1H FY2019 Management Strategy Update
November 7, 2019 Seiji Nakata, President and CEO Daiwa Securities Group Inc.
These materials were produced to provide information on results through the second quarter of FY2019 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 November 7, 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. 1H FY2019 Management Strategy Update
Table of Contents
Ⅰ – Overview of 1H FY2019・・・・ 3
Ⅱ – Growth of Traditional Securities Business・・・・ 8
Ⅲ – Promotion of Hybrid Strategy・・・・ 18
Ⅳ – In Conclusion・・・・ 22
Appendix ・・・・ 24 Ⅰ- Overview of 1H FY2019 Ⅰ- Overview of 1H FY2019 1H FY2019 Consolidated Earnings Results
Profit attributable to owners Net operating revenues Ordinary income of parent company （\ Millions） FY2018 FY2019 FY2018 FY2019 FY2018 FY2019 YoY YoY YoY 1H 1H 1H 1H 1H 1H Retail 97,924 83,859 -14.4% 16,617 3,813 -77.0%
Wholesale 79,192 79,272 0.1% 14,441 13,954 -3.4%
Global Markets 59,256 55,170 -6.9% 14,635 10,053 -31.3%
Global Investment Banking 19,935 24,101 20.9% -668 3,726 -
Asset Management 24,360 22,980 -5.7% 14,880 12,769 -14.2%
Investments 574 -3,867 - -617 -5,663 -
Consolidated total 223,444 203,446 -8.9% 46,015 27,784 -39.6% 36,286 33,383 -8.0%
Profit attributable to Ordinary income of Net operating revenues Ordinary income owners of parent overseas operations (¥ Billions) (¥ Billions) (¥ Billions) (¥ Billions) 300 100 100 10 265.8 86.6 239.4 223.4 217.7 203.4 68.9 200 59.2 5.89 51.3 5.51 46.0 50 50 5 37.1 36.2 33.3 27.7 27.5 100 2.49 2.27 1.27
0 0 0 0 1H 2H 1H 2H 1H 1H 2H 1H 2H 1H 1H 2H 1H 2H 1H 1H 2H 1H 2H 1H
FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019
4 Ⅰ- Overview of 1H FY2019 Current Status of the Retail Business
Trading value of individual investors is at the lowest level since Abenomics began. Net asset inflows remain at a high level but the trend of decline in brokerage revenues continue.
Trading value of individual investors (2 markets) Trend in net asset inflows in the Retail Division
800 (¥ Billions) (¥ Trillions) (¥) 資産導Net ass入e額t inflows 600 日経平均株Nikkei Average価（ 右(righ軸t） axis) 25,000 400 140 200
20,000 0 120 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H FY12 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY19
15,000 Trend in composition of Retail Division net operating revenues 100 (¥ Billions) 安Stab定l収e r益evenue ブBrロokーeカrageレッ rジev収enu益e Otそのhe他r
10,000 135 80 118 121 121 114 110 105 100 5,000 96 99 97 60 88 87 83
109 87 89 81 40 91 83 83 62 68 68 64 57 54 52
20
23 26 28 26 25 25 25 27 27 25 25 15 17 21
0 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q FY12 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY19 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Brokerage revenues: Equity revenue, bond revenue, and investment trust sales commission Stable revenue: Investment trust agency fee, investment advisory and account management fees
5 Ⅰ- Overview of 1H FY2019 Two Cornerstones of Business Model Evolution
FY2019 is a turning point in business model evolution. We will build a business model that is not easily affected by the market environment by restructuring revenue and pursuing a hybrid strategy. Changing business environment Customer needs & challenges Changing revenue structure
Trend toward shrinking risk assets due to the aging Diversification in the needs of clients of advanced Decline in revenue percentage (decline in bond of society & increasing lifespan age, including asset preservation, inheritance, revenue and expansion of the percentage of no-load Increased geopolitical risk from U.S.-China trade business succession, real estate, etc. investment trusts in the industry due to surplus friction, etc. Encouraging asset building among the young funds and a low interest rate environment) New entrants from other industries generation and meeting the needs of investors for Transition from transaction-based revenue to fee- long-term, diversified investments based revenue
Reforming the Income/ Strive to improve profitability by expanding the business portfolio Expense Structure around the core of the traditional securities business
Goal for improvement in income/expenses + ¥50 billion (by FY2023)
Goal for improvement Improve the top line in income/expenses + through reallocation ¥30 billion (by FY2020) of management Improve the top line resources & taking through reallocation of other steps management resources & taking other steps + ¥15 billion
Optimize costs Reduce costs + ¥15 billion
6 Ⅰ- Overview of 1H FY2019 Progress on Revenue Restructuring
We have accumulated more than the ¥15 billion goal in cost reductions by FY2020 and have shifted to the implementation stage. Management resources will be reallocated to growth business areas in stages.
