Daiwa Securities Group Inc. FY2019 Management Strategy
May 21, 2019 Seiji Nakata, President and CEO Daiwa Securities Group Inc.
These materials were produced to provide information on results through the forth quarter of FY2018 and the management’s vision for the future. They are not intended as a solicitation for investment in securities issued by Daiwa Securities Group Inc. These materials were produced based on information that was disclosable as of May 21, 2019. The opinions, forecasts, and other forward-looking statements in these materials are based on the company’s judgment at the time they were produced, and Daiwa Securities Group Inc. makes no guarantees in regard to the accuracy and completeness of the information contained herein. This information may also be revised without prior notice in the future. FY2019 Management Strategy
Table of Contents
Ⅰ - Overview of Year 1 of Medium-Term Management Plan・・・・ 3
Ⅱ - Policy for Year 2 of Medium-Term Management Plan・・・・ 7
Ⅲ - Progress on Division Strategy & Future Initiatives・・・・ 13
Ⅳ - In Conclusion ・・・・ 25
Appendix ・・・・ 29 Ⅰ- Overview of Year 1 of the Medium-Term Management Plan Ⅰ- Overview of Year 1 of the Medium-Term Management Plan FY2018 Consolidated Earnings Results
% Change % Change FY2018 Consolidated earnings results vs FY2018 4Q vs 1Q-4Q FY2017 3Q/FY18
Net operating revenues ¥441.2 bn -12.7% ¥107.4 bn -2.5%
Ordinary income ¥83.1 bn -46.6% ¥17.6 bn -9.3% Profit attributable to ¥63.8 bn -42.3% ¥13.4 bn -5.0% owners of parent
Profit Attributable to Net Operating Revenues Ordinary Income Owners of Parent (¥ Billions) (¥ Billions) (¥ Billions) 180 60 60
134.9 130.9 130.8 43.8 43.2 43.4 121.6 115.6 120 108.5 107.8 110.3107.4 40 40 36.5 34.3 31.9
25.1 25.8 22.3 22.6 20.1 19.4 19.3 18.5 60 20 17.6 20 17.7 14.1 13.4
0 0 0 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY FY2017 FY2018 FY FY2017 FY2018 FY FY2017 FY2018 2016 2016 2016
4 Ⅰ- Overview of Year 1 of the Medium-Term Management Plan Shareholder Return
FY2018 dividend per share: 21yen（interim: 12yen, year-end: 9yen） Dividends Annual dividend payout ratio: 52.6％ Total return ratio 106.9％ Share Total number of shares to be repurchased: 55 million shares Amount Repurchase Total amount to be paid for repurchase: ¥34.8 billion repurchased (Total return ratio: 106.9%) ¥34.8 bn
Total return ratio 75.2％ Amount Total return ratio repurchased Total return ratio 60.4％ ¥37.1 bn 58.3％ Amount Amount repurchased Acquisition repurchased 52.6％ of treasury bn shares ¥18.6 bn ¥19.0 50％ or higher 42.5％ 42.3％ 41.9％ 34.9％ 34.1％ 34.5％ Approx. 40％
Actual Approx. 30％ payout ratio (full year) Dividends per share 15 34 30 29 26 28 21 (yen) 3 12 17 17 14 16 17 12 13 13 13 15 12 9 Interim Year-end Interim Year-end Interim Year-end Interim Year-end Interim Year-end Interim Year-end Interim Year-end
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 “Passion for the Best”2014 “Passion for the Best”2017 “Passion for the Best” 2020 （FY2012-FY2014） （FY2015-FY2017） （FY2018-FY2020）
5 Ⅰ- Overview of Year 1 of the Medium-Term Management Plan Progress Toward Quantitative Goals
Achieved a certain measure of success on customer oriented KPI, while progress on performance KPI has been slow.
Customer-oriented KPI (Daiwa version of NPS®) Customer-oriented KPI (Assets Under Custody)
Improvement in score ¥80 trillion or more (FY2020) （¥ billions） Retail Division: Trend in Net Asset Inflow 600 Individual Corporate
¥68.1 trillion ¥66.3 trillion 400 Already ¥53.6 trillion introduced at branches All 200 Steps to improve scores will be taken as needed 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY2017 FY2018 2017.3 2018.3 2019.3
Performance KPI (ROE) Performance KPI (Ordinary income) Finance KPI (Consolidated total capital ratio)
10% or higher ¥200 billion or more (FY2020) 18% or higher
8.8% ¥155.6 billion 22.6% 22.3% 22.1％ 8.4% ¥135.6 billion
5.1% ¥83.1 billion
FY2016 FY2017 FY2018 FY2016 FY2017 FY2018 FY2016 FY2017 FY2018.3Q
® Note: NPS is a registered trademark of Bain & Company, Fred Reichheld, and Satmetrix Systems Inc. 6 Ⅱ- Policy for Year 2 of Medium-Term Management Plan Ⅱ- Policy for Year 2 of the Medium-Term Management Plan
Road Map to Reforming Income/Expense Structure (Overall View)
Pursue a total improvement of 30 billion yen in income and expenses during current medium-term management plan (by increasing the top line and reducing costs), and strive to accumulate greater gains during the next medium-term management plan. “Passion for the Best” 2020 Next Medium-Term Management Plan Pursue Quality No. 1 & Hybrid Strategy Pursue retail sales reform Improve the income/expense structure Establish a Quality No. 1 management base
FY2018 FY2019 FY2020 FY2021-FY2023 Phase 1 Phase 2 Phase 3 Pursue retail sales reform Continue Phase 1 measures + expand profits through Goal for improvement in - Branch strategy reallocation of management resources (expand sales offices, income/expenses + ¥50 Reassess unprofitable businesses & services Reassess owned assets integrate large branches) billion (by FY2019 to FY2023) Slim down headquarters and division functions Cut unnecessary SG&A expenses - Segmentation Improve the efficiency of sales branch functions (Allocation of personnel by customer attribute) Improve productivity & operating efficiency Sell investment securities Goal for improvement Improve the top line in income/expenses + through reallocation ¥30 billion (by FY2020) of management resources & taking other steps
Improve the top line through reallocation of ＋ ¥50 billion management resources Reallocate & taking other steps management resources + ¥15 billion Effective use of human ＋ ¥30 billion resources Effective use of assets Severe business Optimize costs environment Reduce costs + ¥15 billion Current income/expense structure
8 Ⅱ- Policy for Year 2 of the Medium-Term Management Plan
Reforming the Income/Expense Structure Phase 2: Reallocation of Management Resources
Reduce costs by ¥15 billion, mainly by reassessing unprofitable businesses and services and reducing Reduce costs unnecessary SG&A expenses. Improve top line Increase the top line by ¥15 billion by creating a human resource pool and reallocating management resources to strategic business areas, mainly by slimming down headquarter and division functions and improving the efficiency of sales branch functions.
