08 Daiwa Securities Group Integrated Report 2019
Values of Daiwa Securities Group
Our DNA Underpinning Sustainable Growth in years, the corporate culture that has been accumulated by Concert with Society and imprinted on the Group’s employees has been the Group’s corporate principles. Daiwa Securities Group’s corporate principles were The background to the compilation of the corporate established in 1998. In today’s Daiwa Securities Group there is principles was the Group taking another look back at its history, little or no talk of the founder’s purpose for the Company’s including reflections on securities company scandals, such as establishment or his maxims. Since the start of operations in the sokaiya (corporate racketeer) cases that followed the 1902, each and every employee has been creating the history collapse of the bubble economy in Japan, and the determination of the Group. Despite having been in operation more than 100 to reunite and rebuild the relationship of trust that had been built
Daiwa Securities Group’s DNA
Values That Underpin the Group’s Foundations Penetration to All Employees
Corporate Principles The Daiwa Spirit
Building trust 1. Exercises self-discipline and complies fully The trust and approval of customers form the very foundation of with the law, recognizing that sustainable the Daiwa Securities Group. The Group will always place the growth hinges on winning the trust of needs of customers first, and strive to develop the advanced, customers, financial and capital markets, specialized skills to offer them the most attractive products and and society at large. services of any securities group. 2. Secures sound profits by contributing to Placing importance on personnel societal and economic development through The source of the Group’s competitiveness lies in the capabilities of its employees. The Group will promote the its actions in financial and capital markets. creativity of employees by offering them a challenging and self- 3. Exerts unflagging efforts to build strong, directed working environment that encourages their abilities and sustainable, trust-based customer relations. appropriately rewards their contributions. 4. Continues to pioneer products and services in Contributing to society financial and capital markets, with each The Daiwa Securities Group will seek to benefit the economy and society through the development of healthy financial employee fulfilling his/her mission with markets. In addition to scrupulously observing both regulations confidence and pride. and internal policies, the Group will strive to maintain a high 5. Cultivates unbeatable competitiveness to sense of morality and duty, endeavoring to continue contributing overcome challenges, underpinned by strong to the sustainable growth of the societies in which we operate. company-employee trust and solidarity Maintaining healthy earnings results between colleagues. The Group will always seek to develop healthy business operations and to increase corporate value for the benefit of 6. Aims to be the securities group with the shareholders. By providing customers with attractive products highest ambitions, a positive attitude that and services, the Daiwa Securities Group will seek to generate turns hardships into opportunity, and strong profits and healthy returns for shareholders. unmatched speed.
Practicing Its Values
Business Strategy
Medium-Term Management Plan FY2018-FY2020: “Passion for the Best” 2020 A Financial and Capital Market Pioneer That Creates the Future
Action plan / Fiscal year management policy Fiscal year numerical targets and budgets Daiwa Securities Group’s Daiwa Securities Group’s Business Strategy Retail Sales Reform Strategies by Division HR Strategy Governance Strategy Financial Section Other Information 09
together with society. Daiwa Securities Group’s uniqueness, True governance, however, should be realized not only in the including ways to tackle work and compliance awareness that form of a system, but rather from the bottom up, by which become second nature to Group employees has been employees think for themselves, unite and provide support for encapsulated as Daiwa Spirit and instilled in all employees. the benefit of a company. Recognizing the importance that Having been the first listed company in Japan to move to a the Group places on its people, we believe that this is feasible holding company structure, the Group has also been working based on the longstanding DNA that we have been fostering, to build a highly transparent and objective governance system, for example through the careful nurturing of our employees, including also promptly shifting to become a company with a creation of workplace environments where they can work with Three Committees System. peace of mind and empowerment of women.