Forecast of ¥15 billion in cost reductions Reallocation to strategic business areas
Amount of Timeframe for achieving Division Main items Reallocation of human resources cost reduction cost reductions Strengthen Eliminating waste in Strengthen existing business FY2019 FY2020 SG&A expenses hybrid business Personnel experienced Increased efficiency of sales Financial consultant offices (putting sales offices on in new business Retail higher floors in buildings, etc.) 35% 65% Personnel experienced in Personnel with external Slimming down wealth management connections headquarter and division functions Personnel experienced in M&A/IPOs Reassessment of unprofitable businesses & services (such as eliminating the sending of documents via postal mail) Around 400 56% 44% Wholesale people Strengthen areas of specialization
Reassessment of unprofitable businesses & services Asset 160 Strengthen Management Eliminating waste in hybrid business 38% 62% SG&A expenses people +
Strengthen existing business Other 38% 62%
Right before Oct. 2019 Revenue Future restructuring projection
7 Ⅱ- Growth of Traditional Securities Business Ⅱ - Growth of Traditional Securities Business Retail Division
Three-Pillars Retail Strategy for Establishing an Asset Management Business Model
Improve the quality and quantity of consulting to meet the diversifying needs of customers.
Hold Quality No. 1 Meetings to develop a The Daiwa version of NPS was customer-oriented mindset among all introduced to visualize the degree of NPS® Training employees. customer satisfaction Establish a training program for employees We have already introduced it at who have been in the 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: 871 holders * as of September 30, 2019 Channels Build a sales structure Optimize channels according to Established rules to customer attributes and life stages. increase contact with Contacts based on the customers. Elderly customers Anshin Planner Analyze transaction data. customer’s 95branches 170planners
perspective Asset-builders Financial Consultants 94branches 161consultants * as of October 31, 2019 Expand the number of small, low-cost sales offices Branches Expand points of contact with customers Transition from a headquarter-driven No. of sales offices: 48 Roles sales structure to a bottom-up sales structure driven by individual Total number of branches: branches, based on customer needs. 162 (in Japan) * as of October 31, 2019
® Note: NPS is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. 9 Ⅱ - Growth of Traditional Securities Business Retail Division Optimization of Channels according to Customer attributes and Life Stage
Retail Business is facing structural changes such as customer aging. Strengthen capability to meet diverse customer needs by segmentation.
Long-term forecast of household financial assets and optimization of channels
Present 10 years later 20 years later Before After segmentation segmentation Asset size （Age） 85- Anshin W 80-84 Planner e
a Elderly
lt 75-79 The baby customers h boom 70-74 Wealth C generation
o Consultant C n 65-69 li s e u
n 60-64
lt Affluent t a
S n 55-59 Financial u t Consultant
pp 50-54 Children of the o baby boom r 45-49 Asset- t generation 40-44 builders 35-39 Client 30-34 Support Young generation 25-29 Asset- builders -24
0 100 200 300 400（¥ trillions） 0 100 200 300 400 0 100 200 300 400 （¥ trillions） （¥ trillions） Holding ratio (aged between 60 to 79) 49％ 44％ 50％ Holding ratio (under the age of 49) 19％ 15％ 13％
Source: Compiled by Daiwa Securities Group Inc. based on Komamura Kohei (2019) “Challenges of Aging Society and Future Role of Financial Gerontology” “Quarterly Personal Finance”, National Institute of Population and Social Security Research “Future Estimation of Japanese Households (National Estimation)”(2018 (Heisei 30) estimation), Bank of Japan “Funding Cycle Statistics”, Ministry of Internal Affairs and Communications “National Consumption Survey” 10 Ⅱ - Growth of Traditional Securities Business Retail Division Location Strategy to Strengthen Points of Contact with Customers
Further expand the number of agile, low-cost sales offices over the next two to three years, and continue to improve the efficiencies of existing locations.
Location strategy: Expand sales offices and consolidate large branches Branch consolidation and opening of sales offices in the Nagoya area
Trend in number of Daiwa Securities Consolidate the two large existing Further expand sales offices After consolidation branches & sales offices branches and put offices on the upper over the next 2-3 years (No. of locations) floors of buildings. Tajimi 190 Establish five new sales offices in high- sales office Sales offices All locations: 162 potential areas. Nagoya Fujigaoka Low-cost, small-scale sales Of which, sales offices: 48 Before consolidation 170 branch sales office offices with no back office (as of October 31, 2019)
Yagoto sales office 150 Consolidate & improve Nagoya efficiency of existing & Nagoya branch Narumi large locations Ekimae Kuwana sales office sales office 130 Number of locations, branch 120 excluding sales offices117 114 COPYRIGHT (C) 2019 Kokusai Kogyo Co., Ltd.
