oil Hydraulics business and Defense systems business, Co-Creation Projects member of Technology and
Innovation Center, and General Manager of Yodogawa plant
Responsible for Global Procurement, Deputy Manager of Air-Conditioning Manufacturing Division (Product Development),
Product Development Promotion in Refrigeration Division, Co-Creation Projects member of Technology and Innovation Center
Executive Officer
Executive Officer
Executive Officer
Yoshiyuki Hiraga
Responsible for Chemical Business and Chemical Environment/Safety
Toshio Ashida
Responsible for Strategy office of Technology and Innovation Center, General Manager of Corporate Planning
Hideki Maruoka
General Manager of Oil Hydraulics Division
Executive Officer
Shigeki Morita
Responsible for PL/Quality (Air Conditioning/Applied/Refrigeration), Alliance Promotion with Gree Electric Appliances Inc.,
General Manager of Air-Conditioning Manufacturing Division, and General Manager of Sakai Plant
Annual Report 2019
25
CSR Management System
CSR Management System
The Daikin Group’s core business of air conditioning is essential for economic development and a comfortable lifestyle, and
demand for air conditioning continues to expand in developing nations and around the world. The Daikin Group sets key CSR
themes for internal use and the sustainable development of society. By evaluating the overall impact on society, Daikin provides
people around the world with comfortable and rich lifestyles, while working to limit environmental impact by leveraging its
accumulated technologies.
Materiality
In fiscal 2016, along with the establishment of a strategic management plan known as “FUSION 20,” the Group’s relevance has
been evaluated. In the course of this evaluation, priority themes were selected according to two core topics: “stakeholders concerns
and impact,” which includes stakeholder engagement and global guidelines and requirements from the SRI research institution,
and the “Importance to Daikin” based on management philosophy as well as mid-and-long-term management strategies.
S
t
a
k
e
h
o
d
e
r
l
c
o
n
c
e
r
n
s
,
i
m
p
a
c
t
s
(cid:3) Biodiversity protection
(cid:3) Measures against atmospheric
pollution
(cid:3) Respect for human rights
(cid:3) Stakeholder engagement
(cid:3) Communities
(cid:3) Management of chemical substances
Most Important
(cid:3) Response to climate change
(cid:3) Effective use of resources and energy
(cid:3) New value creation
(cid:3) Product quality and safety
(cid:3) Customer satisfaction
(cid:3) Anti-corruption
(cid:3) Free competition and
fair business dealings
(cid:3) Occupational safety and health
(cid:3) Labor-management relations
(cid:3) Supply chain management
(cid:3) Information security
(cid:3) Human resource development
(cid:3) Workplace diversity
(cid:3) Corporate governance
Important
(cid:3) Waste and water-use reduction
Importance to Daikin
(cid:3) Environment (cid:3) New value creation, Customer satisfaction, Human resources (cid:3) Fundamental CSR
Nine Key CSR Themes
With the Group’s relevance established as the CSR priority for sustainable development of both the corporation and society, the
Group has focused on four“Value Provision” themes and five“Fundamental” themes. Attention to these initiatives in manage-
ment activities is incorporated into our strategic management plan, “FUSION 20” and implemented across the entire Group.
Daikin Group CSR
CSR for Value Provision
Fundamental CSR
We aim to provide a healthy,
comfortable air environment
to all across the world,
through efforts to minimize
environmental impact.
(cid:2) Environment
(cid:2) New Value Creation
(cid:2) Customer Satisfaction
(cid:2) Human Resources
We are responding to societal
demands for greater transpar-
ency and more open business
practices.
(cid:2) Corporate Governance
(cid:2) Respect for Human Rights
(cid:2) Supply Chain Management
(cid:2) Stakeholder Engagement
(cid:2) Communities
26
Daikin Industries, Ltd.
CSR Action Plan 2020
Key CSR Themes
FY2021 Target
FY2019 Result
E
Environmental
Environment
Introduce state-of-the-art technologies to
the market in order to address environmental
and energy issue
(cid:129) Reduced emissions of greenhouse gas by 60 million
tons of CO2 through the distribution of environmentally
conscious products globally
(cid:129) Reduced emissions of greenhouse gas resulting from
the manufacturing process across the entire Group by
70% from fiscal 2006 levels
(cid:129) Implementing and expanding environmental activities
in coordination with stakeholders
We measure our contribution to reducing emissions
of greenhouse gas based on the distribution of
environmentally conscious products and our
reduction in greenhouse gas resulting from the
manufacturing process. Daikin reduced greenhouse
gas by 67 million tons of CO2, representing a
reduction of greenhouse gas emissions of 75%
from fiscal 2006 levels.
New Value
Creation
Share dreams and ambitions inside and out-
side Daikin to realize a healthy, comfortable
lifestyle through air
(cid:129) Connecting society and customers via IoT and AI and
creating new value through open innovation
The amount of investment to create new value is
measured based on the amount of new technology
created. Research and Development expenses
reached ¥65.2 billion and the number of patent
applications were 904 in Japan and 434 overseas in
fiscal 2018 on a unconsolidated basis).
S
Social
n
o
i
s
i
v
o
r
P
e
u
l
a
V
r
o
f
R
S
C
R
S
C
l
a
t
n
e
m
a
d
n
u
F
Provide peace of mind and reliability
through a focus on customer orientation,
experience, performance, and advanced
technologies
(cid:129) Build a service network encompassing the entire globe
(cid:129) Building product development capabilities that can sat-
isfy the needs of customers worldwide
(cid:129) Maintaining optimum levels of quality
Respect individual personalities and values,
and maximize the potential of each employee
so that they can benefit Daikin and society
as a whole
(cid:129) Achieve a ratio of excellent or advanced skilled engi-
neers in manufacturing of four to one
(cid:129) Achieve a level of 100 females in management positions
(unconsolidated)
(cid:129) Increase the ratio of local presidents
(cid:129) Reducing the frequency of industrial accidents to zero
Thoroughness of respect for human rights
Customer
Satisfaction
Human
Resources
Respect for
Human
Rights
Supply Chain
Management
Conduct CSR procurement
Stakeholder
Engagement
Engage in dialogue with stakeholders and reflect this
dialogue into management
Communities
Contribution to environmental conservation, education
support, and cooperation with the local community
We measure satisfaction through the after-sales
service customer satisfaction rating. With the cus-
tomer satisfaction rating in the lase fiscal year
taken as 1, the customer satisfaction ratings were:
Japan 1.13 (compared to fiscal 2016); Singapore
1.00 (compared to fiscal 2016); Indonesia 1.03
(compared to fiscal 2018); India 1.09 (compared to
fiscal 2017); and Spain 1.15 (compared to 2017).
As a means of fostering our human resources, we
measure the number of personnel that are at a level
to provide guidance in monozukuri (creating
things), maintain diversity and move toward
appointing more presidents at local overseas pro-
duction facilities. In the area of occupational, health
and safety, we measure the safety of operations at
production facilities. We achieved a ratio of excellent
or advanced skilled engineers in manufacturing of
2.9 to one (unconsolidated), 59 female in manage-
ment positions (unconsolidated), a ratio of local
presidents of 46% (overseas Group companies) and
frequency rate of industrial accidents throughout the
Group of 1.38.
We measure how thoroughly respect for human
rights has been adopted by our employees through
the completion rate for the self-assessment. The
completion rate for the self-assessment was 99%.
To measure the level of implementation of the CSR
by suppliers, we created a questionnaire for suppli-
ers. We began running this survey of CSR through
the procurement process in fiscal 2019. The CSR pro-
curement ratio in fiscal 2019 was 94%.
As an indication of our performance in the area of
engagement, we track the number of events held
by our Air Conditioner Forums (Konwakai), an event
that comprehensively covers the industry and pro-
vides an opportunity for dialogue between experts
in air conditioning. The Air Conditioner Forum was
held six times across five different regions world-
wide (114 participants from 37 countries participat-
ed and attendees included university professors and
experts in their field).
The amount of support in terms of donations both
financial and material provides an indication of our
contribution to regional society. This amount across
the entire Group stands at ¥1.4 billion.
We measure the status of our efforts in corporate
governance compliance through the completion
rate by employees of the self-assessment. The com-
pletion rate for the self-assessment was 99%.
G
Governance
Corporate
Governance
Thoroughness of compliance
Degree of independence from the company, diversity,
and transparency of the Board of Directors (Daikin
Industries, Ltd. only)
We also have a ten-member Board of Directors,
including three external directors, one female mem-
ber, and two non-Japanese members. (Unconsolidated)
Annual Report 2019
27
CSR (Corporate Social Responsibility)
CSR (Corporate Social Responsibility)
Environment
(cid:3) Materiality of Environmental Measures
While air conditioners, the main product of the Daikin Group,
support the enhancement of economic growth and quality of life
in hot regions, they consume a lot of electricity during use and
also have an impact on climate change through the fluorocarbon
used as a refrigerant.
In recognition of this, the Daikin Group strives to contribute to
the sustainable growth of global society as the only comprehen-
sive air-conditioner manufacturer that develops and manufactures
both air conditioners and refrigerants. The Daikin Group focuses
on the spread of environmentally conscious products using invert-
er technology, refrigerants with lower global warming potential
worldwide and its services solution business.
(cid:3) Daikin’s Initiatives
Promotion of Eco-Friendly Technologies and Products
The Daikin Group develops and distributes environmentally
conscious products globally that satisfy either or both a reduction
in power consumption by 30% or more compared to conventional
models and use of refrigerants with a lower global warming
potential of a third or less compared to conventional refrigerants.
In fiscal 2019, the percentage of sales of environmentally conscious
products related to residential air conditioners was 93%, repre-
senting a reduction in emissions of greenhouse gases* of 67 million
tons of CO2. As a measure to reduce CO2 emissions resulting from
the energy consumption of air conditioners, Daikin is working to
broaden the global distribution of inverter units. For example, in
Southeast Asia, Daikin has developed low-cost inverter units
targeting regions requiring cooling-only air conditioners, and,
due to a rising energy-conservation consciousness along with
strengthened regulations and steeply rising electricity prices,
these low-cost inverter units are flourishing.
Also, in Latin America and the Middle East, Daikin is cooperat-
ing with government and industry bodies to support the estab-
lishment of energy efficiency assessment standards, through the
introduction of indicators, standards, and an improved energy
labelling system.
* Difference between emissions from the total sales by Daikin of environmentally conscious
products and a baseline of emissions from air conditioners using non-inverter units and
conventional refrigerants, combustion-type heating, and hot water heaters.
Supporting the Rollout of R32 Refrigerant in
Emerging Economies
In 2011, the Daikin Group released 93 basic patents related to
the manufacture and sale of air conditioners using R32 royal-
ty-free for emerging countries allowing for the manufacturers in
each country to introduce the lower global warming potential
(GWP) R32 refrigerant. In 2015, this royalty-free use of R32 as a
refrigerant was expanded worldwide.
In addition, Daikin provides technical support in emerging
countries by cooperating with governments and international
organizations throughout the world and provides information
and technical support through international conferences, aca-
demic conferences, and papers on the impact and countermea-
sures in relation to refrigerants and global warming.
For example, in India, Thailand, and Malaysia, seminars were
held for government officials and air-conditioning industry groups
to promote understanding of R32, and we conducted training for
local air-conditioning installation and service technicians on the
appropriate handling of R32.
In Mexico, Daikin was commissioned by the Japan International
Cooperation Agency (JICA) to handle private-sector technology
promotion projects in an expanded range of activities, including
the distribution of air conditioners with R32 refrigerant and initia-
tives to create energy-efficient markets.
As of December 2018, the Daikin Group had sold more than
17 million R32 air conditioners worldwide in 60 countries. We
estimate that the global market for R32 air conditioners, when
our competitors are included, exceeded 68 million units.
Reduction of Greenhouse Gases by 75% Compared to
Fiscal 2006 Levels, Goals Achieved
Greenhouse gases emitted by the Daikin Group during the pro-
duction process across the entire business are classified by energy
use into two main categories: CO2 and fluorocarbons. From fiscal
2017, we reviewed estimate calculations and the management
targets for companies in the Group that have been in place since
2010. We set targets to reduce greenhouse gas emissions from
fiscal 2006 levels by 70% in fiscal 2021 (reduction to 1.58 million
tons-CO2).
In fiscal 2019, at Daikin America, Inc., replacement and recov-
ery of fluorocarbons was under way resulting in a 75% reduction
of greenhouse gas emissions compared to fiscal 2006 levels
(reduction to 1.31 million tons-CO2).
Realization of ZEB (Net-Zero Energy Buildings) at Existing Buildings
Daikin’s branch office in Fukuoka, being a medium-sized office building,
was lagging behind in efforts to become energy efficient. However,
owing to a facility upgrade combined with off-the-shelf technology as
well as thorough operational management, we were able achieve “ZEB
Ready”* status. Upgrading conventional, existing buildings to ZEB status
had, in the past, required complicated technologies as well as enormous
deployment costs. At the Fukuoka building, our first stage in reducing
energy consumption was to upgrade facilities and thoroughly centralize
management of air conditioning, ventilation, and lighting, which are
large consumers of electricity. As a second stage, we installed dou-
ble-paned windows and a solar power system, which enabled a 67%
decline in annual energy consumption (fiscal2018 results) compared to
ordinary buildings on the same scale. This knowhow will, we believe,
provide a major contribution to spreading ZEB to medium-sized office
buildings.
Daikin has been recognized for such efforts, and was awarded the
Director-General Prize from Agency for Natural Resources and Energy.
* Buildings achieving a reduction of greater than 50% compared to the energy saving
standard for ordinary buildings.
28
Daikin Industries, Ltd.
(cid:3) Environmental Vision 2050
In the Paris Agreement adopted in 2015, the declared goals were to reduce green-
house gas emissions to zero in the second half of this century and to keep the glob-
al average temperature rise below 2°C compared with before the Industrial
Revolution. To demonstrate its approval of the Paris Agreement, the Daikin Group
has formulated its “Environmental Vision 2050” to aim for zero greenhouse gas
emissions in 2050. Reflected in the latter half of “FUSION 20,” our three-year Strategic
Management Plan, we have also started to develop a medium- to long-term strategy
targeting 2030.
Open Innovation
IoT and AI
Through
products
Through
solutions
Daikin
Environmental
Vision 2050
We will provide safe, healthy
air environments while striving
to reduce greenhouse gas
emissions to zero.
Open Innovation
IoT and AI
Open Innovation
IoT and AI
Through
the power
of air
Development of Medium- to Long-Term Strategy toward Realization of Environmental Vision 2050
To create new added value from the air generated by our products across the world and to aim for zero greenhouse gas emissions by means
of our products and solutions, we analyzed the future of the air-conditioning business. From the results of that analysis, we are developing
and implementing measures under “FUSION,” our Strategic Management Plan formulated with an eye toward 2030.
Through products
Through solutions
Through the power of air
Philosophy toward net zero greenhouse gas emissions
Image: The power of air
s
n
o
i
s
s
i
m
e
s
a
g
e
s
u
o
h
n
e
e
r
G
Through
products
More energy-effi cient products
Development and adoption of refrigerants with lower
global warming potential
Reduce environmental impact throughout the entire
life cycle, including production
Through
solutions
Reduction through
energy-efficient
construction and spread
of renewable energy
Currently
2050
Offset
Use of energy management to carry out effi cient
operation of buildings with centralized systems
for energy effi ciency and renewable energy
Provision of energy services throughout the
value chain
Offset the remainder by:
Switching refrigerants, recovering
and recycling refrigerants
Spreading use of heat-pump heating
Protecting forests
Conducting renewable energy businesses
Others
Bountiful air
Highly productive offi ce environments
Rooms that enhance power of
concentration
Rooms that help people sleep better
l
s
e
i
g
o
o
n
h
c
e
t
g
n
i
c
n
a
v
d
A
Health, comfortable air
Reducing sleep disorders
Rooms that reduce stress
Rooms that reduce heat shock
Safe, secure air
Protecting people’s health from
atmospheric pollution
Reducing risk of infectious diseases
Preventing heat stroke
Diversifying needs
Growth Strategy Based on Risks and Opportunities
The forecast for rapidly increasing demand for air condition — Daikin’s main business — presents us with a huge opportunity. But along with
this comes risks for the continuation of our air conditioning business: increased air conditioning means greater energy needs, increasing
electricity provision costs, and higher greenhouse gas emissions.
We aim to respond to these risks by turning them into opportunities. We will do this by reducing our environmental impact by, for
example, developing and spreading the use of high-efficiency air conditioners, creating solutions for buildings that utilize energy effectively
throughout the entire facility, and developing and spreading the use of refrigerants with lower global warming potential. In this way, we aim
to protect the environment while growing our business.
IEA The Future of Cooling Forecast
Worldwide air conditioner stock (number of units) and electricity demand
In May 2018, the International Energy Agency (IEA)
released The Future of Cooling. The report looks at air
conditioning and how the rise in its use is driving global
energy demand.
According to The Future of Cooling, estimates are for air
conditioning demand to rise rapidly and for energy demand
for space cooling to triple by 2050.
(100 millions units)
60
2050
6,200TWh
(TWh)
6,000
Energy demand for space
cooling to triple by 2050
2015
2,020TWh
50
40
30
20
10
0
4,000
2,000
0
1990
2000
2010
2020
2030
2040
2050 (Year)
Other
Middle East
Mexico
Brazil
Indonesia
India
China
United States
Note: Compiled by Daikin
based on Graph figures
IEA The Future of Cooling.
Annual Report 2019
29
CSR (Corporate Social Responsibility)
CSR (Corporate Social Responsibility)
New Value Creation
(cid:3) Materiality of New Value Creation
Daikin Group believes that to achieve sustainable growth in an
environment where change and progress in both globalization
and technology are accelerating remarkably, it is important to
provide unparalleled new value. Making use of IoT and AI tech-
nology, we aim to integrate cutting-edge technologies from dif-
ferent fields through open innovation. We will pursue new value
to make people and indoor spaces healthy and comfortable
through technologies and products that contribute to the resolu-
tion of social issues such as energy, the environment, and health.
(cid:3) Daikin’s Initiative
Creating Value from Data in Relation to Air and Space
Daikin launched the collaborative creation platform “CRESNECT”
to use data obtained from air conditioners and by cooperating
with various partner companies has created new values and ser-
vices related to air and space.