Daiwa Securities Group’s Materiality (Key Issues)
Leveraging financial capabilities to contribute to a sustainable society Finance Developing sound financial and capital markets for the next generation
Technology Contributing to the creation of future society by utilizing advanced technologies
Contributing to local communities by utilizing the Group’s network of sales offices in Regions Japan and overseas
Responding to the diversified needs of customers and stakeholders Life Creating a pleasant working environment Initiatives for reducing environmental impact
Corporate governance Constructing and developing an appropriate corporate governance system
Creating a corporate culture that complies with laws, regulations and standards in Japan and Compliance overseas, based on self-discipline Appropriate anticorruption and human rights measures
Appropriate risk management Risk management Construction and maintenance of a strong IT system
Process of Identifying Materiality (Key Issues)
Passion for SDGs 2018
—Daiwa Securities Group’s SDGs Promotion Communication with Discussions SDGs Declaration— Liaison Meeting Stakeholders by the Corporate Planning including outside Daiwa Securities SDGs Working Group experts at the SDGs Department’s SDGs Group’s Promotion Office Promotion Corporate Principles Collect examples Committee Materiality Extraction and sorting Daiwa Spirit of initiatives and meetings proposals out of issues Key CSR Issues CSR Materiality
In 2018, the Group established the SDGs Promotion Committee, chaired by President and CEO Seiji Nakata. Proactively promoting initiatives that contribute to the SDGs through our business, we have stipulated them in Passion for SDGs 2018—Daiwa Securities Group’s SDGs Declaration—. In addition to collecting a wide range of initiative case studies related to the SDGs, on the basis of this declaration we have established, for example, an SDGs working group made up of employee volunteers and considered future visions for the Group. We have identified current Group initiatives that should be taken more deeply and matters to be newly started as issues. We organized the issues identified by this bottom-up approach and social requirements ascertained from our communications with stakeholders and the knowledge of outside experts. Following discussions at SDGs Promotion Committee meetings, we decided on Daiwa Securities Group Materiality. 10 Daiwa Securities Group Integrated Report 2019
Values of Daiwa Securities Group
Corporate History financial and capital market. As a pillar in the financial and Benefit the economy and society through the capital market, we have focused our efforts on the development development of healthy financial markets of society, and it is for this very reason that this year we mark 117 years of longevity. We believe that this is why we have been Looking back at Daiwa Securities Group’s history, what we permitted to continue being a presence in society. come to see is a broadening of securities investment to In the not so distant past, we weathered the Asian currency consistently achieve asset building for the people of Japan. crisis, the global financial crisis and other experiences where The Group accomplished this through a number of initiatives, the operating environment was extraordinarily severe. Thinking including the publishing of survey reports that examine world of Daiwa Securities Group’s strategic vision, we made the markets, and by breaking new ground in Japan as the first determination that we will move forward as an independent domestic securities company to introduce investment trust securities group. methods and online trading. Such endeavors promote building The Group holds high regard for a range of societal issues, and development within the Japanese financial market itself, both in and outside of Japan. We continue to lead the industry and at the same time, have guided our trajectory of steadily with our innovative corporate culture, and work toward creating building relationships with individual customers. new securities businesses as a means of “contributing to In consideration of our past mission statement of “being society.” This includes supporting development of the financial careful and bold,” espoused from 1954, as well as our thoughts market in Myanmar and developing SDG bonds (Impact on prioritizing customer needs, Daiwa Securities Group Investment Bonds), which are without precedent. cultivates products and schemes and works as a pioneer in the
1910 Publication of the regularly issued Kinyu-Shunpo (recent news in the financial 1943 Business market) publication Established Daiwa Securities Activities Co. Ltd. by the merger of Fujimoto Securities Co. Ltd. and Nippon Trust Bank
1942 First edition of Kinyu- Daiwa Investment Weekly, Fujimoto Bill Broker Securities Co. Shunpo, October 1910 April 2018 Ltd. changed its corporate name to Fujimoto Securities Co. Ltd. 1902 Commenced operations 1917 1937 1951 as Fujimoto Bill Broker First import of foreign currency Formation of Fujimoto Registered as investment government bonds as a domestic Securities Investment trust management securities company Union, the template for company investment trusts Overseas division established to introduce 1919 Japan’s industry to overseas investors Establishment of representative office in New York