110 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019.10 Clear benefit in terms of improvement in revenues too (monthly basis) (予定) Location strategy: Contribution from sales offices to net asset inflows & profit Number of Real estate expense Revenue Sales offices 5.9％ 15.0％ 15.9％ new accounts ▲32%
No. of Net asset Ordinary ＋5% ＋11% personnel inflows income
Branches ％ (excluding sales offices) 85.0 84.1％ Before BAefftorere Before After Before After consolidation consolidation 94.1％ * Figures for the number of sales personnel as of September 30, 2019; cons統合olid前ation cons統合olid後ation cons統合olid前ation cons統合olida後tion 統合前 統合後 Figures for net asset inflows and ordinary income, 1H FY2019 results 11 Ⅱ - Growth of Traditional Securities Business Retail Division Establishing a Customer-oriented Framework Based on the Daiwa version of NPS
NPS has now been introduced in all locations. We will use it to collect customer opinions and provide higher value-added consulting, products and services tailored to customer perspectives.
Introduction of NPS Correlation between NPS and performance (analysis of our customers)
Q. If you were asked “Which securities company should I open an account at?” by a family member or friend, what is the percentage that you would recommend Daiwa Securities to the family member or friend? If 10% of customers change from Detractors to Passives + ¥21.0 bn Promoters Passives Detractors Passives to Promoters + ¥28.0 bn 10 9 8 7 6 5 4 3 2 1 0 Impact of revenue growth in Rerail Division （total of 3 years） Extremely Not at all likely likely Percentage Percentage of promoters(%) － of detractors(%) ＝ NPS
NPS for five competing securities firms ■Commissions per customer* for 3 years（set detractors to 1.0）
Score 0% For detractors and promoters, 1.8 Daiwa Co. A Co. B Co. C Co. D commissions in total of 3 years Securities differ approximately twice. -20% 1.3
-40% 1.0
1st place in the commissioned research to market research firm -60% Score -55
Daiwa Co. A Co. B Co. C Co. D -56 Securities Detractors Passives Promoters -57 1st place in external NPS survey (NTT Communication online NPS Benchmark survey 2019 -58 in face to face distribution channel) Source: Compiled by Daiwa Securities * includes newly introduced customers 12 Ⅱ - Growth of Traditional Securities Business Retail Division New Initiatives in the Asset Building Area
We have reached an agreement to proceed with exploring new collaboration with the Japan Post Group in the area of asset building. We have entered a capital and business alliance with Credit Saison aimed at developing and providing next-generation integrated financial services.
Japan Post Group Credit Saison
Proceed with building a collaborative structure for the Proceed with utilization of the financial business expertise and development of discretionary investment services and other new customer networks that Daiwa Securities and Credit Saison have consulting services. developed thus far and develop integrated financial services. Support medium to long-term asset building tailored to the lifestyles and needs of Japan Post Bank customers (JP Bank holds ¥180 trillion in individual deposits). Daiwa Securities Group Credit Saison Explore collaboration in the inheritance business. Mainly wealthy & Mainly customers in the elderly customers asset-building stage (¥ Billions) Discretionary Investment Agreement AUM 3 million accounts* (Daiwa Securities) * Value at fiscal year end 37 million customers 6,000 Mutual customer referrals for existing products Development of new services that utilize the expertise of both companies 4,000
2,000 • Card business • Loan business
0 • Services for asset builders (FY) 2012 2013 2014 2015 2016 2017 2018 * Number of accounts with balance
13 Ⅱ - Growth of Traditional Securities Business Retail Division New Initiatives Aimed at Capturing Asset Builders
Preparations are underway on starting CONNECT, a new brand for providing financial services customized for smartphones. This is mainly targeted at beginner investors and asset builders that have not been approached by Daiwa Securities. Japanese stock market fee pool Positioning a new brand of securities （accumulated total of 5years）* Name CONNECT Inc. Need for Daiwa face-to-face consulting Shareholder Daiwa Securities Group Inc. (100%) Securities
Date established April 1, 2019 face to face Japanese equities Business Spring of 2020* securities commencement date Consulting （cash trading） online securities ¥790 bn People in their twenties to forties and active course Targets traders, mainly the millennial generation
* Business is scheduled to commence after the process of registering the business as a financial instruments business operator with the relevant authorities has been Direct course completed. Age Age Financial assets Financial assets (small) (large) Online face to face Easy-to-use trading securities Japanese equities environment on smartphones Limited cannibalization （margin trading） brokers online Easy-to-use application design of direct course ¥330 bn for asset building and young customers securities generation
Easy to understand product Smartphone line-up securities Enables customers to start with small-sum equity trades and installment-type investment Handles IPOs (Initial Public offerings) CONNECT face to face Margin interest rates Lowest fee level in the industry securities ¥650 bn Expected customer segmentation online Utilization of gamification securities Need for Online
* Fee pool (FY2014-FY2018) : Compiled by Daiwa Securities Group Inc. based on TSE trading price data, financial disclosure materials of online securities companies, etc. 14 Ⅱ - Growth of Traditional Securities Business Asset Management Establishment of Joint Venture to Expand Domestic ETF Business
ETFs are increasing as a percentage of publicly offered investment trusts in Japan, but the market is still in the development stage. In the future, we will launch highly flexible, low-cost ETF products aimed at advancing the transition from saving to asset building to expand the market.