Plan for improving income and expenses in Phase 2
Increase the top line by reallocating management resources to strategic business areas
Reallocate human resources Reallocate assets Increase the top line Strengthen hybrid businesses Strengthen existing businesses Implement through reallocation of measures management resources Financial consultants New business personnel and taking other steps Investment in strategic aimed at + ¥15 billion External partnership M&A personnel/IPO personnel business areas, etc. revenue personnel Wealth management expansion personnel
Reallocation of Management Resources
Cut unnecessary SG&A expenses
Reassess owned assets Improve the efficiency of sales branch functions Slim down Reduce costs headquarter and division functions + ¥15 billion
Reassess unprofitable businesses and services
9 Ⅱ- Policy for Year 2 of the Medium-Term Management Plan
Three -Pillars Retail Strategy
The retail business still has enormous growth potential. We aim to grow as more sustainable core business by further strengthening the customer-oriented sales system based on NPS.
The Daiwa version of NPS ® was Hold Quality No. 1 Meetings to develop a introduced to visualize the degree of NPS Training customer-oriented mindset among all customer satisfaction and as an employees. indicator for sharing a sense of value Establish a new Q Road training program internally. for employees who have been in the … We have already introduced it at company for 3-5 years All branches … No. 1 in the industry in the number of We will aim for ongoing improvement. CFP certification holders: 796 holders * as of March 31, 2019
Optimize channels according to Build a sales Channels customer attributes and life Established better stages, for elderly customers, communication rules to Contacts structure customers in the asset-building increase contact with stage, etc. customers. based on the Elderly customers Anshin Planner Contact customers efficiently and effectively based on customer’s Asset-builders Financial Consultants transaction data analysis. perspective …Anshin Planner: 70 branches Financial Consultants: 72 branches
※as of April 30, 2019 Be thorough in area marketing, expand the number of small, Branches low-cost sales offices, and work to expand points of contact with Transition from a headquarter- customers … Roles driven sales structure to a bottom- No. of sales offices: 43 up sales structure driven by individual branches, based on Total number of branches: customer needs. 160 (in Japan) * as of March 31, 2019
10 Ⅱ- Policy for Year 2 of the Medium-Term Management Plan Expand the Daiwa Ecosystem
Changes in needs of customers Changes in the income/expense structure Current Medium-Term Plan Respond to the long-term and diversified investment Downward pressure on brokerage commissions form New –Next Medium-Term Plan needs of a wide range of investors technological advancements and stiffening competition businesses, Anticipated cumulative energy & Strengthen fiduciary duty Decline in FICC revenue due to continuing surplus funds and contribution from new infrastructure, low-interest rate environment business healthcare, ¥15 to ¥ 25 billion etc. Conversion to stock business Decline in profitability of & service business traditional securities business Strive to improve profitability by expanding the business portfolio around the core of the traditional securities business Contribution SBI from Daiwa Next Bank Benefit CONNECT 6.8 Daiwa ¥6.8 billion ORIX Systems Real Estate KDDI AM Japan Post Living Group Contribution Asset Management from real Samty Fintertech estate AM 28.3 AM Asia PB business Contribution Service ¥8.3 billion from existing businesses Sumitomo Mitsui Daiwa Daiwa DS Asset Asset Management Asset Next Bank 25.4 Management Management Retail
Daiwa Fund Consulting Investment Wholesale 24.6 DC Daiwa (M&A) Corporate (¥ billions) Daiwa Investment Institute of Research リテールRetail ホールセールWholesale Daiwa Energy Daiwa IPO Holdings アセマネAM 投資Investment & Infrastructure PIP その他Other Ecosystem Fund, etc. Daiwa Food FY2018 ordinary income Future vision targeted ＡＣＡ & Agriculture
11 Ⅱ- Policy for Year 2 of the Medium-Term Management Plan
Capital Policy
The financial status of Daiwa Securities Group is very sound, even when considered under the new Basel regulatory framework. We have adequate surplus capital for shareholder returns and investment in growth.
Simulation of Surplus Capacity for Investment and Shareholder Return
Consolidated 22.3％ 22.1％ 22.7％ 23.4％ 24.0％ 24.7％ 25.3％ [Underlying Assumptions of Simulation] total capital ratio Conservative assumption for profit level in 14,000 (¥ Billions) FY2019 and thereafter assumes net income 1,244.7 on par with FY2018 (¥63.8 billion) 13,000 1,212.8 1,180.9 Regulatory Capital 1,149.0 Assumes a dividend payout ratio of 50% in 12,000 1,142.3 1,117.1 1,085.2 FY2019 and thereafter 328.7 360.6 Surplus capacity11,000 for 296.8 （2,003.3） We have used the Dec. 31, 2018 figures for investment and return at a 219.7 264.9 （1,648.8）（ 1,826.0） regulated equity and risk assets for FY2018. 10,000 233.0 consolidated total capital （1,220.3） 201.1 （1,294.2）（ 1,471.5） Only profit has been added to equity and risk ratio of 18% （1,117.0） 9,000 assets after that. Reduction due to The simulation does not indicate future financial regulations8,000 investment and financing plans. 7,000 Buffer for loss The reduction due to financial regulations is from stress testing6,000 assumed to be 4%. 5,000 4,000 Minimum standard 11% 3,000 2,000 1,000 (FY)0 2017 2018 2019 2020 2021 2022 2023
規制最低水準（バーゼルMinimum standard 11%Ⅲ 完全適用時）11% ストレステストによる損失に備えたバッファーBuffer for loss from stress testing Surplus capacity for investment and return at a * Numbers in parentheses show the amount of investment Reduction due to financial regulations 金融規制による低下幅 自己資本規制比率consolidated total18% capitalに対する成長投資・追加還元余力 ratio of 18% possible based on risk assets.
