Daikin Industries : Integrated Report 2023

Integrated Report 2023

Fiscal Year Ended March 31, 2023

Offer new value for the environment and air to realize both contributions to a sustainable society and Group growth

Founded 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 with in-house divisions covering both air-conditioning and refrigerants.

In keeping with our Core Values of Absolute Credibility, Enterprising Management, and Harmonious Personal Relations, and based on our very own approach to diversity management,

we have continued to grow and develop as an organization by ambitiously pursuing our goals together as a Group and demonstrating the ability to fully carry out our duties.

In light of the drastically changing business environment, the Daikin Group will work to

Our Core Values

Absolute	Enterprising	Harmonious
Personal
Credibility	Management
Relations

Our Group Philosophy

refine its long-cultivated strengths to continue to create new value and, in turn, help resolve social and environmental issues while further growing and developing its businesses.

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
6. 1. Flexible Group Harmony
   2. Build Friendly Yet Competitive Relations with Our Business Partners to Achieve Mutual Benefit
7. Be a Company That Leads in Applying Environmentally Friendly Practices
8. With Our Relationship with Society in Mind, Take Action and Earn Society's Trust
9. 1. Be Open, Fair, and Known to Society
   2. Make Contributions That Are Unique to Daikin to Local Communities

1. The Pride and Enthusiasm of Each Employee Are the Driving Forces of Our Group
2. 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
3. Be Recognized Worldwide by Optimally Managing the Organization and Its Human Resources, under Our Fast & Flat Management System
4. 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
5. An Atmosphere of Freedom, Boldness, and "Best Practice, Our Way"

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Contents

3 Introduction

3 Message from the CEO

1. Two Decades of Remarkable Strides
2. History of the Daikin Group

13 Strategies for Value Creation

1. Our Value Creation Process
2. Our Accumulated Strengths

1. Daikin's Unique Business Model

1. Risks and Opportunities That Affect Medium- to Long-Term Value Creation

1. Overview of Strategic Management Plan FUSION 25

1. Financial Strategy

1. Three Growth Strategy Themes
   26 ① Challenge to Achieve Carbon Neutrality
   28 ② Promotion of Solutions Business Connected with Customers
   30 ③ Creating Value with Air

1. Three Themes for Focus Regions and Businesses
   31 ④ Air Conditioning Business in North America
   32 ⑤ Establishment of a Major Base in India
   33 ⑥ Chemicals: Challenge to Become a Leading
   Company in High-Performance and Environmentally Conscious Materials

1. Special Feature
   34 ① Accelerating the Realization of Carbon Neutrality through Our Heat Pump Space and
   Water Heating Business in Europe
   36 ② Capturing an Overwhelming Share of the Market in India and Establishing the Country as a Major Base for Our Global Business

38 Five Themes to Enhance the Management Foundation 38 ⑦ Strengthening Technology Development

Capabilities

40 ⑧ Establishing a Robust Supply Chain

41 ⑨ Promoting Digital Transformation for Innovation

42 ⑩ Creating Market Value and Enhancing Advocacy Activities

43 ⑪ Improving HR Capabilities through Advanced Diversity Management

47 Environmental Initiatives

49 Information Disclosure Based on the TCFD Framework

52 A Governance System That Facilitates

Value Creation

52 Corporate Governance

1. Messages from External Directors
2. Corporate Officers

62 Compliance and Risk Management

64 Business Strategies

1. Overview of Core Businesses

1. Review of Operations 66 Air Conditioning 72 Chemicals
   74 Oil Hydraulics
   75 Defense Systems

76 Data

1. Financial Highlights
2. Non-FinancialHighlights
3. Eleven-YearFinancial Highlights
4. Sustainability Targets and Results

1. On Publishing the Integrated Report 2023
2. Company Overview / Investor Information

Editorial Policy

In compiling this report, we referred to the International Integrated Reporting Framework of the IFRS Foundation, the Guidance for Collaborative Value Creation issued by Japan's Ministry of Economy, Trade and Industry, and other guidelines. We have published this report to provide all of our stakeholders with detailed information on the Daikin Group's strengths and business model, its unique corporate culture, and its growth strategies for realizing medium- to long-term growth and development.

Scope of Coverage

This report covers Daikin Industries, Ltd., and its consolidated subsidiaries. Environmental performance data, however, covers four production bases of Daikin Industries, Ltd., eight production subsidiaries in Japan, and 58 production subsidiaries overseas.

In this report, "the Group" and "Daikin"refers to the Daikin Group overall, while "the Company" refers to Daikin Industries, Ltd.

Period of Coverage

This report covers the period from April 1, 2022 to March 31, 2023 (fiscal 2022).

Forward-Looking Statements

This report 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 historical facts and are based on judgments made by the Company on the basis of information known at the time. Readers should therefore 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 the Company 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.

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Introduction

Message from the CEO

We will take our business to new heights to

realize both contributions to a

sustainable society and Group growth.

