This is a summary of a presentation for INVESTORS DAY. President & CEO, Nomura Holdings, Inc.

Transcription

1 INVESTORS DAY Nobuyuki Koga President & CEO Nomura Holdings, Inc. December 5, 2003 This is a summary of a presentation for INVESTORS DAY. Date: Place: Speaker: 5 December 2003 (Friday) 7 th floor Nomura Securities Co., Ltd. Nobuyuki Koga President & CEO, Nomura Holdings, Inc. This document is produced by Nomura Holdings, Inc. ("Nomura"). Copyright 2003 Nomura Holdings, Inc. All rights reserved. Nothing in this document shall be considered as an offer to sell or solicitation of an offer to buy any security, commodity or other instrument, including securities issued by Nomura or any affiliate thereof. Offers to sell, sales, solicitations to buy, or purchases of any securities issued by Nomura or any affiliate thereof may only be made or entered into pursuant to appropriate offering materials or a prospectus prepared and distributed according to the laws, regulations, rules and market practices of the jurisdictions in which such offers or sales may be made. No part of this document shall be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Nomura. This document contains statements that may constitute, and from time to time our management may make "forward-looking statements" within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of Any such statements must be read in the context of the offering materialspursuant to which any securities may be offered or sold in the United States. These forward-looking statements are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Important factors that could cause actual results to differ from those in specific forward-looking statements include, without limitation, economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, and the number and timing of transactions. The consolidated financial information in this document for the six months ended September 2003 is not subject to audit. 1

2 Outline of Presentation I II III IV Business Environment Review of Operating Results Business Strategy Group Vision Domestic Retail Asset Management Global Wholesale Corporate Governance This document is produced by Nomura Holdings, Inc. ("Nomura"). Copyright 2003 Nomura Holdings, Inc. All rights reserved. Nothing in this document shall be considered as an offer to sell or solicitation of an offer to buy any security, commodity or other instrument, including securities issued by Nomura or any affiliate thereof. Offers to sell, sales, solicitations to buy, or purchases of any securities issued by Nomura or any affiliate thereof may only be made or entered into pursuant to appropriate offering materials or a prospectus prepared and distributed according to the laws, regulations, rules and market practices of the jurisdictions in which such offers or sales may be made. No part of this document shall be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Nomura. This document contains statements that may constitute, and from time to time our management may make "forward-looking statements" within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of Any such statements must be read in the context of the offering materials pursuant to which any securities may be offer ed or sold in the United States. These forward-looking statements are not historical facts but instead represen t only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Important factors that could cause actual results to differ from those in specific forwardlooking statements include, without limitation, economic and mar ket conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, and the number and timing of transactions. The consolidated financial information in this document for the six months ended September 2003 is not subject to audit. 2 This presentation covers the business environment, our operating results, business strategy and corporate governance. 2

3 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Retail Asset Management Global Wholesale IV Corporate Governance 3 First, the business environment. On this topic, I will touch on the shift of individual financial assets to the capital markets, acceleration of corporate restructuring and macroeconomic changes. 3

4 Business Environment Macroeconomic Changes Shift of Individual Financial Assets Japan s Revival Acceleration of Corporate Restructuring I Business Environment 4 There has been no change to our view of the business environment, namely that the key to Japan s revival lies in the shift of individual financial assets to the capital markets and acceleration of corporate restructuring. We believe current macroeconomic changes in Japan are speeding up these two trends and will further consolidate Japan s revival. 4

5 Shift of Individual Financial Assets (1) Breakdown of Individual Financial Assets Total 1,385 trillion ( ) Investment 2% Trusts Japan Total US$ 32 trillion ( ) Mutual Funds 12% US Bonds 2% Equity 6% Bonds 8% Equity 32% Cash & Deposits 13% Insurance & Pensions 29% Cash & Deposits 57% Insurance & Pensions 30% Source: Bank of Japan, Flow of Funds Accounts data, FRB Flow of Funds Accounts of the United States I Business Environment 5 I will start by looking at the shift of individual financial assets. This slide compares asset mix of individual financial assets in Japan and the US. In Japan, 57% of these assets remained in bank accounts and postal savings deposits, and investments in securities such as stocks, bonds and investment trusts amounted to a mere 10% as of the end of June In the US by contrast, 13% of individual financial assets are held in cash and deposits and more than 50% invested in securities. However, we are beginning to see signs of Japan s individual financial assets moving into risk products. 5

