Business Strategy Daiwa Securities Group’S ESG Approach
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Corporate Summary Business Strategy Daiwa Securities Group’s ESG Approach Daiwa Securities Group’s Business Strategy Management Systems 16 Interview with New CEO Seiji Nakata 28 Message from the CFO 30 Strategies by Division 31 Retail Division Financial Section / Other Information 33 Efforts toward Highest Quality in the Industry 34 Wholesale Division 36 Promotion of Global Deals 37 Asset Management Division 39 Investment That Takes ESG into Consideration 40 Investment Division 41 Other —Daiwa Institute of Research Group —Daiwa Next Bank 42 Initiatives That Utilize FinTech Daiwa Securities Group Integrated Report 2017 15 Interview with the CEO Interview with New CEO Seiji Nakata On April 1, 2017, Mr. Seiji Nakata was appointed as the new CEO of Daiwa Securities Group Inc. Further honing its business strategy, as a hybrid securities group that leverages the benefits of being independent, the Group is building a solid reputation as the best partner for customers by offering the highest quality in the industry. Seiji Nakata President and CEO Daiwa Securities Group Inc. With high levels of integrity and specialization, we contribute to the betterment of Japanese lifestyles and Japan’s growth strategy Quality No. 1: Establish the industry’s highest quality 16 Daiwa Securities Group Integrated Report 2017 Daiwa Securities Group Integrated Report 2017 Corporate Summary 01 Question How do you evaluate the Daiwa Securities Group’s management strategy so far? How can it be improved going forward? From early on, the Group’s management strategy has the fact that this type of revenue adds volatility to our emphasized growth in stable revenues and the concept earnings, I believe efforts must be made to stabilize of a fixed cost coverage ratio, defined as the percentage flow-based revenue in the future. of fixed costs that can be offset by stable revenues. The This year, the Financial Services Agency issued a Business Strategy securities business has typically been a volatile one with guideline titled “Principles for Customer-Oriented significant exposure to stock market trends. I believe the Business Conduct,” drawing attention to fiduciary duty. strategy to expand stable revenues has been the best In its corporate principles originally drafted in 1998, the one available in an increasingly challenging business Group emphasizes the “building of trust” with environment, marked by the deregulation of brokerage customers, financial and capital markets, and society as fees during the Financial “Big Bang” in the 2000s. We a whole. In 2008, we came up with the Daiwa Spirit as must continue to advance this strategy going forward. In the code of conduct for employees. Throughout the Daiwa Securities Group’s ESG Approach Daiwa Securities Group’s the next Medium-Term Management Plan to be unveiled Group, our employees have consistently taken a in FY2018, we will continue to rely on the basic concept customer-oriented approach to conducting business. of a coverage ratio for stable revenues to fixed costs. We are well aware that work still needs to be done. In FY2016, ROE was 8.4% and the fixed cost In light of the guidelines issued by the Financial Services coverage ratio was 66%, coming in below the numerical Agency, the Group has formulated and published its targets for the final fiscal year of the Medium-Term Basic Policy on Customer-first Operations. Through such Management Plan for ROE of at least 10% and a fixed actions, we intend to always stay one step ahead of the cost coverage ratio of at least 75%. Nevertheless, industry and the government in addressing this issue. although it depends on market conditions, we will For example, in FY2017, one of our initiatives entailed continue working toward these targets. abandoning sales targets for each product and However, there has always been flow-based revenue establishing a decision-making process driven by sales Management Systems that depends heavily on market conditions. Mindful of branches, which are the closest to our customers, Progress of Numerical Targets Fixed Cost Coverage Ratio: ROE: 10% or more 75% or more in FY2017 (%) (¥ billion) (%) 1,800 17.0 18 240 80 69 Financial Section / Other Information 64 66 1,500 15 12.8 12.8 57 180 60 1,200 12 46 9.5 8.6 8.4 900 9.7 9 120 40 600 6.3 6 60 20 300 3 0 2012 2013 2014 2015 2016 (Fiscal year) 0 0 2012 2013 2014 2015 2016 (Fiscal year) 0 Profit attributable to owners of parent (¥100 million)(left) Fixed costs (left) Stable revenues (left) Fixed cost coverage ratio (right) Shareholders’ equity (¥ billion)(left) ROE (right) ROE (excl. the effect of losses carried forward belonging to Daiwa Securities) (right) Daiwa Securities Group Integrated Report 2017 17 Interview with the CEO Summary of the Medium-Term Management Plan “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 quality, and become their best partner FY2015 FY2016 FY2017 Provide investment services to lead the era