In fiscal 2022, we achieved our highest results for net sales and operating profit, eclipsing the previous record set in fiscal 2021. On the heels of this achievement, in May 2023 we announced our FUSION 25 Latter-Half Three- Year Plan, which takes into account the changes in our business environment since the announcement of our initial FUSION 25 strategic management plan.

We will steadily proceed with management reforms and aggressive investments with a view to future growth. In so doing, we will continue to grow our business and resolve the issues facing society, while enhancing our economic, environmental, and social value in the process.

Masanori Togawa

President and CEO

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Introduction

Message from the CEO

Fiscal 2022 was a year of various adversities, including the Shanghai lockdown, soaring raw material and logistics costs, prolonged inflation, and economic slowdown. In light of these challenges, we have remained thoroughly committed to our "Eight Key Themes + One Theme" set forth at the beginning of the fiscal year and responded promptly and flexibly to the changing circumstances. More specifically, despite the impact of the Shanghai lockdown on parts procurement, we increased sales and market share without discontinuing product supply throughout our global network and implemented strategic selling price measures to offset the soaring raw material and logistics

Looking Back on Fiscal 2022

costs and the higher resource and energy prices. In addition, our ongoing measures to reduce total costs proved to be a success, leading to favorable results. As a result, we achieved record-breaking results for net sales and operating profit, which improved even in terms of real value discounting the impact of the exchange rate.

As we continue to strive to grow our business, we have maintained a strong focus on profitability, which we have worked to improve while actively investing in our future growth.

Eight Key Themes + One Theme

1. Formulate strategic selling price measures.
2. Further strengthen sales capabilities, such as measures to reinforce commercial-useair-conditioning.
3. Maximize reductions in variable costs.
4. Execute streamlining measures to offset higher logistics costs.
5. Streamline existing fixed costs.
6. Strengthen procurement and supply capabilities in anticipation of fiscal 2023 and beyond.
7. Maximize profitability by accelerating the key themes of FUSION 25.
8. Create results and maximize profitability for acquired companies and large-scale

capital investments.

+1 Capitalize on the changes occurring in the world by utilizing our strengths and taking on the challenge and innovation themes (such as carbon neutrality and digital) that will lead to our next great leap forward.

Comprehensive Capabilities Supporting Value Creation

We will make every effort to cope with cost increases. However, simply raising the prices of our existing products will not earn the support of customers. Accordingly, the Group has implemented strategic selling price measures to roll out new high-value-added products that bring joy to customers by quickly developing new products and bringing them to market through a concerted effort by the research, procure- ment, production, and sales functions. Our "comprehensive capabili- ties" are the key to ensuring that customers continue to choose our products regardless of increases in selling prices. The Group strives to provide even better products and services by drawing both on its product capabilities and its sales capabilities to make high-value- added proposals to customers, and on its comprehensive capabilities, which cover everything from installation to after-sales services for air conditioners. We aim to establish our comprehensive capabilities as a competitive advantage in every region of the world, but the challenges we face in each region are different. For example, if we have outstanding products but lack the resources to install them, we establish a training center and focus on developing installers. In this way, we

The Source of Our Competitiveness Underpinning Continuous Growth

constantly work to strengthen our abilities in areas for improvement so that we continue to earn the support of customers.

Daikin's Unique Business Model Page 16

The Ability to Execute Successfully,

Even in Times of Change

One of the reasons why we have been able to achieve record performance even in a challenging business environment is our commitment to execu- tion, which permeates from management to the front lines and remains unchanged regardless of the circumstances. The ability to execute, which entails squarely confronting the obstacles that are in our way, taking a series of measures in response, and working collectively as a unit from management to the front lines, is a strength of the Group. To continue to generate results in a rapidly changing environment where a string of unexpected events might take place, we must first boldly decide on a direction and put our plan into action. Then, based on the issues that emerge during this process, we quickly adjust our approach in response to the changes and execute this revised approach. No matter how many theories you come up with, you will not make any progress unless you take

action. I constantly tell my employees that a "second-rate strategy with first-rate execution" takes priority over a "first-rate strategy with second-rate execution" so that they understand the importance of being fully committed to execution.

What makes our first-rate execution possible is the Group's fast and flat organizational culture that has been cultivated over many years. This refers to a flexible organizational management approach that ensures that decisions are made with the understanding of employees through a bottom-up approach as well as in a timely manner through a top-down approach. To achieve both approaches to management, I always share the details of discussions at the Board of Directors' meetings as well as my views concerning important management information with our employees. When each employee understands and performs their role, the speed of execution increases and the necessary information is communicated quickly from the front lines to management. Also, each department is asked to present opinions and proposals on various on-site and management issues, which are used as the basis for promoting lively internal discussions. On the other hand, because endless discussion can result in missing out on the right opportunity to make decisions, ultimately decisions will be

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