6 Shift of Individual Financial Assets (2) (Trillions of yen) 5 Net Flow of Investment in Foreign Assets by Individuals* (Yen/US$) /US$ (RHS) 120/US$ months * Total net flow of foreign currency deposits and outward invest ment in securities Source: Nomura Research Institute using Bank of Japan, Flow of Funds Accounts data (FY) I Business Environment 6 This graph shows the net flow of investment in foreign assets by individuals. The net inflow of investment in foreign assets by individuals has increased since fiscal year 1999 and stood at approximately 4.6 trillion yen for fiscal year ended March In the first quarter there was an inflow of 900 billion yen. Over this period, the yen was not always weak relative to other currencies. This signifies a growing number of individuals are focusing on international interest rate spreads in search of returns even if they are taking currency risks. It can also be thought of as evidence that the idea of currency diversification is taking root among individual investors. 6

7 Shift of Individual Financial Assets (3) FY 2003 Tax Reforms Related to Stock Transactions Capital gains on listed stocks, etc Dividends of listed stocks, etc. 26% (A) Max 50% (C) Jan 2003 Jan % (B) 20% (B) Apr 2003 Apr % (D) 20% (D) Interest income from deposits Source: MOF (A): Withholding tax (1.05% of sale amount) or self-assessed taxation on separate income (26%) (B): Self-assessed taxation on separate income (Tax may be withheld at source with special accounts for stocks) (C): In principle, comprehensive income taxation (for small sums 20% withholding tax, no need for self-assessed taxation), dividend tax deducted (D): Withholding tax 20% (D) I Business Environment 7 Progress is also being made on the policy front. Under the FY 2003 tax reforms, capital gains tax and tax on dividends of listed stocks have been lowered to 10% for five years. This is considerably lower than the 20% tax on deposit interest. It is thought this will help support the shift of financial assets to the capital markets. 7

8 Acceleration of Corporate Restructuring (1) (%) Unwinding of Cross Shareholdings % Cross Shareholdings Ratio 25 21% % Individuals Shareholdings Ratio 18% 15% 10 Foreigners Shareholdings Ratio 5 0 5% (FY) Note: The cross shareholdings ratio is the proportion of shares in listed companies (excluding affiliates and subsidiaries) held by listed companies in relation to their market value Source: Nomura Securities Financial Research Center I Business Environment 8 Next, I will talk about acceleration of corporate restructuring. This graph depicts trends in the unwinding of cross shareholdings. As the red line shows, steady progress is being made in the unwinding of cross shareholdings aimed at improving the balance sheets of business corporations and banks. From the end of March 1991 to the end of March 2003, the cross shareholding ratio fell from 33% to 15%. Breakaway from traditional cross holding structures means results of company strategy will now be reflected directly in corporate value. This is because companies are being subjected directly to the scrutiny of capital efficiency-conscious investors. It is thought corporate activity aimed at improving capital efficiency via business alliances, acquisitions and other methods will gather pace going forward. 8

9 Acceleration of Corporate Restructuring (2) (No. of deals) 2,000 1,800 1,600 1,400 1,200 1, Group restructuring Strengthening existing business Entering new markets M&A Deals 9 months (CY) Note: Calculated on a calendar year basis excluding financials Source: Compiled by Nomura Securities Financial Research Center using data collated from newspapers and periodicals I Business Environment 9 One way this could happen is through M&A deals, which continue to rise. As you can see from the breakdown, the majority of deals are related to core business, such as group restructuring and strengthening existing business, as shown in blue and green in the bar graph. This indicates an increasingly active trend of trying to raise profitability by withdrawing from unprofitable side businesses through group restructuring to concentrate on the company s main business. 9

10 Acceleration of Corporate Restructuring (3) (No. of deals) 1, Rehabilitation-type Bankruptcy Procedures* Civil Reorganization Law** Composition Law Corporate Rehabilitation Law 9 months (CY) * Source: Teikoku Databank, Ltd., Bankruptcy Reports ** Civil Reorganization Law was enacted in April 2000 I Business Environment 10 This slide illustrates the change in the number of reconstruction-type bankruptcy procedures, such as the Corporate Rehabilitation Law and Civil Reorganization Law. Evident from the slide is the growing and vibrant trend by companies to reorganize their businesses through civil reorganization procedures. This trend was brought about by the enactment of the Civil Reorganization Law in April 2000 and signifies an increase in the number of companies reviving their business at an earlier stage due to improvements in legal infrastructure. 10

