Air-conditioner maker Daikin readies billions to expand in warmer world

Daikin's operations are on track to benefit from the twin tailwinds of global warming and growing affluence in emerging economies. PHOTO: DAIKIN.COM

TOKYO (BLOOMBERG) - Daikin Industries, the world's largest manufacturer of air conditioners, is ready to tap its cash pool of 756 billion yen (S$8.8 billion) to acquire companies to prepare for a jump in demand as global temperatures rise, while seeking to minimise 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 Masanori Togawa said in an interview, adding that he prefers targets in new markets to bolster sales and service networks.

Daikin has already set aside a mergers and acquisitions war chest of 600 billion yen, but is willing to increase that if necessary, Mr 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.

Daikin is the fifth-best performer in the Nikkei 225 over the past decade with a nine-fold jump in its stock. Its market value of 6.4 trillion yen exceeds that of Hitachi or Panasonic.

Daikin has made three billion-dollar acquisitions in the past: Malaysia's OYL Industries in 2006, US's Goodman Global Group in 2012 and Austrian AHT Cooling Systems in 2019.

Mr Togawa said he would be willing to do so again, adding that he is now looking at commercial cold supply chains, chilled showcase makers and the shift in Europe away from burning fuels and toward heat pumps.

Asked whether he was interested in buying local rivals such as Fujitsu General or Toshiba Carrier, Mr Togawa said he saw few benefits because of the lack of cost-saving synergies.

One of those is already spoken for: Toshiba is planning to sell a 55 per cent stake in its air-conditioning unit to its United States partner Carrier Global for about 100 billion yen as part of a broad overhaul.

While Daikin's profit and sales slipped slightly for the fiscal year ended March last year, 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. Mr 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 next year.

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 per cent 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.

The Covid-19 pandemic is also 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," Mr Togawa said.

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