As the first project, in July 2019, we started a trial experiment
to realize “Future Office Creation” together with partner compa-
nies in a member-type workspace in Tokyo’s Marunouchi district.
By having users experience the spatial content—“space where
they can work more efficiently”, “a space where they can work
more healthily”—created by integrating the latest technology,
data, and know-how possessed by each participating company,
we aim to create new products and services by demonstrating
the creation of healthy and comfortable office spaces.
Cooperative Creation That Makes Use of IoT in Skill Transfer
Daikin and Hitachi, Ltd. embarked on a collaborative project to
create the next-generation production model using IoT to support
skills transfers from expert workers as of October 2017. More
specifically, we are proceeding with a joint demonstration of the
viability of a new production model. The system uses such tech-
nologies as advanced image analysis, which is the solution core
of Hitachi’s IoT platform, “Lumada,” and through digitalization,
the system enables the comparison and analysis of the skills of
expert workers and trainees.
The current demonstration involves the brazing process, which
forms part of the manufacturing process for air conditioners at
Daikin’s Shiga Plant.
In the future, we will move to full-scale production using this
system and with the objective of ensuring consistent quality and
improved productivity and developing human resources, we aim
to expand to other Japanese and overseas production locations.
In fiscal 2019, we introduced brazing skill training support sys-
tems at three technical skill dojos (training centers) in Japan and
commenced operations. Starting in the current fiscal year, we
plan to deploy the systems at overseas locations.
Providing Comfortable Air-Conditioned Spaces
in Buildings for Fixed Monthly Fees
Daikin Airtechnology & Engineering Co., Ltd., a wholly owned
subsidiary of Daikin Industries, established Air as a Service, Ltd.
(AaaS) jointly with Mitsui & Co., Ltd. Owning air-conditioning
equipment on behalf of facility owners, AaaS offers subscrip-
tion-type services that provide users with comfortable air-condi-
tioned spaces for a fixed monthly fee.
Typically, the air-conditioning equipment in buildings and com-
mercial facilities is bought in bulk and owned by the building
owners, who usually conduct routine inspections, repairs, and
maintenance at their own expense. The maintenance manage-
ment and replacement of air-conditioning equipment, however,
requires a lot of money and effort, and the equipment is often
used far beyond its service life and not properly maintained,
which leads to deterioration in air-conditioning effectiveness and
a rise in energy costs. On behalf of the facility owners and for a
fixed monthly fee, AaaS provides services ranging from air-condi-
tioning equipment installation and updates to the operational
management of the equipment. By maintaining energy-saving
and comfortable air-conditioned spaces, the company also reduc-
es the burden on the owner and improves tenant satisfaction.
Increasing Outdoor Comfort with “Outer Tower” Outdoor Air Conditioner
Daikin Industries has launched ”Outer Tower,” an outdoor-use air condi-
tioner that brings comfort to outdoor spaces where the heat can become
a problem, such as café terrace seating and public spaces in midsummer.
This product delivers cold air from the sides of its tower-shaped body in
all four directions—to the front, back, left, and right—to a distance of
about three meters. Since the structures of a general indoor air condi-
tioner unit and an outdoor unit have been integrated into one self-con-
30
Daikin Industries, Ltd.
tained unit, refrigerant piping work is unnecessary, and thus an ”Outer
Tower” can be installed anywhere you like. Cool spots can be created
outdoors.
Customer Satisfaction
(cid:3) Materiality of Customer Satisfaction
Daikin is developing business in over 150 countries around the
world. To provide maximum satisfaction to customers in each
individual country, Daikin takes into consideration climate, cul-
ture, and regulations to provide products and services that meet
local needs. At the same time, it is vital to maintain the highest
standards of quality.
To more precisely match customer needs, Daikin is focused on
customer-oriented business activities and regularly addresses the
frank opinions of customers worldwide, making use of their
views in areas such as product development.
(cid:3) Daikin’s Initiatives
Implementing Global Quality Guidelines
In its Global Quality Guarantee Rules, the Daikin Group has pre-
scribed its basic stance on quality standards across its Group com-
panies and outlined the responsibility and authority structure to
ensure the seamless implementation of measures for quality
monitoring and correction. We have acquired ISO9001 certifica-
tion at all production facilities, and, through our quality manage-
ment system, we thoroughly implement quality maintenance and
management in all development, procurement, and production
divisions. Furthermore, we are also working to enhance quality
with the cooperation of our outsourcing partners.
To assess the operating status of the quality management sys-
tem, the Daikin Group conducts evaluations through internal
audits and maintains a continuous cycle of implementation, eval-
uation, and improvement.
In addition, every year, we plan and implement a quality assur-
ance program for the fiscal year that outlines quality priority mea-
sures and targets for each business division based on the Group’s
annual policy guidelines.
Developing Our Service Structure in Japan and Abroad
The Daikin Contact Center is a general inquiry service that
accepts inquiries regarding repair requests, technical consulta-
tions, and purchasing information 24 hours a day, 365 days a
year, from customers in Japan.
Overseas, we have put in place an after-sales service structure
with “speed, accuracy, and good mangers” to respond to the
variety of requests specific to each country or region.
In fiscal 2019, we renewed our existing customer inquiry service
in China. In addition to repairs and other problems that have tradi-
tionally formed part of the service, we have created a system where-
by air-conditioning professionals can provide advice, such as on
model selection and usage suggestions, as a general inquiry service.
Collecting and Reflecting the Views of Customers
The Daikin Group measures customer satisfaction through its
after-sales services and uses these results to enhance customer
satisfaction. In Japan, we conduct our Relationship Survey, and,
in fiscal 2019, the overall satisfaction score was 4.56 out of a
total of 5.0 points, our highest rating to date.
We believe this result reflects our education and training in
such areas as “enhancing technical capabilities” and “improving
our response to customers” as well as a focus on “speed from
reception to completion” and “repairs completed in one visit”.
Meanwhile, customers’ opinions collected at showrooms, shops,
and websites are used for product development. In fiscal 2019,
we responded to feedback from customers in Japan who were
worried about humidity countermeasures for homes that had
been left vacant for long periods of time by launching “Karaie,”
which dehumidifies homes with no need to throw away water.
We also answered calls for diversification of interior design by
launching “risora,” the front panel of which can be painted in
the customer’s favorite from a choice of 600 colors.
Global Product Development System
to Meet Diverse Regional Needs
The functions and performance required of air conditioners vary
greatly from region to region, depending on factors that include
the climate, culture, power supply situation, and income levels. To
rapidly develop products in line with such local circumstances, we
have R&D centers in 25 locations around the world and have
established a system that allows us to offer local products at com-
petitive prices. We also share the know-how gained at each base
and utilize that expertise throughout the entire Group to accelerate
the development of products that satisfy our customers.
Of the 25 locations, five locations in Europe, the United States,
India, China, and Japan are designated as mother R&D centers.
Previously, R&D responsibilities were shared by areas of expertise
assigned to specific regions. For example, Japan was solely
responsible for bringing together key technologies, India for the
Company’s responses to high ambient temperatures, and Europe
for heating, and each region fulfilled a global mother function.
First Place in “Corporate Telephone Answering Contest”
At the 22nd “Corporate Telephone Answering Contest,” spon-
sored by the Japan Telecom Users Association (JTUA), the Daikin
Contact Center received a Directors Award (ranked first overall).
Also, for the second consecutive year, Daikin was selected as a
Gold Ranked Company. Highly rated criteria in the gaining the
awards were the quick, polite, and detailed explanations, and the
friendly way in which inquiries are handled.
“Assisnet Service” Supports Maintenance Management of Air-conditioning Equipment
Daikin Industries launched its ”Assisnet Service” to support, at low cost,
the maintenance management of air-conditioning equipment in buildings
and commercial facilities. The service covers the periodic inspections
required under the Fluorocarbons Emission Reduction Act, the notifica-
tion of abnormal air conditioner operations, and the ascertaining of
cumulative operating hours. Making inspections mandatory is extremely
important from the viewpoint of preventing global warming. On the
other hand, these add new duties on top of the normal equipment main-
tenance and management tasks for employees in small and medi-
um-sized buildings and stores. As they do not have dedicated equipment
managers, and their workload is greatly increased, reductions are being
requested. The ”Assisnet Service” provides comprehensive support for
inspections and maintenance management, enabling increased efficiency
in the management operations of air-conditioning equipment.
Annual Report 2019
31
CSR (Corporate Social Responsibility)
CSR (Corporate Social Responsibility)
Human Resources
(cid:3) Importance of Initiatives Related to Human Resources
In response to the expectations of our various stakeholders and
for the Daikin Group to realize on a global level its strengths in
the “environment”, “new value creation” and “customer satis-
faction”, the personnel who can take on the responsibility to per-
form these activities are critical. Therefore, Daikin has positioned
“People-Centered Management” as its foundation and to respect
individuals and their values we are promoting the creation of an
organization that can maximize the power that each individual
possesses.
(cid:3) Daikin’s Initiatives
Enhancing Opportunities for Human Resource Development
One of the corporate philosophies of the Daikin Group is the idea
that “the cumulative growth of all Group members serves as the
foundation for the Group’s development. In addition, based on
the concept that “people grow through job experience,” we
have positioned OJT as the basis of human resource development
and, including off-the-job training (Off-JT*), are working to
enhance growth opportunities.
We are also focusing on nurturing the human resources for the
next generation of skills that will become the basis of manufactur-
ing. The goal is to have one in every four employees in our global
production rated as “outstanding skilled workers and highly skilled
workers”. In fiscal 2019, the number of qualified personnel in Japan
was one in 2.9 people. Meanwhile, we are working to enhance
training opportunities in the form of Off-JT that include: the Daikin
Leadership Development Program, which fosters the executives who
can play an active role on the front line of our global business; over-
seas base practical training to develop young, globally minded human
resources; and the “Daikin Information and Communications
Technology College,” an in-house lecture to train the personnel
responsible for technological and business development in the AI field.
* Off-the-Job Training, a method of learning away from work to gain extra knowledge and skills
Appointment of Local People in Executive Positions
at Overseas Facilities
In conjunction with the globalization of the Daikin Group’s busi-
ness, we are also advancing with efforts to globalize our manage-
ment team and are aggressively promoting local employees at
overseas bases to executive and positions. At the end of fiscal
2019, 46% of the presidents at our overseas bases and 43% of
the directors were local employees.
Accelerating the Active Role of Women in Japan
The Daikin Group is working to promote the active participation
and success of women, aiming at an environment that can fully
demonstrate each individual’s ability regardless of gender.
As goals, we are aiming to have at least one female director at
Daikin Industries and increase the number of female managers to
100 by the end of fiscal 2021. As of the end of fiscal 2019, there
were 59 female managers, and we are reforming the awareness
of managers and employees with regard to women’s issues, while
expanding the support measures designed to assist in balancing
work and childcare. In March 2019, having been evaluated as an
outstanding enterprise in encouraging women’s success in the
workplace, it was announced that Daikin Industries had been
granted Nadeshiko Brand designation—for the sixth time, and
the fifth consecutive year—by both the Ministry of Economy,
Trade and Industry and the Tokyo Stock Exchange.
New Factory Commences Full-Scale Operations in Vietnam,
Spreading Adoption of Energy-saving Air Conditioners
Due to the expense of electricity bills that take away a large part
of people’s incomes, air conditioners that offer high energy sav-
ings, such as inverter air conditioners, are in demand in Vietnam.
To provide for the stable supply of high-quality, energy-saving air
conditioners, Daikin Air Conditioning Vietnam established a new
factory near Hanoi in May 2018. In fiscal 2021, production
capacity will be doubled compared with fiscal 2019 to one mil-
lion units per year, and the company is planning to increase the
number of employees in Vietnam as a whole from 1,779 in fiscal
2019 to 2,250. The company will also focus on developing
human resources, such as sales and services staff, who are indis-
pensable in the adoption of Daikin air conditioners. There having
been roughly a five-fold increase in demand for air conditioners
in Vietnam between 2008 and 2018, it is expected that the
expansion trend will continue in the years to come.
Promoting Understanding of LGBT Issues
At Daikin Industries, the understanding of LGBT issues has been
deepened by holding practical training, including basic knowl-
edge of LGBT issues and workplace responses, for around 500
directors, managers, and team leaders. In addition, the defini-
tions of “marriage” and “gender” were clarified in personnel
terms, and “actual marriage (including same-sex partners)” and
“gender through self-identity (gender with which someone iden-
tifies)” recognized.
Overseas Bases Becoming Main Centers for Developing Human Resources That Support
Adoption of Air Conditioners
The Daikin Group is advancing the building of manufacturing systems
around the world. Daikin Industries (Thailand) Ltd. is spearheading the
training of the technicians involved in manufacturing at the Daikin Air
Conditioning Vietnam plant, which commenced operations in May 2018.
The new factory in Vietnam has a shortage of skilled technicians who
have the basic skills to manufacture air conditioners. Training for about
60 management-level employees from the Vietnamese company was
therefore held at the Thai factory even before the new factory had com-
menced operations. Daikin in Japan provided guidance for the introduc-
tion of the latest technologies, such as the utilization of IoT technology
for the production control system, which is the first of its kind in Asia and
Oceania. This has naturally led to Daikin Air Conditioning Vietnam train-
ing the Thai company technicians that had instructed the Vietnamese.
Such intercountry exchanges provide opportunities for both the instruc-
tors and trainees to improve their leadership and technical skills, while
serving to increase their motivation.
32
Daikin Industries, Ltd.
Initiatives to Reduce Workplace Related Accidents to Zero
To ensure operational and employee safety at its production facil-
ities in each region worldwide, the Daikin Group has created
occupational health and safety management systems (OHSAS) at
44 facilities and is acquiring certification for international stan-
dards, such as OHSAS18001.
We hold Groupwide joint safety and security meetings twice a
year to improve safety levels. With the aim of achieving zero
workplace accidents, our efforts include education and safety
patrols. In fiscal 2019, the frequency rate of industrial accidents
throughout the Group was 1.38, an improvement of 0.05 from
fiscal 2018.
CSR Management/
Compliance Risk Management
(cid:3) CSR Management
The Daikin Group established the important themes of “CSR for
value provision” and “Fundamental CSR,” to enable it to realize
sustainable development both as a corporation and a member of
society.
The CSR & Global Environment Center, a staff division, was
established under the CSR Committee (chairman: director in
charge of CSR), which sets the overall direction of activities and
monitors the execution of those activities and promotes compre-
hensive and Groupwide CSR.
In fiscal 2018, at the CSR Committee, we discussed the neces-
sity and content of our long-term environmental vision encom-
passing the Paris Agreement’s aim to keep the rise in temperature
below 2°C, and the sustainable development goals (SDGs) adopt-
ed by the United Nations and reported to the president.
(cid:3) Compliance Risk Management
Taking an Integrated Approach to Promoting Compliance
and Risk Management
At the Daikin Group, the Internal Control Committee, chaired by
the President, checks and confirms that internal controls, includ-
ing risk management, are functioning properly Groupwide.
Chaired by the officer in charge of corporate ethics and compli-
ance, the Corporate Ethics and Risk Management Committee is
held twice a year in Japan as a general rule and comprises each
department head and the presidents of major Group companies
to ensure the management of operational risk and thorough
compliance.
Overseas Group companies formulate and develop comprehen-
sive common rules to tackle compliance and risk management.
The issues faced by each company and the progress toward reso-
lution are reported to the Corporate Ethics and Risk Management
Committee.
In fiscal 2019, compliance meetings were held in Asia, Oceania,
Europe, and China to share information on self-assessment as
well as on education and training initiatives.
The Thorough Implementation of Group Guidelines
The Daikin Group established its Group Code of Conduct that
clearly outlines required conduct for individual officers and
employees and, to ensure thorough compliance, appointed a
Compliance and Risk Management Leader (CRL) for each division
and for each of the main Group companies in Japan and over-
seas. CRLs encourage adherence to the Group Code of Conduct,
while regularly checking the status of compliance and risk man-
agement and sharing information, and they are focused on fos-
tering a “culture free of compliance violations” and to elevating
“mechanisms to ensure that there are no compliance violations.”
(cid:3) Identification of Most Important Risks and Planning and
Implementing Countermeasures
With the rapid expansion of Daikin’s business, the Daikin Group
introduced its risk management system, to gain an overall picture
of risks from a global perspective in an accurate and prompt
manner and to reduce risk across the entire Group. Each division
and main Group company overseas and in Japan identify and
select critical risks through risk assessments, and each Group
company works to reduce this risk. The status of risk reduction
measures is shared with and reported to the Corporate Ethics and
Risk Management Committee.
For example, in fiscal 2019, Daikin Industries made efforts
toward key themes such as “Earthquake Risk,” “PL Quality Risk,”
“Intellectual Property Risk,” “Information Leakage Risk,” and
“Overseas Crisis Management”.
Corporate Ethics and Risk Management
Board of Directors
Corporate Ethics and
Risk Management Committee
Officer in Charge of Compliance
and Corporate Ethics
Officer in Charge
Divisions and
Group
Companies
Legal Affairs, Compliance and
Intellectual Property Center
P
r
o
m
o
t
i
o
n
E
x
e
c
u
t
i
o
n
People in Charge of Corporate
Ethics and Risk Management
Compliance and Risk Management
Leaders Meeting
Compliance and
Risk Management Leaders
Annual Report 2019
33
CSR (Corporate Social Responsibility)
CSR (Corporate Social Responsibility)
Respect for Human Rights
Based on the laws and ordinances of countries and regions
around the world, the Daikin Group respects basic human rights
in accordance with the various international norms. The Daikin
Group participates in the United Nations Global Compact for
supporting, and putting into practice, universally accepted princi-
ples relating to such matters as human rights and labor. We
respect human rights, diverse values, and the individual’s sense of
work, and have stipulated in our Group Code of Conduct policies
against child labor and forced labor.
Respect for Human Rights in the Self-Assesment
The Daikin Group is committed to respecting the human rights of
all its employees as stipulated in the Group Code of Conduct that
clearly outlines the conduct to be adhered to by each and every
officer and employee. We have identified the human rights issues
of our business and have begun to appraise the risks that should
be prioritized across the entire value chain. Also, to ensure com-
pliance with the Group Code of Conduct, we established an item
relating to respect for human rights in the annual self-assesment
that checks to ensure there are no human rights violations and,
where necessary, establishes measures to address any issues.