12 Ⅲ- Progress on Division Strategy & Future Initiatives Ⅲ- Progress on Division Strategy & Future Initiatives New Collaboration in the Asset Building Area
An agreement has been reached on proceeding with consideration of collaboration with the Japan Post Group in supporting asset building of Japanese individuals. We will proceed with building a framework for cooperation on development of discretionary investment services and other new consulting services.
Network Number of post offices nationwide: Network Number of domestic branches: 160 Approx. 24,000 21 countries & regions worldwide (Japan Post Bank: 233 retail locations)
As of March 31, 2019 Customer Expertise base Number of ordinary savings accounts: Approx. 120 million Founded 117 years ago, extensive experience, Individual savings deposit balance: knowledge, and resources in discretionary Approx. ¥180 trillion investment accumulated over 15 years As of March 31, 2019 (¥ Billions) 投資一任契約残高（大和証券） Discretionary investment balance 6,000 (Daiwa Securities) * Figures at fiscal year-end
4,000
2,000
0 (FY) 2012 2013 2014 2015 2016 2017 2018
Support medium and long-term asset building according the lifestyle and needs of each individual customer
Make mutual use of management resources to accelerate the transition from savings to asset building in Japan
Source: Materials disclosed by Japan Post Co., Ltd. and Japan Post Bank Co., Ltd. 14 Ⅲ- Progress on Division Strategy & Future Initiatives New Initiatives Aimed at Capturing Asset Builders
Preparations are underway on establishing CONNECT, a new brand for providing financial services customized for smartphones. This is mainly targeted at beginning investors and asset builders.
Name: CONNECT Inc.
Capital: JPY800 million (including capital reserves) Positioning a new brand of securities
Shareholder: Daiwa Securities Group Inc. (100%) Need for face-to-face interaction Date established: April 1, 2019 Daiwa Business Spring of 2020* commencement date: Securities People in their twenties to forties and active traders, Targets: コンサルティングコース mainly the millennial generation
* Business is scheduled to commence after the process of registering the business as a Consulting financial instruments business operator with the relevant authorities has been completed. course Internet Age securities Direct course Age CONNECT Financial assets Financial assets (Minimal) (Substantial) Capture new Easy-to-use trading environment on smartphones customer bases Easy-to-use application design for asset building and young generation Smartphone securities easy to understand product line-up
Enables customers to start with small-sum equity trades and installment-type investment Limited cannibalization of direct course Handles IPOs (Initial Public offerings) Reach new investors that customers have not been approached Lowest fee level in the industry by Daiwa Securities
Utilization of gamification Need for Online
15 Ⅲ- Progress on Division Strategy & Future Initiatives Retail Evolution of a Sales Structure Based on the Customer’s Perspective
NPS as customer satisfaction indicators have already been introduced in all branches. In the future a structure that considers customer profits first will be implemented by reforming the evaluation system for branches and sales representatives as the axis for improving NPS.
Roll-out Phase with NPS as the Driving Force
FY2017 FY2018 FY2019 FY2020 Changing the mindset of sales personnel Establishment of system that considers NPS pilot roll-out along with the introduction of NPS Build a customer profits first sustainable NPS introduced to all branches ⇒ Ongoing improvements to NPS system & firmly Introduced to Reform the evaluation system (to reflect customer profit & loss) (Branches) entrench it as the Build company-wide operations. No. of Branches that have introduced NPS all branches 140 Launch Daiwa’s full-scale version of the goal-based approach. corporate culture 117 ーStructural reformー 120 * Introduction to sales locations based on 111 introduced to main division/branch 94 100 74 80 Future Initiatives Along the NPS Axis
60 53 43 31 40 Evaluation 17 20 system 2
0 Customers’ gains/losses NPS First branches Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Group 8 on investments are Product Nov. 2017 May 2018 Jul. 2018 Aug. 2018 Sep. 2018 Nov. 2018 Dec. 2018 Jan. 2019 Feb. 2019 strategy onward onward onward onward onward onward onward onward onward reflected in the evaluations of branches Main Results from Introduction of NPS Thus Far & sales representatives Evaluation System
Instillation of A trend toward a large number of face-to-face meetings Sales reform face-to-face Coaching Bottom-up meeting with a wide range of core customers is more prevalent style sales mindset among sales branches that introduced NPS earlier. promotion Training, etc. conducted to strengthen the Expansion of A number of transactions providing solutions through the coaching and proposal active use of headquarters-accompanied visits among solution presentation skills of line Coaching transactions sales branches is increasing. managers
16 Ⅲ- Progress on Division Strategy & Future Initiatives Retail Further Expansion of Face to Face Contacts
Accurately capture diversifying customer needs by optimizing channels. Expand flexible and low-cost sales offices in the next few years, while continue to improve the efficiency of existing branches.
Segmentation and Optimization of Channels Branch Strategy ~expand sales offices, integrate large branches~
After segmentation Number of branches and sales offices* Before segmentation (from October 2017) （branches） Further expand 190 *small, low-cost sales offices sales office in Wealth next 2-3 years Affluent without back office functions Consultant Wealth 170 160 Consultant Anshin Elderly (sales offices： 43 ) All Planner customers Customers 150 Financial Integration and Asset- efficiency of existing Consultants large branches Client builders branches 130 120 Support Client Support excl. sales offices: 118 117
110 Anshin Planner Financial Consultants 2010 2011 2012 2013 2014 2015 2016 2017 2018 （as of March 31, 2019） Image No. of people people personnel 123 123 Sales Branch A office b Branch C The number Branch A Customer Branch C of branches 70branches 72branches Middle back functions (Consolidate the middle back function of each offices)
2018.4 2019.4 2018.4 2019.4 Branch B Sales Branch B Sales Scheduled for introduction in all 117 branches by April 2020 office a office c
17 Ⅲ- Progress on Division Strategy & Future Initiatives Retail
Ongoing Expansion of the Stable Revenue Base by Providing the Optimal Products and Services
Continue to expand stable revenues by strengthening the functions and lineup of products and services that are appealing to customers. Expansion of foreign currency deposit at Daiwa Next Bank also contributes to stable revenue.
