Daiwa Securities Group Inc. FY2020 Management Strategy
May 21, 2020 Seiji Nakata, President and CEO Daiwa Securities Group Inc.
These materials were produced to provide information on results through the forth 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 May 21, 2020. 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. FY2020 Management Strategy
Table of Contents
Ⅰ - Overview of Year 2 of the Medium-Term Management Plan・・・・ 3
Ⅱ - Progress on Division Strategy & Future Initiatives・・・・ 11
Ⅲ - Finance and Capital Strategy・・・・ 25
Ⅳ - In Conclusion・・・・ 28
Appendix ・・・・ 32 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan Ⅰ- Overview of Year 2 of the Medium-Term Management Plan Our Response to COVID-19
Daiwa Securities Group would like to express its sympathy to all those affected by COVID-19. We will act together as a group to fight against social turmoil caused by the COVID-19 outbreak and contribute for social/economic recovery and further development.
Daiwa Securities Group established Crisis Management Headquarters (Head: Seiji Nakata President and CEO ) and implemented following initiatives. Employees Customers Societies
(Retail Division) （Japan） • Fully introduced remote working system to all • Consulting services are available by phone and • Donated 66,000 masks in total, mostly N95 masks stocked for employees online disasters, including 40,000 masks to Ministry of Health, Labour • Distributed portable devices to every employee • Temporary suspend over-the-counter service at all and Welfare, 7,000 masks to Japan Federation of Economic in Daiwa Securities which enables them to branches (170 branches) considering customers’ Organizations, and 19,000 masks to medical facilities to support access to the same network as in office health and safety activities of healthcare professionals • Approx. 70% of domestic group employees • Started securities-backed lending with special • Donated 5 million yen to hotels operated by JHAT Co., Ltd. to including Daiwa Securities are working remotely interest rate as an emergency measure to support support activities of healthcare professionals and essential (as of April 20) small-to-medium-sized business owners workers • Improved commuting related regulations to • Call centers are operated with split teams • Donated foods to children cafeterias to strengthen the support for lower the infection risk of personnel who children while schools are temporarily closed. Also, donated • Daiwa Next Bank plans to establish "Ouen" time unavoidably have to go to offices such as easing sanitary materials to organizations providing places to stay deposits to deliver donations to the “Daiwa requirements for off-peak commuting, use of Securities Group Future Support Bond Child • Planning to issue unsecured bonds (Daiwa Securities Group bicycles, cars and first class cars on trains, Support Group Sustainable Fund” for a limited Future Support Bond).Total issue amount of ¥75 billion. 0.15% of offering to stay at a hotel near office, and time from June 1st. the total issued amount, 10 million yen will be donated to the provided private bus "Child Support Group Emergency Support Fund" established by （Institutional Investor） • Unlimited the number of days every employee the Public Resources Foundation, the remaining amount will be can take special leaves (paid) • Sufficiently supplying liquidity to the capital donated to the “Daiwa Securities Group Future Support Bond market as a market maker Child Support Group Sustainable Fund” • More consideration given for employees who are raising children, pregnant, elder, and have （Wholesale Division） • Providing information of our supporting groups to employees who underlying health conditions • Utilizing online meetings effectively to respond to are considering donations funding and financial advisory needs of customers （Overseas） facing COVID-19 shock • Donated 1 million Chinese yuan (15.73 million yen) to the Red • Supporting fundraising for social issues, including Cross Society of Hubei and 60,000 N95 masks which were underwriting of social bonds issued by stocked for disasters to Wuhan, Beijing and other cities in China International Finance Corporation (IFC) to support activities to recover from the damage of COVID-19
4 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan FY2019 Consolidated Earnings Results and KPI
Revenues and ordinary income increased from the first half of FY2019 due to the profit recovery in Wholesale Division despite the market turmoil caused by the COVID-19. Net asset inflow remained high, while the progress of performance KPI remained as an issue.
Stock Trading Value of Individual Investors and Earning Results KPI
(Yen) Customer-oriented KPI （¥ trillions） Stock trading value of 日経平均株Nikkei Avera価ge（右軸 (right)） ® 400 individual investors (2 markets) 25,000 (Daiwa version of NPS & Assets Under Custody) • 1st place in external NPS survey for face to face distribution channels. 300 20,000 • Asset Under Custody exceeded the Medium-Term Management forecast, even though net asset inflow decreased due to the weak market.
200 Sources of changes in Asset Under Custody 15,000 ¥59.8 trillion （¥ trillions） Net asset 100 inflow 10,000 (as of March 31, 2020) Market factors 0 68.1 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 ¥80 trillion or more （¥ billions） （¥ billions） 59.8 (FY2020 target) 100 Ordinary Income 100 86 2018.3 2020.3 80 80 68 Performance KPI Finance KPI 60 60 46 (Ordinary Income & ROE) (Consolidated total capital ratio) 42 37 40 40 27 ¥70.2 billion, 4.9% 19.4% 20 20 (FY 2019) (as of December 31, 2019)
0 0 ¥200 billion or more, 1H 2H 1H 2H 1H 2H (FY2020 target) 18.0% or higher -20 FY2017 FY2018 FY2019 -20 10% or higher (Target) (Target) Retail Wholesale Asset Management Investments Consolidated total
Note: NPS® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Source: Compiled by Daiwa Securities Group Inc. based on the Japan Exchange Group, Inc. and Bloomberg 5 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan Progress on Revenue Restructuring
The ¥15 billion goal in cost reductions by FY2020 is making steady progress. We are expecting to accumulate more cost reductions in the next Medium-Term Management Period through further business efficiency.