An item was also included in the Supply Chain CSR Promotion
Guidelines, formulated in 2017, and we are also asking for thor-
ough compliance from our suppliers.
Protection of Personal Privacy
The Daikin Group has established guidelines for the protection of
personal information, and based on these guidelines, each Group
company develops its own systems to promote the guidelines
and rules. We also established personal data handling rules to
ensure compliance with the EU General Data Protection
Regulations (GDPR) which came into effect from May 2018, and
we are working to ensure thorough compliance at each Group
company.
Regular Human Rights Awareness and Education
Daikin conducts human rights education and awareness activities
each year for all of its directors, new employees, including those
of affiliates, and newly appointed managers. In addition, we pub-
lish a series of human rights articles in the Company newsletter
to raise awareness of human rights.
In fiscal 2019, e-learning was conducted for all employees in
Japan to raise human rights awareness and prevent harassment.
Using recent social trends and specific examples of harassment,
we worked to raise the awareness of each and every employee.
Establishment of Consultation Desk
Daikin Industries has established a Corporate Ethics Consultation
Desk that gives consultations and receives opinions on general
corporate ethics from employees. We also conduct harassment
training geared toward department heads and managers, includ-
ing training for newly appointed managers, to alert them with
regard to the handling of information when consulted.
We have in place a system for taking prompt measures by
which the Legal Affairs Department investigates the content of
reports and tip-offs and decides on measures to prevent recur-
34
Daikin Industries, Ltd.
rence following discussions with the department in charge.
To make the existence of the Corporate Ethics Consultation
Desk common knowledge, its contact information is listed on the
Compliance Card carried by employees.
Supply Chain Management
In 1992, the Daikin Group established the Basic Procurement
Guidelines and is working to ensure fair trade with its suppliers.
In 2017, we established the Supply Chain CSR Promotion
Guidelines and recognize that our social responsibility extends
beyond the Group to the entire supply chain. In line with this, we
are promoting CSR initiatives related to the environment, quality,
occupational safety, and human rights.
Implementation of the Supply Chain
CSR Promotion Guidelines
Supply Chain CSR Promotion Guidelines that the Daikin Group
implemented in April 2017 are guidelines to promote CSR at sup-
pliers also, and aim to achieve stable, sustained business growth.
In addition to general requirements such as management and
compliance with laws and regulations, suppliers are requested to
work on CSR across the board, including environment, quality,
occupational health and safety, human rights, and the prohibition
of trade with conflict zones.
In fiscal 2019, we conducted a CSR survey of 135 major busi-
ness partners in Japan, as a result of which the CSR procurement
implementation rate was found to be 94%. We conduct inter-
views with suppliers who are judged to be at risk and provide
suggestions on how to improve and guidance according to the
guidelines. From the current fiscal year, we will work to further
improve the CSR level of domestic suppliers and roll out this ini-
tiative globally.
Enhancing Quality from Suppliers and Supporting the
Development of Human Resources
For the Daikin Group to provide products that satisfy the trust of
customers, cooperation from suppliers is vital. Therefore, while
working hard within a strong relationship of trust with all suppli-
ers, the Daikin Group endeavors to continue to meet its mutual
expectations as well as to build relationships in which we can
both grow and develop.
Daikin Group companies both in Japan and abroad periodically
conduct dialogue at the production sites of its suppliers on quali-
ty audits and quality improvements, collaborating with its suppli-
ers on quality improvement efforts and providing support to
enhance the required technological capabilities. In addition, we
hold regular safety meetings to help prevent work-related inju-
ries.
In fiscal 2019, we introduced “chemSHERPA,” the scheme for
communicating information on chemical substances contained in
products recommended by the Ministry of Economy, Trade and
Industry, and requested its introduction by our business partners.
We aim to manage chemical substances efficiently by having the
Company and our business partners use standardized report
forms and databases.
Stakeholder Engagement
(cid:3) Stakeholder Engagement
The Daikin Group’s main stakeholders are the customers to
whom we provide products and services, the shareholders and
investors who have a direct impact on our business, our suppliers,
our employees, and everyone in the regional societies that our
business evolution affects. In addition, the spread of air-condi-
tioning technologies and the enhancement of the environmental
friendliness of our products and services involve national and
local governments and industry associations. The Daikin Group
believes that it is important to understand the concerns and
expectations of these stakeholders through proactive dialogue, so
management can use this information in our business.
Continuing Exchange of Opinions with Experts
Since 1995, the Daikin Group has held the Air Conditioner Forum
(Konwakai) in Japan where it can exchange opinions relating to
the “future of air conditioning” with experts in the field.
In addition, in light of the rapid global development of our
business, since fiscal 2008, we have expanded the extent of these
events to five regions and held forums in Europe, China, the
United States, Asia/Oceania, and Central America/South America.
Exchanging opinions with experts from each region about envi-
ronmental and energy issues, we use that information in our
technology as well as product and business development. In fiscal
2019, we held a total of six events in five areas.
The U.S. consul general in Osaka was invited as a special guest
to a North American social gathering held at Daikin Ales Aoya,
our Global Training Center in the city of Tottori City. Daikin’s
energy-saving technologies and environmental strategies were
explained, and lively discussions held on the potential of IoT and
AI technologies.
Responsibility to Shareholders and Investors
To live up to the expectations of shareholders and investors, the
Daikin Group believes that it must increase its corporate value. It
therefore, emphasizes free cash flow as a source of corporate
value and focuses on augmenting its profitability while lowering
the levels of its trade receivables and inventories. Furthermore,
Daikin works to stably maintain its consolidated ratio of dividends
on equity (DOE) at 3.0%.
In addition, to increase its management transparency, Daikin is
executing diverse kinds of IR activities. As part of this, we held a
Sustainability Briefing in fiscal 2019. Having explained our envi-
ronmental efforts, such as our Environmental Vision 2050 that
we formulated in 2018, and our approach to human resource
development, we received many opinions.
To make it easier for shareholders to exercise their voting rights
at ordinary general meetings of shareholders, the Japanese and
English versions of convocation notices are posted on our website
and that of the Tokyo Stock Exchange prior to being sent. The
exercise of voting rights on PCs, smartphones and mobile phones
is also possible.
Regional Society
The Daikin Group is made up of 291 consolidated subsidiaries
worldwide and is expanding business in over 150 countries. The
expansion of this global business is accelerating in line with the
growth in demand for air conditioners, particularly in emerging
countries and regions such as China, India, and Latin America.
The basic policy for overseas operations is to develop a strong
bond with regions through respect for their local cultural and his-
torical backgrounds and is premised on increasing employment in
the local region and cooperation with local companies.
With our employees taking the initiative, we carry out social
activities mainly in the areas of “environmental conservation,”
“education support,” and “cooperation with the local communi-
ty” and are contributing to the resolution of social issues from a
global perspective based on sustainable development goals
(SDGs).
Forest and Biodiversity Preservation
To protect the environment in the vicinity of our facilities
throughout the world, the Daikin Group is working to preserve
biodiversity through its efforts to conserve forests and other natu-
ral assets such as the oceans and rivers.
For example, Daikin Industries participates in the Osaka
Prefectural Government’s “Adopt a Forest System” and has been
conducting activities to improve the prefecture’s ecosystems by
re-establishing satoyama (a forested natural area forming the
border between the mountains and the habited regions). In fiscal
2019, a total of 190 people participated in the activity. Daikin
Compressor Industries, Ltd. (Thailand) also conducts conservation
activities for mangrove forests. This contributes to conservation of
biodiversity and protects the lives of people engaged in tradition-
al fishing.
Supporting the Regional Revitalization of Okinawa
Since 1988, Daikin Industries has held the “Daikin Orchid Ladies
Golf Tournament,” and, through promoting sports, we are help-
ing to revitalize Okinawa and encourage economic exchange
with the local area. In conjunction with this tournament, we
solicit donations that we then present as an “Orchid Bounty” on
an ongoing basis to individuals and organizations that promote
such areas as the arts, culture, education, and sports in Okinawa.
Holding “Bon Festival” in Japan and Abroad
Daikin has deepened exchanges with local residents through
regional festivals and sports, building relationships of trust. As
part of those efforts, the Bon Festival, which is planned and oper-
ated by Daikin employees, is a large event that attracts attention
by numerous local residents. In addition to manufacturing plants
in Japan, festivals are also held at our main production bases in
China, the United States, and other areas.
Annual Report 2019
35
Eleven-Year Financial Highlights
Eleven-Year Financial Highlights
Daikin Industries, Ltd. and Consolidated Subsidiaries
Years Ended March 31
Operating Results (for the year):
Net sales
Gross profit
Selling, general and administrative expenses
Research and development expenses (Note 1)
Operating income
EBITDA (Note 2)
Net income attributable to owners of the parent
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note 3)
Net cash provided by (used in) financing activities
Financial Position (at year-end):
Total assets
Total interest-bearing liabilities
Total shareholders’ equity
Per Share Data (yen):
Net income (basic)
Shareholders’ equity
Free cash fl ow
Cash dividends
Ratios (%):
Gross profit margin
Operating income margin
EBITDA margin
Return on shareholders’ equity (ROE)
Shareholders’ equity ratio
2009
2010
2011
2012
¥1,202,420
¥1,023,964
¥1,160,331
¥1,218,701
363,660
302,266
30,535
61,394
118,325
21,755
¥62,238
(99,302)
(37,065)
48,382
319,301
275,263
28,220
44,038
96,462
19,391
¥129,227
(39,848)
89,379
(34,942)
361,665
286,210
30,771
75,455
127,168
19,873
¥78,411
(23,306)
55,105
(37,623)
371,902
290,709
32,987
81,193
131,719
41,172
¥44,967
(62,955)
(17,988)
(1,113)
¥1,117,418
¥1,139,656
¥1,132,507
¥1,160,564
417,919
471,686
399,313
496,179
372,481
487,876
389,891
502,309
¥ 74.51
1,615.98
(127)
38.00
¥ 66.44
1,701.29
306
32.00
¥ 68.14
1,672.74
189
36.00
¥ 141.37
1,725.64
(62)
36.00
30.24%
31.19%
31.17%
30.52%
5.11
9.84
4.28
42.21
4.30
9.42
4.01
43.54
6.50
10.96
4.04
43.08
6.66
10.81
8.30
43.28
Notes: 1. R&D expenses are included within general and administrative expenses and manufacturing expenses.
2. EBITDA = Operating income + depreciation and amortization.
3. Free cash flow = Net cash provided by operating activities + net cash used in investing activities.
4. Accompanying a change in accounting policy, effective from April 1, 2014, the consolidated financial statements for the fiscal year ending March 31, 2014 and subsequent years have been revised.
5. Effective from April 1, 2018, the consolidated financial statements for the fiscal year ended March 31, 2018 have been revised in accordance with a change in accounting policy.
Net Sales
(¥ billion)
2,500
2,000
1,500
1,000
500
0
Operating Income
Net Income Attributable to
Owners of the Parent
(¥ billion)
300
250
200
150
100
50
0
(¥ billion)
200
150
100
50
0
09
10
11
12
13
14
15
16
17
18
19
09
10
11
12
13
14
15
16
17
18
19
09
10
11
12
13
14
15
16
17
18
19
36
Daikin Industries, Ltd.
2013
2014
2015
2016
2017
2018
2019
Millions of Yen
¥1,290,903
¥1,787,679
¥1,915,014
¥2,043,691
¥2,043,969
¥2,290,561
¥2,481,109
388,046
299,419
33,569
88,627
140,151
43,585
568,323
411,786
40,177
156,537
235,439
92,787
649,902
459,314
42,892
190,588
268,354
119,675
¥103,161
¥179,713
¥160,423
(218,386)
(115,225)
143,520
(80,835)
98,878
(38,249)
(77,331)
83,092
(83,073)
711,576
493,704
46,138
217,872
302,075
136,987
¥226,186
(105,493)
120,693
(85,422)
730,935
500,166
53,870
230,769
315,798
153,939
¥267,663
(128,823)
138,840
(73,544)
798,829
545,089
62,051
253,740
348,574
189,052
¥223,740
(127,459)
96,281
(93,955)
868,923
592,668
65,216
276,255
375,570
189,049
¥250,009
(165,773)
84,236
(68,721)
¥1,735,836
¥2,011,870
¥2,263,990
¥2,191,105
¥2,356,149
¥2,475,708
¥2,700,891
705,871
618,118
693,944
801,854
662,413
1,024,725
608,981
609,430
1,014,409
1,111,636
554,371
1,296,553
585,642
1,416,075
¥ 149.73
2,123.10
(396)
36.00
¥ 318.33
2,748.08
339
50.00
¥ 410.19
3,511.34
285
100.00
¥ 469.23
3,473.54
413
120.00
¥ 526.81
3,802.10
475
130.00
¥ 646.53
4,433.62
329
140.00
¥ 646.39
4,841.15
288
160.00
30.06%
31.79%
33.94%
34.82%
35.76%
34.87%
35.02%
6.87
10.86
7.78
35.61
8.76
13.17
13.07
39.86
9.95
14.01
13.10
45.26
10.66
14.78
13.44
46.30
11.29
15.45
14.48
47.18
11.08
15.22
15.70
52.37
11.13
15.14
13.94
52.43
Research and Development Expenses
Shareholders’ Equity
Total Assets
(¥ billion)
75
60
45
30
15
0
(¥ billion)
1,500
1,200
900
600
300
0
(¥ billion)
3,000
2,500
2,000
1,500
1,000
500
0
09
10
11
12
13
14
15
16
17
18
19
09
10
11
12
13
14
15
16
17
18
19
09
10
11
12
13
14
15
16
17
18
19
Annual Report 2019
37
Financial Review
Financial Review
Summary of the Period
Japan
During the fiscal year ended March 31, 2019, the overall world economy
In the Japanese commercial air-conditioning equipment market, industry
expanded moderately in the first half of the period; however, increasing
demand rose year on year due to strong capital investment. In the market
uncertainty and signs of a slowdown in growth were seen from the latter
for stores and offices, the Daikin Group expanded sales thanks to the strong
half of the period onward. In the U.S. economy, although residential invest-
performance of the “SkyAir” series, including “FIVE STAR ZEAS” and
ment slowed, personal consumption remained strong due to large tax cuts.
“Eco-ZEAS,” and “machi Multi,” which features individual operation and a
The growth of the European economy slowed from the latter half of the
slim design. In the market for buildings and facilities, a new model was
period due to the stagnation of the German economy and concerns about
released in the “VRV” series, further improving energy-saving performance
the U.K.’s exit from the EU without a withdrawal agreement. The Chinese
and installation flexibility. Furthermore, backed by robust demand and the
economy slowed down from the latter half of the period onward due to
increasing need for improvements in the work environment, mainly for offices
increasingly serious trade friction between the United States and China,
and factories, sales expanded for proposal-based products that meet user
and inventory adjustments for high-tech products. The growth of the
applications, including “MULTI CUBE,” which enables individual control of
Japanese economy was sluggish due to a slowdown in exports, despite
temperature and air volume even in a large space. As a result, net sales of
firm personal consumption and capital investment.
commercial air-conditioning systems increased over the previous fiscal year.
Amid this environment, the Daikin Group’s consolidated net sales rose to
In the Japanese residential air-conditioning equipment market, industry
¥2,481.1 billion (a year-on-year increase of 8.3%). As for profits, consolidated
demand remained firm owing to the summer heat wave. In addition to the
operating income rose to ¥276.3 billion (a gain of 8.9% from the previous
launch of the new “Urusara 7,” a high-end model equipped with a function
fiscal year). Net income attributable to owners of the parent decreased by
that even controls humidity with the Group’s proprietary AI, sales of “risora,”
0.0% to ¥189.0 billion, partly owing to the decrease in income taxes in the
an air conditioner combining design with functionality, showed a robust
previous fiscal year resulting from tax revisions in the United States.
performance. As a result, net sales of residential air-conditioning systems
Performance by Business Segment
(cid:129) Air-Conditioning and Refrigeration Equipment
Americas Region
exceeded that of the previous fiscal year.
Total sales of the Air-Conditioning and Refrigeration Equipment segment
In the Americas, net sales increased year on year as a whole due to the
increased 8.2% from the previous fiscal year, to ¥2,222.2 billion. Operating
success of both sales strategies and strong demand. Net sales of residential
income rose 6.3% year on year, to ¥237.6 billion.
air-conditioning systems rose over the previous fiscal year as a result of the
launch of new products such as a low-cost mini split model and a unitary
product with an inverter, and efforts to develop a new sales network as well
as increase selling prices. Net sales grew year on year in light commercial
air-conditioning systems for medium-sized office buildings due to expanded
Domestic and Overseas Sales
Operating Income
and Operating Income Margin
Net Income Attributable to
Owners of the Parent
(¥ billion)
2,400
1,800
1,200
600
0
(¥ billion)
280
210
140
70
0
(%)
12
9
6
3
0
(¥ billion)
200
150
100
50
0
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
Domestic
Overseas sales
Operating income
Operating income margin
38
Daikin Industries, Ltd.
sales of the “VRV” series. In the market for large buildings (Applied Systems),
Asia/Oceania Region
reinforcement of the sales network and enhancement of the product lineup
In the Asia and Oceania regions, net sales rose year on year as a whole. Sales
amid strong demand led to sales expansion of Applied Systems mainly for
of residential air-conditioning systems in Southeast Asia were strong due to
rooftops. In addition, sales expansion in the after-sales service business led
the development of dealer networks covering urban and regional areas, with
to an increase in net sales over the previous fiscal year.
net sales increasing over the previous fiscal year. Net sales of commercial
China
air-conditioning systems grew year on year mainly due to the expansion of
dealer networks and successful efforts to bolster ‘spec-in’ activities. In India,
In China, amid the increasingly harsh market environment resulting from the
sales of residential air-conditioning systems increased due to the expansion
trade friction with the United States as well as government policies to restrict
of dealer networks and sales expansion in regional cities. Sales of commercial
new housing construction, the Group changed its product strategies and
air-conditioning equipment were also strong. As a result, net sales expanded
expanded sales to regional cities. As a result, net sales remained flat year on
over the previous fiscal year.
year. At the same time, the Group maintained high earnings by minimizing
the impact of changes in currency exchange rates and increases in purchasing
Europe/The Middle East/Africa
costs, reducing fixed costs, and promoting cost reductions. In the residential-use
In Europe, while a deceleration was seen in the economy, net sales increased
market, in addition to the “New Life Multi” series aimed at the mid-range
year on year as a whole as the Group’s efforts to bolster sales capabilities
and high-end residential market, the Group responded to changes in the
and the launch of new products in European countries resulted in sales
market by expanding the “Affordable Multi” series to capture a share of the
growth, especially in such major countries as France. Sales of residential
general residential market. As the number of real estate projects fell, the
air-conditioning systems rose in each major country due to the expansion of
Group expanded the sales network of its “PROSHOP” specialty outlets mainly
sales of air-conditioning systems with low global warming potential (low-GWP
in the regional cities where sales were relatively strong. In the commercial-use
systems) and as the result of efforts aimed at the summer heat wave in
market, while the number of large-scale projects such as new buildings fell, the
Northern Europe. Net sales of commercial air-conditioning systems grew year
Group invested its resources in such growing markets as the restaurant, medical,
on year due to new construction and the capture of replacement demand,
and information fields. In the big cities, the Group focused on capturing
along with other factors such as the promotion of low-GWP systems in the
replacement demand through “Intelligent VRV” systems, which use the
market for stores. Net sales of heat pump hot water heating systems grew
Internet to connect with customers. In the Applied Systems air-conditioning
significantly year on year due to a reinforcement of the Group’s dedicated sales
equipment market, the Group proposed systems tailored to the needs of
system, the development of heating system sales routes, and the introduction
diverse customers and increased equipment sales for projects ranging
of new products.
from such large-scale projects as infrastructure investment to small- to
In the Middle East and Africa, net sales increased year on year as a whole
medium-scale projects, and also expanded sales in the maintenance and
amid instability in the political scene, such as the reinstatement of sanctions on
after sales service business as well.