1900s 1910s 1920s 1930s 1940s 1950s
1904 1929 1951 Russo-Japanese War The Great Depression Treaty of San Francisco Law for Securities Investment 1927 Trust enacted Banking Act announced Social and (enacted in the following Economic 1923 year) 1939 1949 Environment Great Kanto Outbreak of World Tokyo Stock Exchange Earthquake War II founded Daiwa Securities Group’s Daiwa Securities Group’s Business Strategy Retail Sales Reform Strategies by Division HR Strategy Governance Strategy Financial Section Other Information 11
1959 1985 1998 2011 Established representative office in New York Became lead manager Finalized final agreement Commenced Daiwa Next Established Daiwa Asset Management Co. Ltd. for the first yen- with the Sumitomo Bank Bank, Ltd. denominated bond Ltd. on setting up a joint issuance in the U.S. venture company 2012 market Merger of Daiwa Securities 1971 1999 Co. Ltd. and Daiwa Securities Became lead manager for the Daiwa Securities Co. Ltd. Capital Markets Co. Ltd. to world's first Asian dollar bond became the first listed company create “new” Daiwa Securities (Development Bank of Singapore) in Japan to move to a holding company structure and changed 2016 its corporate name to Daiwa Opening of Myanmar Securities 1970 Securities Group Inc. Exchange Centre, acquisition Listed on the First Section of 1986 of securities license the Tokyo, Osaka, and Nagoya Start of Japan’s first home Saigon Securities to become stock exchanges trading with PCs an equity-method affiliate Became underwriting manager for the first yen-denominated 2004 2017 bond issuance of Asia Shifted to a Committee System Acquisition of Sagent Development Bank (Currently, a company with Three Advisors and Signal Hill 1961 Committees System) (Currently DC Advisory) Listed on the Second Section of the Tokyo, 2009 Osaka, and Nagoya stock Assets under Daiwa Securities Group and custody exchanges Sumitomo Mitsui Financial Group (¥ trillion) decided to dissolve the joint venture in wholesale business
60 Medium-Term Management Plan (2012–2020)
2012 “Passion for the Best” 2014 Establish a robust business structure immune to the external environment and aspire to achieve sound growth based on a new growth strategy.
2015 “Passion for the Best” 2017 In response to the full-fledged start of an era of transition from savings to investment, attract customers with the industry’s highest 30 quality, and become their best partner.
2018 “Passion for the Best” 2020 Daiwa Securities Group plays a role as a financial and capital market pioneer that offers high value-added solutions through the use of “Quality No. 1” consulting capabilities, as well as new value as an integrated securities group with a hybrid business model.
1960s 1970s 1980s 1990s 2000s 2010s
1985 2001 2016 Plaza Collapse of The United Kingdom Accords IT Bubble decides to leave the EU 1964 1979 1990 1997 2015 Tokyo Olympics Second Oil Collapse of Asian Financial Crisis China shock Shock Japan Japan becomes a Introduction of negative Economic member of OECD 1973 1996 interest rate policy First Oil Shock Bubble Financial “Big Bang” 2011 The East Japan Earthquake 2008 Global Financial Crisis 12 Daiwa Securities Group Integrated Report 2019
Values of Daiwa Securities Group
Daiwa Securities Group Value Creation Model the United Nations, as fundamental to its corporate strategy. We did this in order to sustainably raise our corporate value In the current societal environment surrounding our business and to walk hand-in-hand with society for another century as sectors there exists a multitude of emerging problems and well. We have the determination to further drive forward on uncertainties. The declining birthrate and aging population, as initiatives to find solutions to societal issues through our core well as climate change are among the various issues that business. The Group will put its strengths and capital to use, confront society, and moreover, innovations are expected to based on its sense of values and history, and aims to lead to rapid social changes. In 2018, Daiwa Securities Group maximize both economic value and social value. took the standpoint of SDGs, which have been adopted by
Social Issues Increased “uncertainty” associated with social change
Enterprises and National/ Individuals Local Governments
Increasing disparity Dramatic changes in Era of living to 100 Financial crunch and diversity management environment
◆ Responding to longer lifespans ◆ Destruction or life-long ◆ Reduction of the domestic ◆ Expansion of regional disparity ⇒ Health, nursing and employment market ◆ Increase in social security economic problems ◆ Expansion of income disparity ◆ Response to digital burden ◆ Estate planning ◆ Diversity of communication and transformation ◆ Investment in obsolete ◆ Diversification of old age lifestyles information sharing methods ◆ Intensification of cross-industry infrastructure competition ⇒ Difficult to ensure healthy ◆ Intensification of global national/local finances competition
Management Resources and Strengths of Daiwa Securities Group (Figures reflect FY2018 earnings or standing at the end of FY2018)