Forecast of ¥15 billion in Cost Reductions Reallocation to Strategic Business Areas
Amount of Timeframe for achieving Division Main items cost reduction cost reductions Reallocation of human resources
Eliminating the sending of documents via postal mail Strengthen Strengthen Abolishment of point program existing business hybrid business FY2019 FY2020 Branch consolidation Personnel in new Removal of ATM from branches Financial consultant System disposal・impairment business Retail 48% 52% Reducing advertising and promotion expenses, etc. Personnel in wealth Personnel with Limiting the use of papers management external connections Putting sales offices on higher floors in buildings Personnel in Reviewing office space M&A/IPOs business Reviewing middle・back office functions, etc. Reduction effects of items in red letters will mainly FY2019 FY2020 appear in the next Medium-Term Management Period Around 400people Wholesale 74% 26% Reassessment of unprofitable businesses & services System disposal・impairment 260 Reviewing and reducing SG&A Strengthen areas expenses, etc. of specialization people ＋
Strengthen FY2019 FY2020 hybrid business Asset Reviewing and reducing SG&A expenses, Management 69% 31% etc. Strengthen existing business
FY2019 FY2020 Slimming down headquarter and division functions Other Reviewing and reducing SG&A Future Before Oct. 2019 71% 29% expenses, etc. revenue assumption restructuring
6 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan COVID-19 Accelerates our Digital Transformation
Along with cost reduction, we have been preparing a new office infrastructure from 2 years ago. With 2in1 device*, sales representatives can work from any location and increase contacts with customers. It will effects on both income growth and cost reduction. * Introduced to all employees of Daiwa Securities Revenue Restructuring with a New Office Infrastructure
Gain more time to contact customers
R Average allocation of working hours e of sales staffs v e Creating time to Image of expansion of time for customer nu increase points contacts when utilizing DX and 2in1 device e
s of contacts Effects on COVID-19 changes the top line work style Desk works Improve efficiencies Clerical work, with teleworks Internal meetings Tasks are digitalized Customers also shift to digital Other Other operation costs Preparation Cost reduction operation through costs Paperless Travel time Other Reforming operation the Income/ Effect on both Improving costs Expense Structure efficiencies C revenues and costs
o Back office s consolidation t f s a D
Real estate Downsizing c i e g
f Moving to upper floors i t expenses t a o a c M
l
DX e f a a
＋ t
Real estate c i o Real estate expenses n Sales e
Elimination of parallel l f
expenses y a
activities
operations by the c IT transaction of infrastructure e expenses IT IT Save renewal cost using expenses expenses public cloud Before After
Past Present Future Expansion of time for customers by face to face interactions and digitalization
7 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan Concepts to promote Hybrid Strategy
The hybrid strategy will be promoted based on the concept of "securities business type", which aims to expand the customer base through alliances, and "alternative type", which acquires cash flow from the assets of investees and commercializes assets as asset financial products. " Securities business type“ " Alternative type“ Daiwa Securities hybrid hybrid Combine strengths of alliances based on our know-how Group Utilizing our know-how based on assets of investees
Alliances Investees Daiwa Next Bank Retail AM Customer base, Daiwa Real Estate AM Japan Post Group Assets, Samty related Local banks, etc. Product Know-how Daiwa Energy & Infrastructure Shinkin Central Bank development Wholesale Investments Good Time Living CONNECT Daiwa ACA Healthcare au AM Daiwa Food & Agriculture Global X Japan Katana Credit Saison
SBI Benefit IP Bridge * Fintertech Expansion of customer base, Utilizing external resources Acquire cash flow, including M&A to expand business areas Development of new products Commercialization and services Creating synergies of Assets
High Correlation coefficient with securities business Low
8 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan Hybrid Strategy（Investments in FY2019）
Phase of planting seeds for hybrid investments is almost completed. We will enter into a phase of nurturing for monetization. Investments of more than ¥10 billion are in bold letters.
Securities Business Type Hybrid Alternative Type Hybrid
Supporting restructuring of Expansion of External Network Increase Alternative Products Provision of benefits from Asia’s Growth business and Japanese Industries
Announced collaboration with Japan Investments to Samty and Business and capital alliance Established Daiwa ACA APAC Post Group（May 2019） REIT managed by Samty Group with Katana, a company with an Growth LP expertize in marketing Capital and business alliance （July 2019） Announced capital and business with Samty (January 2020） alliance with Credit Saison Co. Ltd （May 2019） （September 2019） Consolidation of Samty Formed business alliance with IP Bridge, a company which engages in Residential Investment Corp. Announced collaboration with Shinkin intellectual property procurement Central Bank（March 2020） （August 2019） and licensing, with the goal of utilizing and facilitating monetization of intellectual property Provide Daiwa Fund Wrap for regional banks Acquisition of Good Time Living Co. （April 2020） （FY2019: THE DAITO BANK, LTD., The Chiba Kogyo Bank, Ltd.） （FY2018: The Ehime Bank, Ltd., The Bank of Iwate, Ltd.） Ltd., a company managing nursing care facility and residence for the elderly people（August 2019） Creation of New Business Line
Business Expansion Targeted at Create Business by Diversification of Financial Method and Expansion of Business Asset Builders Established CONNECT Expand Agriculture Business (Daiwa A new brand for providing Investments for Renewable Energy Food ＆Agriculture Co. Ltd.） Investments for Startups financial services customized Established 「Innovation Invest in Green Giraffe, a specialist for smartphones（May 2019） Entry into Baby- Growth Fund」 which invests in advisory firm focused on the leaves production startup companies with Sony renewable energy sector Corporation （October 2019） Investment to Expand ETF Business business （July 2019) Enter into strategic partnership with Establish Global X Japan （April 2019） Establish DG Lab Fund II for Aquila Capital Holding（Germany), （September 2019） Entry into tomato Global Startups With Next- an investment manager mainly in production business Invest into Global X （U.S.A.） generation Technologies renewable energy assets （March 2020） （August 2019) （March 2020) （December 2019）
* Dates of the deals are based on announcement dates 9 Ⅰ- Overview of Year 2 of the Medium-Term Management Plan Promotion of Hybrid Strategy（the Ratio of Hybrid Business in Consolidated Ordinary Income)
The ratio of hybrid business in consolidated ordinary income in FY2019 is 24％. Improve the ratio of hybrid business while increasing ordinary income from traditional securities business. Image of Future Ordinary Income
% of hybrid business in Approx. 35% consolidated ordinary income Ordinary income from hybrid business is expanding Approx. 25% 24% ¥16.6 bn Profit growth in hybrid ¥15.1 bn business＊2 18% Profit growth in the traditional securities business（annual rate of 3%) Profitability improvement target in traditional securities business：Around ¥40.0 billion
Traditional securities business excluding F20Y20118年度8*¹ 2F0Y12019年度9 hybrid business
F201Y2018年度8 F2Y012019年度9 F202Y2023年度3 F2Y022028年度8 Main Hybrid Business Correlation Coefficient of Ordinary Income at Macroeconomic Level Business partnership（Japan Post Bank Co., Ltd., Credit Saison Retail Division Correlation coefficient Co.,Ltd.） Company Similar industry with securities business Daiwa Real Estate Asset Management Co. Ltd. Asset Daiwa Office Investment Corporation Daiwa Next Bank, Ltd. Banking 0.8 Management Samty Asset Management Co.,Ltd. / Samty Residential Division Real Estate Asset・Asset Management Investment Corporation （Daiwa Real Estate Asset Management Co. Real estate Global X Japan Co. Ltd. 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 Co.Ltd., etc.） Medical,welfare 0.3 Other Good Time Living Co.Ltd., etc. Healthcare Daiwa Energy & Infrastructure Co. Ltd. Power 0.09 Daiwa Food & Agriculture Co. Ltd., Katana Inc.
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 1 0 scenario of each profit assumption Ⅱ- Progress on Division Strategy & Future Initiatives Ⅱ- Progress on Division Strategy & Future Initiatives Retail Division Retail Division Sales Activities During the Novel Coronavirus Pandemic
Upgrading to next-generation office infrastructure enabled sales activities that utilize the advantages of telecommuting and infrastructure.