Iran. In the Middle East, the Group expanded its sales network and reinforced
Selling, General
and Administrative Expenses
Sales by Segment
Segment Profit
(¥ billion)
600
400
200
0
(¥ billion)
2,500
2,000
1,500
1,000
500
0
(¥ billion)
300
200
100
0
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
Air conditioning
Chemicals
Other
Air conditioning
Chemicals
Other
Annual Report 2019
39
Financial Review
Financial Review
its management of projects for which orders had been received. In Africa,
(cid:129) Other Operations
sales of residential and commercial air-conditioning systems also increased.
Overall sales of the “Others” segment increased by 6.6% compared to the
In Turkey, even as inflation negatively impacted personal consumption and
previous fiscal year to ¥58.1 billion. Operating income expanded by 27.5%
building investment, the Group raised prices and expanded sales of relatively
year on year to ¥6.1 billion.
strong residential heating systems. As a result, net sales increased significantly
Sales of oil hydraulic equipment for industrial machinery grew year on
year on year in the local currency. On the other hand, yen-equivalent net
year due to strong performance in the Japanese and U.S. markets. Sales of oil
sales decreased year on year due to the impact of the sharp depreciation of
hydraulic equipment for construction machinery and vehicles were up year
the Turkish lira. In the marine vessels business, net sales rose year on year
on year due to robust sales to key customers in Japan and the United States.
due to an increase in unit sales of marine container refrigeration units.
In defense systems-related products, net sales of home oxygen equipment
(cid:129) Chemicals
were strong, while sales of ammunition to the Ministry of Defense fell. As a
result, overall net sales decreased compared to the previous fiscal year.
Overall sales of the Chemicals segment increased by 9.6% from the previous
In the electronics business, net sales grew year on year, as a result of strong
fiscal year to ¥200.8 billion and operating income grew by 27.5% year on
sales of “SpaceFinder,” a database system for the design and development
year to ¥32.5 billion. Net sales of fluoropolymers rose year on year due to
sectors in line with customer needs such as solutions for quality issues, shortened
the expansion of sales of new products for LAN cable applications in the U.S.
design and development periods, and support for cost reductions, and sale of
market and strong demand for semiconductor-related applications in each
“Smart Innovator,” a business application development system.
region around the world. Net sales of fluoroelastomers also increased year
on year due to robust demand in the automotive and semiconductor fields in
Currency Exchange Rates
the Japanese and U.S. markets. Among specialty chemicals, net sales of
In foreign currency markets, the yen remained essentially unchanged against
anti-fouling surface coating agents fell year on year due to the significant
the U.S. dollar while appreciating ¥2 against the euro. The average rates for
effects of declining demand in China. On the other hand, net sales of oil and
the fiscal year under review were US$1=¥111 and 1=¥128. Fluctuations in
water repellents grew year on year due to firm demand in Japan, China, and
currency exchange rates resulted in a decrease of ¥28.0 billion in sales and
Asia. As a result of these factors, overall sales of specialty chemicals were up
¥14.0 billion in operating income below what they would have been in the
compared to the previous fiscal year. As for fluorocarbon gas, overall sales of
absence of fluctuations.
gas increased substantially year on year as a result of price revisions undertaken
primarily in Japan and Europe to address rising prices of raw materials and a
tight supply-demand balance.
Yen-U.S. dollar rate
Yen-euro rate
Fiscal 2018
Fiscal 2019
¥111
¥130
¥111
¥128
Cash Dividends per Share
Total Assets
Working Capital and Current Ratio
(¥)
200
150
100
50
0
(¥ billion)
3,000
2,000
1,000
0
(¥ billion)
600
400
200
0
(%)
240
160
80
0
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
Working capital
Current ratio
40
Daikin Industries, Ltd.
SG&A Expenses and Operating Income
Cash Flows
As a result of increases in personnel costs and other factors, SG&A expenses
During the fiscal year under review, net cash provided by operating activities
rose 8.7% over the previous fiscal year, to ¥592.7 billion.
was ¥250.0 billion, an increase of ¥26.3 billion from the previous fiscal year,
Consolidated operating income expanded 8.9% year on year, to ¥276.3
principally due to an increase in income before income taxes. Net cash used
billion, while the operating income remained unchanged compared to the
in investing activities was ¥165.8 billion, an increase of ¥38.3 billion from
previous fiscal year at 11.1%.
the previous fiscal year, primarily due to an increase in expenditures for the
acquisition of consolidated subsidiaries. Net cash used in financing activities
Assets, Liabilities, and Total Equity
was ¥68.7 billion, a decrease of ¥25.2 billion from the previous fiscal year,
(cid:129) Assets
mainly due to an increase in short-term borrowings. After including the effect
At the end of fiscal 2019, consolidated total assets amounted to ¥2,700.9
of foreign exchange rate changes to these results, the net increase in cash and
billion, up ¥225.2 billion from the previous fiscal year-end. Current assets
cash equivalents for the fiscal year under review, amounted to ¥10.2 billion, a
were up ¥112.3 billion from the end of the previous fiscal year, to ¥1,317.6
decrease of ¥2.7 billion from the previous fiscal year.
billion, because of an increase in trade accounts receivable and other factors.
Noncurrent assets rose by ¥112.9 billion from the previous fiscal year-end, to
Capital Investment
¥1,383.3 billion, due mainly to an upswing in the incidence of customer-related
Adhering to the basic strategy of “Focusing Management Resources on
assets resulting from the acquisition of consolidated subsidiaries.
More Profitable Areas,” the Daikin Group’s capital expenditures were
mainly allocated to the Air-Conditioning and Refrigeration Equipment and
(cid:129) Liabilities and Net Assets
Chemicals segments, with the total amounting to ¥87.2 billion.
Consolidated total liabilities increased by ¥102.7 billion compared to the
In the air-conditioning and refrigeration equipment field, Daikin invested
end of the previous fiscal year, to ¥1,254.0 billion. This was largely due to an
¥14.1 billion, centered on research and development as well as the ratio-
upswing in short-term borrowings and other factors. Net assets grew ¥122.5
nalization of room air conditioners and package air conditioners. At Daikin
billion from the previous fiscal year-end, to ¥1,446.9 billion, due to net
Europe N.V. Group, investments of ¥9.4 billion were made primarily to
income attributable to owners of the parent and other factors. As a result of
increase capacity and to attain rationalization objectives.
the aforementioned, the shareholders’ equity ratio remained at the same
In the chemicals field, Daikin invested ¥8.4 billion, mainly to increase
level as the previous fiscal year-end at 52.4%. Net assets per share improved
capacity and meet rationalization objectives. In addition, Daikin America, Inc.
to ¥4,841.15 from ¥4,433.62 for the previous fiscal year.
made investments of ¥4.0 billion for increasing capacity.
The main sources of funds for these investments were bank borrowings
and retained earnings. Note that the Daikin Group did not make any major
disacquisitions of equipment or facilities during the fiscal year under review.
Total Share holders’ Equity and
Shareholders’ Equity Ratio
Free Cash Flow
Capital Investment
and Depreciation and Amortization
(¥ billion)
1,500
1,000
500
0
(%)
60
40
20
0
(¥ billion)
150
100
50
0
(¥ billion)
120
90
60
30
0
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
Shareholders’ equity
Shareholders’ equity ratio
Capital investment
Depreciation and amortization
(excluding amortization of goodwill)
Annual Report 2019
41
Financial Review
Financial Review
R&D Expenses
(cid:129) Air-Conditioning and Refrigeration Equipment
In view of the rising concern about global warming on a worldwide scale
R&D expenses for air-conditioning and refrigeration operations totaled
and issues related to energy, the Daikin Group working mainly through its
¥56.7 billion.
Technology and Innovation Center (TIC) engages in leading-edge research and
In its wall-mounted-type “Urusara 7” series of air-conditioning units for
development programs designed to proactively contribute to the resolution of
residential use, Daikin developed a new “automated AI-based comfort”
global environmental issues, while also expanding the Group’s business
operating function that automatically regulates the thermal environment to
operations. In 2018, Daikin concluded an “academia-industry collaboration
preferred levels in line with changes in the weather and season. The Company
agreement” with the University of Tokyo. Both organizations are adopting a
has taken an interest in monitoring the impact of humidity on the body’s
comprehensive approach toward joint research and development as well as
temperature for a long period of time. While successful in developing a
personnel exchange. Steps are also being taken to promote increasingly
technology that controls humidification and dehumidification, this is the first
sophisticated collaboration with venture companies related to the University.
product in its series to combine proprietary humidity and other control
Daikin has already formed collaborative ties with a number of other tertiary
technologies with the learning function that AI provides in delivering a
institutions including Kyoto University as well as Tsinghua University and
preferred thermal environment and a comfortable indoor environment all
Peking University in China in its efforts to promote academia-industry
year round.
collaboration. The Company is also pursuing opportunities through
In the field of equipment for residential use, Daikin has also looked closely
cooperation with the corporate sector. By actively advancing collaborative
at the damage caused to and mold found in houses and their stored items by
ties, Daikin is endeavoring to generate innovation, help resolve a wide-range
humidity depending on the location of the house and use of rooms. This led to
of complex social issues, and create new businesses. At the same time,
the release in February 2019 of the residential-use wall-mounted “Karaie”
energies are being directed toward the creation of the “office of the future.”
dehumidification dryer, which eliminates the need to dispose of water, and
Building on the wealth of data gained from open spaces, the Company
can be operated on a continuous basis 24 houses a day, 365 days a year. This
contributed to the establishment of “CRESNECT,” a co-creation platform for
dryer applies the water supply-free humidification technology equipped on
spatial data, in a bid to generate new value and services while harnessing
Daikin’s “Urusara 7” room air conditioners. This humidification technology
the know-how inherent within each participating partner. Through this
uses an absorption material (desiccant element) to absorb moisture contained
initiative, positive steps will be taken to substantially increase the efficiency
in indoor air and exhausts the absorbed moisture as high-humidity air in
and pace of research and development, and to create differentiated
gaseous form to the outside, thereby enabling dehumidification without the
products in each region worldwide. In fiscal 2019, R&D expenses included
need to dispose of water.
in Group-wide SG&A expenses as well as the cost of goods sold came to
In regard to commercial air conditioning equipment, Daikin released the
¥65.2 billion.
“FIVE STAR ZEAS” series and “Eco-ZEAS” series as new models in the
Research and
Development Expenses
(¥ billion)
80
60
40
20
0
ROE
(%)
16
12
8
4
0
ROA
(%)
8
6
4
2
0
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
2015 2016 2017 2018 2019
42
Daikin Industries, Ltd.
“SkyAir” lineup of store and office air conditioners in April 2018. These series
(cid:129) Chemicals
are the only air conditioners in the industry to realize a higher level of comfort
R&D expenses for Chemicals operations totaled ¥6.6 billion.
than ever before by simultaneously setting the temperature and dehumidifica-
Daikin conducts R&D for new products and new applications based on its
tion level. These air conditioners are also newly equipped with a “dehumidi-
rich experience in fluorine products and fluorochemical technology. In the
fying cooling mode” that realizes a more comfortable environment than ever
fluoropolymer resin and fluoroelastomer fields, fluorochemicals exhibit good
before during hot and humid summers. Moreover, applying its proprietary
heat resistance, low drug reactivity, and dielectric properties. Using these
streamer discharge technology, Daikin newly developed “Streamer Internal
properties, Daikin is developing new differentiated products for automotive,
Cleaning,” a function designed to suppress the growth of mold, a cause of
semiconductor, wire and cable (IT field), and other applications. Daikin also
unpleasant odors, inside indoor units. Daikin also newly developed a “night-
develops coatings based on the non-adhesive and chemical resistant properties
time watch” function that provides a warning using an LED light and buzzer
of fluoride-based substances, and develops textile treatment materials and
when it detects a person during the night when no one is around. Daikin
carpet treatment materials based on the water and oil repellent properties.
offers these for restaurants and hospitals. In addition, Daikin also released
In addition, Daikin engages in a wide range of fluoride-related R&D, including
the “VRV X” series, a flagship model, and the “VRV A” series, a standard
the development of liquid crystal related materials based on the functionality
model, for its commercial-use multi-split type air conditioners in July 2018.
of fluorine-containing compounds and the provision of contracted synthesis
The newly developed outdoor unit for these models is equipped with a com-
research for pharmaceutical intermediates. In the coolants field, Daikin is
pact, high-efficiency all aluminum microchannel heat exchanger. This heat
accelerating the development of next-generation coolants that utilize artificial
exchanger reduces the installation footprint by 7% compared with convention-
intelligence and that comply with environmental regulations. In addition to
al units equipped with copper and aluminum heat exchangers. These models
these developments, as part of R&D in peripheral areas aimed at developing
are also effective in limited rooftop spaces. Equipped with a high-capacity
new techniques and applications, Daikin is working on the development of
compressor and through improved heat exchange efficiency, the heat
film process products and multilayered materials and conducts advanced
exchangers in these outdoor units demonstrate a cooling capacity up to an
materials research related to the medical, optical, environmental, electric power
outdoor temperature of 41°C while also enabling operations at an outdoor
battery, and energy areas. Through these initiatives, Daikin is endeavoring to
temperatures of 50°C. The release of these models has improved operating
further secure the global No. 1 position and sole provider of fluorochemical
capacity during the intense heat of recent years. In August 2018, Daikin
solutions. Especially, in the next-generation power semiconductor field, using
released the commercial-use “GREEN Multi” multi-split type air conditioner,
its original fluoropolymer resins, Daikin has developed new materials that find
which is the first air conditioner in the industry to adopt the low-GWP refrig-
application in the film condenser field that have five times the conductivity
erant HFC-32 (R32) for a far greater environmental performance than con-
ratios of polypropylene-based materials.
ventional models. HFC-32 has a lower global warming potential (GWP)
By furthering and accelerating its R&D, the TIC, which has the mission of
than the conventional R-410A. Distinguished by its outstanding energy effi-
new product development in Daikin’s Chemicals business, is seeking to
ciency and ability to reduce refrigerant charging volume, the environmental
develop technologies that will lead on next-generation themes.
impact resulting from the refrigerant used in this product realizes a 76%
reduction compared with the conventional model. This percentage is equiva-
(cid:129) Other Operations
lent to the reduction targets for 2029 under the Kigali Amendment. Moreover,
R&D expenses for the Other operations totaled ¥1.9 billion.
the high energy-savings, even during periods of use, reduce CO2 emissions
In oil hydraulics, Daikin is drawing on the special features of its hybrid oil
and thus mitigate the environmental impact.
hydraulic systems technology, which combines oil hydraulic technology and
In regard to applied units, in North America, Daikin expanded its
inverter technology to realize energy conservation and high functionality that
high-efficiency product and function lineup with the release (May 2018) of
could not be realized with previously existing hydraulic systems. In addition,
high-efficiency, high air density rooftop air conditioners and small- and
in Japan and overseas, besides the medium- to low- and small-volume markets,
medium-sized rooftop “Rebel” air conditioners equipped with a total heat
where use is expanding, Daikin is also developing units for high-pressure
exchange function. In Europe, against a backdrop of increasing pressure to shift
and high-volume applications. In the industrial press and other industrial
to low-GWP refrigerants due to fluorine gas and energy-savings regulations, in
machinery applications, Daikin’s “Super Unit” has won high acclaim for its
July 2018 Daikin was the first in the industry to release a non-inverter scroll
low electric power consumption. It also contributes to improvement in the
chiller using R32 refrigerant. Daikin also released a free cooling model in
workplace environment and reduction in environmental impact because of
November 2018. In China, Daikin released turbo chillers and screw chillers
its lower noise, reduced heat emission, and smaller tank size. Moreover,
that comply with new GB standards, and released an air-cooled heat pump
Daikin has launched a large-scale extruder system that equals electric power
module chiller for cold regions using R32 refrigerant.
as a motive force for its responsiveness and energy conservation. By expanding
the lineup of units in this series to meet the special needs of countries in
Annual Report 2019
43
Financial Review
Financial Review
Asia and other regions for handling multiple voltages and other features,
stagnation in the global economy, we will work together to continue to
Daikin will promote the adoption of this system for presses and other
refine our efforts to strengthen our sales and marketing capabilities, improve
machines and move forward with sales expansion globally.
product development, production, procurement, and quality capabilities,
Also, Daikin is proceeding with the development of an energy conservation
enhance our human resources capabilities, and reduce both fixed and variable
system for use on special vehicles. One of these units, a hydraulic hybrid system
costs in each region around the world. Furthermore, we will respond to the
for use on vehicles, has already been adopted. In addition to conventional
changes in the structure of industry and society brought about by advances
hydraulic systems, Daikin is proceeding with the development of advanced
in digital technology, by creating new products and services through mutual
environmentally responsive products that go beyond existing frameworks
communication with customers, engaging in academic-industrial collaboration
and will find applications globally.
in technology development, and collaborating with other members of industry,
In defense systems, Daikin conducts R&D related to artillery shell and
including venture capital companies, to acquire differentiated technologies
guided missiles components, mainly for Japan’s Ministry of Defense, as well
and search for new business segments.
as equipment used in home oxygen therapy.