AUM of publicly offered investment trusts & funds flow in Japan New company established to invigorate the ETF market
(¥ Trillions) AUM Funds flow 120 80 Index (excluding ETFs) Daiwa Securities Group 100 ETF（BOJ） ETF（excluding BOJ） 60 80 Other Global X Japan Global X Japan 60 40 Global X and Daiwa Securities Group
made joint investment to establish Basic indicator ETFs Smart β, 40 theme-based Provides differentiated products, mainly & other ETFs 20 theme-based and smart beta products 20 Aiming to expand overall passive Smart β, business as a supplement to outsourced Basic indicator theme-based publicly offered & other publicly offered 0 0 management of investment trusts by investment trusts investment trusts Investment trusts managed by (Year) 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 Daiwa Securities Daiwa Securities under contract AUM of U.S. domestic equity funds & funds flow Global X commands a strong presence in the U.S. ETF market (USD Billions) AUM Funds flow 10,000 (Figures as of June 30, 2019) Active High growth in AUM 1,500 8,000 ETF • Has differentiated its entire ETF line-up since SEC registration in 2008 Index 1,000 • AUM: USD10.9 billion (approx. ¥1.2 trillion) • Growth in AUM over past three years (Jun. 2016 vs. Sep. 2019): 6,000 500 2.8 times 0 (Increased to USD7 billion from USD3.9 billion on June 30, 2016) 4,000 • Ranked 18th in the U.S. ETF league table -50▲500 0 Differentiated product line-up 2,000 ▲-11,00,0000 • Number of products: 70 -▲11,50,5000 0 • Smart beta, promising investment themes, niche sectors, country strengths 2009 2011 2013 2015 2017 (Year) 2009 2011 2013 2015 2017 Source: The Investment Trusts Association, ICI “2019 Investment Company Fact Book” 15 Ⅱ - Growth of Traditional Securities Business Wholesale Division Expansion of the IPO Ecosystem
Continuously provide risk money to promising startups using external venture capital. Build an ecosystem that supports new industries full-circle, from development through exits.
Further evolution of the Daiwa IPO platform
Sourcing Capability (Deal-finding skill) Quality of Human Resources Strengthen relationships and partner with external venture capital firms Continuous reinforcement of personnel and universities. Strengthen the coverage of unicorn IPO companies Cooperate with Daiwa PI Partners and Daiwa Corporate Investment ＜Major VC Fund investees＞ ＜IPO related personnel ＞ SONY×Daiwa Securities Approx. Doubled VC Group Inc. Fund Innovation Growth Fund WiL Fund Ⅰ, II Total amount approx. ¥30.0 bn ¥15.0〜20.0 bn USD 0.88 bn Block chain / AI / B2B／Sharing／ VR/AR / Security / Theme AI・Robotics Market place Bio health 2008.4 2013.4 2019.4
Networking Skills Execution & Marketing Skills Knowledge & experience backing our extensive track record Further evolution of the Daiwa Innovation Network (DIN) Solid sales base in Japan and overseas
＜IPO market share*＞ 26.0% *League tables show share captured in terms of value 19.0% 20.4%
10.6% 9.3% 6.7% A number of presenters 1.8% from startups：
451companies（80 sessions） 2019.1H 2013 2014 2015 2016 2017 2018 2019上期
16 Ⅱ - Growth of Traditional Securities Business Wholesale Division 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 Integrated global brands of M&A advisory Trend of steady increase in the top line 22.8 Opened new locations in DC Europe (Madrid, Milan) Japan Asia DC Europe DC US 21.7 Target expansion October 2019 Invested in Green Giraffe of the top line * Speciality advisory firm focused on the renewable 16.2 （1H results） energy sector (¥ Billions) st 13.0 * Retained 1 place on global league table 11.4 10.3 9.1
Green Giraffe DC Europe Future image DC US of balance
Overseas M&A FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 structure 57 50 30 19 100 Asia/Oceania approx.500people
Amortization of goodwill, etc. * Indexed to FY2018 = 100
Global mid cap advisory rankings (FY2018)*
Target inclusion in top tier in the mid cap market
No. of Rank Financial & advisory December 2018 Acquisition deals October 2019 Launch of Corporate Advisory S.r.l (DC Italy) 8 Daiwa Securities Group/DC Advisory 120
* Source：inspiratia (1H FY2019, value base) * Mergermarket. M&A deals with a total transaction value of USD500 million or less in all regions. Excluding accounting firms. Disclosed deal basis. 17 Ⅲ- Promotion of Hybrid Strategy Ⅲ - Promotion of Hybrid Strategy Promotion of Hybrid Strategy
Provide new value to customers even if difficult environment continues and existing traditional securities business grows moderately. Build a business model that is less susceptible to market conditions by entering into new business areas with a low correlation to cyclicality of securities business.
