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Integrated Report 2021Fiscal Year Ended March 31, 2021
Offer new value for theenvironment and air to realizeboth contributions to a sustainablesociety and Group growthFounded in 1924, Daikin has continued to expand with a focus on its Air-Conditioning and fluorochemicals businesses. We are the world’s only general air-conditioning equipment manufacturer within-house divisions covering both air conditioning and refrigerants. We have continued to grow anddevelop based on people-centered management, the pursuit of originality, and diversity management.Based on the enterprising spirit espoused in our core values, our employees have worked in unison totake on the challenge of achieving established goals. By demonstrating the ability to fully carry out ourduties, we have successfully refined our strengths in energy-saving and environmental as well as IAQtechnologies, robust sales network, and local production for local consumption model.Under our five-year FUSION 20 strategic management plan that ended in fiscal 2020, we had adoptedthe two pillars of thoroughly strengthening our core businesses—air conditioning, chemicals, and filters—and expanding our business domains while transforming our business structure. As a result, wewere able to steadily implement our key strategies while investing in growth for the future.We are currently experiencing a once-in-a-century pandemic, and the COVID-19 crisis is causingunprecedented environmental changes and a dramatic transformation of the consumer structure. Weare also experiencing major structural changes in society, such as the promotion of carbon neutrality.As the world’s only manufacturer that develops and produces both air-conditioning equipment andrefrigerants, we have been contributing to the environment by providing differentiated products andservices that take advantage of our environmental and energy-saving technologies around the world.However, we believe that it is essential to achieve both business growth and the goal of achieving netzero greenhouse gas emissions by 2050.In formulating FUSION 25, the strategic management plan that we started in fiscal 2021, we took intoaccount the major changes in the structure of the economy, industry and society 10 to 20 years intothe future, as well as the ideal state of the Daikin Group. Based on this back-casting approach, wehave set specific themes to be addressed during the five years of FUSION 25.While contributing to solving environmental and social issues, we will expand our business to achievefurther growth and development. Our goal is to realize contributions to both a sustainable society andthe growth of the Daikin Group.
Our Core ValuesAbsolute CredibilityEnterprising ManagementHarmonious Personal RelationsOur Group Philosophy1. Create New Value by Anticipating the Future Needs of Customers2. Contribute to Society with World-Leading Technologies3. Realize Future Dreams by Maximizing Corporate Value4. Think and Act Globally5. Be a Flexible and Dynamic Group1. Flexible Group Harmony 2. Build Friendly yet Competitive Relations with Our Business Partners to Achieve Mutual Benefit6. Be a Company that Leads in Applying Environmentally Friendly Practices7. With Our Relationship with Society in Mind, Take Action and Earn Society’s Trust1. Be Open, Fair, and Known to Society 2. Make Contributions that Are Unique to Daikin to Local Communities8. The Pride and Enthusiasm of Each Employee Are the Driving Forces of Our Group1. The Cumulative Growth of All Group Members Serves as the Foundation for the Group’s Development2. Pride and Loyalty 3. Passion and Perseverance9. Be Recognized Worldwide by Optimally Managing the Organization and Its HumanResources, under Our Fast & Flat Management System1. Participate, Understand, and Act 2. Offer Increased Opportunities to Those who Take on Challenges3. Demonstrate Our Strength as a Team Composed of Diverse Professionals10. An Atmosphere of Freedom, Boldness, and “Best Practice, Our Way”Integrated Report 20211