11 Macroeconomic Changes (1) (%) Real GDP Japan US UK Germany (CY) Source: Nomura Research Institute I Business Environment 11 I will now touch on macroeconomic changes. This graph shows real GDP, which has grown for seven straight quarters as shown by the red line since the Japanese economy returned to positive growth last year. 11

12 Macroeconomic Changes (2) World Economic Outlook Sept Forecast Units: % Change from Apr Forecast World Japan US UK Germany Source: IMF World Economic Outlook (Sept 2003) I Business Environment 12 In the IMF s World Economic Outlook, announced in September this year, Japan s economic growth forecasts for 2003 and 2004 were revised upwards 1.2% and 0.4% respectively from April s forecast. Japan s economic recovery is becoming increasingly certain as we go forward. 12

13 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Retail Asset Management Global Wholesale IV Corporate Governance 13 Moving on, I will now review our operating results for the first half and then discuss our business strategy. 13

14 Financial Results (Billions of yen) 180 Historical Performance (%) ROE (RHS) Income before income taxes (LHS) Net income (LHS) * FY02.3 (1/2) FY03.3 (1/2) FY04.3 1H Note: Includes cumulative effect of accounting change II Review of Operating Results 14 Income before income taxes for the first half, fiscal year ending March 2004 was billion yen, net income was 86.7 billion yen and ROE was 10.4%. 14

15 Income before Income Taxes by Segment (Billions of yen) 95 FY02.3 (1/2) FY03.3 (1/2) FY04.3 1H Total Income before Income Taxes for 3 Business Segments FY02.3 (1/2) FY03.3 (1/2) FY04.3 1H Domestic Retail Global Wholesale Asset Management II Review of Operating Results 15 As a result of growing client assets and contributions from foreign currency bond distribution, income before income taxes in Domestic Retail at 39.4 billion yen already exceeds last year s full year total. Fixed Income activities have focused on foreign currency bond distribution and trading opportunities resulting from the rise in domestic interest rates. Equity, on the other hand, has looked to capitalize on market improvements. Both these areas have helped drive income before income taxes in Global Wholesale to 95.4 billion yen, already higher than last year s figure for the full year. 15

16 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Retail Asset Management Global Wholesale IV Corporate Governance 16 I will now discuss our business strategy. 16

17 Group Vision Globally Competitive Japanese Financial Services Group Maintain an Average Consolidated ROE of 10-15% over the Medium to Long Term III Business Strategy 17 Our Group vision is to become a globally competitive Japanese financial services group and maintain an average consolidated ROE of 10-15% over the medium to long term. 17

18 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Domestic Retail Retail Asset Management Global Wholesale IV Corporate Governance 18 I will now explain how we intend to achieve this goal by discussing our divisional business strategies. First, Domestic Retail. 18

19 Goals & Strategy Goals Encourage the shift of individual financial assets concentrated in cash and deposits into risk assets Broaden customer base Strategy Further develop Core Value Formation Strategy III Business Strategy Domestic Retail 19 Domestic Retail s goal is to concentrate its resources to broaden its customer base by promoting a shift of individual financial assets from cash and deposits into risk assets. To this end, Domestic Retail will further develop its Core Value Formation strategy, which it started implementing last September. 19

20 Shift of Individual Financial Assets into Risk Assets (1) (Trillions of yen) 6 5 Foreign Currency Denominated Client Assets at Nomura* Up 95% 5.1 tril yen tril yen FY01.3 FY02.3 FY03.3 FY04.3 * Foreign currency denominated assets = foreign currency bond assets + foreign investment trust assets + foreign stock assets III Business Strategy Domestic Retail 20 We have been working in several ways to help encourage this shift of assets. This chart shows foreign currency denominated client assets at Nomura, which represent the total of foreign currency bonds, foreign investment trusts and foreign stocks. At the end of September, such assets totaled 5.1 trillion yen, an increase of 95% over the past two years. This is the result of offering a diverse product lineup as well as tailoring our services to meet customers core values. 20