Image of future ordinary income Approx. 35%
Approx. 25% % of hybrid business in consolidated ordinary Profit growth in existing and new income：18% hybrid businesses※2 Profit growth in the traditional securities business（3%) ¥83.1 bn Existing hybrid business※1：¥15.1 bn Profitability improvement target in Asset Management ¥20.1 bn,24% Traditional traditional securities business： securities business Around ¥40.0 billion Wholesale ¥25.4 bn,31% excluding hybrid Retail ¥24.7 bn,30% business
FY2018 FY2023 FY2028
Correlation coefficient of ordinary income at macroeconomic level Main Hybrid Business CONNECT Co. Ltd. Correlation coefficient Company Similar industry Retail Division with securities business Business partnership（Japan Post Bank Co., Ltd.etc.） Daiwa Real Estate Asset Management Co. Ltd. Daiwa Next Bank, Ltd. Banking 0.8 Asset Management Daiwa Office Investment Corporation Real Estate Asset・Asset Management Division Samty Asset Management Co.,Ltd. / Samty Residential Investment Corporation （Daiwa Real Estate Asset Management Co. Real estate 0.6 Ltd., Daiwa Office Investment Corporation Business Investment Daiwa Energy & Infrastructure Co. Ltd. etc.） Division ACA Investments Pte Ltd Daiwa Food & Agriculture Co. Ltd. Agriculture 0.4 Daiwa Next Bank, Ltd. Fintertech Co. Ltd. Healthcare（Good Time Living etc.） Medical,welfare 0.3 Other ORIX Living Corporation etc Daiwa Energy & Infrastructure Co. Ltd. Power 0.09 Daiwa Food & Agriculture Co. Ltd.
Source: Calculated by Daiwa Securities Group Inc. based on “Corporate Statistics” from the Ministry of Finance ※1 Real Estate AM Business, Next Bank All companies with capital of 500 million yen or more (finance and insurance: 100 million yen or more) ※2 The profit outlook of the hybrid business is based on the base 19 scenario of each profit assumption Ⅲ - Promotion of Hybrid Strategy Diversification & Expansion of AUM in the Real Estate Asset Management Business
Continue to diversify & expand AUM to achieve stable revenue growth and surpass ¥1 trillion in AUM. Strengthen alliances with external companies and continue work on initiatives aimed at improving the efficiency of the business portfolio.
Real estate asset management related business: Ordinary income (¥ Billions) * Total of ordinary income of real estate AM business and profit from investment in Samty Group
2019 2014 2018 Capital & business alliance with Samty Japan Rental Housing Daiwa Hotel Private Investments Inc. Samty Residential Investment Corporation 2015 Investment Corporation acquired as a consolidated subsidiary Residence Nippon Healthcare Daiwa Office Investment Corporation Hotel Investment Corporation changed from a consolidated Capital & business 2012 Samty Residential Healthcare subsidiary to an equity-method affiliate alliance （42.68％→38.89％） Investment Corporation Daiwa Residential with Samty facility * 38.27％(as of September30, 2019) Private Investment Strengthen alliance in the Corporation Residence asset management business. 2009 Residence 9.1 Launch a joint development fund for Daiwa Office 8.2 large hotels. Investment Collaborate with the Corporation 7.0 7.0 6.7 Daiwa Securities Group Office on expansion in Asia, etc. 6.0 5.2
1.7
(FY) 2011 2012 2013 2014 2015 2016 2017 2018 2019(E) 2020(E)
Real estate asset management AUM (¥ Billions)
311 350 424 477 800 834 903 1,000 1,033*
* As of September 30, 2019
20 Ⅲ - Promotion of Hybrid Strategy Expansion into New Business Domains
[Daiwa Energy & Infrastructure Co., Ltd.] Capture stable income growth by investing in renewable energy and infrastructure. [Daiwa Food & Agriculture Co., Ltd.] Supply risk money for solving the challenges of the agriculture business.
Daiwa Energy & Infrastructure Co., Ltd. (DEI) Daiwa Food & Agriculture Co., Ltd.