For the fiscal year ending March 31, 2020, we are forecasting a 7.6%
increase in consolidated net sales, to ¥2,670.0 billion, with operating income
Dividend Policy and Dividends Applicable to the Fiscal Year
expected to climb 3.2% year on year, to ¥285.0 billion, and net income
The Company will continue to focus on expanding its businesses while
attributable to owners of the parent expanding 2.1%, to ¥193.0 billion. The
investing its assets strategically and improving its financial structure by such
estimated exchange rates for the fiscal year are ¥108 to the US dollar and
means as proceeding with the reduction of overall costs and enhancing its
¥125 to the euro.
fiscal position. Through these initiatives, we are committed to being a truly
global and excellent company while at the same time further improving our
corporate value and enhancing profit returns to our shareholders.
Principal Risks Associated with the Daikin Group’s Operations
Sharp changes in politico-economic conditions
Specifically, by striving to maintain a consolidated ratio of dividend to net
or supply-demand relationships in principal markets
assets (Dividend on Equity, DOE) of 3.0% while at the same time aiming for
The Group develops, manufactures, sells, and procures goods and services
an even higher consolidated dividend payout ratio, we will introduce initiatives
throughout the world, and there is a possibility that Group performance
to further increase returns to our shareholders with the core goal of stable
could be impacted due to changes in the business environment in the markets
and continuous dividends.
or regions in which the Group operates, such as political or economic trends,
Internal reserves will be applied to strategic investments in order to expand
the introduction of more-stringent environmental regulations, increased
business and increase competitiveness such as reinforcing management
competition from competitors, or sudden rises in the cost of raw materials. In
practices, promoting global businesses, and accelerating eco-conscious
addition, Daikin is attempting to further expand its manufacturing and sales
product development.
network and enhance Groupwide profitability through investment such as
For the fiscal year ended March 31, 2019, the Company has proposed an
the acquiring of air-conditioning equipment dealers or companies, such as
annual cash dividend of ¥160 (¥70 for the interim dividend and ¥90 for the
the Goodman Global Group, Inc. (completed in fiscal 2013), and the estab-
year-end dividend), representing a ¥20 increase over the previous fiscal year.
lishment of manufacturing facilities. However, there is a possibility that the
For the fiscal year ending March 31, 2020, the Company plans to pay an
Group’s performance could be impacted, depending on the state of prog-
annual cash dividend of ¥160 (¥80 for the interim dividend and ¥80 for the
ress of such activities.
year-end dividend).
Outlook for Fiscal 2020
Cold summer weather and other unusual weather patterns
accompanied by changes in demand for air conditioners
With regard to the global economy in the future, we expect a gradual
Air-conditioning and refrigeration operations accounted for 89.6% of the
slowdown. In addition to the slowdown of the Chinese economy, reduced
Daikin Group’s consolidated net sales in fiscal 2019. Therefore, the Group
housing investment in the United States, and the economic downturn in
strives to accurately monitor weather information and weather-related
Europe, factors such as a reduced interest in investment due to China-U.S.
demand trends in the world’s principal markets. It also employs flexible
trade friction can put further downward pressure on the global economy. We
manufacturing methods and marketing policies designed to minimize the
forecast a downturn in the Japanese economy due to a slowdown in exports
impact of those demand trends on its performance. However, depending on
and capital expenditure adjustments. Amid this business environment, for
the magnitude of demand changes resulting from cold summer weather or
this year (2019), we set “With Our 3 Structures of Collaborative Innovation,
other unusual weather patterns, there is a possibility that the Group’s
Let Each of Us Act Quickly and Decisively” as the Group’s New Year’s slogan
performance could be impacted.
with the aim of generating results. Specifically, in the face of this growing
44
Daikin Industries, Ltd.
Large fluctuations in currency exchange rates
Major changes in the market prices of securities
Overseas sales accounted for 76.4% of the Daikin Group’s consolidated net
and other assets
sales in fiscal 2019. The acceleration of global business development going
The Group’s holdings of securities are primarily holdings designed to
forward is expected to further elevate this overseas sales ratio. Consolidated
strengthen collaborative business expansion measures in cooperation with
financial statements are prepared by translating local currency-denominated
business partners and to strengthen relationships with business partners.
items for Group operations in each global region, including sales, expenses,
However, in the case of large fluctuations in securities markets, bankruptcies
and assets. Accordingly, depending on currency exchange rates at the time of
of business partners, and similar situations, there is a possibility that it could
the currency translation, there may be an impact on yen translation values
have an impact on the Group’s performance.
even when there has been no change in local currency-denominated figures.
In addition, because the Group engages in foreign currency-denominated
Impairment of long-lived assets
transactions in raw materials and component procurement and in the sale of
In connection with its business assets, goodwill generated on the occasion of
goods and services, there is a possibility that changes in currency exchange
corporate acquisitions, and similar items, the Group records various types of
rates could impact manufacturing costs and sales performance. To avoid such
tangible and intangible long-lived assets. With respect to these assets, in
currency exchange rate-related risks, the Group undertakes short-term risk
cases going forward when such factors as performance trends and market
hedging via forward exchange contracts and similar instruments. Daikin also
price drops prevent the generation of expected cash flows, there may be
undertakes medium- to long-term measures to continuously adjust procurement
cases in which the assets in question may require impairment treatment.
and manufacturing operations and optimize them for changing currency
In the case of such impairment of long-lived assets, there is a possibility
exchange-rate trends, and to balance imports and exports in each currency.
that it could have an impact on the Group’s performance.
Through this, the Group works to realize a business structure that is not
greatly impacted by changes in currency exchange rates. However, currency
Natural disasters
exchange rate-related risks cannot be completely avoided.
In the case that such natural disasters as major earthquakes and typhoons
Major product quality claims
occur and exert an impact on the Group’s manufacturing, marketing, and
distribution bases, there is a possibility that it could have an impact on the
The Group strives to ensure thorough quality management for all its products,
Group’s performance.
regardless of whether they are manufactured in Japan or overseas. With
respect to new product development, all four related elements—design,
production technology, and purchasing units and suppliers—work in an
integrated manner to concurrently move ahead with the collaborative
development of process innovation measures, aiming to implement innovations
related to quality, costs, and product development speed. The Group also has
purchased liability insurance to cover unexpected quality-related claims, but,
in the case that a major quality claim situation were to occur, there is a
possibility that it could have an impact on the Group’s performance.
Major problems in manufacturing
The Group strives to implement thorough preventative maintenance
measures at all its production facilities, regardless of whether they are in
Japan or overseas. In addition, particularly with respect to the Chemicals
business, the Group is working to strengthen its facility safety audits, security
management systems, and other related systems. Moreover, with respect to
manufacturing problems, the Group has purchased insurance to cover facility
damage and foregone earnings, but, in the case that a major problem were
to occur in manufacturing operations, there is a possibility that it could have
an impact on the Group’s performance.
Annual Report 2019
45
Consolidated Balance Sheet
Consolidated Balance Sheet
Daikin Industries, Ltd. and Consolidated Subsidiaries
March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents (Notes 8 and 16)
Short-term investments (Note 16)
Trade receivables (Notes 7, 8 and 16):
Notes
Accounts
Allowance for doubtful receivables
Inventories (Note 3)
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment:
Land
Buildings and structures
Machinery and equipment
Furniture and fixtures
Lease assets (Note 15)
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
Investments and other assets:
Investment securities (Notes 5, 8 and 16)
Investments in and advances to unconsolidated subsidiaries and associated companies
Goodwill (Note 6)
Customer relationships
Other intangible assets
Deferred tax assets (Notes 2 and 12)
Assets for retirement benefits (Note 9)
Other assets
Total investments and other assets
Total
See notes to consolidated financial statements.
46
Daikin Industries, Ltd.
Millions of Yen
2019
2018
¥ 367,189
¥ 357,027
592
58,725
389,106
(9,148)
436,358
74,783
62,764
338,401
(8,834)
387,226
68,710
1,317,605
1,205,294
43,492
374,356
582,500
200,912
3,427
34,824
42,997
346,768
555,628
183,591
4,063
34,014
1,239,511
1,167,061
(756,548)
482,963
(712,227)
454,834
198,698
24,647
322,319
189,365
106,457
25,057
14,510
19,270
900,323
221,251
24,184
309,282
130,851
75,926
21,213
14,735
18,138
815,580
¥2,700,891
¥2,475,708
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings (Notes 8 and 16)
Current portion of long-term debt (Notes 8 and 16)
Current portion of long-term lease obligations (Note 15)
Trade payables (Note 16):
Notes
Accounts
Income taxes payable (Note 16)
Provision for product warranties
Accrued expenses (Note 7)
Other current liabilities (Note 7)
Total current liabilities
Long-term liabilities:
Long-term debt (Notes 8 and 16)
Long-term lease obligations (Note 15)
Liabilities for retirement benefits (Note 9)
Deferred tax liabilities (Notes 2 and 12)
Other long-term liabilities
Total long-term liabilities
Commitments and contingent liabilities (Notes 15 and 17)
Equity (Notes 10, 11 and 21):
Common stock—authorized 500,000,000 shares; issued 293,113,973 shares
Capital surplus
Stock acquisition rights
Retained earnings
Treasury stock, at cost: 605,740 shares in 2019 and 677,039 shares in 2018
Accumulated other comprehensive income (loss):
Unrealized gains on available-for-sale securities
Deferred gains on derivatives under hedge accounting
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Subtotal
Noncontrolling interests
Total equity
Total
Millions of Yen
2019
2018
¥ 146,066
¥ 45,530
92,386
1,242
14,541
189,994
25,576
52,602
135,180
111,229
768,816
335,989
9,959
11,098
101,956
26,223
485,225
85,032
83,650
1,721
1,133,101
(2,589)
57,686
619
63,808
(5,232)
1,417,796
29,054
1,446,850
76,989
1,499
13,890
170,101
21,496
48,009
122,057
103,760
603,331
421,051
9,302
10,551
83,261
23,890
548,055
85,032
84,389
1,511
987,547
(2,894)
74,586
728
72,834
(5,669)
1,298,064
26,258
1,324,322
¥2,700,891
¥2,475,708
Annual Report 2019
47
Consolidated Statement of Income
Consolidated Statement of Income
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2019
Net sales (Note 7)
Cost of sales (Note 14)
Gross profit
Selling, general and administrative expenses (Notes 6, 7 and 14)
Operating income
Other (expenses) income:
Interest and dividend income
Interest expense
Equity in earnings of associated companies
Exchange losses
Subsidy income
Gains on sales of land
Losses on disposals of property, plant and equipment and other intangible assets
Loss on sales of land
Gains on sales of investment securities (Note 5)
Impairment losses on investment securities (Notes 5 and 16)
Loss on restructuring of a subsidiary
Losses from natural disasters
Other—net
Other expenses—net
Income before income taxes
Income taxes (Note 12):
Current
Deferred
Total income taxes
Net income
Net income attributable to noncontrolling interests
Net income attributable to owners of the parent
Amounts per common share (Note 19):
Basic net income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.
48
Daikin Industries, Ltd.
Millions of Yen
2019
2018
¥2,481,109
¥2,290,561
1,612,186
1,491,732
868,923
592,668
276,255
12,249
(11,852)
2,119
(4,848)
2,570
0
(803)
(7)
40
(315)
(679)
582
(944)
275,311
77,607
2,039
79,646
195,665
(6,616)
798,829
545,089
253,740
11,284
(10,656)
2,547
(1,675)
1,521
33
(496)
223
(1)
(2,919)
(1,744)
(1,883)
251,857
77,158
(20,250)
56,908
194,949
(5,897)
¥ 189,049
¥ 189,052
Yen
¥646.39
645.95
160.00
¥646.53
646.08
140.00
Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2019
Net income
Other comprehensive (loss) income (Note 18):
Unrealized (losses) gains on available-for-sale securities
Deferred (losses) gains on derivatives under hedge accounting
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive (loss) income in affiliates accounted for using the equity method
Total other comprehensive (loss) income
Millions of Yen
2019
¥195,665
2018
¥194,949
(16,899)
(109)
(8,109)
448
(1,167)
(25,836)
21,543
848
11,673
1,043
560
35,667
Comprehensive income
¥169,829
¥230,616
Total comprehensive income attributable to:
Owners of the parent
Noncontrolling interests
See notes to consolidated financial statements.
¥163,451
6,378
¥224,280
6,336
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2019
Outstanding
Number of
Common
Shares Issued
Common
Stock
Capital
Surplus
Stock
Acquisition
Rights
Retained
Earnings
Treasury
Stock
Millions of Yen
Accumulated Other Comprehensive Income (Loss)
Unrealized
Gains
on Available-
for-Sale
Securities
Deferred
Gains (Losses)
on Derivatives
under Hedge
Accounting
Foreign
Currency
Translation
Adjustments
Remeasure-
ments of
Defined
Benefit Plans
Total
Noncontrol ling
Interests
Total
Equity
Balance, April 1, 2017
292,374,313 ¥85,032 ¥84,545
¥1,080
¥ 837,968
¥(3,160)
¥53,042
¥(120)
¥61,037
¥(6,708)
¥1,112,716
¥22,893
¥1,135,609
Net income
Cash dividends, ¥140 per share
Repurchase of treasury stock
Disposal of treasury stock
Change in parent’s ownership
interest due to transactions
with noncontrolling interests
Net change in the year
(379)
63,000
174
(330)
189,052
(39,473)
(4)
270
431
21,544
Balance, March 31, 2018
292,436,934
85,032
84,389
1,511
987,547
(2,894)
74,586
848
728
11,797
72,834
Net income
Cash dividends, ¥160 per share
Effect of change of the fiscal
year-end of certain consolidated
subsidiaries (Note 2.a)
Repurchase of treasury stock
Disposal of treasury stock
Change in parent’s ownership
interest due to transactions
with noncontrolling interests
Net change in the year
(201)
71,500
178
(917)
189,049
(42,407)
(1,088)
(2)
307
189,052
(39,473)
(4)
444
(330)
1,039
35,659
3,365
189,052
(39,473)
(4)
444
(330)
39,024
(5,669)
1,298,064
26,258
1,324,322
189,049
(42,407)
(1,088)
(2)
485
189,049
(42,407)
(1,088)
(2)
485
210
(16,900)
(109)
(9,026)
437
(25,388)
2,796
(22,592)
(917)
(917)
Balance, March 31, 2019
292,508,233 ¥85,032 ¥83,650 ¥1,721
¥1,133,101 ¥(2,589) ¥57,686
¥ 619
¥63,808
¥(5,232) ¥1,417,796
¥29,054
¥1,446,850
See notes to consolidated financial statements.
Annual Report 2019
49
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2019
Operating activities:
Income before income taxes
Adjustments for:
Income taxes – paid
Depreciation and amortization
Gains on sales of investment securities
Impairment losses on investment securities
Losses on disposals of property, plant and equipment and other intangible assets
Equity in earnings of associated companies
Changes in assets and liabilities, net of effects of the purchase of subsidiaries:
Trade notes and accounts receivable
Inventories
Other current assets
Assets for retirement benefits
Trade notes and accounts payable
Accrued expenses
Other current liabilities
Liabilities for retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities
Investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for acquisition of newly consolidated subsidiaries,
net of cash and cash equivalents acquired (Note 13)
Cash and cash equivalents acquired from acquisition of newly consolidated subsidiaries,
net of considerations paid
Proceed from merger
Increase in investments in and advances to an unconsolidated subsidiary and associated companies
Decrease in investment in and advances to an associated company
Payments for transfer of business
Proceed from transfer of business
Payments for acquisition of investment securities
Proceeds from sales of investment securities (Note 5)
Increase in time deposits
Other—net
Net cash used in investing activities
Financing activities:
Net decrease in short-term borrowings
Proceeds from long-term debt
Repayments of long-term debt (Note 13)
Cash dividends paid to owners of the parent
Cash dividends paid to noncontrolling interests
Other—net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effect of change of the fiscal year-end of consolidated subsidiaries (Note 2.a)
Cash and cash equivalents, end of year
See notes to consolidated financial statements.
50
Daikin Industries, Ltd.
Millions of Yen
2019
2018
¥275,311
¥251,857
(71,415)
99,315
(40)
315
803
(2,119)
(36,847)
(38,790)
(4,920)
291
8,619
9,213
13,126
(137)
(2,716)
(25,302)
250,009
(83,239)
94,834
(223)
1
496
(2,547)
(23,214)
(26,537)
(9,250)
(1,907)
4,399
11,787
(6,170)
(1,964)
15,417
(28,117)
223,740
(85,487)
1,822
(85,680)
2,393
(67,932)
(25,332)
21
48
(80)
(6,161)
(1,444)
47
(592)
(6,015)
(165,773)
100,640
(118,172)
(42,407)
(4,414)
(4,368)
(68,721)
(5,286)
10,229
357,027
(67)
¥367,189
(2,980)
1,517
369
(12,481)
1,094
(6,359)
(127,459)
(14,337)
45,181
(77,180)
(39,473)
(5,413)
(2,733)
(93,955)
10,607
12,933
344,094
¥357,027
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Daikin Industries, Ltd. and Consolidated Subsidiaries
Year Ended March 31, 2019
1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Daikin Industries, Ltd. (the “Company”) have been prepared in accordance
with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in
accordance with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects to the
application and disclosure requirements of International Financial Reporting Standards (IFRSs).
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the Company’s
consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside
Japan.