of transition “from savings to investment” Basic Policy 1 : Pursue best quality Establish product and service platforms in response to the needs of a wide range of investors Strengthen asset management capabilities Expand the pool of talented personnel with advanced expertise Positive cycle of “transition from Basic Policy 2 : Dramatically expand our customer base and revenue Strengthen approaches to a wide range of investors by leveraging product and service platforms savings to Dramatically expand the customer base and revenue by responding to growing investment needs investment” and Provide solutions that contribute to improvement in corporate value “improvement of Basic Policy 3 : Support the sustainable growth of companies and the development of corporate value” new industries Identify and develop next-generation growth companies and help them to raise capital for growth Provide solutions in response to corporate globalization and M&A needs Numerical targets 1 ROE: 2 Fixed cost coverage ratio: 10% or more 75% or more in the final fiscal year thereby putting in place a sales structure that is more and personnel management, spurring improvements in attentive to the needs of each customer. the quality of sales practices. We are currently Moreover, in our assessments of sales branches, we considering the introduction of new KPIs for measuring have placed greater weight on customer satisfaction customer satisfaction. 02 Question What is your take on the Group’s performance in FY2016? The Retail Division continued to struggle in FY2016 as worked to create a balanced profit structure. Now, we individual investors avoided risk in the wake of the are able to maintain profit levels by having the China Shock in summer 2015. Profits decreased as a Wholesale Division help out when the Retail Division is result, but this decline in the Retail Division was covered struggling, and vice versa. by firm performance in fixed income trading in the It should be noted that all of our overseas Wholesale Division, as we correctly identified changes in operations are now profitable. Ordinary income the interest rate environment after the introduction of improved sharply to ¥13.4 billion over the course of the the negative interest rate policy. year, returning overseas operations to the black for the Over the past few years, Daiwa Securities Group has first time in seven years since FY2009. 18 Daiwa Securities Group Integrated Report 2017 Daiwa Securities Group Integrated Report 2017 Corporate Summary Ordinary Income by Business Segments (¥ billion) 80 60 40 20 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY2014 FY2015 FY2016 Business Strategy Retail Wholesale Asset Management Investment Consolidated Total Earnings have improved in all regions overseas, with Europe, the M&A business (DC Advisory) had a good strong performance in the fixed income business in the year, and in Asia/Oceania, Asia Private Banking Services Americas providing momentum for overall growth. In were robust, alongside cost reductions. Daiwa Securities Group’s ESG Approach Daiwa Securities Group’s 03 Question How will you encourage Japanese people to shift their personal financial assets “from savings to investments”? For nearly two decades, the Japanese government has FY2016 saw several major events that had the promoted the idea of moving assets “from savings to effect of increasing uncertainty, such as Britain deciding investments,” but it remains a fact that 52% of the to leave the European Union (Brexit) and the outcome ¥1,800 trillion in individual financial assets are still held of the U.S. presidential election. The global outlook is in cash or savings accounts. Only 15% of these assets rather unclear. Although geopolitical risks cannot be Management Systems are invested in marketable securities. In contrast, in the controlled, turning our attention to economic matters, United States, approximately 50% of personal financial we note that the U.S. economy has remained strong. assets (including pension assets) are invested in The International Monetary Fund (IMF) has also raised marketable securities, and this figure is around 25% in its outlook for global GDP growth. In Japan, Abenomics major European countries. I believe Japan’s prolonged policies have corrected the excessively strong yen, and deflationary economy is to blame. From the mid-1980s Japanese corporate earnings have risen to record- to the early 1990s, the “Core-Core” CPI (CPI excluding setting levels. energy and food) in Japan rose at a gentle pace of Under these circumstances, if a period of mild Financial Section / Other Information 1-2%, and during these years the ratio of personal inflation were to arrive, we would expect people to shift assets in marketable securities was 25-30%. The their financial assets “from savings to investments,” and investment behavior of individuals is influenced by a lead to an increase in customers opening up new variety of factors, but in terms of the Japanese economy trading accounts at securities firms.