Sales Conditions Upgrading to Next-generation Office Infrastructure Approx. 50%*¹ of sales personnel come into the office Our next-generation (as of May 18) office infrastructure The use of 2in1 devices enables sales personnel to gather information, obtain division support, provide information to customers by phoning HQ & sales Data center them or meeting with them via Web conferencing, and receive and branches place orders for products (stocks, bonds, investment trusts), even while working at home. Remote devices Relatively Relatively Cloud Portable Cloud small large authentication Security External impact Information Equity Fund wrap impact platform At home & while platform network provision to Bonds Equity investment trusts out on business customers Investment trusts Solution proposals*2 Remote devices
Characteristics① Characteristics②
Efforts to minimize impact Internal office structure that can be Do not depend on internal network by Using Web conferencing, etc. (May) used without modification while using cloud environment outside of the company Possible to increase capacity for Going paperless for FW contracts, etc. Enables business to be conducted simultaneous connection quickly and (around summer) securely anywhere, at any time inexpensively Enables an employee to telework with No need for periodic infrastructure one device renewal
Examples of Proposals and Terms that Capture Market Movement Typical remote environment
HQ & sales branches Rapid yen appreciation, Foreign equity (U.S. equity)
stock price decline Foreign currency time deposits A uth Internal network p
Require Internal device l e a nt t External Widening of credit spread multiple f Security or
At home & while i devices c a Strong in yen bond Financial institution subordinated bonds out on business m platform network t i Daiwa Securities Group corporate bonds o
investment needs while n having low new bond issue （issued in June, issue amount: ¥75 billion） Data center amounts Remote device Access internal devices via the data center when accessing remotely
*1 Approx. 30% of sales personnel come into the office as of April 20 *2 Business succession, leasing, real estate brokerage, introduction to tax consultant, etc. 12 Ⅱ- Progress on Division Strategy & Future Initiatives Retail Division Three-Pillars Retail Strategy for Establishing an Asset Management Business Model
Promote three-pillars strategy to provide optimal solutions to customers by specialized personnel.
The Daiwa version of NPS was Hold Quality No. 1 Meetings to develop a The environment surrounding introduced to visualize the degree of customer-oriented mindset among all customer satisfaction. securities industry employees. We have already introduced it at Training Establish a training program for employees who Low correlation between All branches. have been in the company for 3-5 years. markets and performance We will aim for ongoing improvement. …No. 1 in the industry in the number of CFP certification holders: 1,020 holders NPS * as of March 31, 2020
Aging of society Channels Build a sales New entrants from other Optimize channels according to Established rules to increase industries structure based customer attributes and life contact with customers. stages. Analyze transaction data. on the Elderly customers Anshin Planner Pressure to lower fees for customer’s 114branches 212planners investment products Contacts perspective Asset-builders Financial Consultants
Strengthen customer- Consolidate existing branches and put 93branches 155consultants oriented business sales offices on higher floors in buildings. * as of April 1, 2020 operations Expand the number of small, low-cost sales offices. Expand points of contact Commoditization of with customers. Branches Transition from a headquarter-driven financial products No. of sales offices: 58 Roles sales structure to a bottom-up sales Total number of branches: structure driven by individual branches, 172 (in Japan) based on customer needs. * as of July 31, 2020 (scheduled)
13 Ⅱ- Progress on Division Strategy & Future Initiatives Retail Division Firmly Establish a Customer-oriented Framework Based on the Daiwa version of NPS
Collect customers’ voices and offer more valuable consulting, customer-oriented products and services with the Daiwa version of NPS.
Improvement of NPS based on Customers’ Voices Introduction of NPS 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 Customers recommend Daiwa Securities to the family member or friend? Promoters Passives Detractors NPS questionnaire Customer-oriented More valuable products / services 10 9 8 7 6 5 4 3 2 1 0 consulting (Score rating and comments) NPS Promotion Extremely Not at all likely likely Office Percentage Percentage of promoters(%) － of detractors(%) ＝ NPS Branches & Head offices sales offices Correlation between NPS and Performance (Analysis of Our Customers) Improve sales quality Improve products & services If 10% of customers change from Detractors to Passives + ¥21.0 bn Enhanced sales style to Customer satisfaction committee is set Passives to Promoters + ¥28.0 bn deeply hear customer needs to enhance efficacy of the framework Impact of revenue growth in Retail Division （total of 3 years） Wrap account service • Discuss important and contract price per unit*¹ frequently asked items ■Commissions per customer*2 for 3 years（set detractors to 1.0）
Customer voices For detractors and promoters, （over 1,000） commissions in total of 3 years 11..８8 differ approximately twice. x1.4 Categorize（approx. 50） 1.3 1.0 Improve 1.0 Examples Review of investment target of wrap service Expanded commission-free ATM alliance Introduced paperless account opening process FY2018 FY2019 Detractors Passives Promoters
*1 Excluding Fund wrap online. *2 Includes newly introduced customers. 14 Ⅱ- Progress on Division Strategy & Future Initiatives Retail Division Optimization of Channels according to Customer Attributes and Life Stage
Retail Business is facing structural changes such as customer aging. Anshin planners will meet the solution needs including asset preservation, inheritance, business succession, real estate, etc. for the elderly.
Long-term Forecast of Household Financial Assets Providing Products by Optimizing Channels
Present 10 years later 20 years later （Age） A Meeting g 85- e complex needs Anshin • Consulting for asset 80-84 Planner preservation needs Elderly • Solutions for customers 75-79 The baby inheritance, business boom succession, real 70-74 Wealth generation estate, etc. Consultant 65-69 Number of Anshin Planner 60-64 Affluent Financial 300 55-59 Consultant 212
50-54 Children of the baby boom 45-49 Asset- generation 2020.4 Future 40-44 builders 35-39 Client 30-34 Support Digital needs 25-29 Asset- • Providing more builders convenient tools -24 （¥ trillions） （¥ trillions） （¥ trillions） Asset size 0 100 200 300 400 0 100 200 300 400 0 100 200 300 400 Holding ratio (above the age of 60) 63％ 65％ 70％
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) 15 estimation), Bank of Japan “Funding Cycle Statistics”, Ministry of Internal Affairs and Communications “National Consumption Survey” Ⅱ- Progress on Division Strategy & Future Initiatives Retail Division
Branch Strategy for the Post-Corona Environment (Face to Face Interaction and DX Integration)
Expand sales offices as they contribute to net asset inflow and profits. Accelerate running cost reductions by consolidating neighborhood branches and putting sales offices on higher floors to focus on functionality.