AUM and Fees for Investment Trusts and Wrap Account Services (Daiwa Securities) Selection of Investment Trusts by Open Architecture Investment trust agency fee + (¥ Trillions) Investment advisory and account management fees (right) (¥ Billions) New lineup funds composition ratio of adoption 10 60 FY2016 FY2018 Outside the 8 Group Equity investment trust*1 AUM (left) Group: 1 (DAM, DSBI*2)：5 Wrap account service contract AUM (left) 40
6 Investment advisory and account Ratio of funds 2 management fees (right) Managed by outside the group 4 20 58 ％ 88％ 5 ¥2.1 tn 2 9
0 0 Sub advisory: 6 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 Daiwa Next Bank Expansion of Foreign Currency Deposit Evolution of Wrap Account Services that Meet Customers' Needs (¥ Billions) （thousands） The ratio of inheritance and gift related 400 外貨預金残高（左軸）Balance of foreign currency deposit (left) 600 services used in new contracts of Daiwa Fund 外貨預金口座数（右軸）Accounts of foreign currency deposit (right) Wrap Premium (from July 2018 to March 2019) Additional services onto fund wrap premium 400 Inheritance beneficiary for 100-year life 200 designation service Cashing at the time of 200 17％ inheritance Annual gifting service Periodical beneficiary (from July 2018) service 0 0 （ as of March 31 ） 2012 2013 2014 2015 2016 2017 2018
*1 Includes wrap account service equity investment trust balance *2 Currently Sumitomo Mitsui DS Asset Management 18 Ⅲ- Progress on Division Strategy & Future Initiatives Wholesale GM Providing Products & Services that Capture Customers’ Needs
In the Nikkei Veritas Analyst Rankings, we captured 1st place for the first time in 10 years, since 2009. We work to provide diversified investment opportunities to retail customers by expanding foreign equities, foreign bonds, and forex information. Strengthening Domestic & Foreign Research Providing Diversified Investment Opportunities
Trend in Nikkei Veritas Ranking Investment needs Foreign Equity AUC for foreign equity 1st Increased the number of stocks covered by using young st employees and improved customer satisfaction by 1 improving the quality of research, with the 2.1x goal of ranking 1st again in fiscal 2019 2nd • Provision of timely and clear 3rd 3rd 3rd information from overseas locations • 4th Medium to long term offers to 4th 4th spur international diversified investment 5th • Provision of liquidity in foreign 5th equities, mainly U.S. equities, in Japan standard time 2017.3 2018.3 2019.3
09 10 11 12 13 14 15 16 17 18 19 Average performance of top 10 foreign equities in AUC * Overall company ranking in equity research by company ※ setting stock price as of end of March 2017 as 100 200 (from the end of March 2017 to the end of April 2019)
180 Top 10 foreign equities Reasons in Daiwa Securities’ AUC Set the clear goal of ranking in the top three. 160
Held high-value added events for investors by holding collaborative 140 seminars by analysts and strategists, seminars with invited external lecturers, etc. 120 Provided information based on ESG to investors and supported engagement activities. 100 MSCI World ex Japan Index Hired external analysts strategically and supported the growth of young analysts. 80 2017.3 2017.9 2018.3 2018.9 2019.3
Source: Bloomberg 19 Ⅲ- Progress on Division Strategy & Future Initiatives Wholesale GIB Ranking in the League Tables and Evolve the IPO Platform
Maintain a firm grip on top ranking in the PO & IPO league tables by capturing large equity finance deals. Utilize venture capital and the Daiwa Innovation Network, and work to capture more IPO deals.
ECM Market Size & League Table Ranking & Share*¹ (Source: Daiwa Securities) Further Evolution of the Daiwa IPO Platform 26.5% IPO related personnel (Trend from April 2009) PO 17.4% 15.0% 16.2% 11.0% 8.0% Market Return to the level before financial crisis Share 2,668 Sourcing Capability (Deal-finding skill) Quality of Human Resources * Market size ² 1,797 Utilize Japanese venture capital (¥ Billions) Strengthen relationships and 1,246 Continuous reinforcement of 1,146 1,010 854 partner with external venture personnel capital firms (DG LAB FUND, WiL, etc.) and universities. Strengthen the coverage of (Fiscal year) unicorn IPO companies 2013 2014 2015 2016 2017 2018 Cooperate with Daiwa PI Partners Daiwa’s rank 4th 2nd 2nd 3rd 1st 2nd and Daiwa Corporate Investment Core competence of Daiwa IPO platform
26.0% Networking Skills Execution & Marketing Skills IPO 19.0% Further evolution of Knowledge & experience backing the Daiwa our extensive track record Innovation Network Solid sales base in Japan and overseas Market 10.6% 9.3% (DIN) 6.7% Share FY2018 Main IPO・PO deals DIN Summit Networking event for 1.8% the heads of start-ups （Offering size） Matching of start-ups SoftBank Corp. * with individual Market size ² 3,090 DIN Premium Global IPO (¥2.64 tn) (¥ Billions) 1,785 companies 969 629 980 466 DIN Premium Cross matching of Mercari, Inc. (Fiscal year) FES listed companies Global IPO (¥130.7 bn) 2013 2014 2015 2016 2017 2018 Matching of start-ups Renesas Electronics Corporation DIN Daiwa’s rank 7th 5th 3rd 3rd 2nd ２nd with listed companies Global PO (¥292.3 bn)
*¹ League tables show share captured in terms of value *² PO total (excluding domestic and foreign CBs and REITs) 20 Ⅲ- Progress on Division Strategy & Future Initiatives Wholesale GIB Further Strengthening the Global M&A Network
Integrate DC Advisory brand name globally, and strengthen and consolidate the M&A network. Target top share in the global mid cap market in the future.