In addition, certain reclassifications have been made in the 2018 consolidated financial statements to conform to the classifications
used in 2019.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Associated Companies -
The accompanying consolidated financial statements include the accounts of the Company and its 291 (269 in 2018) significant
subsidiaries (collectively, the “Group”).
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control
are fully consolidated, and those 19 (18 in 2018) companies over which the Group has the ability to exercise significant influence are
accounted for by the equity method.
The Group applies the equity method of accounting for investments in unconsolidated subsidiaries and associated companies except
for certain insignificant companies. Investments in such insignificant companies are stated at cost, except investments for which the
value has been permanently impaired, for which appropriate write-downs are recorded. If these 10 (14 in 2018) subsidiaries and 9 (10
in 2018) associated companies had been consolidated or accounted for using the equity method, respectively, the effect on the
accompanying consolidated financial statements would not have been material.
For the year ended March 31, 2019, Zanotti S.p.A and seven other companies changed their fiscal year-ends from December 31 to
March 31. The Company included the subsidiaries’ operating results for the 12-month period in the consolidated statement of income
and included their operating results for the 3-month period in the consolidated statement of changes in equity by directly charging to
retained earnings as the effect of the change in fiscal year-end of certain consolidated subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included
in assets resulting from transactions within the Group is eliminated.
b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements - In
accordance with the Accounting Standards Board of Japan (“ASBJ”) Practical Issues Task Force (“PITF”) No. 18, “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” the accounting policies
and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should,
in principle, be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign
subsidiaries in accordance with either IFRSs or generally accepted accounting principles in the United States of America (“U.S. GAAP”)
(Financial Accounting Standards Board Accounting Standards Codification) tentatively may be used for the consolidation process,
except for the following items which should be adjusted in the consolidation process so that net income is accounted for in accordance
with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of
pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of
research and development; and (d) cancellation of the fair value model of accounting for property, plant and equipment and
investment properties and incorporation of the cost model of accounting.
c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method - In accordance with
ASBJ Statement No. 16, “Accounting Standard for Equity Method of Accounting for Investments,” adjustments are to be made to
conform the associate’s accounting policies for similar transactions and events under similar circumstances to those of the parent
company when the associate’s financial statements are used in applying the equity method unless it is impracticable to determine such
adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either IFRSs or U.S. GAAP
tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in
accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain
or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs
of research and development; and (d) cancellation of the fair value model of accounting for property, plant and equipment and
investment properties and incorporation of the cost model of accounting.
Annual Report 2019
51
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
d. Business Combinations - Business combinations are accounted for using the purchase method. Acquisition-related costs, such as
advisory fees or professional fees, are accounted for as expenses in the periods in which the costs are incurred. If the initial accounting
for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall
report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement
period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts
recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition
date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized
as if the accounting for the business combination had been completed at the acquisition date. A parent’s ownership interest in a
subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrolling
interest is adjusted to reflect the change in the parent’s ownership interest in its subsidiary while the parent retains its controlling
interest in its subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the
noncontrolling interest is adjusted is accounted for as a capital surplus as long as the parent retains control over its subsidiary.
The Group acquired 100% of the equity interest of Cool International Holding GmbH on February 22, 2019 and accounted for this
acquisition by the purchase method of accounting (see Note 4).
e. Cash Equivalents - Cash equivalents are short-term investments that are readily convertible into cash and exposed to insignificant
risk of changes in value.
Cash equivalents include time deposits, which mature within three months of the date of acquisition. Time deposits that mature in
more than three months, but within a year of the date of acquisition, are recorded as short-term investments.
f. Allowance for Doubtful Receivables - The allowance for doubtful receivables is stated in amounts considered to be appropriate
based on the past credit loss experience and an evaluation of potential losses in receivables outstanding.
g. Inventories - Inventories of the Company and its consolidated domestic subsidiaries are stated at the lower of cost, principally
determined by the average method, or net selling value. Inventories of consolidated foreign subsidiaries are stated at the lower of cost,
principally determined by the average method, or market value.
h. Property, Plant and Equipment - Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment
of the Company and its consolidated subsidiaries is principally computed by the straight-line method based on the estimated useful
lives of the assets.
The range of useful lives is from 15 to 50 years for buildings and structures, and from 5 to 15 years for machinery and equipment.
The useful lives for lease assets are dependent on the terms of the respective leases.
i. Asset Retirement Obligations - An asset retirement obligation is recorded for a legal obligation imposed either by law or contract
that results from the acquisition, construction, development and normal operation of a tangible fixed asset and is associated with the
retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required
for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If
a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the
liability should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a
liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed
asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the
remaining useful life of the asset. Over time, the liability is adjusted to its present value each period. Any subsequent revisions to the
timing or the amount of the original estimate of undiscounted cash flows are reflected as an adjustment to the carrying amount of the
liability and the capitalized amount of the related asset retirement cost.
j. Long-Lived Assets - The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate
the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an
asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the
asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition
of the asset or the net selling price at disposition.
k. Leases - Finance lease transactions are capitalized by recognizing lease assets and lease obligations in the balance sheet.
All other leases are accounted for as operating leases.
l. Investment Securities - All marketable securities held by the Group are classified as available-for-sale securities and are reported at
fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities
sold is principally determined based on the moving-average method.
Non-marketable available-for-sale securities are stated at cost, principally determined by the moving-average method.
For other-than-temporary declines in fair value, available-for-sale securities are reduced to net realizable value by charging such losses
to income.
52
Daikin Industries, Ltd.
m. Goodwill and Intangible Assets - Goodwill and intangible assets arise principally from business combinations. Goodwill
represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill is amortized over a
period of 6 to 20 years. Intangible assets primarily include customer relationships. Customer relationships are amortized using the
straight-line method over the estimated useful lives (mainly 30 years).
n. Provision for Product Warranties - The Group repairs or exchanges certain products without charge under specific circumstances.
The provision for product warranties is stated in amounts considered to be appropriate based on past experience and an evaluation of
potential losses on the product warranties.
o. Employees’ Retirement Benefits - The Company and its consolidated domestic subsidiaries have non-contributory funded pension
plans covering substantially all of their employees. Certain consolidated foreign subsidiaries have pension plans.
The Company accounts for the liability for retirement benefits based on the projected benefit obligations and plan assets at the
balance sheet date. The projected benefit obligations are attributed to periods on a benefit formula basis. Actuarial gains and losses
and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive
income), after adjusting for tax effects and are recognized in profit or loss over certain periods (mainly 10 years) no longer than the
expected average remaining service period of the employees. The discount rate is determined using a single weighted-average discount
rate reflecting the estimated timing and amount of benefit payment.
p. Stock Options - The cost of employee stock options is measured based on the fair value at the date of grant and recognized as
compensation expense over the vesting period as consideration for receiving goods or services. The Company accounts for stock
options granted to non-employees based on the fair value of either the stock options of the goods or services received. In the
consolidated balance sheet, the stock options are presented as a stock acquisition right as a separate component of equity until
exercised.
q. Foreign Currency Transactions - All short-term and long-term monetary receivables and payables denominated in foreign
currencies are translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains
and losses from translation are recognized in the consolidated statement of income to the extent that they are not hedged by forward
exchange contracts.
r. Foreign Currency Financial Statements - The balance sheet accounts of the consolidated foreign subsidiaries are translated into
Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate.
Revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the average exchange rate.
Differences arising from such translations are shown as “foreign currency translation adjustments” under accumulated other
comprehensive income in a separate component of equity.
s. Bonuses to Directors and Audit & Supervisory Board Members - Bonuses to Directors and Audit & Supervisory Board Members
are accrued at year-end to which such bonuses are attributable. Accrued bonuses are included in accrued expenses.
t. Income Taxes - The provision for current income taxes is computed based on income before income taxes included in the
consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.
On February 16, 2018, the ASBJ issued ASBJ Statement No. 28, “Partial Amendments to Accounting Standard for Tax Effect
Accounting,” which requires deferred tax assets and deferred tax liabilities to be classified as investments and other assets and long-
term liabilities, respectively. Deferred tax assets were previously classified as current assets and investments and other assets, and
deferred tax liabilities were previously classified as current liabilities and long-term liabilities under the previous accounting standard.
The revised accounting standard is effective for annual periods beginning on or after April 1, 2018. The Company retrospectively
applied the revised accounting standard effective April 1, 2018, and deferred tax assets of ¥32,518 million and deferred tax liabilities of
¥27,399 million which were previously classified as current assets and current liabilities, respectively, as of March 31, 2018, have been
reclassified as investments and other assets and long-term liabilities, respectively, in the accompanying consolidated balance sheet.
Deferred tax assets and liabilities of the same taxpayer are offset, and both total assets and total liabilities decreased by ¥14,246 million
compared with those before the change.
Also, in the note on Income Taxes (Note 12), the content prescribed in Paragraphs 3 to 5 of the Partial Amendments of Accounting
Standard for Tax Effect Accounting has been added. However, the content related to the previous fiscal year is not described in
accordance with the transitional treatment prescribed in Paragraph 7 of the Partial Amendments of Accounting Standard for Tax Effect
Accounting.
Annual Report 2019
53
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
u. Derivative Financial Instruments - The Group uses foreign exchange forward contracts, currency swaps and currency options to
manage foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies.
The Group uses mainly interest rate swaps and interest rate options to manage its exposure to fluctuations in interest rates.
The Group uses commodity futures contracts to manage the risk of fluctuation of commodity prices for materials.
The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments are classified and accounted for as follows: (1) derivatives are principally recognized as either assets
or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of
income and (2) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation
and effectiveness between the hedging instruments and the hedged items, gains or losses are deferred until maturity of the hedged
transactions.
The interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value,
but the differential paid or received under the swap agreements is recognized and included in interest expense or income.
v. Amounts Per Common Share - Basic net income per common share is computed by dividing net income attributable to common
shareholders by the weighted-average number of common shares outstanding for the period, retrospectively adjusted for stock splits.
Diluted net EPS of common stock assumes full exercise of the outstanding stock options which have a dilutive effect at the beginning
of year (or at the time of issuance).
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective
fiscal years including dividends to be paid after the end of year.
w. New Accounting Pronouncements
Revenue Recognition - On March 30, 2018, the ASBJ issued ASBJ Statement No. 29, “Accounting Standard for Revenue
Recognition,” and ASBJ Guidance No. 30, “Implementation Guidance on Accounting Standard for Revenue Recognition.” The core
principle of the standard and guidance is that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. An entity should recognize revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Group expects to apply the accounting standard and guidance for annual periods beginning on April 1, 2021, and is in the
process of measuring the effects of applying the accounting standard and guidance in future applicable periods.
Leases - On January 13, 2016, the International Accounting Standards Board issued IFRS 16 Leases. On February 25, 2016, the
Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-02 Leases (Topic 842). These standards require
lessees to recognize most leases on the balance sheet thereby resulting in the recognition of lease assets and liabilities. The
consolidated foreign subsidiaries expect to apply IFRS 16 and ASU 2016-02 for annual periods beginning on April 1, 2019. The Group
expects that the adoption of these accounting standards will result in an increase of approximately ¥60.8 billion in both assets and
liabilities. The Group does not anticipate any material impact on its operating results.
54
Daikin Industries, Ltd.
3. INVENTORIES
Inventories at March 31, 2019 and 2018 consisted of the following:
Finished products and merchandise
Semifinished products and work in process
Raw materials and supplies
Total
4. BUSINESS COMBINATIONS
Millions of Yen
2019
2018
¥293,446
¥264,867
50,746
92,166
45,199
77,160
¥436,358
¥387,226
Acquisition of an Entity during the Year Ended March 31, 2019
1. Outline of the business combination:
(1) Name and business contents of the acquiree:
Name: Cool International Holding GmbH
Business contents: Holding company for manufacturing and sales companies for commercial refrigerating and freezing showcases
(2) Main reason for the business combination:
The business combination with AHT Cooling Systems GmbH (hereinafter, “AHT”), which was owned by Cool International Holding
GmbH, and the addition of AHT’s refrigerating and freezing showcases to the products of the Company enables the Company to
become a one-stop provider offering products and services based on its wide range of air-conditioning and refrigeration equipment
products, new energy saving and environmental solutions, and total coordination of comfortable shopping spaces. This is expected
to further strengthen the Company’s business as a comprehensive air-conditioning and refrigeration equipment manufacturer.
(3) Date of the business combination: February 22, 2019
(4) Legal form of the business combination: Acquisition of equity interest for cash consideration
(5) Name of the acquiree after business combination: Cool International Holding GmbH
(6) Ratio of equity interests acquired: 100%
(7) Basis for determination of the acquirer:
Daikin Europe N.V., a subsidiary of the Company, is regarded as the acquiring company since Daikin Europe N.V. acquired all equity
interests of Cool International Holding GmbH for cash consideration.
2. Period of operating results of the acquiree included in the consolidated financial statements:
The operating results of the acquiree were not included because the deemed acquisition date was March 31, 2019, and the
consolidated balance sheet of this subsidiary was consolidated based on the financial statements of the subsidiary as of March 31,
2019.
3. Amount and breakdown of the acquisition costs:
Payment for acquisition of equity interests: Cash EUR578 million (¥72,068 million)
4. Amount and breakdown of the main acquisition-related costs:
Expenses related directly to the acquisition, including mainly advisory expenses:
EUR10 million (¥1,381 million)
5. Amount of goodwill recognized, reason for recognition, and method and period for amortization of goodwill:
(1) Amount of goodwill recognized: EUR241 million (¥30,137 million)
(2) Reason for recognition: Future business activities are expected to generate excess profitability.
(3) Method and period for amortization of goodwill: Straight-line method over 10 years
Annual Report 2019
55
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
6. Amount and breakdown of the assets acquired and liabilities assumed at the acquisition date:
Current assets
Fixed assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities
Millions
of EUR
202
753
955
130
490
620
Millions
of Yen
¥ 25,233
93,823
¥119,056
¥ 16,189
61,077
¥ 77,266
7. Amount of identifiable intangible assets other than goodwill, its details, and major weighted-average useful life:
Customer relationships
Trademarks
Technologies
Total
Millions
of EUR
452
199
35
686
Millions
of Yen
¥56,301
24,788
4,412
¥85,501
Weighted-Average
Useful Life
23 years
Non-
amortization
7 years
8. Unaudited summaries of estimated impact on consolidated financial statement of income:
Estimated impact of this acquisition on the consolidated financial statement of income for the fiscal year ended March 31, 2019, which
shows the effects of the acquisition as if it had been completed on April 1, 2018, are as follows:
Net sales
Operating income
Income before income taxes
Net income
Amount per common share
Millions
of Yen
¥63,032
2,037
(1,575)
(1,030)
Yen
¥(3.52)
These summaries of estimated impact were based on the assumption that this business combination had been completed on April 1,
2018, i.e., at the beginning of the fiscal year ended March 31, 2019. Amortization of goodwill and other intangible assets arising from
this acquisition for the period from April 1, 2018 to March 31, 2019 is not reflected in the estimated impact.
These summaries have not been audited by an independent auditor.
5. MARKETABLE AND INVESTMENT SECURITIES
The acquisition costs and aggregate fair values of marketable available-for-sale securities included in investment securities at March 31,
2019 and 2018 were as follows:
Securities classified as available-for-sale:
Equity securities
Debt securities
Total
Millions of Yen
2019
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
¥110,707
¥79,198
¥(2,340)
¥187,565
300
300
¥111,007
¥79,198
¥(2,340)
¥187,865
56
Daikin Industries, Ltd.
Securities classified as available-for-sale:
Equity securities
Debt securities
Total
Millions of Yen
2018
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
¥110,840
¥101,665
¥(1,346)
¥211,159
300
300
¥111,140
¥101,665
¥(1,346)
¥211,459
Marketable available-for-sale securities that were sold during the year ended March 31, 2018 were as follows:
March 31, 2018
Available-for-sale:
Equity securities
Millions of Yen
Realized
Gains
Realized
Losses
Proceeds
¥938
¥223
There were no marketable available-for-sale securities that were sold during the year ended March 31, 2019.
The impairment losses on marketable available-for-sale securities for the years ended March 31, 2019 and 2018 were ¥44 million
and ¥1 million, respectively.
6. GOODWILL
Amortization expenses for goodwill were ¥26,992 million and ¥28,180 million for the years ended March 31, 2019 and 2018,
respectively, which were included in selling, general and administrative expenses.
7. RELATED PARTY TRANSACTIONS
Material transactions and balances with related parties for the years ended March 31, 2019 and 2018 were as follows:
(1) 2019
(a) The Company
Name
Description of Post
Chiyono Terada
External Director/Chief
Executive Officer (CEO)
and President of Art
Corporation
(b) The Company’s consolidated subsidiaries
Name
Description of Post
Chiyono Terada
External Director/CEO
and President of Art
Corporation
Ownership of
the Company
(%)
0.00
Ownership of
the Company
(%)
0.00
Millions of Yen
Transactions
Resulting Account Balances
Description of Transaction
Commissions for moving
business and delivery business
2019
¥524
Account
Accrued expenses
and other current
liabilities
2019
¥47
Millions of Yen
Transactions
Resulting Account Balances
Description of Transaction
Commissions for moving
business and delivery business
2019
¥ 69
Account
Accrued expenses
and other current
liabilities
2019
¥ 6
Sales of products
247
Accounts receivable
30
The terms and conditions applicable to the above-mentioned transactions have been determined on an arm’s-length basis and by
reference to the normal market price.
Annual Report 2019
57
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
(2) 2018
(a) The Company
Name
Description of Post
Chiyono Terada
External Director/Chief
Executive Officer (CEO)
and President of Art
Corporation
(b) The Company’s consolidated subsidiaries
Name
Chiyono Terada
Description of Post
External Director/CEO
and President of Art
Corporation
Ownership of
the Company
(%)
0.00
Ownership of
the Company
(%)
0.00
Millions of Yen
Transactions
Resulting Account Balances
Description of Transaction
Commissions for moving
business and delivery business
2018
¥470
Account
Accrued expenses
and other current
liabilities
2018
¥43
Millions of Yen
Transactions
Resulting Account Balances
Description of Transaction
Commissions for moving
business and delivery business
2018
¥ 60
Sales of products
176
Account
Accrued expenses
and other current
liabilities
Accounts receivable
2018
¥ 4
23
The terms and conditions applicable to the above-mentioned transactions have been determined on an arm’s-length basis and by
reference to the normal market price.
