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Asset Management ････ 29 Spring 2008 Daiwa Securities Group Business Strategy This presentation may contain forward-looking statements about the Daiwa Securities Group. You can identify these statements by the fact that they do not relate strictly to historic or current facts. These statements discuss future expectations, identify strategies, contain projections of results of operations or of financial condition or state other “forward-looking”information. These statements are based on currently available information and represent the beliefs of the management of the Daiwa Securities Group. These statements are subject to numerous risks and uncertainties that could cause the Daiwa Securities Group’s actual results, performance, achievements or financial condition to differ materially from those described or implied in the forward-looking statements. The Daiwa Securities Group undertakes no obligation to publicly update any forward-looking statements after the date of this presentation. These potential risks and uncertainties include, but are not limited to: competition within the financial services industries in Japan and overseas, our ability to adjust our business focus and to maintain profitable strategic alliances, volatile and sudden movements in the international securities markets, foreign exchange and global economic situations affecting the Daiwa Securities Group. Contents FY07 Financial Summary ････ 3 FY08 Business Strategies Retail ････ 8 Wholesale / Investment ････ 20 Asset Management ････ 29 Topics ････ 32 Dividend Policy ････ 35 2 FY07 Financial Summary 3 Consolidated Financial Summary %Change FY07 %Change (Y mil) FY07 FY06 vs vs FY06 4Q 3Q 3Q FY07 Operating revenues 825,422 917,307 -10.0% 144,268 215,457 -33.0% Net operating revenues 447,491 526,764 -15.0% 70,431 121,427 -42.0% SG&A 363,858 340,372 6.9% 86,290 92,288 -6.5% Ordinary income 90,143 195,415 -53.9% -15,664 30,511 - Net income 46,411 92,724 -49.9% -12,928 17,264 - Total assets 17,307,119 14,411,265 17,307,119 17,786,335 Net assets 1,082,923 1,223,225 1,082,923 1,178,456 Shareholders' equity* 818,089 929,525 818,089 893,223 EPS (Y) 33.69 67.90 -9.52 12.59 BPS (Y) 607.64 665.98 607.64 651.36 ROE (Annualized) 5.3% 10.8% ---- 7.7% * Shareholders’ equity = owners’ equity + valuation and translation adjustments FY07 Dividend RROOEE (A(Annuannualizelizedd)) FY07FY07 4Q4Q FY07 Dividend FY07 Dividend per Share: 22 yen Daiwa Securities Daiwa Securities 16.2 % 11.2 % (including 12 yen interim dividend) DaiwDaiwaa SecuritiesSecurities SMBCSMBC --- --- Dividend Payout Ratio: 65.3 % (conso(consolliiddated)ated) 4 Consolidated P/L Summary FY07 % Cha nge FY07 FY06 % Cha nge (Y mil) vs FY07 FY06 vs 4Q 3Q 3Q FY07 2Q 1Q 4Q FY06 Operating revenues 144,268 215,457 -33.0% 211,712 253,982 255,138 825,422 917,307 -10.0% Commissions 67,383 72,602 -7.2% 74,562 79,875 81,489 294,424 306,736 -4.0% Net gain on trading -9,479 41,650 - 24,440 46,749 47,044 103,361 157,332 -34.3% Net gain on private equity 4,131 723 471.3% 6,309 7,996 7,997 19,160 32,818 -41.6% and other securities Interest and dividend income 69,377 87,242 -20.5% 95,909 105,893 103,258 358,422 373,452 -4.0% Other revenues 