On Publishing the Integrated Report 2021This is the first time we published an integrated report to inform our shareholders and investors of theDaikin Group’s efforts to enhance corporate value over the medium to long term. Through this report,we hope to convey the Group’s aspiration and endeavors to help realize a sustainable society by balancing efforts to resolve environmental and social issues with the growth and development of its business while collaborating with customers, business partners, employees, local communities, and otherstakeholders.In the “Process of Value Creation,” we have clearly outlined the relationship between the six types ofcapital and outcomes, as well as expressed our aim to achieve sustainable growth by working to solvesocial issues through the Group’s unique strengths and business model. In the “Risks and OpportunitiesThat Affect Medium- to Long-Term Value Creation” section, we identified important social issues thatcould affect the Group’s medium- to long-term value creation in light of changes in the external environment, and identified related risks and opportunities. In the “Looking Back on Our Strategic Management Plan “FUSION”” section, we summarized our efforts, achievements, and progress to date. Inaddition, the ““FUSION 25” Strategic Management Plan” section outlines the details of this strategicmanagement plan that began in fiscal 2021. Under FUSION 25, our goal is to “offer new value for theenvironment and air to realize both contributions to a sustainable society and Group growth” with theaim of continuing to grow and develop by expanding our business and strengthening profitability whilecontributing to the environment and society. We have also set our key strategic themes, including thechallenge to achieve carbon neutrality. The report outlines the specific measures, both financial andnon-financial, that Daikin will take to realize its vision for fiscal 2025, the final year of the plan.This report contains information that is of particular importance to enhancing the corporate value ofthe Daikin Group. For more detailed information, please refer to our website.Investor nt & CSRhttps://www.daikin.com/csr/ Guidelines Used as ReferenceIn compiling this report, we draw on such references as the International IntegratedReporting Council’s (IIRC) (reorganized as the Value Reporting Foundation in June2021) “International Integrated Reporting Framework,” and the “Guidance for Collaborative Value Creation” issued by Japan’s Ministry of Economy, Trade and Industry.2
CONTENTSOur Core Values/Our Group Philosophy . 1Corporate Governance . 42On Publishing the Integrated Report 2021 . 2Message from the External Director . 45A Path to Unique Solutions . 4Corporate Officers . 46Process of Value Creation . 6Compliance/Risk Management . 52Financial/Non-Financial Highlights . 8Response to TCFD . 53At a Glance . 10Enhancing the Management FoundationStrengthening Technology DevelopmentMarket Size and Positioning of Each Business . 11Capabilities . 54Establishing a Robust Supply Chain . 56Message from the CEO . 12Promoting Digital Transformation for Innovation. 56Creating Market Value/Enhancing AdvocacyLooking Back on Our Strategic ManagementPlan “FUSION” . 20Risks and Opportunities That Affect Medium- toLong-Term Value Creation . 22Strategic Management Plan “FUSION 25”. 24Financial Strategy . 30Review of OperationsOverview of Global Development . 32Air Conditioning. 33Chemicals . 38Activities . 57Improving HR Capabilities through AdvancedDiversity Management. 57Financial SectionEleven-Year Financial Highlights . 58Financial Review . 60Consolidated Balance Sheet . 70Consolidated Statement of Income. 72Consolidated Statement of Comprehensive Income . 73Consolidated Statement of Changes in Equity . 74Consolidated Statement of Cash Flows. 76Corporate Data . 77Oil Hydraulics . 40Defense. 41Fiscal year: In conjunction with the issue of the Company’s inaugural integrated report, Daikin has defined the fiscal year under review as fiscal 2020, the fiscal yearended March 31, 2021.Forward-Looking StatementsThis Integrated Report contains statements regarding the future plans and strategies of Daikin Industries, Ltd. (the Company), as well as theCompany’s future performance. These statements are not statements of past facts but are based on judgments made by the Company on thebasis of information known at the time. Therefore, readers should refrain from drawing conclusions based only on these statements regardingthe 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. Forthese reasons, these forward-looking statements are subject to latent risk and uncertainty.Integrated Report 20213