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings of the Group at March 31, 2019 and 2018 consisted of the following:
Bank overdrafts and notes to banks
Commercial paper
Total
Millions of Yen
2019
¥136,066
10,000
¥146,066
2018
¥45,530
¥45,530
Unused short-term bank credit lines were ¥205,495 million at March 31, 2019. The weighted-average interest rates of bank
overdrafts and notes to banks at March 31, 2019 and 2018 were 0.49% and 1.39%, respectively. The weighted-average interest rate
of commercial paper at March 31, 2019 was (0.01)%.
58
Daikin Industries, Ltd.
Long-term debt at March 31, 2019 and 2018 consisted of the following:
1.86% unsecured bonds, due 2019
0.72% unsecured bonds, due 2019
0.38% unsecured bonds, due 2021
1.20% unsecured bonds, due 2022
0.68% unsecured bonds, due 2024
0.21% unsecured bonds, due 2026
Unsecured loans from government-sponsored banks, with interest of 1.75%, due through 2019
Unsecured loans from banks and others, payable in foreign currencies, with interest ranging
from 0.00% to 3.75% (2019) and from 0.00% to 4.00% (2018), due through 2026
Unsecured loans from banks and others with interest ranging from 0.17% to 3.69% (2019)
and from 0.12% to 3.74% (2018), due through 2023
Total
Less current portion
Long-term debt, less current portion
Annual maturities of long-term debt outstanding at March 31, 2019 were as follows:
Year Ending March 31
2020
2021
2022
2023
2024
2025 and thereafter
Total
The assets pledged as collateral at March 31, 2019 and 2018 were as follows:
Time deposits
Note receivables
Debt corresponding to the above:
Note payables
Millions of Yen
2019
2018
¥ 40,000
¥ 40,000
10,000
10,000
30,000
10,000
10,000
6,400
10,000
10,000
30,000
10,000
10,000
13,200
171,971
184,833
140,004
428,375
(92,386)
190,007
498,040
(76,989)
¥335,989
¥421,051
Millions
of Yen
¥ 92,386
94,415
63,327
141,812
4,108
32,327
¥428,375
Millions of Yen
2019
¥ 677
2,246
2018
¥ 524
3,065
4,033
3,987
In addition, investment securities pledged as collateral for the investee’s borrowings from financial institutions at March 31, 2019 and
2018 were as follows:
Investment securities
Millions of Yen
2019
¥800
2018
¥800
As is customary in Japan, additional securities must be provided if requested by a lending bank. Certain banks have the right to
offset cash deposited against any debt or obligation that becomes due, or, in case of default and certain other specified events, against
all other debt payable to them. To date, none of the lenders have ever exercised these rights with respect to debt of the Group.
Annual Report 2019
59
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
9. SEVERANCE INDEMNITIES AND PENSION PLANS
Under the Group’s severance indemnities and pension plans, employees terminating their employment are, in most circumstances,
entitled to severance and pension payments based on their average pay during their employment, length of service and certain other
factors.
The Group accounts for part of the defined benefit obligations and benefit costs for retirement lump-sum payment using the
simplified method.
1. Defined benefit plans
(1) The changes in defined benefit obligations for the years ended March 31, 2019 and 2018 were as follows (excluding the
benefit plans for which the simplified method was applied):
Balance at beginning of year
Service cost
Interest cost
Net actuarial losses
Past service cost
Benefits paid
Effect of changes in the scope of consolidation
Effect of change of the fiscal year-end
Foreign currency translation adjustments
Others
Balance at end of year
Millions of Yen
2019
2018
¥107,786
¥ 99,159
5,330
1,326
6
771
(4,456)
837
(15)
(723)
9
4,965
1,127
7,451
(3)
(5,177)
74
226
(36)
¥110,871
¥107,786
(2) The changes in plan assets for the years ended March 31, 2019 and 2018 were as follows (excluding the benefit plan for
which the simplified method was applied):
Balance at beginning of year
Expected return on plan assets
Net actuarial (losses) gains
Contributions from the employer
Benefits paid
Foreign currency translation adjustments
Others
Balance at end of year
Millions of Yen
2019
2018
¥114,476
¥102,957
3,568
(410)
3,620
(3,938)
(582)
56
3,609
7,560
4,910
(4,569)
23
(14)
¥116,790
¥114,476
(3) The changes in defined benefit obligation for the years ended March 31, 2019 and 2018 using the simplified method
were as follows:
Balance at beginning of year
Periodic benefit cost
Benefits paid
Balance at end of year
Millions of Yen
2019
¥2,506
832
(831)
¥2,507
2018
¥2,703
901
(1,098)
¥2,506
60
Daikin Industries, Ltd.
(4) Reconciliations between the liabilities recorded in the consolidated balance sheet and the balances of defined benefit
obligation and plan assets at March 31, 2019 and 2018 were as follows (including the benefit plan for which the
simplified method was applied):
Funded defined benefit obligation
Plan assets
Total
Unfunded defined benefit obligation
Millions of Yen
2019
¥(106,176)
116,790
10,614
(7,202)
2018
¥(104,213)
114,476
10,263
(6,079)
Net amount of liabilities and assets recorded in the consolidated balance sheet
¥ 3,412
¥ 4,184
Liabilities for retirement benefits
Assets for retirement benefits
Net amount of liabilities and assets recorded in the consolidated balance sheet
¥ (11,098)
14,510
¥ 3,412
¥ (10,551)
14,735
¥ 4,184
(5) The components of net periodic benefit costs for the years ended March 31, 2019 and 2018 were as follows:
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial losses
Amortization of past service cost
Periodic benefit cost calculated by the simplified method
Others
Total
Millions of Yen
2019
¥5,330
1,326
(3,568)
1,286
(127)
831
88
2018
¥4,965
1,127
(3,609)
2,061
(183)
901
4
¥5,166
¥5,266
(6) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined benefit plans for
the years ended March 31, 2019 and 2018 were as follows:
Past service cost
Net actuarial gains
Total
Millions of Yen
2019
¥ 873
(1,476)
¥ (603)
2018
¥ 131
(1,723)
¥(1,592)
(7) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined
benefit plans for the years ended March 31, 2019 and 2018 were as follows:
Unrecognized past service cost
Unrecognized net actuarial gains
Total
Millions of Yen
2019
¥ 323
6,419
¥6,742
2018
¥ (549)
7,894
¥7,345
Annual Report 2019
61
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
(8) Plan assets
(a) Components of plan assets
Plan assets at March 31, 2019 and 2018, consisted of the following:
Domestic debt securities
Domestic equity securities
Foreign debt securities
Foreign equity securities
Insurance assets (general account)
Cash and deposits
Alternative investments
Total
2019
2%
2
35
18
19
5
19
2018
3%
9
29
17
18
1
23
100%
100%
(b) Method of determining the expected rate of return on plan assets
To determine the expected long-term rate of return on plan assets, we consider current and target asset allocations, as well as historical
and expected returns on various categories of plan assets.
(9) Assumptions used for the years ended March 31, 2019 and 2018 were as follows:
Discount rate
Expected rate of return on plan assets
Expected rate of future salary increases
2019
Mainly 0.3%
Mainly 2.5%
Mainly 3.5%
2018
Mainly 0.3%
Mainly 2.5%
Mainly 3.5%
2. Defined contribution plan
The amounts of contribution required for the defined contribution plan paid by the Group was ¥5,913 million and ¥5,855 million for
the years ended March 31, 2019 and 2018, respectively.
10. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies
Act that affect financial and accounting matters are summarized below:
(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon
resolution at the shareholders’ meeting. For companies that meet certain criteria including (1) having a Board of Directors, (2) having
independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year
rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for
dividends-in-kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the
Company cannot do so because it does not meet all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to certain limitations
and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation
of the Company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of
treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after
dividends must be maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of
retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account that was charged
upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid-in capital equals 25% of the
common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without
limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and
retained earnings can be transferred among the accounts within equity under certain conditions upon resolution of the shareholders.
62
Daikin Industries, Ltd.
(c) Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the
Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders
which is determined by a specific formula.
Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Purchase of
treasury stock acquisition rights are presented as either a separate component of equity and any purchased stock acquisition rights
deducted directly from stock acquisition rights.
11. STOCK OPTIONS
The stock options outstanding at March 31, 2019, were as follows:
Stock Option
2014 Stock Option
2015 Stock Option
2016 Stock Option
2017 Stock Option
2018 Stock Option
Persons
Granted
Number of
Options Granted
Date of Grant
Exercise Price
Exercise Period
9 directors
45 employees
9 directors
46 employees
8 directors
53 employees
8 directors
53 employees
7 directors
59 employees
310,000 shares
2014.7.14
¥6,715
53,200 shares
2015.7.13
¥ 1
58,100 shares
2016.7.14
¥ 1
48,800 shares
2017.7.14
¥ 1
42,700 shares
2018.7.13
¥ 1
From July 15, 2016
to July 14, 2020
From July 14, 2018
to July 13, 2030
From July 15, 2019
to July 14, 2031
From July 15, 2020
to July 14, 2032
From July 14, 2021
to July 13, 2033
The stock option activity was as follows:
2012
Stock
Option
2013
Stock
Option
2014
Stock
Option
Shares
2015
Stock
Option
2016
Stock
Option
2017
Stock
Option
2018
Stock
Option
Year Ended March 31, 2018
Vested
April 1, 2017—Outstanding
17,000
32,000
95,000
53,200
58,100
Granted
Exercised
Canceled
March 31, 2018—Outstanding
Year Ended March 31, 2019
Vested
(13,000)
(5,000)
(45,000)
48,800
4,000
27,000
50,000
53,200
58,100
48,800
April 1, 2018—Outstanding
4,000
27,000
50,000
53,200
58,100
48,800
Granted
Exercised
Canceled
March 31, 2019—Outstanding
Exercise price
Average stock price at exercise
Fair value price at grant date
(4,000)
(27,000)
(10,000)
(30,500)
42,700
¥ 2,186
¥ 4,500
¥ 6,715
¥ 1
¥ 1
¥ 1
¥ 1
40,000
22,700
58,100
48,800
42,700
¥12,956
¥12,491
¥13,439
¥13,388
¥ 676
¥ 1,220
¥ 1,697
¥ 7,726
¥7,859
¥10,711
¥11,670
The assumptions used to measure the fair value of 2018 Stock Option
Estimate method:
Black-Scholes option-pricing model
Volatility of stock price:
30.61%
Estimated remaining outstanding period: 9 years
Estimated dividend:
Risk-free interest rate:
¥140 per share
(0.0)%
Annual Report 2019
63
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
12. INCOME TAXES
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes that, in the aggregate, resulted in a
normal effective statutory tax rate of approximately 30.6% and 30.8% for the years ended March 31, 2019 and 2018, respectively.
The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets and liabilities at
March 31, 2019 and 2018 were as follows:
Deferred tax assets:
Provision for product warranties
Tax loss carryforwards
Unrealized profit on inventories
Software and other intangible assets
Investment securities
Inventories
Accrued bonus
Deferred revenue
Liabilities for retirement benefits
Allowance for doubtful receivables
Foreign income tax credit
Other
Total of tax loss carryforwards and temporary differences
Less valuation allowance for tax loss carryforwards
Less valuation allowance for temporary differences
Total valuation allowance
Total Deferred tax assets
Deferred tax liabilities:
Intangible assets
Undistributed earnings of consolidated subsidiaries
Unrealized gains on available-for-sale securities
Assets for retirement benefits
Deferred gains on sales of property
Other
Total deferred tax liabilities
Net deferred tax liabilities
Millions of Yen
2019
2018
¥ 12,795
10,427
9,307
8,668
5,421
5,135
4,368
3,100
2,498
1,994
77
20,293
84,083
(8,206)
(6,947)
(15,153)
¥ 68,930
¥ 11,832
9,027
9,436
7,108
6,769
4,397
4,094
3,075
2,291
1,768
68
20,442
80,307
(14,537)
¥ 65,770
¥ 68,816
¥ 44,858
39,862
19,342
4,662
1,722
11,425
37,534
25,943
4,721
1,742
13,020
¥145,829
¥ (76,899)
¥127,818
¥ (62,048)
The expiration of tax loss carryforwards, related valuation allowances, and the resulting net deferred tax assets as of March 31, 2019
were as follows:
After
One Year
through
Two Years
After
Two Years
through
Three Years
Millions of Yen
After
Three Years
through
Four Years
After
Four Years
through
Five Years
After
Five Years
Total
¥92
(90)
¥5
(5)
¥410
¥356
¥9,387
¥10,427
(268)
(119)
(7,549)
(8,206)
One Year
or Less
¥177
(175)
2
2
142
237
1,838
2,221
March 31, 2019
Deferred tax assets
relating to tax loss
carryforwards
Less valuation allowances
for tax loss carryforwards
Net deferred tax assets
relating to tax loss
carryforwards
64
Daikin Industries, Ltd.
A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying
consolidated statement of income for the years ended March 31, 2019 and 2018, were as follows:
Normal effective statutory income tax rate
Differences in foreign subsidiaries’ tax rates
Taxes and tax effects on dividends from foreign subsidiaries
Amortization of goodwill
Tax credit for research and development
Permanently non-deductible expenses, such as entertainment expenses
Valuation allowance
Permanently non-taxable income, such as dividend income
Impact from tax reform in the United States
Other - net
Actual effective income tax rate
2019
30.6%
(5.5)
3.7
2.7
(2.2)
0.5
0.1
(0.1)
(0.9)
28.9%
2018
30.8%
(4.9)
4.6
3.2
(2.0)
0.5
(0.9)
(0.5)
(7.7)
(0.5)
22.6%
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Group acquired Cool International Holding GmbH and its subsidiaries during the year ended March 31, 2019.
Reconciliation between cash paid for the equity interest of Cool International Holding GmbH and payment for the acquisition of
these newly consolidated subsidiaries, net of cash and cash equivalents acquired, was as follows:
Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Noncontrolling interests
Cash paid for the equity interest
Cash and cash equivalents of consolidated subsidiaries
Millions
of Yen
2019
¥25,233
93,823
30,137
(16,188)
(61,077)
140
72,068
(7,358)
Payment for acquisition of equity interest of newly consolidated subsidiaries, net of cash and cash equivalents acquired
¥64,710
Repayments of long-term debt included ¥40,389 million for repayments of long-term debt by Cool International Holding GmbH and
the other companies which the Group acquired for the year ended March 31, 2019.
14. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in cost of sales and selling, general and administrative expenses were ¥65,216 million and
¥62,051 million for the years ended March 31, 2019 and 2018, respectively.
Annual Report 2019
65
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
15. LEASES
The Group leases certain computer equipment and other assets.
Obligations under finance leases and future minimum payments under non-cancelable operating leases at March 31, 2019 were as
follows:
Due within one year
Due after one year
Total
16. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
Millions of Yen
Finance
Leases
¥ 1,242
9,959
¥11,201
Operating
Leases
¥24,742
64,310
¥89,052
Group policy for financial instruments
The Group uses financial instruments, mainly bank loans and bonds, based on its capital financing plan. Short-term bank loans and
commercial paper are used to fund the Group’s ongoing operations, and cash surpluses are invested in low-risk financial assets.
Derivatives are not used for speculative purposes, but to manage exposure to financial risks as described below.
Nature and extent of risks arising from financial instruments and risk management for financial instruments
Receivables, such as trade notes and trade accounts, are exposed to customer credit risk. The Group manages its credit risk from
receivables based on the internal policies, which include monitoring of payment terms and balances of major customers to identify the
default risk of the customers.
Payment terms of payables, such as trade notes and trade accounts, are less than one year.
Although receivables and payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange
rates, the net position of receivables and payables in each foreign currency is hedged by using mainly forward foreign currency
contracts and currency swaps. In addition, receivables and payables in foreign currencies which are expected from forecasted
transactions are hedged by using forward foreign currency contracts and currency swaps.
Investment securities, mainly equity instruments of customers and suppliers of the Group, are exposed to the risk of market price
fluctuations. Investment securities are periodically managed by monitoring market values and financial position of issuers.
Short-term bank loans and commercial papers are mainly used to fund the Group’s ongoing operations. Long-term bank loans and
bonds are used mainly for capital expenditures. Although the payables such as trade notes and trade accounts, bank loans and bonds
are exposed to liquidity risk, the Group manages the liquidity risk through adequate financial planning by the corporate finance
department. In addition, the Group has short-term bank credit lines. Some long-term bank loans are exposed to market risk from
changes in interest rates, which is hedged by mainly using interest rate swaps.
Derivatives mainly include forward foreign currency contracts, interest rate swaps and commodity futures contracts, which are used
to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables, interest rates of bank
loans, and market value fluctuation of raw materials.
Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the
authorization and credit limit amount.
Because the counterparties to these derivatives are limited to financial institutions with high creditworthiness, the Group does not
anticipate any losses arising from credit risk.
66
Daikin Industries, Ltd.
Fair values of financial instruments
The carrying amounts, fair values and unrealized loss of significant financial instruments were as follows. Fair values of financial
instruments were based on quoted price in active markets. If a quoted price were not available, another rational valuation technique
were used instead. Instruments whose fair values could not be readily determined were not included in the following.
Cash and cash equivalents
Short-term investments
Trade notes and accounts receivable
Investment securities
Total
Trade notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt
Total
Derivatives
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities
Total
Trade notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt
Total
Derivatives
Millions of Yen
March 31, 2019
Carrying
Amount
Fair
Value
Unrealized
Loss
¥ 367,189
¥ 367,189
592
447,831
187,865
592
447,831
187,865
¥1,003,477
¥ 204,535
¥1,003,477
¥ 204,535
146,066
25,576
428,375
146,066
25,576
431,326
¥ 804,552
¥ 969
¥ 807,503
¥ 969
Millions of Yen
March 31, 2018
Fair
Value
¥357,027
401,165
211,459
¥969,651
¥183,991
45,530
21,496
502,054
¥753,071
¥ (1,262)
Carrying
Amount
¥357,027
401,165
211,459
¥969,651
¥183,991
45,530
21,496
498,040
¥749,057
¥ (1,262)
¥2,951
¥2,951
Unrealized
Loss
¥4,014
¥4,014
Assets
Cash and cash equivalents
The carrying values of cash and cash equivalents approximate fair value because of their short maturities.