12,855 13,239 -2.9% 10,489 13,468 15,348 50,052 46,967 6.6% Interest expenses 64,169 83,894 -23.5% 92,357 99,362 99,373 339,783 354,245 -4.1% Cost of sales 9,668 10,136 -4.6% 7,791 10,551 12,263 38,147 36,298 5.1% Net operating revenues 70,431 121,427 -42.0% 111,563 144,068 143,501 447,491 526,764 -15.0% SG&A 86,290 92,288 -6.5% 91,660 93,619 90,882 363,858 340,372 6.9% Operating income -15,858 29,138 - 19,902 50,449 52,618 83,632 186,391 -55.1% Non-operating income 1,419 2,274 -37.6% 1,823 4,129 999 9,647 10,937 -11.8% Non-operating expenses 1,225 902 35.8% 521 486 583 3,135 1,913 63.9% Ordinary income -15,664 30,511 - 21,204 54,092 53,034 90,143 195,415 -53.9% Extraordinary gains 1,481 219 576.5% 1,140 793 1,204 3,634 3,601 0.9% Extraordinary losses 9,663 -65 - 2,015 213 10,377 11,826 13,093 -9.7% Net income -12,928 17,264 - 14,739 27,335 25,842 46,411 92,724 -49.9% 5 Medium-term Management Plan “Passion for the Best” 2008 Consolidated ordinary income : JPY 350bil or higher Consolidated ROE : 15% or higher * Consolidated ordinary income record high JPY339.1bil (3/1990) Retail Wholesale Asset Management Ordinary income: Consolidated ordinary income: Ordinary income: JPY 130bil or higher JPY 190bil or higher JPY 30bil or higher Equity investment trusts: Daiwa Securities JPY 14tri or higher Customer assets under custody: No.1 position in major league tables Investment advisory assets: JPY 45tri or higher JPY 5tri or higher 6 Assumptions for the Plan *DIR Forecasts (as of 11/2005) *As of 3/2008 Economy : FY06-FY08 (Average) Economy : FY07-FY08 GDP growth rate : Nominal 3.7% Real 2.8% GDP growth rate : Nominal 0.8％ Real 1.7％ CPI : 0.8% per annum CPI : 0.3％ per annum Markets : FY08 (Average) *FY07 DIR forecast Call rate : 0.30% Yield of 10-year JGB: 2.4% Markets : FY07 (Average) JPY / US$ rate : JPY 99.5 / US$ Call rate : 0.474％ * Company’s estimation Yield of 10-year JGB: 1.577％ TOPIX: 1,870 points （3/2009) JPY / US$ rate : JPY113.62 / US$ Trading value at TSE 1st section : JPY 2.0-2.5 tri per day TOPIX: 1,212 points (3/2008) Individuals Trading value at TSE 1st section : Retail trading value: JPY 1.1-1.5 tri per day JPY 3.0 tri per day (FY08 average, company’s estimation) Retirement bonus of baby boomers Individuals (including retirement pension): approx. JPY 40 tri Baby boomers = born in 1946-1951 Individual financial assets: JPY 1,545 tri (12/2007) Individual financial assets: JPY 1,714 tri (3/2009) Corporations Topics 9 9 Diversification of investment and funding approach Turbulence in financial market due to sub-prime issue 9 Active capital investments and M&A by healthy corporations 9 Decreasing corporations’ appetite for straight equity finance 9 Active restructuring and spin-out by ailing corporations 9 Higher presence of private equity and real estate funds 7 Retail 8 Retail Financial Summary FY07 % Cha nge FY07 FY06 % Cha nge (Y mil) vs FY07 FY06 vs 4Q 3Q 3Q FY07 2Q 1Q 4Q FY06 Operating revenues 46,072 57,330 -19.6% 58,413 64,456 63,042 226,273 230,649 -1.9% Com m issions 34,325 42,995 -20.2% 44,337 50,381 50,681 172,040 185,751 -7.4% Brokerage 9,028 11,864 -23.9% 13,767 15,190 18,697 49,851 65,947 -24.4% Stock and others 8,918 11,752 -24.1% 13,685 15,144 18,634 49,500 