Location Strategy: Expand Sales Offices and Consolidate Large Branches Future Direction of Branches
Trend in number of Daiwa Securities All locations: 172 Customers who visit branches have clear sense of purpose （Branches） branches & sales offices including investments and inheritance, etc. 190 Of which, sales offices: 58 (as of July 31, 2020） BEFORE AFTER Sales offices 170 Low-cost, small-scale sales offices with no back office Consulting Rooms 150 booths ensuring Consolidate & improve in branches efficiency of existing & privacy Consolidate large locations Yokohama branch and 130 Number of locations, Yokohama Ekimae 120 excluding sales offices: 117 branch in FY2020 Office rents 114 113 110 Putting *¹ 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020.7 sales -40% Street side offices offices in higher Location Strategy: Contribution from Sales offices to Net Asset Inflow & Profit floors Sales offices 7.2％ ％ 27.7％ 26.8 Before After moving moving
No. of Net asset Ordinary Introduce personnel inflows income Fixed seats address-free Branches in offices (excluding sales offices) seats
* Figures for the number of sales personnel as of March 31, 2020; *1 Comparisons of office rents are total of 12 branches since October, 2019. Figures for net asset inflows and ordinary income, FY2019 results 16 Ⅱ- Progress on Division Strategy & Future Initiatives New Initiatives Aimed at Capturing Asset Builders (CONNECT)
Starting CONNECT, a new brand for providing financial services customized for smartphones. This is mainly targeted at beginner investors and asset builders. (Registered the business as a financial instruments business operator in April 22nd and preparing to commerce services from June or July)
Name CONNECT Inc. Products Starting from Japanese equities (including ETF) Capital ¥8.3 billion （the opening forecast, including capital reserve） Needs for Trading of shares less than a basic unit・NISA accounts Face to face consulting Shareholder Daiwa Securities Group Inc. (100%) Daiwa Securities Expansion of products including margin trading, IPO, investment trusts within 6 months after opening Date established April 1, 2019
Business commencement date Around June or July, 2020 Commission Consulting Lowest fee level in the industry Asset builders in their twenties to course Targets forties, mainly the millennial Distributing commission free coupons every month generation （around 10 times in a month, free of charge） Installing SOR function Direct course （offering more favorable execution price by Smart Order Age Age Financial assets Financial assets Routing） (small) (large) Channels Promotion Online Limited Easy-to-use trading Application of point system brokers cannibalization of on smartphones Direct course Various points services customers Providing application Smartphone （iPhone、Android） Point exchange securities Simulated investment by using points (equity linked)
Expected customer segmentation Exchanging of CONNECT to shares
Needs for online Utilization of gamification
17 Ⅱ- Progress on Division Strategy & Future Initiatives New Initiatives in the Asset Building Area
We will implement initiatives to provide financial products with Credit Saison and start providing next-generation financial services through Fintertech, a joint venture.
Capital and Business Alliance with Credit Saison Next-generation Financial Service with Fintertech
September, 2019 Combine the strengths as a joint Capital and venture business alliance Aim to provide new next-generation financial services by utilizing cutting Mainly wealthy & Mainly customers in the edge technologies of Fintertech elderly customers asset-building stage 3 million accounts 37 million customers Digital asset collateral loan Referrals of Referrals of customers card members Security
Explore to provide cards to Provide financial products Loans customers of Daiwa Securities through Saison card member websites （Scheduled to start in June, 2020） Corporation Interest Business owners Interest 4〜8％
• Funding business to receive interests by holding Account virtual currency as collateral and loaning legal opening tender（≒Securities loans） Individuals • Registered as a Moneylending Business in 2019 and start operations from March 2020 Overseas market scale*¹ Introducing customers through 8 direct mails for Saison card members Total loan amount Corporation (unit:¥ billion) 1 Requests for 0 Information ※ Start after autumn 2020 materials ※ Campaign contents are under negotiation 2017 2018 2019
*1 The Crypto Credit Report https://reports.graychain.net/TheCryptoCreditReport-q4-2019.pdf 18 Ⅱ- Progress on Division Strategy & Future Initiatives Wholesale Division GM Providing Products & Services that Capture Customers’ Needs
Captured 1st place in main rankings highly rated by investors and issuers in both domestic and overseas. Started provision of information in a new style during COVID-19 outbreak.
Strengthening Domestic and Foreign Research Initiatives under COVID-19 Outbreak
Overall Supporting measures for sales personnel
Nikkei Veritas Analyst Ranking2020 Live streaming of Ranked １st place for ２ consecutive years study sessions utilizing 2in1 device 2020 Institutional Investor All-Japan Research Team Ranked １st place * overall ranking by company for Nikkei Veritas Analyst Ranking, equity Brokerage research ranking Corporate staff accompanying From anywhere Solution Factors Set a clear goal of “rank in first place continuously“ virtually Expanded researcher base by supporting the information growth of young analysts Strengthened provision of information based on trade 2in1 device × SDGs and ESG Client sales personnel （established ESG Research Division） Organizing timely online seminars Corporate Access DIR chairman NAKASO DIR Senior Executive MD KUMAGAI
2020 Institutional Investor Japan’s Top Corporate Access Provider
Corporate respondents’ ranking : 1st place Investor respondents’ ranking ：2nd place
19 Ⅱ- Progress on Division Strategy & Future Initiatives Wholesale Division GIB Providing Various Solutions that Capture Customers’ Needs
Maintain a firm grip on top ranking in the PO & IPO league tables. The top line reached a record high as we expanded M&A global network including investment in Green Giraffe.
FY2019 League Table Ranking & Market Share*¹ (Source: Daiwa Securities) M&A Results
Primary and The top line reached a record high. Rank IPO Share Rank secondary equity Share offerings*² Daiwa M&A related commission / 69% 70% 1 Nomura 30.5% 1 SMBC Nikko 15.6% Company A M&A/Financial advisory fees 55%
47% Further 2 Daiwa 24.6% 2 Daiwa 15.3% 42% 28.9 38% expansion 35% 3 SMBC Nikko 19.2% 3 Nomura 14.1% 22.8 21.7
4 Mizuho 10.1% 4 Mitsubishi UFJMS 12.2% Japan Asia 16.2 DC Europe DC US 11.4 5 Mitsubishi UFJMS 4.2% 5 Mizuho 11.3% 10.3 （¥ billions） 9.1
Straight bonds Municipal Rank Share Rank Share (excl. family bonds) bonds
1 Mizuho 21.9% 1 Nomura 20.1% FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
2 SMBC Nikko 19.7% 2 SMBC Nikko 18.5% Dec. 2018: Montalbán Atlas Capital acquisition (Spain) Oct. 2019: Invested in Green Giraffe. The number of cases 3 Daiwa 19.0% 3 Daiwa 17.6% working with DC is increasing.