A Path to Unique SolutionsFounded in Osaka in 1924, Daikin operates in more than 160 countries worldwide, focusing onthe Air Conditioning business. By providing solutions to the problems society and communitiesare 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.Daikin has developed three advanced air-conditioning technologiesthat form the basis for next-generation technology.Three Core TechnologiesHeat PumpInverterAbsorbs and transfersheat from the airContributes to greaterenergy saving andcomfortRefrigerantControlEfficientheat transmissionBusiness Scale (at March 31, 2021)Net Sales (Fiscal 2020)Employees 2,493.4 billion 84,870Group CompaniesGlobal Business PresenceWorldwide Production BasesConsolidatedSubsidiaries:More thanCountries:More thanFactories:315160100(Japan: 30, Overseas: 285)538.842.0Business ResultsNet SalesOperating IncomeFUSION 2001Ensuring a Competitive Edge through High Levels of Product Competitiveness and Production TechnologiesBusiness andTechnologyDevelopment1924Founding of Osaka Kinzoku Kogyosho LimitedPartnership1982Launch of Japan’s first multi-type air-conditioningsystem for buildings1935Development of fluorocarbon refrigerant19991937Development of Japan’s first Freon-type refrigeratorLaunch of “Ururu Sarara” world’s first waterlesshumidifying room air conditioner1942Freon production begins20021951Launch of Japan’s first packaged air conditionerNationwide expansion of the fluorocarbon recoveryand destruction business1958Entry into the room air-conditioning business2002Launch of “ECOCUTE” heat-pump water heater1975Launch of “Hikari Kurieru” air purifier2004World’s first successful application of streamerelectric discharge technologyAccelerating the Pace of Global Expansion while Expanding the Scale of Business during the 2000sDaikin’sEvolution andStrategies42007Acquisition of OLY Group, a major global airconditioning manufacturer2009Acquisition of Japanese air filter manufacturerNIPPON MUKI CO., LTD.2008Business alliance with Gree Electric Appliances,China’s top air-conditioning manufacturer2011Acquisition of Turkish air-conditioning manufacturerAirfel2008Acquisition of German heating manufacturer ROTEX2012Acquisition of U.S. residential air-conditioningmanufacturer Goodman2002
FUSION 05 to 20 (Fiscal 2001 – Fiscal 2020)FUSION05Details P.20FUSION10Securing our managementfoundationFUSION15FUSION20Management innovationAccelerate growthBecome the global No. 1 AC businessBecome a truly global and excellentcompanyBecome an attractive company thatdraws together people, capital, andinformationBusiness domain expansion/business structure conversion, andenhancement of existing businessesCo-create New Value in the Air andEnvironment Fields with Wisdom andPassionGlobal spread of COVID-192,481.1276.3Net sales( billion)3,000Operating income( 00250Acquisition of U.S.residential air-conditioningmanufacturer Goodman200OYL Group acquisition150Lehman Shock1001,0002013 – 2018Achieved six consecutive years of record high salesand operating income50Achieved nine consecutive years of increasesin net sales and operating income from 201014 consecutive years ofincreased earnings starting in 1994FUSION 10FUSION 15FUSION ning of China’s first dedicated showroom for large-scale )2011Opening of the Solution Plaza Fuha Tokyo2012Launch of “Urusara 7” world’s first residential air conditionerusing new R32 refrigerant2006Launch in Europe of “Daikin Altherma” air-to-water heat pumpsystem2013Opening of the Solution Plaza Fuha Osaka2007Launch of “DESICA” world’s first humidity control air conditionerwithout water drainage or supply pipes2014Launch of cooling-only inverter air conditioners for developingcountries2009Establishment of the Daikin McQuay Applied DevelopmentCenter in the U.S.2015Establishment of Technology Innovation Center2017Establishment of Daikin Texas Technology Park, a production andtechnology development base2016Acquisition of Italian refrigerator/freezer manufacturer Zanotti2016Acquisition of Scandinavian filter manufacturer Dinair2019Acquisition of Austrian refrigerating and freezing showcasesmanufacturer AHT2010Establishment of the Shanghai R&D Center2015Granting of worldwide free access to basic patents for using R32refrigerant2015Acquisition of the refrigerant business in Europe from majorBelgian chemical group Solvay2016Acquisition of U.S. filter manufacturer FlandersIntegrated Report 20215