① Investment in agricultural productive equipment – production of baby leaf with external companies Solar power generation
Electric power Feed-in tariff system distributor Fixed for 20 years Development and production of agritech Investment Electric power generator (DEI) max. Latest ICT technology used in produce cultivation Aircraft leasing Yield Lessee Leasing fee ＋40％* (Airline vs. company) Normally fixed for conventional Lessor (DEI) around 6 to 10 years Conventional ICT use method Targeting AUM of ¥300 billion over the medium to long term
(¥ Billions) ②Founding and operating horticultural techniques – entering in-house production business 3,300000 Infrastructure assets In the Netherlands, advanced horticulture techniques have been used since the Renewable energy assets (solar power, etc.) 1990s. Large-scale consolidation is increasing. The high yield per land unit is 4 to 5 times that of Japan. 2,200000 Even in Japan, advanced horticulture techniques provide much room for growth in productivity. We aim for large development by accumulating know-how through the establishment and operation of in-house agricultural fields. 1,100000 We start from several hectares of production and produce large-scale Dutch- ¥58.4 bn type production of tens of hectares in the future.
Aims to achieve annual *Tomato cultivation 00 operating margin on (high-performance greenhouse, 10ha) FY2018 FY2019 FY2019 FY2020 ・・・ amount invested: Amount invested ¥3 billion 3Q 2Q more than 10％ Target annual operating income ¥300 million
* Daiwa Energy & Infrastructure Co., Ltd. was established in October 2018. * Current target value, depending on the weather * AUM: Fiscal year-end figures for past results; Average AUM during the fiscal year for forecasts. in the cultivation area and the supply demand balance 21 Ⅳ- In Conclusion Ⅳ - In Conclusion FY2019 is a Turning Point in Business Model Evolution
The key concept is “business model evolution that captures changes.” We will evolve our traditional securities retail business while simultaneously pursuing a hybrid strategy to build a business model that is not easily affected by the market.
FY1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Future
Ordinary income (¥ Billions) Chart: Nikkei Average
Diversification of revenue sources 261 (expansion of investment Stable revenue bank business) expansion initiative Three-point 224 integrated Revision of Cost reductions cost structure retail strategy 195 targeting return to 197 profitability 185 178 Pursuit of hybrid 165 strategy 156
136 Revenue 120 restructuring 103 96 90 95 83
26 29
-12 Increased Market rebound -33 Market rebound uncertainty Response to progressively Stagnation of economy in aging society -88 the wake of the global Slump after financial crisis Business model IT bubble evolution that burst captures changes -141
23 Appendix Appendix Initiatives Aimed at Achieving SDGs
Promoting marketing of SDGs Expanding SDG-based finance products aimed at market expansion that contribute to solving social challenges
Continue to form and sell SDG-related funds. ・・・Establish EdTech Open. Hold SDG seminars to promote sales of SDG bonds and ・・・Sell Global SDGs High Income Fund. SDG-related funds, etc. at each branch. Revise promotional tools and use environmentally Underwrite issuance of the first SDG bonds for retail investors. friendly materials. ・・・GLP J-REIT/Green bonds (first J-REIT specializing in logistics facilities) ・・・Mitsui O.S.K. Lines/Sustainability bonds (first for a company)
Implement an action plan aimed at building an SDG value chain Strengthening engagement that Developing & supporting an industrial base accelerates the investment cycle that contributes to achievement of SDGs
Actively communicate information on SDGs/ESG that will facilitate dialog. New investment in renewable energy via Daiwa Energy & Infrastructure Co. Ltd. ・・・Establish a new ESG Research Dept. in the Daiwa Securities ・・・ Swimsol GmbH (offshore solar power development in the Equity Research Division. Republic of Maldives) Invite rating institutions and hold seminars for institutional ・・・ Participating in geothermal power generation business Hakodate. investors on ESG investment and sustainable finance. ・・・Post simply explained information on SDGs in publications Daiwa Institute of Research engaged in mutual cooperation with Tanabe for individual investors as well. Consulting Co., Ltd. to provide advisory services to support implementation of (Daiwa investment information monthly report, initiatives to achieve SDGs. Daiwa Institute of Research quarterly report, etc.)
Daiwa Securities Group “Make it your own” plan
Participate in clean-up around branches and community clean-up activities. Participate as a volunteer in tree-thinning in the water conservation forests owned by the Tokyo Metropolitan Government Bureau of Waterworks., a recipient supported by Daiwa Next Bank Ouen Time Deposits. Hold regular SDG meetings at overseas locations. Cooperate with the check-out register bag reduction campaign in Tokyo office buildings.