4 Nomura 18.7% 4 Mizuho 16.1% Global mid cap advisory rankings (FY2019)*3
No. of Rank Financial & advisory 5 Mitsubishi UFJMS 16.8% 5 Mitsubishi UFJMS 15.3% deals 10 Daiwa Securities Group/DC Advisory 116
*¹ Compiled by Daiwa Securities based on REFINITIV *² PO total (excluding domestic and foreign CBs and REITs) 20 *3 Mergermarket. M&A deals with a total transaction value of USD500 million or less in all regions. Excluding accounting firms. Disclosed deal basis. Ⅱ- Progress on Division Strategy & Future Initiatives Wholesale Division GIB Focus on Acquiring Deals Looking Ahead After COVID-19
Work to increase mandate acquired deals by far-seeing proposals looking after COVID-19 outbreak. Focus on proposals and sourcing to startups.
Far-seeing Proposal looking after COVID-19 Outbreak Focus on Proposals and Sourcing to Startups
Strengthened proposals utilizing 2in1 devices Corporate Action Pipelines and Prospects for each Products Time Line Proposals and web-conferences under Demand for IPOs from companies is robust COVID-19 Client access in Corporate Division rose 25% in Pipelines for debt finance is increasing April compared to 2H FY2019 utilizing telephone Outbreak Ensure Important way of financing under ultra-low and web-conferences Liquidity interest rate Strengthen relationships and partner with Improvements seen in careful investors’ Sourcing external venture capital firms domestic and stance Capability overseas and universities (Deal-finding Established a joint venture company with Sony Corporation in FY2019 Increase in equity & mezzanine finance needs skill) ”Innovation Growth Fund” started investing for rebuilding capital policy Cancelation of equity finance reflecting market ＜Major VC fund investees＞ Improvements SONY×Daiwa Securities drop and rise of uncertainty was temporal VC in B/S Group Inc. Needs for finance to improve B/S increased Fund Innovation Growth Fund WiL Fund Ⅰ, II Needs for finance accompanying M&A increased approx. ¥30.0 bn ¥16.0 bn USD 0.88 bn Debt restructuring increased Total amount Block chain / AI / B2B／Sharing／ Theme VR/AR / Security / AI・Robotics Bio health Market place Business M&A needs expected to increase in medium- Restructuring term Further evolution of the Daiwa Innovation ・ Delays seen in progress in existing deals and Network (DIN) Industry examinations for new deals, but small decrease Held DIN on-line for the first time in May. Networking Reorganization in pipelines. Supported startups during COVID-19 outbreak ・ Skills Growth Strategy Increase in industry reorganizations and M&As Cumulative total of presenters from Increase in cross-border M&A deals startups：476 companies Increase in investments and sales of PE funds Average participants：140
21 Ⅱ- Progress on Division Strategy & Future Initiatives Asset Management Division Diversification & Expansion of AUM in the Real Estate Asset Management Business
Continue to diversify and expand AUM with the aim of stable income growth and exceed 10 billion yen in profit from real estate asset management. Strive to expand AUM through initiatives aimed at steady investment and growth amid the changes in the external environment.
Real Estate Asset Management Related Business: Ordinary Income (¥ billions) Response Once the Novel Coronavirus Pandemic has Resolved
* Total of ordinary income of real estate AM business and profit Logistics Real estate asset management portfolio from investment in Samty Group 2019 (Percentage of holdings (%) held in parentheses*²) 2018 Daiwa Securities Logistics Logistics (3) 2014 Private Investment Corporation Hotel Housing & Japan Rental Housing Capital & business alliance Residence Daiwa Hotel Offices Investments Inc.*¹ with Samty healthcare facilities Private Investment Samty Residential Investment (43) Healthcare Nippon Healthcare (50) facilities Corporation Corporation acquired as a Investment Corporation*¹ Residence consolidated subsidiary 2015 2012 Samty Residential Hotels (4) Investment Corporation 11.1 Residence Daiwa Office Investment Corporation 0% 20% 40% 60% 80% 100% Daiwa Residential changed from a consolidated Private Investment subsidiary to an equity-method affiliate Response by Daiwa Real Estate Asset Management Corporation 9.1 （42.68％→38.89％） Concentrating on steady investment aimed at the post- 2009 8.2 Current corona environment Strengthening relationships with existing clients Office 7.0 7.0 Investment opportunity presented by temporary market chaos Daiwa Office 6.7 Initiatives Investment 6.0 targeting Naturally invest in asset classes with stable cash flow and Corporation exercise strict selectivity in various asset classes 5.2 growth Making greater use of the group’s internal warehousing function Redevelop properties owned within the group, invest in development properties, etc.
Realize growth outside of REITs through agile acquisition of properties using internal group bridge 1.7 Normalization of funds, etc. REIT market Cumulative total of 250 billion (FY) 2011 2012 2013 2014 2015 2016 2017 2018 2019 Rebound in Bridge Seller fund REIT yen in funds used in Price/NAV ratio warehousing since 2013 Real estate asset management AUM (¥ Billions)
311 350 424 477 800 834 903 1,000 1,069 Target expansion of Real Estate Asset Management AUM to 1.5 trillion yen
*1 Japan Rental Housing Investment Inc. merged with Nippon Healthcare Investment Corp. in April 2020 and changed trade name to Daiwa Securities Living Investment Corp.. *2 REIT operated by Daiwa Rea Estate Asset Management Co. Ltd. and Samty Asset Management Co.,Ltd.. (as of April 30, 2020) 22 Ⅱ- Progress on Division Strategy & Future Initiatives Investment Division Expansion to New Business Areas (Daiwa Energy & Infrastructure Co. Ltd.)
Capture more stable income gains from investment in renewable energy and infrastructure. Target expansion in AUM by strengthening initiatives in investment, exit, and risk management.
Daiwa Energy & Infrastructure Earnings Results Future Policy FY2019 net operating revenues were ¥2.1 billion, and ordinary income was ¥1.7 billion. Investment Develop a track record in strategic investment We are targeting ¥300 billion in AUM over the medium and long term (including external funds). Domestic solar power: Expand investment targets, including secondary (¥100（億円 Milli）ons) (¥100（億円） Millions) projects 3,000 150 Overseas renewable energy: Expand joint investment with Aquila Capital Infrastructure assets
Renewable energy assets (solar power, etc.) Aquila Capital Profile • Excellent partner for expansion of business Description: Investment company that 2,000 100 targets investment in in Europe Ordinary income renewable energy projects • Strengthen the global group platform by （estimated from in Europe Equity interest: DEI acquired 40% allying with DC Europe and Green Giraffe FY2020 onwards） ¥81 billion 1,000 50 Infrastructure: Expand areas of investments (airports, telecommunications, etc.)