Process of Value CreationThrough efforts to find solutions to social problems through ourvalue, and aims for sustainable growth.Global society is continually changing, and directly faces many problems related to climatechange and other issues.Through its business, Daikin Group provides society with new value, and by contributing to therealization of a sustainable society, seeks growth for itself as well.Changes in societyINPUTBusiness ModelYear ended March 31, 2021Financial CapitalIntensificationof climatechange Stable and sound financial structureTotal assets 3.24 trillionTotal Shareholders’ Equity 1.67 trillionInterest-Bearing Liabilities 751.2 billionCash and cash equivalents 736.1 billionOffer new value for the environment and air to realizeand Group growthManufacturingMultiproduct mixed productionManufactured CapitalReduce environmental loads Market-localized production systemover 100 manufacturing bases globallyExpansion andconcentrationof energy andpowerdemand Building of digital factories and anefficient production structure“Vertically integratedproduction” based onin-house production ofcore parts Aggressive capital investments 137.0 billionIntellectual CapitalStrategicManagement Plan Three core technologies Global research and development sites39 sites R&D ExpensesIncreasedinterest in IAQ 71.7 billionHuman Capital Diverse workforce“FUSION 25”Development, DesignPursue comfort and environmentalperformanceProduct development to meet local needsCreate new value84,870 employees“Market-localizedproduction” based on localproduction for localconsumption Abundant global human resources Embedded Group philosophyProcurementSocial and Relationship CapitalGlobal bulk purchasing and localprocurement Conducting business in more than 160countriesOccurrence ofnaturaldisastersPromote CSR procurement Proactive collaboration with industry,government and academia Relationships of trust with customers,communities, suppliers, dealerships,and dealersEnvironmental Vision 2050Natural Capital Effective use of natural capitalEnergy consumption14,108TJMaterial consumption1,060,000tWater intake9,560,000m3Transition to adigital society Environmental conservation activities“Forests for the Air” ProjectDetails on the tmlCSR for Value Provision Environment New Value Creation Customer Satisfaction Human ResourcesDetails on the websitehttps://www.daikin.com/csr/index.html6
business, Daikin provides newDaikin's Contribution toSustainable DevelopmentGoals (SDGs)(P.24 )OUTPUTOUTCOMEYear ended March 31, 2021both contributions to a sustainable societyNet sales 2.49 trillionYear ended March 31, 2021 Meetings with institutional investors/analysts over400 Events annually 10-year TSROperating incomeSales, Transportation,Installation 238.6 billionProposal-type business for existing salesnetwork developed globallyOperating incomemarginDevelopment of service personnel thathave solid technical capabilities9.6%“Integrated productdevelopment” consisting ofmanufacturing, sales, research,and procurementMajor ProductsProduct useProvide comfortable air and spacesReduce environmental loads“Robust sales network”consisting of a dealer networkthat expands globallyRoom air-conditioning systems, packaged air-conditioning systems, multipleair-conditioning systems foroffice buildings, heat-pumphot-water-supply androom-heating systems, airpurifiers, heat reclaimventilationDefense(P.41)After-sales Service,Recovery, RecyclingRecovery and recycling of refrigerantsProvide services based on the concept ofcontinuous connection with customersand capture replacement demand1%OilHydraulics(P.40)AirConditioning(P.33 )91%1%Ratio ofnet sales No. of patent applicationsMore than 1,540(Fiscal 2019, Daikin Industries only) No. of female managers71 Ratio of overseas bases where localnationals are president43% Ratio of excellent or advanced skilledengineers in manufacturing1 in 3.3 (Daikin Industries only) IoT and AI human resource trainingcentered on the Daikin Information andCommunications Technology College Shift to region-based procurement toachieve local production for localconsumption Customer SatisfactionJapan 1.14(when using Fiscal 2015 as 1.00) Safe and secure air“Urusara X” room air-conditioning systemwith ventilation capabilities“Venti-air” Heat Reclaim Ventilator Total unit sales of R32 air-conditioningsystemsMore than 28 million units sold inover 100 countries worldwide(as of December 2020) Through the adoption of environmentallyconscious products, contribute toreducing greenhouse gas emissions70 million tons- CO2 Reduction ratio of greenhouse gasemissions from development andproduction79% reduction (compared to Fiscal 2005)CSR ManagementFundamental CSR Corporate Governance Respect for Human Rights Supply Chain Management Stakeholder Engagement Communities839.9% (25.1% annually)Chemicals (P.38 )7% Contribution to CO2 emission reductionsthrough forest preservation7 million tons-CO2 Reductions in CO2 emissions due toadoption of heat pump space and waterheaters Reductions in CO2 emissions due toadoption of inverter units nSocial andRelationshipNaturalIntegrated Report 20217
