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Message from Management

Masanori Togawa
President and CEO
Daikin Industries, Ltd.

The management environment for fiscal year 2016 exhibited slow economic growth in each global region along with challenging market conditions that included the negative impact of yen appreciation. Nevertheless, Daikin endeavored to significantly strengthen its management constitution and set forth a fundamental policy throughout the company to "outperform our rivals and substantially increase global sales based on actual sales," "optimally reduce variable costs worldwide," and "drastically reduce fixed costs" as the company aimed to further improve financial results.

These efforts led us to expansion of overseas sales in the Air Conditioning business centering on North America, Asia, and Europe. Consequently, financial results improved in each major region and included business growth in China from sales of residential-use multi-split air conditioners and cost reductions along with sales growth in Japan for high value-added products. Record highs for sales and profits continued for the fourth consecutive term, and Daikin achieved increases in revenue and profits for the seventh consecutive term.

Although growth for the management environment is expected to continue in the future due to the economic recovery of resource-rich countries resulting from acceleration in the U.S. economy and the rise in prices for raw materials, geopolitical risks, including policies of the new U.S. administration, have increased, and uncertainty still exists for the future.

In light of this situation, Daikin has established a management position directed for the next two years of FY2017 and FY2018 toward achieving the mid-term implementation plan of Fusion 20, Daikinfs strategic management plan for FY2020. Together with maintaining short-term profits, we will continue to aggressively implement forward-looking investments and aim for further growth and development for the short- to long-term.

In addition to the new factory in the U.S., we are expanding factories in Thailand and India while proceeding with new factories in Vietnam and Malaysia as part of our forward-looking investments to strengthen production capacity.

Furthermore, we are quickening the pace of our global development system. The system for the Technology and Innovation Center (TIC), which is the mother facility for R&D, will be enhanced, and efforts will be accelerated to improve the technology and development of differentiated products by uniting the local development bases of the eight global regions and having the TIC serve as the nucleus. For North America in particular, we have created differentiated products that had not previously existed and revolutionized overnight the mature North American market and its ducted air conditioning culture. With the aim of creating new markets, we are planning establishment of a North American R&D center.

Additionally, we established an office in Silicon Valley and are making concentrated efforts to acquire and refine the AI and IoT technologies that will be essential for future generations. Moreover, in fusing the technologies of different fields, we are engaging with an even greater sense of urgency in industry-to-industry and industry-to-university cooperation. Accelerating technological innovation and stimulating growth will necessitate enhancing the HR capabilities that serve as the basis for that development. For this reason, we will also be quickly developing and expanding the acquisition and training of new HR talent.

Systematic dealer development is imperative in each country to further strengthening sales and marketing capabilities and improving after sales service. Together with building a system that can rapidly utilize alliances, partnerships, and M&A, we will actively recruit and train HR talent to ensure that our objectives are achieved.

Because results were favorable for fiscal year 2016, we are proposing a dividend of 130 yen, which represents a 10-yen increase from the publicly announced (interim dividend 60 yen and term-end dividend of 70 yen). For fiscal year 2017, we plan a dividend of 130 yen (interim dividend of 65 yen and term-end dividend of 65 yen).

Daikin will expand business while executing strategic investments toward further growth and development and accelerate the building of a robust corporate constitution through improved results and structural reforms. By doing this, we will increase market capitalization to improve corporate value while striving to further increase dividends to shareholders.

For now and in the future, I respectively ask for your continued understanding and support of Daikin.

May 2017

Masanori Togawa
President and CEO
Daikin Industries, Ltd.

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