Main Initiatives (from FY2018) M&A-related Revenues
Further deepened alliances between locations Trend of steady increase in the top line on cross-border deals 22.8 Main deals Japan Asia Europe Americas 21.7 Acquisition of shares & related Deal-size Participating Target expansion business assets of UPSA (France) locations in of the top line ¥180 Japan, U.S., 16.2 by Taisho Pharmaceutical Co., Ltd. billion and Europe (¥ Billions) 11.4 Opened new locations 10.3 9.1 Acquisition of Montalbán Atlas Capital of Spain (December 2018) Impact on profits Integrated global brands of M&A advisory from the decline in amortization of goodwill, etc.
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 Europe Japan 57 50 30 19 100
Amortization of goodwill, etc. * Indexed to FY2018 = 100 Americas Global Mid Cap Advisory Rankings (FY2018)* Asia Target inclusion in top tier in the mid cap market
No. of Rank Financial & advisory deals 8 Daiwa Securities Group/DC Advisory 120
* Mergermarket. M&A deals with a total transaction value of USD500 million or less in all regions. Excluding accounting firms. Disclosed deal basis. 21 Ⅲ- Progress on Division Strategy & Future Initiatives Asset Management Continue to Diversify and Expand AUM
For real estate asset management, continue efforts to diversity and expand AUM to increase stable revenue and work to improve the efficiency of the business portfolio in the Asset Management Division.
Expansion of Real Estate and Infrastructure AM Assets AUM for Daiwa Real Estate Asset Management
（¥ Billions） Others Office 2009 大和証券オフィス投資法人 1,000 Japan Rental Housing Investments ¥907.4 bn Daiwa Hotel Private Investment Corporation Nippon Healthcare Investment Corporation (NHI) 800 Expansion of investment Expansion of Daiwa Residential Private Investment Corporation 2012 Daiwa Residential Private Investment Corporation Daiwa Office Investment Corporation 600 ¥418.8 bn Housing 2014 400
200 Samty Residential 2018 Investment Corporation 0 2014.3 2015.3 2016.3 2017.3 2018.3 2019.3 Healthcare 2014 Topics（ from FY2018) areas Integration & Daiwa Real Estate Asset Management absorbed 2016 strengthening Mi-Casa Asset Management Inc. through a merger Infrastructure Daiwa Hotel Private Investment Corporation began
and energy Expanding AUM management Expand AUM by continuous acquisition of properties 2016 Privately offered real estate funds Themes of Future Initiatives June Hotels AUM expansion & diversification 2018 Daiwa Hotel Private Investment Corporation (consider investing in overseas assets, M&A, etc.) Develop new financing methods (securitization schemes, crowdfunding, etc.)
22 Ⅲ- Progress on Division Strategy & Future Initiatives Providing new value as an integrated securities group with a hybrid business model New business
Providing Solutions to Elderly Customers with the Acquisition of ORIX Living Corporation
We decided to acquire all of the issued shares of ORIX Living Corporation and make it a subsidiary. We invested in this from the perspectives of diversifying the business portfolio, synergies with existing businesses, and achieving SDGs.
Acquisition of ORIX Living Goal of Acquisition
Investing from the perspectives of diversifying the 100% acquisition ORIX Living Corporation business portfolio, synergies with existing businesses, and achieving SDGs Name ORIX Living Corporation Business Operation of fee-based nursing homes and rental housing for elderly
description people Operation of 32 facilities under the names of Good Time Living Greater diversification & expansion and PLATESIA (2,726 rooms) of the business portfolio Managed 5th in the number of managed rooms among residential-type fee- facilities based nursing homes Pioneer in use of robots and ICT devices for elder care services Stronger solutions for Contributing to elderly customers achievement of SDGs
Facilities operated in the Facilities operated in the Kanto region (17) Kansai region (15) Improve relationships with residents and their families. Contribute to “health & Introduce facilities to customers longevity,” a priority issue for of Daiwa Securities. Japan.
Hasuda, Saitama Hyogo Mikage Prefecture Kyoto Saitama Nagareyama Prefecture Strengthening the real
Tokyo estate asset Existing management business
Kanagawa business portfolio Further expansion of AUM Prefecture Chiba Prefecture Osaka Improved ability to provide retail business solutions business retail to provide ability Improved Expansion & diversification of the real estate Center-Minami Korigaoka asset management business portfolio Kameido
23 Ⅲ- Progress on Division Strategy & Future Initiatives Overseas Overseas Business
Overseas operations have succeeded in initiatives aimed at improving business efficiency thus far, and have generated profits for 12 consecutive quarters. We will continue to strengthen the global M&A network and alliances, and will strive to provide high growth results, mainly in Asia.