21 Shift of Individual Financial Assets into Risk Assets (2) (Billions of yen) % Distribution of JGBs for Individual Investors Issue amount Amount distributed by post offices Nomura s share Amount distributed by Nomura % % 18% 15% 0 March 1 st Issue April 2 nd Issue July 3 rd Issue September 4 th Issue III Business Strategy Domestic Retail 21 This chart shows distribution of JGBs for individual investors. The overall issue amount for the 4 th issue was billion yen, three times larger than the 3 rd issue due to a rise in yen interest rates. Our market share more than doubled from 15% to 37%. The reason why customers chose Nomura over numerous competitors is because Nomura was quick off the mark to inform its customers of this product s characteristics. 21

22 Broadening Customer Base (1) (Thousands of accounts) 1,400 1,300 Increase in Equity Holding Accounts Nikkei Stock Average (RHS) No. of Equity Holdings Accounts (LHS) 1.32 million accounts at end of Sept 03 (of which, 53% are special accounts for stocks) (Yen) 20,000 18,000 16,000 1,200 14,000 12,000 1,100 10,000 8,000 1,000 6, ,000 2, FY01.3 FY02.3 FY03.3 FY III Business Strategy Domestic Retail 22 I will now touch on how we are working to broaden our customer base. This slide shows the increase in equity holding accounts. Even during times of stock market price decline, Nomura has worked to expand its customer base by increasing its equity holding accounts. We have also been working to expand our customer base by providing more userfriendly services, such as special accounts for stocks, which were introduced last October. These accounts now represent 53% of equity holding accounts. 22

23 Broadening Customer Base (2) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% IT Share* IT share (LHS) Online trading accounts (RHS) (Thousands of accounts) million accounts 1,400 (Sept 03) 1,200 1,000 FY04.3 2Q 46% % FY00.3 FY01.3 FY02.3 FY03.3 FY * Number of transactions (excluding cumulative stock and mini stock investments) III Business Strategy Domestic Retail 23 This graph shows our online trading accounts on the right-hand scale and on the left-hand scale our IT share, the number of online stock transactions as a percentage of total stock transactions. In accordance with the increase in online trading accounts our IT share has risen to 46% and online orders now account for nearly half our total orders. This is the result of improving our level of contact with customers through our online channel. 23

24 Broadening Customer Base (3) (Trillions of yen) 30 Client Assets (Domestic Retail Division, excluding financials) Others Investment trusts Equities Domestic bonds Foreign bonds Nikkei Stock Average (RHS) 32.1 tril yen (Jun 2000) 31.3 tril yen (Sept 2003) (Yen) 25,000 20,000 15, , ,000 0 FY98.3 FY99.3 FY00.3 FY01.3 FY02.3 FY03.3 FY04.3 III Business Strategy Domestic Retail 0 24 This graph depicts client assets in our domestic retail division, excluding financials, from fiscal year ended March By attracting customers financial assets via a variety of products we were greatly successful in limiting a fall in these assets due to a stock market decline that lasted until April, and we have been increasing these assets since the start of the second half of this fiscal year. The Nikkei Stock Average is still only half the level it was compared to its peak during the IT bubble in 2000, but clients assets are recovering to levels reminiscent of that period. 24

25 Broadening Customer Base (4) Client Assets (Domestic Retail Division, including financials) (Trillions of yen) Nikkei Stock Average (RHS) 37.2 tril yen (Sept 89) 36.6 tril yen (Sept 03) (Yen) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, (FY) (end of Sept) III Business Strategy Domestic Retail 25 The trend is more noticeable when observed over a longer time horizon. This graph shows total client assets in our Domestic Retail division since The Nikkei Stock Average is less than a third of its peak, but total client assets as of the end of September were close to their previous highest level. 25

26 Broadening Customer Base (5) Nomura Asset Management Fair Largest event of its kind in Japan for individual investors Various seminars held, ranging from the basics of investment consultation to application IR booths set up so individual investors and corporate representatives can interact with each other Lifelong Learning Securities education in the local community Conduct lifelong learning programs by dispatching lecturers to centers, etc. In FY 2003, Nomura is due to hold lifelong learning programs at 70 locations nationwide University Sponsored Lectures Lectures held at more than 110 universities nationwide each year since 2001 Nomura Group organizes lectures by over 400 of its directors and managers Such efforts represent a long-term approach to contributing to the sound development of Japan s securities markets III Business Strategy Domestic Retail 26 Nomura is also working to broaden its customer base over the medium to long term by contributing to increasing the appeal of the securities markets to the public through investment education. More specifically, we held the Nomura Asset Management Fair, our main event and the largest event of its kind in Japan for individual investors. At the Fair, various seminars were held with topics ranging from the basics of investment consultation through to practical application. In terms of securities education in the local community, Nomura conducts lifelong learning programs, for example this year we plan to dispatch lecturers to more than 70 locations nationwide. Nomura also holds lectures at more than 110 universities across the country and more than 20,000 students attend annually. 26