Financial Capital Human Capital Social Capital
1 ◆ Shareholders’ equity ...... ¥1.2444 trillion ◆ Consolidated group employees ..16,419* ◆ Branches in 21 countries and regions 2 ◆ Consolidated total capital ratio ..... 22.1% ◆ Certified Financial Planners ...... 796* ◆ Domestic locations: 162 as of the end of 3 (the most in the industry)* October 2019 (planned)
◆ 2019 Analysts Ranking ...... 1 ◆ Contact center ...... 820 seats (Nikkei Veritas Ranking) ◆ Collaboration with a diverse group of alliance partners
An independent securities model where
*1 The sum of consolidated group companies and Daiwa SB Investments (Currently Sumitomo Mitsui DS Asset Management) *2 Includes the number of employees who have passed all six subjects and are in the process of applying for certification. *3 Based on Japan Association for Financial Planners data
Putting the Business Model to Use
Providing high value-added solutions through Providing new value as an integrated securities the use of “Quality No. 1” consulting capabilities group with a hybrid business model
( See page 15 Basic Policy and Key Themes for Each Business Line for details.) Daiwa Securities Group’s Daiwa Securities Group’s Business Strategy Retail Sales Reform Strategies by Division HR Strategy Governance Strategy Financial Section Other Information 13
Daiwa Securities Group Value Creation Story 1. By improving our human resources, our most important resource, and providing the highest quality in consulting, we are contributing to the realization of a wide variety of life plans in an era in which many will live to be 100 years old. 2. Amid an ongoing shift in the structure of industry as technology progresses, by supporting investment and financing that creates new value for society, we are contributing to enhanced corporate value and the fostering of next-generation industries. 3. By providing mutual Japanese and overseas investment opportunities, we are assisting Japan in fostering global economic development and growth. 4. We are contributing to trust in the financial markets by maintaining a stable financial base and our function as part of the social infrastructure.
Creating Shared Value (Figures reflect FY2018 earnings or standing at the end of FY2018)
Economic (Financial) Value
Ordinary income ROE Total shareholder returns
¥8 3.1 billion 5.1 % ¥68.2 billion
Rating (as of August 2, 2019) Market capitalization
S&P Moody’s BBB+ A－ Baa1 A3 ¥915.9 billion (Daiwa Securities (Daiwa Securities (Daiwa Securities (Daiwa Securities Group Inc.) Co. Ltd.) Group Inc.) Co. Ltd.)
Social Value
Expansion of customer assets/Growth of companies driving the Japanese economy
Daiwa Securities total assets under custody trillion Reinvestment ¥66.3
Retail Division Wholesale Division
◆ Asset formation to meet the life plan needs ◆ Providing diversified international investment of people opportunities ◆ Improve customer satisfaction ◆ Supporting corporate financing and restructuring ◆ Supporting fund raising that contributes to resolving social issues Accounts with balances ...... 3,025,000 Overall score of satisfaction SDG bonds for individual investors (Impact Investment with Daiwa Securities ...... 4.90 (7-point scale) Bonds) sales ...... ¥697.4 billion (cumulative)
Asset Management Division Investment Division
◆ Development of ESG-focused ETFs and ◆ Investment in new industries investment trusts ◆ Investment and development in renewable energy ◆ Expanding health care facilities in an aging society Daiwa Corporate Investment ESG-related investment trust cumulative investment total ...... ¥427.4 billion 1 management balance* ...... ¥117.7 billion Daiwa Energy & Infrastructure Equivalent to Rooms provided for nursing homes and annual estimated energy approximately elderly care facilities*2 ...... 4,383 generation volume*3 ...... 44,000 households
*1 See page 55 for details. *2 The sum of Nippon Healthcare Investment Corporation holdings (end April 2019), ORIX Living operation (end March 2019) *3 Sum of solar power plants and biomass power plants (including those under construction)
Daiwa Securities Group makes continuous efforts for sustainable growth on healthy profits built through the value creation cycle 14 Daiwa Securities Group Integrated Report 2019
Medium-Term Management Plan “Passion for the Best” 2020
Daiwa Securities Group views the increasing uncertainties Our core mission in the securities business is to support of a changing society as business opportunities, and it aims with asset formation that provides prosperity to the lives of all to contribute to the creation of a better society in the future. in society, and brings our customers closer to the goals that Looking toward sustainable growth, we formulated our they pursue. The Plan sets the degree of customer satisfaction Medium-Term Management Plan “Passion for the Best” 2020 as an important KPI, and we will improve the strength of the based on the perspective of what action we should take as bonds that we share with our customers in order to secure a our business strategy for the up-coming three-year period. competitive edge over the long term and into the future.