Number of Personnel at Overseas Locations and Trend in Ordinary Income
Branches Withdrew from Closed the Withdrew from closed in Dubai Asian equity Frankfurt the Hong Kong & Milan derivatives branch warrant business Withdrew from Sold the global European equity equity finance (No. of research business No. of personnel in * Orange indicates the number of personnel) 2,442 personnel in DC (Europe, Americas) 2500 2,175 overseas locations 1,921 2000 1,664 1,676 1,776 1,636 1,566 1,614 1500
1000 Large-scale Optimization of business Investment in restructuring phase Pursuit of alliance strategy growth areas 500
0 FY20101 FY20112 FY20123 FY20134 FY20145 FY20156 FY20167 FY20178 FY20189 20 13.5 Overseas ordinary income 11.4 Europe Asia Americas Oversea total 10 3.8
0 Sagent Advisors Strengthen the ▲ 10 ▲ 3.9 ▲ 4.7 Signal Hill acquisition ▲ 5.2 global M&A (U.S.A.) network ▲ 10.6 Montalbán Atlas Capital ▲ 20 (¥ Billions) acquisition (Spain) Ambit (India) ▲ 21.5 SSI (Vietnam) investment stake ▲ 30 ▲ 25.8 Tanachart Securities Sanford C Bernstein (UK) increased, making it an equity-method Aura Capital (Thailand) Pursuit of (Thailand) CSC Financial Co., Ltd. (China) affiliate alliance Bahana Securities (Indonesia) strategy Development Bank of COL (Philippines) Affin Hwang Investment Bank (Malaysia) Philippines (Philippines) Australia and New Zealand Bank investment (Australia & New Zealand)
24 Ⅳ- In Conclusion Ⅳ- In conclusion “Passion for SDGs” 2019, the Action Plan Being Pursued by Daiwa Securities Group
Building a Daiwa version of an SDG value chain that will create a sustainable capital cycle Promoting marketing of SDGs Expanding SDG-based finance products that aimed at market expansion contribute to solving social challenges Strengthen promotion aimed at education and proliferation of SDGs. Expand the line-up of SDG-related products (SDG-related funds, SDG bonds, Improve financial literacy by educating people about investment via SDGs. etc.). Create branches and provide marketing tools that take people and the earth’s Expand social financing through Daiwa Next Bank deposits, crowdfunding, etc. environment into consideration. Create new financial products linked to SDG marketing. Pursue services that are easy for all customers to use. Provide investment opportunities in unlisted companies involved in SDG-related businesses.
Daiwa’s version of the SDG value chain Strengthening engagement that Develop & support an industrial base that accelerates the investment cycle contributes to achievement of SDGs Maintain the industrial base through M&A and business succession and provide succession support. Explore ways to evaluate the impact on SDGs. Develop & support start-up firms and social innovators. Establish an internal screening system. Support stimulation of local economies/support economic development in other countries. Actively communicate information on SDGs/ESG to encourage dialog. Use advanced technology to provide new value. Provide consultation aimed at expanding disclosure of non-financial information. Invest in SDG-related businesses. Partner with and support NPOs, etc.
Daiwa Securities Group “Make it your own” plan
Company Employees Environmentally conscious Create a workplace that Develop SDG-literate initiatives leaves no one behind human resources
Pursue reforms that improve job satisfaction. Recognize social challenges around you. Communicate examples of initiatives internally Take action aimed at solving problems. & externally.
26 Ⅳ- In conclusion Provision of a Service to Assess Health Management that Will Contribute to Achievement of SDGs by Companies We plan to provide a service to assess healthy management that will contribute to achievement of SDGs to companies from FY2020.
Initiatives aimed at SDGs x “Health management” Social Background achievement Demand for appropriate assessment of healthy management that will contribute to Establish a research group Companies aimed at launching the service achievement of SDG initiatives Focus on employee health to respond to Research group on promoting the decline in the productive labor Expansion of health investment population and prevent attrition of human health management resources. Consider aspects related to Improvement in visualization of the results of employee health health management initiatives
Consider investment in health The trends toward having fewer children and an that is optimized for each aging society in Japan make improving health, Labor organization longevity, and productivity pressing issues. productivity in Assessment Employee the indicators health Importance of investing in people organization through health management 【Research group overview】 Group term (Collaborative health May 2019 to March 31, 2020 (plan) –Partnerships between companies Sustainable Main members and health insurance associations–) corporate growth Naoki Kondo, Associate Professor, Graduate School of Medicine, The University of Tokyo Nariaki Nishino, Associate Professor, Graduate School of Engineering, The University of Tokyo Improve ratings by capital Human Augmentation Research Center, National Institute of markets, etc. Advanced Industrial Science and Technology (AIST) Health insurance associations Daiwa Securities Group Inc. Develop assessment Proper regulation of healthcare costs Daiwa Securities Co., Ltd.
indicators tied to Daiwa Institute of Research Holdings Ltd. is a pressing issue from the perspective
Daiwa Institute of Research Ltd. of the financial pressure generated by corporate value Daiwa Institute of Research Business Innovation Ltd. rising healthcare costs assessment
27 Ⅳ- In conclusion Main Initiatives Aimed at Achieving SDGs
Daiwa Next Bank “Eraberu Yokin*1” Impact investment initiatives
Daiwa Next Bank began offering the “Eraberu Yokin” in November 2017. Daiwa Securities' share of impact investment bonds for retail investors in the Japanese market: 50％ (Source Daiwa Securities as of March 31, 2019) Water Bonds ・・・Support companies solving water issues
“Ouen Time Deposits*2” are established for each Green Bonds group being supported. Donation ceremony (April 2018) ・・・Support environment-friendly companies Daiwa Next Bank donates a certain percentage of Mr. Kato, Executive Director, National Center the deposit balance to the group. for Child Health and Development (center) Inclusive Business Bonds Deposit balance: Approx. ¥9.8 billion Mr. Uchida, House Manager, Momiji House (left) ・・・Support business which improve the life of BOP*3 Cumulative donations: Approx. ¥5.97 million Mr. Nakamura, President, Daiwa Next Bank, Ltd. (right) (as of April 30, 2019)
Initiatives aimed at reducing child poverty Assistance to communities through foundations
ひとりじゃないよ Established “For Your Dreams - Smiles to Daiwa Securities Health Foundation Daiwa Securities Foundation Children Project”（Public Resource Foundation） In commemoration of Daiwa Securities’ Established in March 1994 to th ・・・ Total estimated donations from the Daiwa Securities Group 30th anniversary, the Daiwa Securities commemorate the 50 anniversary of the of around ¥100 million over five years. founding of Daiwa Securities. The purpose Health Foundation was established in of the foundation is to return a portion of 1972 to support medical research. the group’s profits to society. The foundation has provided grants to Every year, the foundation provides donations to organizations and groups outstanding research projects focusing engaged in volunteer activities of high on medicine and medical care for social significance, such as activities that middle-aged and elderly people. support elders, children, and other vulnerable populations.