25 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
26 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 A
added solutions ss Realization and evolution of “Customer First” operations G e r through the use of our E t o
Dramatic improvement in customer x s w p
“Quality No. 1” satisfaction c a t a h n l
consulting capabilities J e
s a o
i a p o Digital Transformation f
n a n c d n o
o
e m c
2 f s o Providing new value Strengthening of conventional business and full p c e r u utilization of Group resources a
p e n as an integrated s o c t i r o e o
securities group with a Expansion and strengthening of external networks and surrounding businesses a s n m t
o e d e
hybrid business model m
r r v
Enhancement of products and services i
y v a a i l ss n u g e e
t t s Passion h
Group Numerical Targets e
Customer- Performance Financial oriented KPI KPI KPI Innovation
Profession Potential -alism Time
27 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
® Note: Net Promoter Score is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. 28 Appendix Progress Toward Quantitative Goals
Customer-oriented KPI (Daiwa version of NPS) Customer-oriented KPI (Assets Under Custody)
Improvement in score ¥80 trillion or more (FY2020) Retail Division: Trend in Net Asset Inflow （¥ billions） ¥68.1 ¥66.3 ¥65.2 600 trillion trillion trillion Individual Corporate Already introduced at All branches 400 Steps to improve scores will be taken as needed 200
0 2018.3 2019.3 2019.9 1Q 2Q 3Q 4Q 1Q 2Q FY2018 FY19
Performance KPI (ROE) Performance KPI (Ordinary income) Finance KPI (Consolidated total capital ratio)
10% or higher ¥200 billion or more (FY2020) 18% or higher
¥155.6 billion 8.8% 21.8% 21.6％ 21.1%
¥83.1 5.4％ 5.1% billion ¥27.7 billion
FY2017 FY2018 FY2019.1H FY2017 FY2018 FY2019.1H FY2017 FY2018 FY2019.1Q （annualized）
29 Appendix Shareholder Return
Dividends FY2019 interim dividend per share: 11yen Dividend payout ratio: 51.5％ Total return ratio Total number of shares to be repurchased: 37 million shares 106.9％ Share Amount Total amount to be paid for repurchase: ¥18.0 billion repurchased Repurchase (as of October 31, 2019) ¥34.8 bn
Set up the share Total return ratio repurchase program max. of 50 mil shares, 75.2％ max. repurchase Amount amount of ¥30 bil Total return ratio repurchased Total return ratio Announced on 60.4％ ¥37.1 bn July 31, 2019 58.3％ Amount Amount repurchased Acquisition repurchased 52.6％ 51.5％ of treasury （1H results） shares ¥18.6 bn ¥19.0 bn ％ or higher 42.5％ 42.3％ 41.9％ 50
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 11 Year- Year- Year- Year- Year- Year- Year- Year- Interim Interim Interim Interim Interim Interim Interim Interim end end end end end end end end FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 “Passion for the Best”2014 “Passion for the Best”2017 “Passion for the Best” 2020 （FY2012-FY2014） （FY2015-FY2017） （FY2018-FY2020）
30 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 Enhance challenges in areas that are Maintain – 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.
31 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: 21.11% (as of June 30, 2019)
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 impact of financial regulations ・ Review of the CVA risk framework * 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%
32 Appendix Trend in Credit Ratings for Our Group
Daiwa Securities Group Inc. 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 1Q 2Q FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Daiwa Securities Group Inc. Daiwa Securities Co., Ltd.
A2 A2 A3 A3 Moody’s 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 1Q 2Q FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Daiwa Securities Group Inc. / Daiwa Securities Co., Ltd.
A A A- A- BBB+ BBB+ Fitch 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 1Q 2Q FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
33 Appendix Overseas Business Overseas operations have succeeded in initiatives aimed at improving business efficiency thus far, and have generated profits for 14 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 Opened the closed in Dubai Asian equity Frankfurt the Hong Kong Established the Sydney & Milan derivatives branch warrant business subsidiary in Frankfurt branch Withdrew from Sold the global (No. of European equity equity finance personnel) research business 2,442 No. of personnel in *Orange indicates the number of 2500 2,175 overseas locations personnel in DC (Europe, Americas) 1,963 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 FY2011 0 FY2012 1 FY2013 2 FY2014 3 FY2015 4 FY2016 5 FY2017 6 FY2018 7 FY2019 8 FY1910.1H 20 13.4 11.4 Overseas ordinary income Europe Asia Americas Overseas total 10 3.7 2.2