Exit Establish a capital recycling model 0 0 FY2018 FY2019 FY2020 ・・・ Invest Investment Example (Investment in Power Distribution Business in the UK) Exited parts of the existing portfolio in Electric power business in the UK Cyclical expansion focused on capital efficiency FY2019 Power Competitive environment generation Develop into Power Regulatory environment Dividends Investment financial product transmission (regional monopoly) Develop or sell Electricity Risk Power Long-term, stable revenue from Enhance risk management and monitoring distribution business can be anticipated North West management Limited Strengthen the project risk management and monitoring structure as the Competitive （UK） investment balance increases. Retail environment Strengthen the management structure of the company invested in (Aquila Capital)
* AUM for Daiwa Energy & Infrastructure is the balance at the end of the fiscal year for past results and the average balance during the fiscal year for future forecasts. 23 Ⅱ- Progress on Division Strategy & Future Initiatives Overseas Operations Overseas Business
Overseas operations have succeeded in initiatives aimed at improving business efficiency thus far, and have generated profits for 16 consecutive quarters. We will continue to strengthen the global M&A network and alliances. 15.9 20 Overseas Europe Asia Americas Overseas total 13.4 15 ordinary income 11.4
10 3.7 5
0
▲ 5 ▲ 10 ▲ 5.1 ▲ 3.9 ▲ 4.6 Sagent Advisors Launch of ▲ 15 Signal Hill acquisition ▲ 10.5 DC Italy (Italy) Strengthen the (U.S.A.) ▲ 20 global M&A network Montalbán Atlas Invested in ▲ 25 ▲ 21.5 Sanford C Bernstein Capital acquisition Green Giraffe ▲ 25.8 (UK) (Spain) (Netherlands) ▲ 30 Thanachart Development Bank of the CSC Financial Co., Ltd. COL (Philippines) Pursuit of Securities (Thailand) Philippines (Philippines) (¥ Billions) (China) investment alliance strategy Bahana Securities (Indonesia) Ambit (India) 9 Basil (Thailand) Affin Hwang Investment Bank (Malaysia) SSI (Vietnam) investment stake Large-scale Australia and New Zealand Bank increased, making it an equity-method restructuring phase (Australia & New Zealand) affiliate FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Breakdown of VaR Americas FICC profit at a high level in FY2019 in Japan and overseas*¹ Have consistently maintained primary dealership in U.S. Treasuries since December 1986 (¥ billions) Japan＋ Built a stable revenue base on the back of a high share of the short-term U.S. bond market in particular 国内＋海外 11.22 Continuously in the black for 13 years, since FY2007 and posted especially high profits in FY2019 (¥17.6 bn) Overseas • Established a group of professionals centered around employees with market experience and うちJa国内pan 11.22 many years in the company うOちv海外erseas 0.22
*1 Total of VaR in Japan and Overseas is smaller than the simple aggregation of figures in Japan and Overseas due to the correlation of regions. As of March 31,2020, holding period: 1 day, confidence level: 99%, observation period: 520 days 24 Ⅲ- Finance and Capital Strategy Ⅲ- Finance and Capital Strategy 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.
The First Issuance of AT1 Bond Dividend Policy・Shareholder Return
総To自tal己資 quali本fy合計ing ca（pi十億tal (¥円billi）ons) Dividend policy 連Co結ns総自olidat己ed資本 tota規l ca制⽐pital率 ratio The Company will basically pay dividends
1,400 40.0% AT1 bond Invest in Improve semiannually at a pay-out ratio of at least
35.0% 1,200 1,133 1,086 1,088 ¥150 billion capital efficiency 50% based on the consolidated financial growth performance. 30.0%
1,000 21.8% 21.6% 25.0% The Company will also consider increasing 19.4% 800 returns to its shareholders in various ways 20.0% including share buybacks when it has 600
15.0% sufficient accumulated capital to pursue
400 further growth. 10.0% Achieve sustainable growth
200 5.0% by earning healthy profits Shareholder return
0 0.0% FY2017 FY2018 FY2019 FY2019 Total return ratio 3Q 4Q 106.9％ Total return ratio 3Q 4Q Maintain Enhance 92.5％ shareholder Total return ratio financial health 75.2％ Acquisition Summary of AT1 bond return of treasury shares Unsecured perpetual subordinated bonds Name with optional-redemption clause and write-down clause Actual 52.6％ Redemption 5 or 10 years 51.1％ payout ratio Date 41.9％ (full year) Issue Amount ¥150 billion Payment Date March 16, 2020
Use of Investments for hybrid strategy, Proceeds repayment of existing borrowings FY2017 FY2018 FY2019 Rating BBB+ (Japan Credit Rating Agency, Ltd.)
26 Ⅲ- Finance and Capital Strategy 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: 19.4% (as of Dec. 31, 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 ・ 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*1 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%
*1 Excluding countercyclical buffer 27 Ⅳ- In Conclusion Ⅳ- In Conclusion FY2020 KPI for Promoting Achievement of SDGs KPIs have been established this fiscal year for each action theme to accelerate the initiatives in the action plan aimed at achieving SDGs. We will follow up on the status of initiatives and make changes where necessary to achieve the SDGs.
Action Theme KPI Description of Initiative
Promoting marketing of SDGs Number of people Acquire SDGs knowledge through external courses aimed at market expansion who have completed SDG training
SDG bonds (project bonds) league table Provide funding to support solutions to social challenges
Expanding SDG-based “Ouen” time deposit balance Promote solutions to social challenges through deposits finance products that contribute SDG-related funds to solving social challenges Expand the line-up of related funds to respond to increased Amount or no. of funds handled＊1 customer interest in SDGs/ESG.
Net increase in SDG-related funds＊2 Expand funds based on SDGs/ESG investment themes
Contribute to renewable energy and infrastructure related Investment in SDG-related businesses investment
M&A league table Strengthen advisory services in the global renewable energy Developing & supporting an in the renewable energy segment sector industrial base that contributes to achievement of SDGs No. of M&A deals retained + Contribute to regional revitalization through M&A for small and No. of cases of business succession consulting medium-sized companies, business succession, etc.
Contribution through Support solutions of various issues in local and international foundations and NPO, etc. communities with foundations and NPO, etc.