65,739 -24.7% Distribution 8,757 13,257 -33.9% 12,413 17,862 15,399 52,292 60,531 -13.6% Stock and others 1,058 865 22.3% 1,368 1,616 2,229 4,908 16,006 -69.3% Bond and others 1,956 1,687 16.0% 2,436 3,050 2,140 9,131 8,449 8.1% Investment trust 5,742 10,704 -46.4% 8,609 13,195 11,028 38,252 36,075 6.0% Other commissions 16,538 17,874 -7.5% 18,155 17,328 16,584 69,897 59,272 17.9% Investment trust 10,911 12,058 -9.5% 11,634 10,935 9,652 45,539 34,001 33.9% Net gain on trading securities 9,826 12,036 -18.4% 11,597 11,818 10,318 45,279 37,324 21.3% Stock and others 686 1,896 -63.8% 1,741 2,184 1,542 6,509 5,761 13.0% Bond, forex and others 9,140 10,139 -9.9% 9,855 9,633 8,775 38,769 31,562 22.8% Interest and dividend income 1,920 2,298 -16.4% 2,478 2,256 2,042 8,953 7,573 18.2% Interest expenses 505 575 -12.1% 589 593 511 2,263 1,478 53.1% Net operating revenues 45,567 56,755 -19.7% 57,823 63,863 62,530 224,010 229,171 -2.3% SG&A 32,987 38,924 -15.3% 39,363 41,981 40,644 153,256 154,670 -0.9% Ordinary income 12,649 17,922 -29.4% 18,456 21,999 21,800 71,026 74,477 -4.6% Net income 7,180 10,418 -31.1% 10,606 12,803 12,163 41,009 43,468 -5.7% Capital adequacy ratio 319.7% 382.2% 362.5% 350.9% 319.3% 319.7% 319.3% 9 Retail Change of Earnings Structure (1) As source of revenue has become diversified, dependence on equity revenue decreased (Y bil) Revenues by product category (quarterly) 40 30 Equities (excl. underwriting) 20 Investment trusts (sales comm) 10 Bonds Investment trust (agency comm) Pension insurance 0 1Q/04 2Q/04 3Q/04 4Q/04 1Q/05 2Q/05 3Q/05 4Q/05 1Q/06 2Q/06 3Q/06 4Q/06 1Q/07 2Q/07 3Q/07 4Q/07 10 Retail Change of Earnings Structure (2) Increasing Stable Revenues Stable revenues (quarterly) Cost cover ratio (quarterly) (Y bil) (Y bil) 25 50 60% SG&A (left) Investment trust agency commission Margin transaction interest income Stable revenues (left) Daiwa SMA advisory fee Daiwa Fund W rap advisory fee Cost cover ratio (right) Daiwa LMS interest income Diawa Direct total commission 50% 20 40 40% 15 30 30% 10 20 20% 5 10 10% 0 0 0% 1Q/05 2Q/05 3Q/05 4Q/05 1Q/06 2Q/06 3Q/06 4Q/06 1Q/07 2Q/07 3Q/07 4Q/07 1Q/05 2Q/05 3Q/05 4Q/05 1Q/06 2Q/06 3Q/06 4Q/06 1Q/07 2Q/07 3Q/07 4Q/07 11 Retail Sales of Equity Investment Trusts Sales and net increase ratio of equity investment trusts (Y bil) 800 100% Net increse ratio (right) 600 75% 400 50% 200 25% 0 0% 1Q/05 2Q/05 3Q/05 4Q/05 1Q/06 2Q/06 3Q/06 4Q/06 1Q/07 2Q/07 3Q/07 4Q/07 Equity type investment trust (left) 153.3 241.8 441.7 405.2 350.0 187.3 238.8 320.1 431.4 237.4 316.6 90.7 Bond type investment trust (left) 186.2 173.9 199.5 227.5 148.4 164.7 196.2 237.2 198.9 197.6 218.9 209.8 Total (left) 339.5 415.7 641.3 632.7 498.4 352.1 435.0 557.4 630.3 435.0 535.5 300.6 Net increse ratio (right) 49% 50% 53% 61% 51% 61% 57% 63% 60% 41% 43% 23% purchase - （sell-off + redemption） Note: Net increase ratio（%）＝ ×100 purchase 12 Retail Sales of Bonds Sales of foreign currency denominated bonds Sales of JGB for individual investors (Y bil) (Y bil) 350 200 10yr JGB (floater) 300 5yr JGB (fixed) 150 250 200 100 150 100 50 50 0 0 1Q/05 2Q/05 3Q/05 4Q/05 1Q/06 2Q/06 3Q/06 4Q/06 1Q/07 2Q/07 3Q/07 4Q/07 1Q/06
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