Please see the Message from the CEO in the Integrated Report 2018 for details with regard to our Medium-Term Management Plan. http://www.daiwa-grp.jp/english/pdf/ar2018/ar2018e_05.pdf Direction for the Future
“Passion for the Best” 2017 FY2018–FY2020 FY2021–FY2023
Current Medium-Term Management Plan Next Medium-Term Management Plan Japan’s growth potential Sustained development of Long-term vision for FY2023 Required Elements society & economy Accelerating growth AUC ¥100 trillion Transforming uncertainty Passion into growth AUC ¥80 trillion Resolution of social issues Where Daiwa Securities Expanding individual assets Group stands now Driving transition from under management (AUM) savings to asset-building Professionalism (As of March 31, 2018) Extrapolation from present AUC Promoting corporate innovation through internal and external direct investment ¥68.1 trillion
Potential Market cap Expanding and diversifying the investor base ¥1.2 trillion
Time
Framework of the New Medium-Term Management Plan
Under our Medium-Term Management Plan “Passion for the Best” 2020, we have identified two basic policies, namely, providing high value-added solutions through the use of “Quality No. 1” consulting capabilities, together with new value as an integrated securities group with a hybrid business model.
In the following pages, we will apply the Quality No. 1 and Hybrid Business Model marks to strategies and initiatives in line with these two basic policies.
A Financial and Capital Market Pioneer That Creates the Future
“Passion for the Best” 2017 FY2018 FY2019 FY2020 Asset scale and corporate value
Basic Policy Progress
Establishment of a sales organization, Providing high products, and services Expansion of customer assets the Japanese economy Growth of companies driving value-added solutions Realization and evolution of “Customer First” operations through the use of “Quality No. 1” Dramatic improvement in customer satisfaction consulting capabilities
Digital Transformation
Providing new value Strengthening of conventional business and as an integrated full utilization of Group resources securities group with Expansion and strengthening of external networks and surrounding businesses a hybrid business model Enhancement of products and services
Time Daiwa Securities Group’s Daiwa Securities Group’s Business Strategy Retail Sales Reform Strategies by Division HR Strategy Governance Strategy Financial Section Other Information 15
Basic Policy and Key Themes for Each Business Line
Retail Wholesale Asset Management Banks Think Tank
Creation of Promotion of the shift Realization of an a customer-oriented by companies to achieve abundant society and Comprehensive think sales system higher corporate value life for the Japanese tank for the future High value-added people through asset solutions through the management use of “Quality No. 1” Provision of products and services that consulting capabilities identify customers’ needs
Utilization of external Support for business Expansion of Combined Basic channel resources and Japanese alternative securities-banking and the creation of industry structure Policy investment products business model 2.0 new business lines transformation New value as an integrated securities group with a hybrid Collaboration with Collaboration with the business model Group companies Investment Division
Creation of business through the diversification of financing methods and expansion of business areas
Provision of Asian growth results and strengthening of the global M&A network
Finance and capital Human resources IT Risk management
▷ Execution of growth ▷ Employees’ productivity ▷ Business process reform ▷ Response to global investment No. 1 and productivity financial regulations ▷ Improvement of capital ▷ Employees’ participation improvement ▷ Cybersecurity efficiency No. 1 ▷ Creation of next-generation countermeasures Basic Group ▷ Maintenance of financial ▷ Employees’ satisfaction office infrastructure ▷ Money laundering Strategy soundness No. 1 ▷ Creation of an information countermeasures ▷ Strengthening of platform shareholder returns
Digital transformation Business reform and productivity improvement
Group Numerical Targets and FY2018 Progress
Target (FY2020) FY2018 Progress
Customer ® ® Satisfaction NPS (Net Promoter Score ), etc. NPS introduced to all branches
Customer- oriented AUC or more ¥66.3 trillion KPI at Daiwa Securities ¥80 trillion (Net inflow of assets ¥1.2 trillion)
Monitoring indicator: Work Motivation Survey
Consolidated total capital ratio 18% or higher 22.1% Financial KPI
Monitoring indicator: Liquidity coverage ratio, net stable funding ratio (NSFR)
ROE 10% or higher 5.1%
Performance KPI Ordinary income ¥200 billion or more ¥83.1 billion
Monitoring indicator: Fixed cost coverage ratio, operating efficiency ratio/digitalization index, earnings of overseas divisions