Strengthening engagement that ESG coverage ratio Expand ESG information in analysts’ reports accelerates the investment cycle in individual company reports Percentage of women Increase the percentage of women in management positions Daiwa Securities Group in management positions
“Make it your own” plan Continue to reduce the environmental burden in the entire value Volume of CO emissions 2 chain with the goal of transitioning to a low-carbon society
*1 Scope: Daiwa Securities *2 Scope: Daiwa Asset Management 29 Ⅳ- In Conclusion Initiatives Aimed at Achieving SDGs We are maintaining flexibility in implementing initiatives aimed at solving social challenges due to the impact of the novel coronavirus. Promoting marketing of SDGs Expanding SDG-based finance products 市場拡大にai向mけedた aSt DmGarskマeーt eケxテpィanンsグioのn 推進 社会課題解決that contにrib資uすteる tSoD soGlsvフinァgイ soナcンiaスl c商h品allのen拡ges充 Held proprietary seminars based on SDG themes at branches Daiwa Next Bank, Ltd. received a special award in the 3rd Japan nationwide. At the Kyoto Branch, invited Mr. Nishiguchi, SDG Award ceremony, recognizing its initiatives in achieving a Executive Managing Director of Japan Innovation Network as the wide range of SDGs through “Ouen” time deposits. instructor for a seminar on using Underwrote social bonds issued by International innovation as an entry point. Finance Corporation (IFC), which announced Used the SDGs booklet to introduce the emergency support for private sector companies various SDG initiatives in the Daiwa Group to respond to the rapid spread of the novel to customers and business partners. coronavirus. Daiwa’s version of the SDG value chain Strengthening engagement that Developing & supporting an industrial base 投資循環を促進するエンゲージメントの強化 accelerates the investment cycle tShaDtG csoにnt資ribすuるte産業基盤s to achiのev育成・支ement o援f SDGs Provided information related to SDGs/ESG to Invested in Green Giraffe, which is No. 1* in the global league table in advisory investors and issuers through research and seminars. business specializing in the renewable energy sector. Fintertech Co., Ltd. participated in the J-WAVE Inc.’s The University of Tokyo outsourced a survey ”#Don’tStoptheMusic” project. The program on social impact investment to Daiwa Institute of Research. supported the music world, which has been severely Daiwa Institute of Research and Daiwa Investor Relations Co., affected by the novel coronavirus through providing a free tipping system. Ltd. teamed up to provide support on materiality specification Daiwa Food & Agriculture Co. Ltd. allied with KAGOME and consulting on ESG disclosure. CO., Ltd. to produce low-cost tomatoes in a weather-resistant greenhouse.
* Source: inspiratia (1H 2019, value basis) Daiw大和証券a Securitiグeルs ーGプroのup「 ジ“Mブaンkeゴ itト 化yo」u計r o画wn” plan
A voluntary SDGs/ESG working group was launched at our UK subsidiary, Daiwa Capital Markets Europe Limited. This was a proposal by employees. Diverse workstyles according to life stages were introduced once the 2in1 devices were issued to all employees. The telecommuting system, including working from home, was expanded with the goal of improving productivity throughout the company.
30 Ⅳ- In Conclusion Reforms to Improve Job Satisfaction × DX
Formulate No. 1 in Job Satisfaction Plan 2020 and establish an environment that enables employees to demonstrate their full potential. In March 2020, we pursued DX along with the telecommuting system as the novel coronavirus spread and increased the number of workstyle options.
No. 1 in Job Satisfaction Plan 2020 Realization of Diverse Workstyles through DX
December 2017 Theme Measures Telecommuting system launched Two years ago (with the goal of enabling employees to work while caring for Began upgrading Establish systems and an environment family members and undergoing cancer treatment) Because 2in1 devices had not been introduced yet, productivity was infrastructure that enable employees to work efficiently lower when working from home. systems Workstyle and demonstrate maximum performance in a limited time period March 2020 Expand telecommuting system Expanded telecommuting system Implement SmartBiz year-round to all employees
WLB BCP Productivity telecommuting telecommuting telecommuting Spread of Career Expand career options and establish an COVID-19 environment that enables employees to Working while caring Continuity of business Effective use of Completed for children or family operations during a commuting time introduction of development work actively, with higher motivation members, undergoing disaster or other and open time cancer treatment, emergency 2in1 devices etc. Establish a new Digital IT Master certification system Expand support for returning to work Insights after taking childcare leave Discovered the new telecommuting workstyle in an Expand the Daiwa Women’s environment that necessitated its use Management Telecommuting was Developed a fresh recognition of the advantages of Forum (training program for women in added as a workstyle face-to-face (analog) even though telecommuting management positions) tool through DX can be used instead for some operations Establish a system that increases Work-life employee job satisfaction and enables Future initiatives balance employees to continue working while Identify the advantages and disadvantages of experiencing various life events telecommuting Establish a new pregnancy escort leave Consider the potential for using telecommuting in each operation program and make it a general principle to take one week or more of childcare support leave Realize a workstyle with the best mix of digital and analog
31 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
33 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
34 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
35 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 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 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
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 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
36 Appendix Shareholder Return
FY2019 dividend per share: 20yen（interim: 11yen, year-end: 9yen） Dividends Annual dividend payout ratio: 51.1％ Total return ratio Share Total number of shares to be repurchased: 50 million shares 106.9％ Repurchase Total amount to be paid for repurchase: ¥25.0 billion Amount repurchased Total return ratio ¥34.8 bn 92.5％ Amount Total return ratio repurchased ¥25.0 bn 75.2％ Amount Total return ratio repurchased Total return ratio 60.4％ ¥37.1 bn 58.3％ Amount Amount repurchased repurchased 52.6％ Acquisition ¥18.9 bn 51.1％ of treasury ¥18.5 bn shares 42.5％ 42.3％ 41.9％ 50％ or higher 34.9％ ％ 34.5％ 34.1 Approx. 40％ Actual payout ratio Approx. 30％ (full year) Dividends 15 34 30 29 26 28 21 20 per share (yen) 3 12 17 17 14 16 17 12 13 13 13 15 12 9 11 9 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）
37 Appendix Innovative Human Resource Strategy
We are implementing various measures to maximize productivity, active contribution and job satisfaction. We will formulate the No. 1 in Job Satisfaction Plan 2020 and establish an environment that enables employees to demonstrate their potential to the maximum extent.
Human Resource Strategy aimed at No. 1 in Quality No. 1 in Job Satisfaction Plan 2020
Theme Measures
Establish systems and an environment No. 1 in productivity that enable employees to work efficiently Workstyle and demonstrate maximum performance Initiative aimed at developing KPI for productivity in a limited time period human resources, who are No. 1 in Expand telecommuting system quality and improving operating • CFP & securities analysts efficiency and productivity • Global human resources Implement SmartBiz year-round & IT human resources • Operating efficiency index
Career Expand career options and establish an No. 1 in quality environment that enables employees to development work actively, with higher motivation No. 1 in active No. 1 in job Establish a new Digital IT Master contribution satisfaction certification system Expand support for returning to work Develop professionals Establish a workplace environment after taking childcare leave Establish an environment that that provides job satisfaction Expand the Daiwa Women’s enables all employees to actively Management Realize a high level of work-life balance contribute Forum (training program for women in management positions) Establish a system that increases KPI for active KPI for job satisfaction Work-life employee job satisfaction and enables contribution • Work Motivation Survey balance employees to continue working while • Progress on Q-Road & DBP*¹ experiencing various life events • Targets for promoting the Establish a new pregnancy escort leave advancement of women*² program and make it a general principle • Status of self-development by to take one week or more of childcare veteran employees*³ support leave
*1 Q-Road and DBP(Daiwa Basic Program) are training programs *2 Percentage of women in management, women as a percentage of employees hired, percentage of women who participate in training programs, percentage of men who take childcare leave, and percentage who take annual vacation time *3 Number who take the ASP (Advanced Skill-building Program) course 38 Appendix SDGs 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.