27 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Retail Asset Asset Management Global Wholesale IV Corporate Governance 27 Now let s move on to Asset Management. 27

28 Goals & Strategy Goals Strengthen asset management business Enhance defined contribution pension plan business Strategy Improve performance and overall added-value, expand distribution channels, improve revenue yield and cost control Expand pension administration share and increase the number of companies to which we supply products III Business Strategy Asset Management 28 Our goal in this division is to strengthen our asset management business and enhance our defined contribution pension plan business. Our concrete strategy to enhance our asset management business comprises five points: to improve performance and overall added value, expand distribution channels, improve revenue yield and cost control. This is how we intend to grow our assets under management. Our strategy to enhance our defined contribution pension plan business consists of expanding our pension administration share and increasing the number of companies to which we supply products. 28

29 Strengthening Asset Management Business (1) NAM Share (Sept 03) Bond Investment Trust Share No. 1 41% (Trillions of yen) Assets Under Management (NAM) Others Investment advisory Bond investment trusts Stock investment trusts Stock Investment Trust Share No. 1 21% tril yen 66% ETF share 0 FY 02.3 FY 03.3 FY 04.3 III Business Strategy Asset Management 29 This slide shows Nomura Asset Management s market share of bond and stock investment trusts as well as its assets under management. NAM continues to maintain the top share in both these markets. The business climate for asset management is still harsh, but we believe the worst has passed. Evidence of this can be seen in the growth of NAM s assets under management, which we are working to increase by strengthening our asset management business. 29

30 Strengthening Asset Management Business (2) Increase Number of Analysts to Expand Coverage No. of Analysts Mar 2003 Sept Stocks Covered Japanese Stocks Overseas Stocks % +44% III Business Strategy Asset Management 30 In terms of improving performance, we have increased the number of our analysts from 44 to 62 to enhance NAM s research capabilities. NAM now covers 740 Japanese stocks and 360 overseas stocks, an increase of 23% and 44% respectively since March. 30

31 Strengthening Asset Management Business (3) Establish Product Committee Product Committee Examine New Products Review Existing Funds Unit type Unit type Open type Open type Open type Attractive Dividends Blue Chip Fund 2 (Established in April at 25.4 bil yen) Really Excellent Stock Fund (Established in August at 39.7 bil yen) Nomura Australian Bond Fund (Established in Sept, NAV as of 26 Nov = 45.6 bil yen) Nomura Real Growth Open (Established in Oct, NAV as of 26 Nov = 37.3 bil yen) World Genome Technology Open (Established in Nov, NAV as of 26 Nov = 61.7 bil yen) III Business Strategy Asset Management 31 We are also working to boost our product planning function. To this end, we established the Product Committee and have created a structure capable of focusing on product evaluation across the board, including examining new products and reviewing existing funds. Our new investment trusts, which were designed precisely to meet customers needs and respond to the changing market environment, have met with robust demand and include the Attractive Dividend Blue Chip Fund 2, Really Excellent Stock Fund, Nomura Australia Bond Fund, Nomura Real Growth Open and World Genome Technology Open. 31

32 Enhancing Defined Contribution Pension Plan Business (1) (US$ billions) US Pension Plan Assets Defined benefit pension (LHS) Defined contribution pension (LHS) S&P500 (RHS) (Thousands) No. of Employees at Pension Administrators Industry total Nomura Source: From , US Department of Labor (PWBA) statistics; from , FRB, flow of funds accounts. Data compiled by Nomura Research Institute H H H H Source: Nomura DC Planning III Business Strategy Asset Management 32 Next, enhancing our defined contribution pension plan business. In this slide, the chart on the left shows US pension plan assets. In the US, defined contribution pension plans became truly popular in the 80s and pension assets of this type have grown 12 fold over the past 20 years. We may not see such rapid growth in Japan because the increase in the US was partly due to a surge in the US stock market. However, we believe this type of pension plan will become an important business over the medium to long term because pension assets are expected to continue to rise. As you can see from the chart on the right, the number of employees at companies that have implemented this system has already reached 660,000 since it was first introduced at the end of