Financial and Non-Financial HighlightsDaikin Industries, Ltd. and Consolidated SubsidiariesYears Ended March 31Net Sales/Operating Income,Operating Income MarginNet SalesOperating IncomeROE/ROAROEROAOperating Income Margin( 202021Despite the ongoing impact of the COVID-19 pandemic, Daikin achieved results thatexceeded those of the action plan by ensuring short-term performance and promotingenhancements to the management structure.The Air Conditioning business is looking to aggressively undertake R&D as well as capital,acquisition, and other strategic investments on the back of a forecast increase in demandgoing forward. By steadily reaping returns on the aforementioned investments, we willwork to boost our performance on a continuous basis and improve ROE/ROA.Total Shareholders’ Equity/Shareholders’ Equity RatioInterest-Bearing Liabilities/Liability with Interest RatioTotal Shareholders’ EquityInterest-Bearing LiabilitiesShareholders’ Equity Ratio( billion)1,8001,665.751.4(%)( billion)60900Liability with Interest 20192020202100201720182019202020210Daikin’s shareholders’ equity ratio came in at 51.4% for the fiscal year under review,exceeding 50% for the fourth consecutive year. The Company is taking positive steps toensure its financial stability.We have continued to steadily reduce the balance of interest-bearing liabilities by generating free cash flow and making effective use of Group funds. In preparation for contingencies coinciding with the spread of the COVID-19 pandemic, during the fiscal yearunder review, we reinforced cash and cash equivalents through long-term borrowings.Free Cash FlowCapital Investments/Research and Development ExpensesCapital Investments( billion)( billion)300150Research and Development 2021In addition to increasing earnings and improving investment efficiency, efforts are alsobeing made to generate cash flow from a working capital perspective. This includes thoroughly reducing the balances of accounts receivable and inventory.8020172018201920202021From a capital investment perspective, energies are being directed toward upgrading andexpanding sales networks and newly constructing plants while boosting productioncapacity, focusing on emerging countries and key markets where there has been remarkable growth. As far as research and development expenses are concerned, Daikin recognizes that strengthening technological competitiveness is the lifeblood of a manufacturer.On this basis, the Company is coordinating with its eight development sites worldwideand the Technology and Innovation Center (TIC) that serves as the Group’s developmentcontrol tower, and is accelerating the development of distinctive technologies and products, including those for addressing global environmental problems.
Cash Dividends per Share/DOE, Dividend Payout RatioCash Dividends per ShareDOENumber of Patent ApplicationsJapanOverseasDividend Payout Ratio( 0.03.0201720182019202020210Together with making every effort to maintain a ratio of dividends to shareholder equity(DOE) of 3.0% or higher based on the principle of always providing stable dividends toshareholders, we will continue striving in our mission to provide shareholders with evengreater return by aiming for an increasingly higher level of dividend payout ratio.01,07646720162017201820192020*Daikin is working to stimulate employees’ motivation to invent, spur the creation of intellectual property, increase the quality and quantity of patents in competitive fields, andincrease the number of overseas patents in key technological fields in particular in emerging countries.* The latest figures for the fiscal year ended March 31, 2020.Number and Percentage of Women inManagement PositionsWomen in Management PositionsNumber and Percentage of Overseas Bases WhereLocal Nationals Are President or ExecutivePercentagePresidentExecutivePresident ratioExecutive 1206048.242.96880400302017201820192020202140200One of the Company’s most important policies revolves around the empowerment ofwomen in its workforce. Daikin is implementing various measures to accelerate the development of women in management and executive positions, change the mindset of menin management, and support the early return to work of its female employees after childcare leave.As Daikin’s business globalizes, the Company is actively promoting more employees atoverseas bases to managerial positions. Daikin holds the Global Daikin LeadershipDevelopment Program as a development measure to give locally hired managers theopportunity to run Daikin subsidiaries in their own countries.Contribute to Reducing Greenhouse GasEmissionsGreenhouse Gas Emissions(during development and production)(million tons-CO2)(million 21Daikin’s air conditioners, a mainstay product, emit