39 Appendix Example of Developing and Supporting an Industry Platform that Contributes to Achievement of SDGs (Initiative involving an example of industrial-academic partnership) In August 2016, The University of Tokyo established Hongo Tech Garage (a Daiwa Securities Group donation project). The goal of this project is to generate the seeds of start-up companies from the independent projects of students. Daiwa Securities Group is developing and supporting start-up companies and social innovators by support the project.
Example of supported project: teTra －Air mobility (flying car)－
teTra is a team of University of Tokyo graduate school students and working adults who participated in the Spring Founders Program* put on by Hongo Tech Garage in 2018. Hongo Tech Garage was the first to support pursuit of this project. They developed a personal flying device aimed at a society in which people move about safely and freely in the air. teTra aviation corp. was established in June 2018. https://www.tetra-aviation.com/ On February 29, 2020, teTra won the Pratt & Whitney Disruptor Award and a cash prize of $100,000 in the Final Fly Off competition, a global competition in personal flying devices and mobility, which is sponsored by Boeing. No other team met the qualifications, so teTra was the only team to receive that award. * The program supports technology projects and product development during spring break. Being selected results in being adopted as a supported project and being paid for the work site, materials and equipment, and other items during the activity funding period (¥30,000-¥300,000).
40 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 6 consecutive years METI & Tokyo Stock Exchange Inc.
MSCI Health & Productivity Stock/ Outstanding Company in Health & Japan Empowering Women (WIN) Productivity Management Select Index Selected for 6 consecutive years/ METI & Tokyo Stock Exchange Inc. GPIF selected indexes Selected for 4 consecutive years
Competitive IT Strategy Company METI & Tokyo Stock MSCI ESG Ratings Exchange Inc. Selected for 2 consecutive years
Upgraded from BBB to A （April, 2020） Kurumin Mark Certification for companies that GRESB Survey provide childcare support GRESB 2019 “Green Star” Ministry of Health, Obtained for Obtained for Labour & Welfare 8 consecutive years 2 consecutive years Mark for companies that promote the establishment of a workplace （Daiwa Office Investment Corp.）（Daiwa Rental Housing Investment Inc.） environment that enables employees to Ministry of both work and care for elders Health, Labour FTSE4 Good Index & Welfare
Included for 14 consecutive years Total ranking: 4th Employment popularity ranking S&P Dow Jones & Company, Inc. Financial industry: 2nd & SAM DJSI World / Asia Pacific Toyo Keizai Online, 2021 Graduates (1st half period) Continually included since 1999
41 Appendix Governance
Appointed all of the chairperson of the three committees to be outside directors for higher transparent and objective governance system.
Nominating Audit Compensation Committee Committee Committee Ratio of outside directors Ratio of outside directors Ratio of outside directors （5 out of 7） （4 out of 5） （3 out of 5）
71.4% 80.0% 60.0%
Management Structure Points of Corporate Governance
Shareholder’s Meeting Separating the supervisory and executive functions Nominating Committee Board of Directors • Adopted a company with Three Committees System 14members Audit Committee • Strengthen supervisory functions at the Board of （6 outside directors） Compensation Committee Directors from the appointment of outside directors with highly specialized skills, and better transparency in Outside Directors Council management from the establishment of three Group Risk Management Committee committees with outside directors a majority of their Group Compliance members and serving as chairpersons. Committee Executive Management Disclosure Committee Agile decision-making Committee 16members Group IT Strategy Committee • Better decision-making agility by having the Board of Directors assign significant authority to corporate Overseas Management Committee executive officers while clarifying the division of duties Representative Group Internal Audit Committee among corporate executive officers. Executive Officer
* The ratio of outside directors in each committee and the number of directors and executive officers are as of April 1, 2020. 42 Appendix Reference for Retail Division
AUM and Fees for Investment Trusts and Wrap Account Services (Daiwa Securities) Net Asset Inflow* (Daiwa Securities)
* Net asset inflow = net inflow of cash and securities Investment trust agency fee + (¥ Billions) (¥ Trillions) Investment advisory and account management fees (right) (¥ Billions)
Equity investment trust*1 AUM (left) Wrap account service contract AUM (left) Investment advisory and account management fees (right)
¥2.0 tn
Expansion of Foreign Currency Deposits (Daiwa Next Bank) Foreign Equity Trading Value (Daiwa Securities)
(¥ Billions) (¥ Billions)
*1 Includes wrap account service equity investment trust balance 43 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
44 Appendix Progress on Shift from Savings to Investments Since Abenomics Began
Household Financial Assets (Sept. 30, 2012 vs. Dec. 31, 2019) Transaction Factors (Asset Inflows/Outflows)
(¥（ T兆rilli円ons）) Stocks, 29.5 Insurance/ equ株式ity i等nterests I投資信nvestmen託t trusts C現⾦ash/D・ep預os⾦its Pensions 150 B債ond券s I保険nsuran・c年⾦e/Pens等ion Oそtheのrs他 100 (（兆¥ Trillio円）ns) 1,903 151.3 Cash/Deposits Total assets Net + ¥328.7 tn 50 inflow (+20.9%) Transaction 1,575 Investment trusts 1,600 factors 0 8.2 Insurance/ 528 + ¥150.9 tn Stocks/ Pensions (45.9%) -30.7 Equity interests Net + ¥46.3 tn Bonds (+9.6%) outflow -50 -7.1 482 26 Market Factors (Market Value Adjustment) Bonds 1,200 - ¥7.0 tn (-21.4%) Factor (¥（兆円 Trillions）) 33 Insurance/ analysis 16.7 Pensions 150 12.8 Investment trusts Cash/Deposits 800 + ¥151.1 tn 1,008 (+17.6%) (Cash: ¥96 trillion) Market factors 100 857 + ¥177.8 tn Stocks/ Equity interests (Cash: ¥69 trillion) (＋54.1%) 143.6 400 Investment trusts 50 + ¥21.0 tn Valuation (+39.7%) 74 Profit Stocks/equity 53 interests 211 0 99 + ¥113.0 tn 0 (+114.6%) 2012/9 2019/12
Source: Compiled by Daiwa Securities Group Inc. based on the Bank of Japan’s Flow of Funds Account 45 Investor Relations Office, Daiwa Securities Group Inc. TEL: 03-5555-1300 E-mail: [email protected] URL: http://www2.daiwa-grp.jp/english/ir/