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Biggest Air-Conditioner Maker Readies Billions to Expand in Warmer World

A worker assembles an indoor unit of a Daikin Industries Ltd. split type air conditioner on the production line of the company's Shiga plant in Kusatsu, Shiga, Japan, on Thursday, Aug. 10, 2017. Photographer: Buddhika Weerasinghe/Bloomberg

(Bloomberg) —

Daikin Industries Ltd., the world’s largest manufacturer of air conditioners, is ready to tap into its cash pool of 756 billion yen ($6.6 billion) to acquire companies to prepare for a jump in demand as global temperatures rise, while seeking to minimize its carbon impact.

“We need to find ways to invest for the changing environment, finding business opportunities and addressing sustainability concerns, as well as investing in research, people and acquisitions,” Chief Executive Officer Masanori Togawa said in an interview, adding that he prefers targets in new markets to bolster sales and service networks. He also doesn’t favor buybacks. “You can spend money to buy back shares, but that shouldn’t be the goal.”

Daikin has already set aside a mergers and acquisitions war chest of 600 billion yen, but is willing to increase that if necessary, Togawa said. Daikin’s operations are on track to benefit from the twin tailwinds of global warming and growing affluence in emerging economies. The International Energy Agency predicts that energy demand for air conditioning will triple by 2050. 

The Osaka-based firm is the fifth-best performer in the Nikkei 225 over the past decade with a nine-fold jump in its stock. Daikin’s market value of 6.4 trillion yen exceeds that of Hitachi Ltd. or Panasonic Corp. 

Daikin has made three billion-dollar acquisitions in the past: Malaysia’s OYL Industries in 2006, U.S.’s Goodman Global Group in 2012 and Austrian AHT Cooling Systems in 2019. Togawa said he’d be willing to do so again, adding that he’s now looking at commercial cold supply chains, chilled showcase makers and the shift in Europe away from burning fuels and toward heat pumps. 

“Strategically, if a business looks like it will help us grow and develop, of course, we would consider another company worth more than 100 billion yen,” he said.

What Boomberg Intelligence says:

“A global focus on air quality could boost Daikin’s air-conditioner business.”

— BI Industry Analyst Takeshi Kitaura. Clich here to read the research.

Asked whether he was interested in buying local rivals such as Fujitsu General Ltd. or Toshiba Carrier Corp., Togawa said he saw few benefits because of the lack of cost-saving synergies. One of those is already spoken for: Toshiba Corp. is planning to sell a 55% stake in its air-conditioning unit to its U.S. partner Carrier Global Corp. for about 100 billion yen as part of a broad overhaul

“We have no intention of buying Toshiba or Fujitsu General’s air-conditioning businesses,” Togawa said, adding that he wasn’t approached. “We wouldn’t buy them just to add scale. Sure, it would boost our sales but I don’t see much synergy.”

While Daikin’s profit and sales slipped slightly for the fiscal year ended March 2021, analysts project that the manufacturer will post record profit and sales for the current period ending next month.

Daikin is also among those facing challenges due to the shortage of semiconductors, driven by booming global demand for smartphones, computers and gadgets. Togawa said that while chip supplies will probably remain tight until later this year, Daikin has already secured enough semiconductors for the coming fiscal year through March 2023. 

Despite its growth prospects, Daikin will need to make its products far more efficient in order to meet its goals of cutting its carbon footprint by 30% in 2025, halving it by 2030 and reaching net zero greenhouse gas emissions by 2050. That means Daikin will have to make its air conditioners far more efficient and use refrigerants that don’t contribute as much to greenhouse gases, while keeping them affordable.

Giving Companies Right Credit for Carbon Offsets: Green Insight

“It will be impossible to reach these goals without reaching a higher level of innovation,” Togawa said, adding that Daikin is seeking to lower the cost of inverters, which regulates the speed of compressor motors in order to make air conditioners more efficient. The company also wants to gain market share in home heating, particularly in colder climates.

The coronavirus pandemic is pushing Daikin and the air-conditioning industry to think more holistically beyond just air-controlled environments as more people stayed, studied and worked from home for longer periods than ever before.

“What’s important for us next is not just how we can heat, cool, humidify or dehumidify environments, but also thinking about the quality of conditions such as ventilating, cleaning and disinfecting air,” Togawa said.

© 2022 Bloomberg L.P.

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