Donations up to FY2018 (cumulative) Donations up to FY2018 (cumulative)
Recipients: 1,256 people “Donations for volunteer activities” Second award ceremony (January 2019) Total donations: ¥1,238.60 million No. of donations: 3,504
Ms. Kishimoto, Executive Director, Representatives of five groups selected as Total donations: ¥813.64 million Public Resources Foundation (right) recipients of donations in the second awards
*1 ”Eraberu Yokin”: A deposit that provide new value other than interest rate *3 BOP: Base of the Economic Pyramid *2 ”Ouen Time Deposit”: A time deposit which makes donations 28 Appendix Appendix Direction for the Future
“Passion for the Best” 2017 FY2018–FY2020 FY2021–FY2023
Japan’s growth Current Medium-Term Next Medium-Term Sustained development of potential Management Plan Management Plan society & economy Long-term vision for FY2023 Required Elements
Accelerating growth AUC ¥100 trillion
Passion Transforming Resolution of uncertainty into growth AUC social issues ¥80 trillion
Expanding individual assets under management (AUM) Professionalism Driving transition from savings to asset-building Extrapolation Where Daiwa Securities from present Group stands now (As of March 31, 2018) Promoting corporate innovation through internal and external direct investment AUC ¥68.1 trillion Potential Market cap Expanding and diversifying the investor base ¥1.2 trillion
Time
30 Appendix Outline of “Passion for the Best” 2020, Our Medium-Term Management Plan
“Passion for the Best” 2020 A Financial and Capital Market Pioneer that Creates the Future
“Passion for the Best” 2017 FY2018 FY2019 FY2020 Basic Policy Progress
Establishment of a sales organization, 1 Providing high value- products, and services Asset scale and corporate value corporate and scale Asset added solutions
Realization and evolution of “Customer First” operations Growthcompanies of driving the
through the use of our assets customer of Expansion Dramatic improvement in customer “Quality No. 1” satisfaction
consulting capabilities economy Japanese Digital Transformation 2 Providing new value Strengthening of conventional business and full
as an integrated utilization of Group resources securities group with a Expansion and strengthening of external networks and surrounding businesses hybrid business model Enhancement of products and services
Passion Group Numerical Targets
Customer- Performance Financial Innovation oriented KPI KPI KPI
Profession Potential -alism Time
31 Appendix Group Numerical Targets
Customer-oriented KPI
Customer • NPS® (Net Promoter Score®), etc. Satisfaction
AUC • ¥80 trillion or more (FY2020) at Daiwa Securities
Monitoring Employee satisfaction survey indicator
Financial KPI Performance KPI
ROE • 10% or higher Consolidated total • 18% or higher capital ratio Ordinary income • ¥200 billion or more (FY2020)
Monitoring Liquidity coverage ratio, net stable funding ratio Monitoring Fixed cost coverage ratio, operating efficiency ratio / indicator (NSFR) indicator digitalization index, earnings of overseas divisions
32 Appendix Views on Financial and Capital Strategies
Implement a financial strategy that takes all stakeholders into consideration by striving to balance investment in growth, improving capital efficiency, maintaining financial health, and enhancing shareholder returns to achieve sustainable growth by earning healthy profits.
Financial strategy that Financial strategy that enables encompasses and the Group to achieve its medium Invest in Improve growth capital efficiency shareholders and other and long-term visions for growth stakeholders
Support investment in growth by Improve capital efficiency and establishing a healthy financial base provide returns to shareholders. that will enable the Group to respond Clearly specify management to changes in the management Achieve sustainable continuity. environment. growth by earning – Earn the trust of customers, and – Target capital investment and provide employees with peace of development of human resources healthy profits mind and a satisfying workplace. at expanding our customer bases in the securities business. Disclose information appropriately and in a timely manner. – Make it possible to take on challenges in areas that are Maintain Enhance – Ensure management compatible with and peripheral to financial health shareholder transparency that will help to our core businesses. return enhance corporate value.
Financial strategy that contributes to society Contribute to the sustainable development of society by paying appropriate taxes based on high ethical values.
33 Appendix Consolidated Total Capital Ratio
We aim to maintain sufficient capital adequacy while responding to changes in the regulatory environment and providing for future growth and investment. We also aim to improve sustainable corporate value by ensuring an appropriate level of liquidity and enhancing shareholder return.
View on Financial KPI
Consolidated total capital ratio: 22.1% (as of December 31, 2018)
Strive for an optimal balance of growth Use for growth investments, investment, improvement in capital efficiency, shareholder returns, etc. maintenance of financial soundness, and strengthening shareholder returns
18.0% Factors that affect risk-weighted assets (RWA) ・ Fundamental review of the trading book Extent of decline due to the ・ Review of credit risk calculations ・ Review of the CVA risk framework impact of financial regulations * Finalization of the method of risk calculation and future regulatory rules remain elements of uncertainty, and the effects of such factors are subject to review in the future.
The buffer takes minimum regulatory Buffer for loss from stress testing requirements and comprehensive stress tests into account
Breakdown of minimum regulatory requirements 11.0% Minimum regulatory requirements Minimum required level of capital 8.0%
(When Basel Ⅲ is fully applied) Capital conservation buffer 2.5%
11% or more D-Sib surcharge 0.5% Total 11.0%
34 Appendix Trend in Credit Ratings for Our Group
大和証券グループ本社Daiwa Securities Group Inc. 大和証券Daiwa Securities Co., Ltd.
A A A- A- S&P BBB+ BBB+ BBB BBB BBB- BBB- 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
大和証券グループ本社Daiwa Securities Group Inc. 大和証券Daiwa Securities Co., Ltd.
A2 A2 Moody’s A3 A3 Baa1 Baa1 Baa2 Baa2 Baa3 Baa3 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
大和証券グループ本社/大和証券Daiwa Securities Group Inc. / Daiwa Securities Co., Ltd.
A A A- A- Fitch BBB+ BBB+ BBB BBB BBB- BBB- 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
35 Appendix Initiatives Aimed at Digital Transformation
We continue research and development aimed at digital transformation in the Financial Innovation Committee, a platform for innovation across the Group.