33 Enhancing Defined Contribution Pension Plan Business (2) Number of Employees at Pension Administrators (end of Sept. 2003) Nomura DC Planning Co., Ltd.* (Nomura Group) Nippon Life Insurance Company Defined Contribution Plan Consulting of Japan Co., Ltd. (Mitsubishi Tokyo Financial Group) Japan Pension Navigator Co., Ltd. (Mitsui Sumitomo Financial Group) No. of employees 186,000 28% share Defined Contribution Plan Services Co., Ltd. (Mizuho Financial Group, Inc.) Mitsui Asset Trust and Banking Co., Ltd. (Mitsui Trust Financial Group) Others Note: Companies whose contracts were approved at end of September Source: Nomura DC Planning Co., Ltd. (Thousands) *On January 5, 2004, Nomura DC Planning Co., Ltd. will merge wit h The Nomura Fundnet Securities Co., Ltd. (which will change its name to Nomura Pension Support & Service Co., Ltd. on December ) and Nomura Human Capital Solutions Co., Ltd. to form Nomura Pension Support & Service Co., Ltd. III Business Strategy Asset Management 33 This slide compares the number of employees at pension administrators in Japan. Nomura has worked continually to capture business since the system s introduction and has a pension administration share of 28%. In January 2004, Nomura DC Planning Co., Ltd. will merge with The Nomura FundnetSecurities Co., Ltd. and Nomura Human Capital Solutions Co., Ltd. to form Nomura Pension Support & Service Co., Ltd. Through this we aim to build a structure more capable of eliciting Nomura Group s collective strengths and responding more rapidly and flexibly to customers increasingly diversified and sophisticated needs. 33

34 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Retail Asset Management Global Global Wholesale Wholesale IV Corporate Governance 34 Now, let s discuss Global Wholesale. 34

35 Goals & Strategy Goals Establish a globally competitive wholesale business division Strategy Promote Japan-focused globalization Capitalize on collective strengths of Domestic Retail and Global Wholesale III Business Strategy Global Wholesale 35 Global Wholesale s goal is to establish a globally competitive wholesale business division. The strategy to this end involves promoting Japan-focused globalization and capitalizing on the collective strengths of Domestic Retail and Global Wholesale. 35

36 Changes to the Business Environment Macroeconomic Changes and their Effect on Nomura s Business Improved Business Confidence Cash needs Business acquisitions Stock Market Recovery Change in the Yen Interest Rate Level Unwinding of cross shareholdings Equity finance Demand for yen denominated bonds Greater issuance of CBs III Business Strategy Global Wholesale 36 The business environment for Global Wholesale is thought to be experiencing a paradigm shift. For example, improved business confidence means an increase in positive business investment as well as greater cash needs and business acquisitions. Also, stock market recovery will bring about further unwinding of cross shareholdings and an increase in equity finance. A change in the level of the yen interest rate is expected to bring about greater demand for yen denominated bonds by investors and an increase in convertible bond issues aimed at reducing interest payments. 36

37 Establishing a Globally Competitive Wholesale Business Division (1) Equity Secondary Offerings Daiwa House Industry Co., Ltd. Matsushita Electric Works, Ltd. Ajinomoto Co., Inc. Sharp Corp. Active Block Trading Asset Finance J-REIT TOKYU REIT Securitization The Dai-ichi Mutual Life Insurance Company Akihabara office building development Global Equity and Equity-Related League Table ( ) Domestic and international equity and equity-related issues by Japan domiciled issuers. Rank Bookrunners Mkt. No. of Share (%) Issues Goldman Sachs & Co Merrill Lynch & Co Inc Mitsubishi Tokyo Fin l Group 3.3 Mizuho Financial Group Morgan Stanley Finance Nikko Citigroup Ltd Daiwa Securities SMBC UBS Credit Suisse First Boston Source: Thomson Financial III Business Strategy Global Wholesale 37 This slide gives you an idea of some our achievements towards establishing a globally competitive wholesale business division. In equity secondary offerings, which mainly target individual investors, we have concluded deals with Matsushita Electric Works, Ajinomoto and Sharp among others. In asset finance, we have put together some large deals, including for TOKYU REIT, Dai-ichi Mutual Life Insurance the first securitization in Japan of a subordinated loan issued by a life insurance company, and the securitization of anoffice building in Akihabara. In the global equity and equity-related league table, Nomura continues to maintain top position in terms of market share and number of issues. 37