particularly high levels of greenhousegas emissions when in use. Accordingly, the Company is focusing on promoting the useof inverters and air conditioners that use low-GWP refrigerants. Daikin reduced greenhouse gas emissions by 70 million tons-CO2, compared to its target of limiting greenhouse gas emissions to 60 million tons-CO2 by the fiscal year ended March 31, 2021.01.0820172018201920202021Every effort is being made to minimize environmental impact through production activities. Daikin achieved a 79% reduction (to 1.08 million tons-CO2) in greenhouse gas emissions, compared to its target of a 70% reduction (to 1.58 million tons-CO2) from thefiscal year ended March 2005 level in development and production greenhouse gasemissions for the Group as a whole in the fiscal year ended March 2021.Integrated Report 20219
At a GlanceDaikin Industries, Ltd. and ConsolidatedSubsidiaries Years Ended March 31Air ConditioningChemicalsPercentageof Net Sales91%Net Sales and Operating Income7%Oil Hydraulics1%Major ProductsDefense1%DescriptionAir Conditioning223.12,273.8( billion)2,500( billion)2502,0002001,5001501,00010050050002017 2018 2019 2020 2021 Room air-conditioningsystems Absorption refrigerators Air purifiers Water chillers Heat-pump hot-watersupply and room-heatingsystems Turbo refrigeratorequipment Packaged air-conditioningsystems Air filters Multiple air-conditioningsystems for office buildings Air-conditioning systemsfor facilities and plants Freezers Air-handling units Industrial dust collectors Marine-type containerrefrigerationSince becoming the first inJapan to manufacture packaged air-conditioning systemsin 1951, Daikin has supportedcomfortable living based onthe strengths of technologiesthat it has itself nurtured asthe world’s sole manufacturerto create a full line of products from refrigerants to airconditioners. Refrigerating and freezingshowcasesChemicals11.4164.2( billion)200( billion)35 Fluorocarbons Fluoroplastics Fluoroelastomers1602812021 Fluoro coating agents8014407 Semiconductor-etchingproducts Fluoropaints Water and oil repellentagents Pharmaceuticals andintermediates Dry air suppliers002017 2018 2019 2020 2021In 1933, Daikin was the firstin Japan to engage inresearch on fluorinated refrigerants. Today, our activitiesrange from research anddevelopment to commercialization, and we offer a lineupof 1,800 fluorine compoundsincluding gas, resin andrubber.Oil Hydraulics2.0 Oil hydraulic pumps Hydrostatic transmissions6.0 Oil hydraulic valves304.5 Cooling equipment andsystems Centralized lubricationunits and systems203.0101.5( billion)32.9400( billion) Inverter controlled pumpmotorsDaikin’s unique hydraulictechnologies offer outstanding energy-conservation performance and arecontributing to the development of industry by unleashing the potential of powercontrol.02017 2018 2019 2020 2021Defense( billion)201.218.01.6151.2100.850.4002017 2018 2019 2020 202110( billion) Warheads for Japan’sMinistry of Defense/Warhead parts used inguided missiles for trainingpurposes Home-use oxygen therapyequipmentDaikin’s superior machiningand quality control technologies are used in the production of defense-relatedproducts and other industrieswhere high levels of reliabilityand performance are critical.
Market Size and Positioning of Each BusinessCreating synergies by utilizing the affinity of the Air Conditioning,Chemicals, and Filter businessesAirConditioningRefrigerantsIAQ (Indoor Air Quality)ThThree pillars ofrevenueChemicalsFilters** (Note: Filters are included in the AirConditioning business segment)Filter Media (PTFE)Air Conditioning BusinessChemicals BusinessGlobal HVAC&R* Market Scale (Daikin estimates)Global Fluorochemicals Market (Daikin estimates)( billion)2020202520202025Approx. 34 trillionApprox. 43 trillionApprox. 620 billionApprox. 800 billionAverage annualgrowth20,000Average annualgrowth15,0004%5,00002507%200Average annualgrowth10,000( billion)2%Average annualgrowth150Average annual Average annualgrowthgrowth1%5%3%'20 '25'20 '25'20 '25'20 '25'20 '25'20 0500'20 '25'20 '25'20 '25'20 '25'20 s* Heating, Ventilating, Air-conditioning and RefrigeratingFilter BusinessGlobal Air Filter Market Scale (Daikin estimates)( billion)Global Power & Industrial (P&I) Market Scale (Daik
China's top air-conditioning manufacturer 2008 Acquisition of German heating manufacturer ROTEX 2009 Acquisition of Japanese air fi lter manufacturer NIPPON MUKI CO., LTD. 2011 Acquisition of Turkish air-conditioning manufacturer Airfel 2012 Acquisition of U.S. residential air-conditioning manufacturer Goodman Operating Income Net Sales