Short-term investments
The carrying values of short-term investments approximate fair value because of their short maturities.
Trade notes and accounts receivable
The carrying values of trade notes and accounts receivable approximate fair value because of their short maturities.
Investment securities
The fair values of equity securities are measured at the quoted market prices of the stock exchange for the equity instruments, and the
fair values of debt securities are measured at the amounts to be received through maturity discounted at the Group’s assumed
corporate discount rate. Fair value information for investment securities by classification is included in Note 5.
Annual Report 2019
67
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Liabilities
Trade notes and accounts payable, short-term borrowings and income taxes payable
The carrying values of trade notes and accounts payable, short-term borrowings and income taxes payable approximate fair value
because of their short maturities.
Long-term debt
The fair values of bonds are determined at the quoted market prices of the over-the-counter market for the corporate bonds, and the
fair values of long-term loans are determined by discounting the cash flows related to the loans at the Group’s assumed corporate
borrowing rate. The fair values of long-term loans with floating interest rates, which are hedged by the interest rate swaps that qualify
for hedge accounting and meet specific matching criteria, are determined by discounting the cash flows related to the loans and the
interest rate swaps at the Group’s assumed corporate borrowing rate.
Derivatives
The fair values of derivatives are measured at the quoted price obtained from the financial institution.
The contracts or notional amounts of derivatives that are shown in the table below do not represent the amounts exchanged by the
parties and do not measure the Group’s exposure to credit or market risk.
Derivative transactions to which hedge accounting is not applied
Millions of Yen
March 31, 2019
Contract
Amount
Due after
One Year
Contract
Amount
¥ 9,881
14,697
33,144
1,729
753
196
3,089
1,264
1,893
863
420
128
4,886
1,221
830
2
1,568
1,976
241
Fair
Value
¥ 5
(11)
(142)
98
3
(2)
(3)
5
(3)
0
(43)
(0)
(44)
10
3
0
(0)
50
(1)
Unrealized
Gain (Loss)
¥ 5
(11)
(142)
98
3
(2)
(3)
5
(3)
0
(43)
(0)
(44)
10
3
0
(0)
50
(1)
¥ 722
¥ 47
¥ 47
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
NZD
ZAR
CZK
HKD
SGD
MYR
TRY
BRL
IDR
INR
PHP
THB
AED
Buying: CNY
EUR
Commodity futures contracts:
Buying: Metal
68
Daikin Industries, Ltd.
Forward exchange contracts:
Selling: GBP
EUR
USD
AUD
ZAR
CZK
PLN
HKD
SGD
MYR
TRY
BRL
IDR
PHP
THB
Buying: CNY
Commodity futures contracts:
Buying: Metal
Derivative transactions to which hedge accounting is applied
Forward exchange contracts:
Selling: GBP
EUR
USD
CZK
TRY
Buying: CNY
Interest rate swaps:
Fixed-rate payment, floating-rate receipt
Fixed-rate payment, floating-rate receipt*
Commodity futures contracts:
Buying: Metal
Millions of Yen
March 31, 2018
Contract
Amount
Due after
One Year
Fair
Value
Unrealized
Gain (Loss)
¥ (74)
¥ (74)
(44)
573
245
(0)
0
(0)
42
19
(1)
61
1
59
6
0
15
(44)
573
245
(0)
0
(0)
42
19
(1)
61
1
59
6
0
15
Contract
Amount
¥ 7,686
52,559
38,210
7,712
536
2,572
341
1,462
2,455
721
11,682
53
3,843
250
28
2,200
¥12,067
¥(383)
¥(383)
Millions of Yen
March 31, 2019
Contract
Amount
Due after
One Year
Fair
Value
¥(158)
92
(4)
77
6
101
Hedged Item
Receivables
Receivables
Receivables
Receivables
Receivables
Payables
Contract
Amount
¥ 6,307
32,091
1,620
5,704
1,418
7,576
Long-term debt
¥173,215
¥154,886
¥ 722
Long-term debt
63,000
63,000
Raw materials
¥ 7,223
¥ 161
Annual Report 2019
69
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Forward exchange contracts:
Selling: GBP
EUR
USD
ZAR
CZK
TRY
Buying: CNY
Interest rate swaps:
Millions of Yen
March 31, 2018
Contract
Amount
Due after
One Year
Fair
Value
¥ (26)
(15)
12
(32)
(16)
38
35
Hedged Item
Receivables
Receivables
Receivables
Receivables
Receivables
Receivables
Payables
Contract
Amount
¥ 4,540
38,638
3,910
536
5,221
1,781
8,122
Fixed-rate payment, floating-rate receipt
Fixed-rate payment, floating-rate receipt*
Long-term debt
¥196,864
¥179,739
¥(1,777)
Long-term debt
98,000
63,000
* The above interest rate swaps that qualify for hedge accounting and meet specific matching criterion are not remeasured at market value, but the differential paid or received
under the swap agreements is recognized and included in interest expense or income. In addition, the fair values of such interest rate swaps are included in long-term debt.
Financial instruments whose fair values cannot be readily determinable
Nonlisted equity securities
Investments in limited partnerships and other investments
Total
Maturity analysis for financial assets and securities with contractual maturities
Millions of Yen
Carrying Amount
2019
¥9,549
1,284
¥10,833
2018
¥9,263
529
¥9,792
Cash and cash equivalents
Short-term investments
Trade notes and accounts receivable
Investment securities:
Millions of Yen
March 31, 2019
Due after
One Year
through
Five Years
Due after
Five Years
through
Ten Years
Due in
One Year
or Less
¥367,189
592
447,792
¥39
Available-for-sale securities with contractual maturities (corporate bonds)
Total
¥815,573
¥39
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities:
Available-for-sale securities with contractual maturities (corporate bonds)
Total
Please see Note 8 for annual maturities of long-term debt.
Millions of Yen
March 31, 2018
Due after
One Year
through
Five Years
Due after
Five Years
through
Ten Years
Due in
One Year
or Less
¥357,027
401,166
¥758,193
Due after
Ten Years
¥300
¥300
Due after
Ten Years
¥300
¥300
70
Daikin Industries, Ltd.
17. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments for capital expenditures outstanding at March 31, 2019 totaled approximately ¥7,490 million.
The Group had the following contingent liabilities at March 31, 2019 and 2018.
Trade notes endorsed
Guarantees on the borrowings of Air as a Service., LTD.
Millions of Yen
2019
¥1,733
70
2018
¥2,154
18. COMPREHENSIVE INCOME
The components of other comprehensive income (loss) for the years ended March 31, 2019 and 2018 were as follows:
Unrealized (losses) gains on available-for-sale securities:
(Losses) gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred (losses) gains on derivatives under hedge accounting:
Gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Foreign currency translation adjustments:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Total
Remeasurements of defined benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Share of other comprehensive income in affiliates accounted for using the equity method:
(Losses) gains arising during the year
Total other comprehensive (loss) income
Millions of Yen
2019
2018
¥(23,504)
4
(23,500)
6,601
¥(16,899)
¥30,981
(223)
30,758
(9,215)
¥21,543
¥ 505
¥ 1,850
(698)
(193)
84
(598)
1,252
(404)
¥ (109)
¥ 848
¥ (8,393)
284
(8,109)
¥ (8,109)
¥11,612
61
11,673
¥11,673
¥ (556)
¥ (286)
1,159
603
(155)
1,878
1,592
(549)
¥ 448
¥ 1,043
¥ (1,167)
¥ 560
¥(25,836)
¥35,667
Annual Report 2019
71
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
19. NET INCOME PER SHARE
Reconciliations of the differences between basic and diluted net income per share (EPS) for the years ended March 31, 2019 and 2018
were as follows:
Year Ended March 31, 2019
Basic EPS:
Millions
of Yen
Net Income
Thousands
of Shares
Weighted-
Average Shares
Yen
EPS
Net income available to common shareholders
¥189,049
292,470
¥646.39
Effect of dilutive securities:
Stock options
Diluted EPS:
Net income for computation
Year Ended March 31, 2018
Basic EPS:
197
¥189,049
292,667
¥645.95
Millions
of Yen
Net Income
Thousands
of Shares
Weighted-
Average Shares
Yen
EPS
Net income available to common shareholders
¥189,052
292,409
¥646.53
Effect of dilutive securities:
Stock options
Diluted EPS:
Net income for computation
20. SEGMENT INFORMATION
204
¥189,052
292,613
¥646.08
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and ASBJ Guidance No. 20, “Guidance on
Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive information about
its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified
criteria. Operating segments are components of an entity about which separate financial information is available and such information
is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment
performance and deciding how to allocate resources to operating segments.
1. Description of reportable segments
The Group’s reportable segments are those for which separate financial information is available and regularly evaluated by the
Company’s Board of Directors in order to decide how resources are allocated among the Group. Therefore, the Group’s reportable
segments consist of the Air Conditioning segment and the Chemicals segment.
The Air Conditioning segment manufactures, distributes and installs air conditioning and refrigeration equipment. The Chemicals
segment manufactures and distributes chemicals.
2. Methods of measurement for the amounts of sales, profit, assets and other items for each reportable segment
The accounting policies of each reportable segment are generally consistent with those disclosed in Note 2, “Summary of Significant
Accounting Policies.”
72
Daikin Industries, Ltd.
3. Information about sales, profit, assets and other items
Reportable Segment
Millions of Yen
March 31, 2019
Air
Conditioning
Chemicals
Total
Other
Total
Reconciliations
Consolidated
Sales:
Sales to external customers
¥2,222,173
¥200,790
¥2,422,963
¥58,146
¥2,481,109
¥2,481,109
Intersegment sales
714
18,124
18,838
646
19,484
¥(19,484)
2,222,887
218,914
2,441,801
58,792
2,500,593
(19,484)
2,481,109
237,646
32,534
270,180
6,066
276,246
9
276,255
2,230,118
230,736
2,460,854
41,009
2,501,863
199,028
2,700,891
Total
Segment profit
Segment assets
Other:
Depreciation
¥ 57,166
¥ 13,489
¥ 70,655
¥ 1,667
¥ 72,322
Amortization of goodwill
26,792
200
26,992
26,992
Investment balance in
unconsolidated subsidiaries and
associated companies accounted
for using the equity method
Investment in property, plant and
equipment and intangible assets
13,552
10,097
23,649
23,649
68,982
15,914
84,896
2,266
87,162
Reportable Segment
Millions of Yen
March 31, 2018
¥ 72,322
26,992
23,649
87,162
Air
Conditioning
Chemicals
Total
Other
Total
Reconciliations
Consolidated
Sales:
Sales to external customers
¥2,052,884
¥183,147
¥2,236,031
¥54,530
¥2,290,561
¥2,290,561
Intersegment sales
586
15,388
15,974
428
16,402
¥(16,402)
2,053,470
198,535
2,252,005
54,958
2,306,963
(16,402)
2,290,561
223,463
25,511
248,974
4,757
253,731
9
253,740
1,981,546
216,296
2,197,842
37,624
2,235,466
240,242
2,475,708
Total
Segment profit
Segment assets
Other:
Depreciation
¥ 52,054
¥ 12,988
¥ 65,042
¥ 1,605
¥ 66,647
Amortization of goodwill
28,148
32
28,180
28,180
Investment balance in
unconsolidated subsidiaries and
associated companies accounted
for using the equity method
Investment in property, plant and
equipment and intangible assets
13,791
9,463
23,254
23,254
82,751
11,873
94,624
1,966
96,590
¥ 66,647
28,180
23,254
96,590
Notes: 1. The Other segment is the aggregation of other operating segments which are not included in the reportable segments and consists of the Oil Hydraulics segment, the
Defense segment and the Electronics segment.
2. “Reconciliations” include unallocated items and intersegment eliminations. The unallocated corporate assets included in “Reconciliations” amounted to ¥211,637 million
and ¥244,909 million at March 31, 2019 and 2018, respectively, which consisted mainly of the Company’s cash, time deposits and investment securities.
3. The aggregated amount of segment profit equals operating income in the consolidated statement of income.
4. Intersegment sales are recorded at values that approximate market prices.
Annual Report 2019
73
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
4. Supplemental information
(1) Information about geographical areas
(a) Sales
Japan
USA
China
Millions of Yen
March 31, 2019
Asia and
Oceania
Europe
Other
Consolidated
¥585,107
¥625,041
¥379,628
¥387,093
¥366,670
¥137,570
¥2,481,109
Japan
USA
China
Millions of Yen
March 31, 2018
Asia and
Oceania
Europe
Other
Consolidated
¥542,726
¥551,819
¥381,666
¥349,190
¥332,956
¥132,204
¥2,290,561
Note: Sales are classified by country or region based on the physical locations of customers.
(b) Property, plant and equipment
Japan
USA
China
¥161,703
¥134,542
¥70,657
Japan
USA
China
¥154,690
¥123,080
¥70,958
Millions of Yen
March 31, 2019
Asia and
Oceania
¥61,803
Millions of Yen
March 31, 2018
Asia and
Oceania
¥57,418
Europe
¥44,607
Other
¥9,651
Consolidated
¥482,963
Europe
¥39,801
Other
¥8,887
Consolidated
¥454,834
(2) Information about goodwill
(a) Balance of goodwill by reportable segment
Goodwill for each reportable segment at March 31, 2019 and 2018 was as follows:
Goodwill
Goodwill
Millions of Yen
2019
Air
Conditioning
Chemicals
Other
¥321,183
¥1,136
Millions of Yen
2018
Air
Conditioning
Chemicals
Other
¥307,868
¥1,414
Eliminations
and
Corporate
Eliminations
and
Corporate
Consolidated
¥322,319
Consolidated
¥309,282
21. SUBSEQUENT EVENT
Resolutions approved by the Company’s Board of Directors’ at the meeting held on May 9, 2019 are subject to approval at the general
shareholders’ meeting planned to be held on June 27, 2019.
Appropriations of Retained Earnings
Payment of year-end cash dividends of ¥90 per share to shareholders at March 31, 2019, totaling ¥26,326 million is to be settled.
74
Daikin Industries, Ltd.
Independent Auditors’ Report
Independent Auditors’ Report
Annual Report 2019
75
Corporate Data
Corporate Data
(As of March 31, 2019)
Company Name
Head Office
Tokyo Office
Fiscal Year-End Date
Date of Founding
Date of Establishment
Paid-in Capital
Number of Shares
of Common Stock Issued
Number of Shareholders
Major Shareholders
Number of Subsidiaries
and Affiliated Companies
Number of Employees
Stock Exchange Listing
Advertising Method
Shareholder Register
Administrator
Ordinary General Meeting
of Shareholders
Auditor
Daikin Industries, Ltd.
Umeda Center Bldg., 2-4-12, Nakazaki-Nishi, Kita-ku, Osaka 530-8323, Japan
Phone: 81-6-6373-4312 URL: http://www.daikin.com/
JR Shinagawa East Bldg., 2-18-1, Konan, Minato-ku, Tokyo 108-0075, Japan
Phone: 81-3-6716-0111
March 31 on an annual basis
October 25, 1924
February 11, 1934
¥85,032 million
293,113 thousand
26,643
(cid:129) The Master Trust Bank of Japan, Ltd. (Trust Account)
(cid:129) Japan Trustee Services Bank, Ltd. (Trust Account)
(cid:129) Sumitomo Mitsui Banking Corporation
(cid:129) Japan Trustee Services Bank, Ltd. (Trust Account 5)
(cid:129) Japan Trustee Services Bank, Ltd. (Retirement Benefit Trust Account for The Norinchukin Bank, re-entrusted by
Sumitomo Mitsui Trust Bank, Limited)
(cid:129) MUFG Bank, Ltd.
(cid:129) Japan Trustee Services Bank, Ltd. (Trust Account 4)
(cid:129) Japan Trustee Services Bank, Ltd. (Trust Account 7)
(cid:129) Government of Norway (Standing proxy Citibank, N. A., Tokyo Branch)
(cid:129) JP Morgan Chase Bank 385151 (Standing proxy Mizuho Bank Settlement Sales Department)
Subsidiaries: 291 Affiliates: 19
76,484 (Consolidated)
Tokyo
The Company uses the electronic advertising method, posting advertisements on its website (http://www.daikin.co.
jp/e-koukoku/). However, when electronic advertising is not possible due to technical problems or other circumstanc-
es, the Company will post advertisements in the Nikkei Shimbun.
Mitsubishi UFJ Trust and Banking Corporation
3-6-3, Fushimicho, Chuo-ku, Osaka 541-8502, Japan
June
Deloitte Touche Tohmatsu LLC
Trends in Total Shareholders' Return (TSR*1)
(Index)
600
Daikin
TOPIX
TOPIX Machinery
TSR (Annual Rate)
Holding period
Daikin
TOPIX
TOPIX Machinery
3 years
16.8%
8.1%
10.1%
5 years
17.9%
8.0%
6.8%
10 years
17.8%
9.7%
12.1%
550
500
450
400
350
300
250
200
150
100
50
0
2009/3
2010/3
2011/3
2012/3
2013/3
2014/3
2015/3
2016/3
2017/3
2018/3
(cid:3) Trading Volume
(Thousands
of shares)
72,000
60,000
48,000
36,000
24,000
12,000
0
2019/3
*1 TSR (Total Shareholders’ Return): Total rate of return on investment that combines capital gains with dividends.
Notes: 1. Daikin calculates TSR utilizing the cumulative dividend amount and stock price fluctuation; TOPIX calculates TSR based on the stock market index inclusive of dividends (Source: Prepared by
the Company based on Bloomberg and other data)
2. Graph data represents market prices indexed by TSR with closing price data as of March 31, 2009 as a base of 100 (holding period up to March 31, 2019)
76
Daikin Industries, Ltd.
This report is printed on paper certified by the Forest Stewardship Council (FSC)—an interna-tional labeling scheme that provides a credible guarantee that the raw materials used in the product come from an environmentally well-managed forest—and with vegetable ink for waterless printing (non-VOC ink) that does not contain volatile organic compounds.Printed in Japanhttp://www.daikin.comAnnual Report 2019 DAIKIN INDUSTRIES, LTD.