38 Establishing a Globally Competitive Wholesale Business Division (2) Cross Border M&A Bosch Automotive Systems = Toyoda Machine Works KS Biomedix = Xenova Group plc Rank 1 2 M&A League Table ( ) (Announced Mergers & Acquisitions; Any Japanese Involvement) Citigroup Advisor Merrill Lynch & Co Inc Mkt. No. of Share (%) Deals Ricoh = Asia Optical Co., Ltd. 3 4 Deutsche Bank AG 26.5 Mizuho Financial Group TA Triumph-Adler AG = Kyocera Mita 5 Mitsubishi Tokyo Fin l Group Nomura = advisor 6 7 Lehman Brothers UFJ Holdings Inc Goldman Sachs & Co Daiwa Securities SMBC Source: Thomson Financial III Business Strategy Global Wholesale 38 In cross border M&A business involving business turnaround and corporate revival, Nomura s advisory business has become steadily more competitive. For example, in addition to deals with Japanese and overseas companies we won the mandate for a deal between two overseas companies where Xenova acquired KS Biomedix. In the league table Announced Mergers & Acquisitions; Any Japanese Involvement, Nomura ranked ninth in terms of market share, but won the most number of mandates with 80 deals. 38

39 Establishing a Globally Competitive Wholesale Business Division (3) Nomura Principal Finance 8 deals (as of end of Sept 2003) 2 exits New deals Toshiba Tungaloy HuisTen Bosch (granted first refusal right to newly issued shares) (Billions of yen) Merchant Banking Exposure NPF Terra Firma III Business Strategy Global Wholesale 39 In principal finance business, Nomura Principal Finance, which was set up in 2000, has so far made eight investments and exited from two of them. We are now beginning to experience a positive turnaround cycle from the time of investment to exit. In terms of new investments, NPF has made a tender offer to acquire all remaining shares issued by Toshiba Tungaloy, and was granted the first refusal right to newly issued shares of Huis Ten Bosch. 39

40 Capitalizing on Collective Strengths of Domestic Retail and Global Wholesale (Billions of yen) 1,400 Distribution of Foreign Currency Bonds to Individuals Large -scale Foreign Currency Bonds 1,200 IFC 1 billion (Apr) 1,000 Republic of Italy US$1.25 billion (Apr) 800 Republic of Austria 5 billion (May) EIB 5 billion (Jun) US$ 1 billion (Oct) Rentenbank US$ 1billion (Aug) KfW US$ 3 billion (Sept) 0 FY02.3 1H FY02.3 2H FY03.3 1H FY03.3 2H FY04.3 1H III Business Strategy Global Wholesale 40 Capitalizing on the collective strengths of retail and wholesale is part of Global Wholesale s strategy. The chart on the left shows distribution of foreign currency bonds to individuals. Distribution in the first half was up 48% year on year to 1.38 trillion yen. Given our impressive track record, we have been winning mandates as the lead manager of largescale foreign currency bonds, including a dollar bond for the Republic of Italy, a eurobond for the Republic of Austria and a eurobond for the EIB. 40

41 I Business Environment Shift of Individual Financial Assets Acceleration of Corporate Restructuring Macroeconomic Changes II Review of Operating Results III Business Strategy Group Vision Domestic Retail Asset Management Global Wholesale IV Corporate Governance 41 Lastly, I would now like to turn my attention to corporate governance. 41

42 Committee System General Meeting of of Shareholders Board of of Directors Nomination Committee Audit Committee President & CEO Compensation Committee Purpose To separate management and oversight functions To increase management transparency To enhance the effectiveness of internal control systems IV Corporate Governance 42 Following changes to our articles of incorporation made at the general meeting of shareholders this June, Nomura adopted the Committee System. The purpose of adopting the Committee System was to separate management and oversight functions, increase management transparency and enhance the effectiveness of internal control systems. By moving to this system the traditional twin roles of the director to execute and oversee business have been separated. Many of the powers to execute business have been delegated to executive officers and as a result NHI will be able to make quicker management decisions on a consolidated basis. Establishing three committees, the Nomination Committee, Audit Committee and Compensation Committee, each of which is made up of a majority of outside directors, has enabled us to further improve management transparency. To enhance the effectiveness of internal control systems, directors well versed in the business and organization of Nomura Group will supplement the audit functions of the Audit Committee. 42