0 Sagent Advisors Launch of Daiwa ▲ 10 ▲ 3.9 Signal Hill acquisition Corporate Advisory ▲ 5.1 ▲ 4.6 Strengthen the (U.S.A.) S.r.l.（Italy） ▲ 10.5 global M&A ▲ 20 network Montalbán Atlas Capital Ambit (India) acquisition (Spain) ▲ 21.5 SSI (Vietnam) investment stake ▲ 30 ▲ 25.8 Tanachart Securities Sanford C Bernstein (UK) increased, making it an equity-method (¥ Billions) Pursuit of (Thailand) CSC Financial Co., Ltd. (China) affiliate 9 Basil (Thailand) alliance strategy Bahana Securities (Indonesia) Development Bank of COL (Philippines) Affin Hwang Investment Bank (Malaysia) Philippines (Philippines) investment Australia and New Zealand Bank (Australia & New Zealand)
34 Appendix Main Business Lines of Global Bases
Europe/Middle East
England Switzerland Germany Major Business lines Manchester Geneva Frankfurt M&A advisory (DC Europe) Locations of global bases London France Poland Primary (equity underwriting, debt Spain Paris Warsaw underwriting) Equity (Japanese equities, European Madrid Russia Italy equities, Asian equities) countries and Bahrain Milan Moscow FICC 22 regions Bahrain
Americas
Americas Major Business lines San Francisco FICC Chicago Equity (Japanese equities, US equities, Asia/Oceania New York Asian equities) M&A advisory (DC US) Washington D.C. India Taiwan Vietnam Major Business lines Primary (equity underwriting, debt underwriting) Bangalore Taipei Hanoi Equity (Japanese equities, Asian equities) Mumbai China Myanmar FICC Korea M&A advisory (DC US) Beijing Yangon Primary (equity underwriting, debt underwriting) Seoul Shanghai Australia Singapore Hong Kong Sydney Philippines Singapore Melbourne Manila Thailand ● The Daiwa Securities Group offices ▲ Overseas business alliances Bangkok
35 Appendix Alliances and Investments in Asia
Applied to the China Securities Regulatory Commission to China Hong Kong India establish a joint venture securities firm with Beijing State-owned Capital Operation and Management Center (September, 2019) China Securities Value Partners Ambit Private Limited Taiwan South Korea
Daiwa-Cathay Mirae Asset Capital Markets Global Investments Nov. 2014: Cooperation on Business alliance management & Dec. 2016: Dec. 2016: sale of investment trusts Business alliance Investment
Oct. 2001: Cooperation on Joint venture management & sale of Myanmar Vietnam established investment trusts
Myanmar Securities SSI Philippines Exchange Centre （MSEC） June 2008: Development Bank COL Capital & business alliance of Philippines Financial Group Feb. 2016: Apr. 2016: Securities license granted Increased stake and Mar. 2016: became an Began trading equity method affiliate Mar. 1995: JV established Apr. 2017: Nov. 2015: Business alliance Investment Malaysia Thailand Australia & Indonesia Affin Hwang Thanachart 9 Basil New Zealand Investment Bank Securities Co., Ltd. Bahana Securities Australia and New Zealand Banking Group
Dec. 2013: Business alliance Feb. 2013: Dec. 2018: Business alliance Business alliance Sep. 2013: Business alliance Feb. 2014: Business alliance
36 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 8 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 Included for 14 consecutive years & Welfare
U.S. Dow Jones & Company, Inc. & Total ranking: 4th RobecoSAM Employment popularity ranking Financial industry: 1st DJSI World / Asia Pacific Toyo Keizai Online, Continually included since 1999 2020 Graduates (2nd half period)
37 Appendix Progress on Shift from Savings to Investments Since Abenomics Began
Household Financial Assets (Sept. 30, 2012 vs. June 30, 2019) Transaction Factors (Asset Inflows/Outflows)
Stocks, Investment trusts Cash/Deposits 株式equity等 interests 投資信託 現⾦・預⾦ (¥ T（rilli兆o円ns）) Insurance/ 債Bond券s 保険Insura・n年⾦ce/Pen等sion そOtheのr他s 150 30.8 Pensions
(¥ Trillions) （兆円） 1,860 100 Cash/Deposits 130.1 Total assets Net 50 + ¥285.8 tn 1,575 Transaction inflow 1,600 (+18.1%) 527 factors + ¥ 129.7 tn 0 8.2 Investment trusts (45.4%) Stocks/ Insurance/ -28.5 Equity interests Pensions Net + ¥45.2 tn -9.1 Bonds 482 (+9.4%) 25 outflow -50 1,200 Bonds Market Factors (Market Value Adjustment) - ¥7.8 tn Factor 33 (-23.7%) analysis (¥ T（rilli兆o円ns）)
800 150 Insurance/ Pensions Cash/Deposits 991 17.6 + ¥134.2 tn (Cash: ¥93 trillion) 9.4 Investment trusts (+15.7%) Market 857 factors (Cash: ¥69 trillion) + ¥143.8 tn 100 Investment (＋53.4%) 400 trusts + ¥17.3 tn Stocks/ (+32.6%) 120.9 Equity interests 70 50 Stocks/equity 53 interests Valuation + ¥96.4 tn 195 99 Profit 0 (+97.8%) 2012/9 2019/6 0
Source: Compiled by Daiwa Securities Group Inc. based on the Bank of Japan’s Flow of Funds Account 38 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/