Financial Innovation Committee AI-based Business Matching
The Financial Innovation Committee was launched in April 2016 By combining natural language processing and artificial to build a structure for sharing information and collaborating intelligence technology with data on matching needs, we across the Group. develop an AI that recommends optimum business partners for customers. Financial Innovation Committee Company A Salesperson Salesperson Company B Hearing Hearing Sheet Sheet Retail & Wholesale Asset Management Think Tank & IT Banking
Administration and approval of project information
Main Initiatives Centered on the AI and FinTech Areas Matching Database Service optimization
May 2017 Provided stock information using an AI-based stock price prediction model Nov. 2017 Developed an AI-based real-time stock volume prediction model Candidate Candidate Dec. 2017 Provided market information using AI technology ≪Automatic distribution of Nov. 2018 Provided an AI-based business matching service AI-based results≫ Provide introductions, progress management Dec. 2018 Publication of economic indicator forecast using AI
The finalization of matching Improving operating efficiency and increasing productivity
Jun. 2017 Improved the efficiency of internal referencing process with chat bots Began testing application of block chain to the securities post trade Joint research with The University of Tokyo Sep. 2017 process Explored using AI to improve operating efficiency of compliance-related Oct. 2017 Research on use of algorithm trading and use of alternative data operations Introduced an AI voice recognition function to improve the efficiency of Research activities on a cloud-based open innovation platform May 2018 the sales personnel data entry process Patent applications in process on some research results Jan. 2019 Introduced a trial of company analysis tools that used AI technology
36 Appendix Alliances and Investments in Asia
China Hong Kong India Taiwan South Korea
China Securities Value Partners Ambit Private Daiwa-Cathay Mirae Asset Limited Capital Markets Global Investments
Nov. 2014: Cooperation on Business alliance management & Dec. 2016: Oct. 2001: Cooperation on Dec. 2016: sale of investment trusts Business alliance Joint venture management & sale of Investment established investment trusts
Myanmar Vietnam Philippines
Myanmar Securities SSI Development Bank COL Exchange Centre of Philippines Financial Group （MSEC） June 2008: Capital & business alliance
Feb. 2016: Apr. 2016: Securities license granted Increased stake and Mar. 1995: JV established Apr. 2017: Mar. 2016: became an Nov. 2015: Business alliance Investment Began trading equity method affiliate
Thailand Australia & Malaysia Indonesia New Zealand Affin Hwang Thanachart Aura Capital Thai Bahana Securities Australia and Investment Bank Securities Co., Ltd. New Zealand Banking Group
Dec. 2013: Sep. 2013: Business alliance Feb. 2013: Dec. 2018: Business alliance Business alliance Business alliance Feb. 2014: Business alliance
37 Appendix External Ratings & Certifications
Inclusion in Indices Awards from External Organizations
FTSE Nadeshiko Brand (enterprises that encourage the Blossom Japan Index success of women) Selected for 5 consecutive years METI & Tokyo Stock Exchange Inc.
MSCI Health & Productivity Stock/ Japan Empowering Women (WIN) Outstanding Company in Health & Select Index Productivity Management Selected for 5 consecutive years/ METI & Tokyo Stock Exchange Inc. Selected for 3 consecutive years Bloomberg Financial Services Gender Equality Competitive IT Strategy Company METI & Index Tokyo Stock Exchange Inc. Selected for 3 consecutive years Selected for 2 consecutive years 0 0 GRESB Survey Kurumin Mark Certification for companies that GRESB 2018 “Green Star” provide childcare support
Obtained for 7 consecutive years Ministry of Health, (Daiwa Office Investment Corporation) Labour & Welfare Mark for companies that promote the FTSE4 Good Index establishment of a workplace environment that enables employees to Ministry of both work and care for elders Health, Labour & Welfare Included for 13 consecutive years
U.S. Dow Jones & Company, Inc. & Total ranking: 5th Employment popularity ranking RobecoSAM Financial industry: DJSI World / Asia Pacific 2nd Toyo Keizai Online, Continually included since 1999 2020 Graduates (1st half period)
38 Appendix Progress on Shift from Savings to Investments Since Abenomics Began
Household Financial Assets (Sept. 30, 2012 vs. Dec. 31, 2018) Transaction Factors (Asset Inflows/Outflows)
Stocks, (¥ Trillions)（兆円） 株式等equity interests 投資信託Investment trusts Cash/Deposits現金・預金 債券Bonds Insurance/Pension保険・年金等 Othersその他 150 25.7 Insurance/ Pensions 100 (¥（兆円） Trillions) Total assets Cash/Deposits + ¥260.7 tn Net 128.2 (+16.6%) 1,830 inflow 50 Transaction factors Investment trusts 9.3 1,569 + ¥131.4 tn 0 Stocks/ -26.2 Equity interests 1,600 Insurance/ (50.4%) Net -8.5 Bonds Pensions 523 + ¥41.5 tn outflow -50 (+8.6%) Market Factors (Market Value Adjustment) 481 1,200 Bonds 24 - ¥8.5 tn Factor (-26.6%) (¥ Trillions)（兆円） 32 analysis 150 Insurance/ 15.7 Pensions Investment trusts 800 Cash/Deposits 100 4.5 + ¥128.0 tn (+14.9%) 984 Market (Cash: ¥92 trillion) factors 856 + ¥129.3 tn 50 104.6 Stocks/ (Cash: ¥68 trillion) (49.6%) Valuation Equity interests Profit 400 Investment trusts 0 + ¥13.7 tn (+25.8%) 67 Valuation 53 Loss Stocks/equity 175 -50 96 interests 0 + ¥78.4 tn (+81.3%) Sep.2012/9 2012 Dec.2018/12 2018
Source: Compiled by Daiwa Securities Group Inc. based on the Bank of Japan’s Flow of Funds Account 39 Investor Relations Office, Daiwa Securities Group Inc. TEL: 03-5555-1300 FAX: 03-5555-0661 E-mail: [email protected] URL: http://www.daiwa-grp.jp/english/ir/