43 Nomura Holdings Management Structure (1) Board of Directors General Meeting of of Shareholders Board of of Directors President & CEO Directors Chairman Director Director Director Director (Audit Mission Director) Director (Audit Mission Director) Director (Outside) Director (Outside) Director (Outside) Director Director (Outside) Name Junichi Ujiie: Senior Managing Director Nobuyuki Koga: President & CEO (Representative Executive Officer) Hiroshi Toda: Deputy President & COO (Representative Executive Officer) Kazutoshi Inano: Deputy President & Co-COO (Representative Executive Officer) Takashi Fujita Shozo Kumano MasaharuShibata (Chairman & CEO, NGK Insulators, Ltd.) Hideaki Kubori (Founding Partner of Hibiya Park Law Offices) Haruo Tsuji (corporate advisor, Sharp Corp.) Fumihide Nomura Koji Tajika (CPA) Chairman of the Board of Directors IV Corporate Governance 43 I will now talk about Nomura Holdings management structure. First the board of directors. There are 11 members of the board, four of whom are outside directors, and Dr. Ujiie chairs the Board. By separating the roles of chairman and CEO we have created an effective management oversight structure. 43

44 Nomura Holdings Management Structure (2) Three Committees General Meeting of of Shareholders Board of of Directors President & CEO Nomination Committee Junichi Ujiie Masaharu Shibata Hideaki Kubori Audit Committee Haruo Tsuji Fumihide Nomura Koji Tajika Compensation Committee Junichi Ujiie Masaharu Shibata Hideaki Kubori Three Directors (including two outside directors) Determine the particulars of a proposal concerning the election and dismissal of directors to be submitted to a general meeting of the shareholders Three Directors (including two outside directors) Established Audit Mission Directors Determine oversight of directors and senior managing directors and particulars of proposals concerning election and dismissal of the independent auditor to be submitted to a general meeting of shareholders Three Directors (including two outside directors) Establish policy with respect to and determine the individual compensation of each director and executive officer Chairman IV Corporate Governance 44 The Nomination Committee, Audit Committee and Compensation Committee are chaired by non-ceo directors. In particular, an outside director chairs the Audit Committee. We are working on ways to enhance this structure and improve its effectiveness, for example by establishing Audit Mission Directors, which are unique to Nomura, to support outside directors with their audits. Audit Mission Directors act as non-executive directors to supplement the audit functions of the audit committee. All members of the Audit Committee are independent directors under the Sarbanes-Oxley Act. 44

45 Nomura Holdings Management Structure (3) Business Decision Making Structure General Meeting of of Shareholders Nomination Committee Board of of Directors Audit Committee Compensation Committee President & CEO Advisory Board Gives advice and makes recommendations to the Executive Management Board Made up of top managers of representative global Japanese companies Board Board of of Executive Officers Executive Management Board Board Internal Controls Committee Consists of 27 executive officers Deliberates and decides upon business plans and budgets, and allocation of management resources for the whole Nomura Group twice a year Consists of 10 executive officers Deliberates and decides upon important matters (strategy, basic policies) concerning the Nomura Group Consists of four executive officers and two directors Manages Nomura Group s internal control systems and deliberates upon the appropriateness of each subsidiary s activities IV Corporate Governance 45 I will now touch on our business decision-making structure. The Board of Executive Officers deliberates and decides on business plans and budgets, and allocation of management resources for the whole Nomura Group. It meets twice a year to approve business plans and for a semi-annual review. The Executive Management Board consists of 10 executive officers and deliberates and decides upon important management matters concerning the Nomura Group. Also, it decides management strategies and necessary basic policies to execute the business plans and operations of each business division. In principle, the Board meets once a week to discuss and make decisions on important matters delegated to executive officers by the board of directors. We have also set up and Advisory Board as a consultative body to the Executive Management Board. The Advisory Board is made up of top managers of representative global Japanese companies and provides advice from the advantage of external perspective. Finally, I will say a few words on the Internal Controls Committee. This committee deliberates on matters relating to Nomura Group s internal control systems and reports are submitted by the Internal Audit Department. As CEO, I chair these three decision-making bodies. Nomura will strive to consistently grow shareholders equity under this enhanced management structure. 45

46 Nomura Holdings, Inc