Daiwa Securities Group 4Q Earnings Announcement April 27, 218 This presentation may contain forward-looking statements about the Daiwa Securities Group. You can identify these statements by the fact that they do not relate strictly to historic or current facts. These statements discuss future expectations, identify strategies, contain projections of results of operations or of financial condition or state other forward-looking information. These statements are based on currently available information and represent the beliefs of the management of the Daiwa Securities Group. These statements are subject to numerous risks and uncertainties that could cause the Daiwa Securities Group s actual results, performance, achievements or financial condition to differ materially from those described or implied in the forward-looking statements. The Daiwa Securities Group undertakes no obligation to publicly update any forward-looking statements after the date of this presentation. These potential risks and uncertainties include, but are not limited to: competition within the financial services industries in Japan and overseas, our ability to adjust our business focus and to maintain profitable strategic alliances, volatile and sudden movements in the international securities markets, foreign exchange and global economic situations affecting the Daiwa Securities Group.
Table of Contents Highlights 3-4 Financial Summary 5-7 B/S & Financial Management Summary 8-9 P/L Summary 1 Breakdown of SG&A 11-12 Overseas Operation 13 Segment Information 14-21 Reference 22-35 2
Highlights (1Q-4Q/) Net operating revenues, Ordinary income and Profit attributable to owners of parent increased YoY all together for the first time in 4 years. Consolidated earnings results Net operating revenues Ordinary income Profit attributable to owners of parent 1Q-4Q Y55.3 bil Y155.6 bil Y11.5 bil +6.9% +14.8% +6.3% Retail Division Equity revenues rose as trading volume of foreign equities significantly increased by capturing customer needs under a new sales promotion strategy with more emphasis on customers perspective. Contract AUM of Wrap Account Service reached a record high (Y1,971.3 bil) by expanding product line up and aftersales care. Sales of stock investment trust investing in IoT, robot and electronic vehicle related stocks remained strong. Wholesale Division Acted as a global coordinator for several large deals including JAPAN POST HOLDINGS 2nd PO and global IPO of SG Holdings Co., Ltd.. Retained1 st place on primary and secondary equity offerings league table and municipal bonds league table. IPO and straight bonds climbed the league table (2 nd place). For M&A business, Sagent and Signal Hill, acquired M&A advisory firms in the U.S., integrated to launch DCS Advisory, establishing a strong global network to retain cross-border and global M&A business. dividend per share: 28yen (interim: 13yen, year-end: 15yen) Annual dividend payout ratio: 41.9%. Total payout ratio: 75.2%. Amendment to dividend payment policy with regard to dividend payout ratio: from approximately 4% to at least 5%, which will take effect from interim dividend for 218. 3
Summary (4Q/) 4Q Net operating revenues: Y13.8 bil (-3.% QoQ) Revenues in Retail Division decreased mainly due to a drop in stock investment trust sales during correction phase since February. For Wholesale Division, Equity in Global Markets and M&A business in Global Investment Banking contributed to increase in revenues. 4Q Ordinary income: Y43.4 bil (+.6% QoQ) SG&A rose to Y97.5 bil (+3.% QoQ) as personnel expenses increased. Ordinary income remained at a high level due to a profit from replacement of properties in Daiwa Office Investment Corp. 4Q Profit attributable to owners of parent company: Y36.5 bil (+61.2% QoQ) Profit attributable to owners of parent significantly increased QoQ which posted provision for loss on litigation. Annualized ROE: 11.5%, BPS: Y786.56 18 Net Operating Revenues 6 Ordinary Income 6 Profit Attributable to Owners of Parent Company 12 6 111.7 114. 115. 121.9 121.6 18.5 13.9 134.9 13.8 3 28.6 32.5 33.2 35.4 34.3 25.1 43.8 43.2 43.4 3 21.3 24.5 3.4 26.6 22.3 19.3 31.9 22.6 36.5 215 215 215 4
Consolidated Financial Summary (Y mil) 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 Operating revenues 166,322 159,652 176,611 19,875 185,461-2.8% 11.5% 616,497 712,61 15.6% Net operating revenues 121,618 18,543 13,923 134,997 13,886-3.% 7.6% 472,75 55,35 6.9% SG&A 91,58 87,121 9,924 94,725 97,52 3.% 6.6% 353,687 37,292 4.7% Ordinary income 34,394 25,153 43,829 43,216 43,477.6% 26.4% 135,623 155,676 14.8% Profit (loss) attributable to owners of parent 22,358 19,395 31,95 22,697 36,581 61.2% 63.6% 14,67 11,579 6.3% Total assets 19,827,296 19,815,83 2,381,38 21,925,865 21,141,743 19,827,296 21,141,743 Net assets 1,343,433 1,34,13 1,385,594 1,375,632 1,37,52 1,343,433 1,37,52 Shareholders' equity* 1,25,89 1,248,272 1,288,915 1,278,643 1,273,133 1,25,89 1,273,133 EPS (Y) 13.26 11.63 19.12 13.73 22.53 61.53 66.88 BPS (Y) 745.8 748.15 772.32 78.71 786.56 745.8 786.56 ROE (Annualized) 7.1% 6.2% 1.1% 7.1% 11.5% 8.4% 8.8% * Shareholders equity = Owners equity + Accumulated other comprehensive income Proposed Dividend 28 yen (including 13 yen interim dividend) 5
Consolidated (Y mil) Segment Summary Net operating revenues 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 Retail Wholesale 49,654 48,833 51,269 59,57 54,573-8.4% 9.9% 188,51 214,247 13.9% 47,113 35,28 43,51 45,726 47,135 3.1%.% 182,875 171,192-6.4% Global Markets 33,645 27,356 3,9 32,633 33,616 3.% -.1% 142,859 123,697-13.4% Global Investment Banking 13,468 7,923 12,96 13,92 13,518 3.3%.4% 4,15 47,495 18.7% Asset Management Investments Other/Adjustments Consolidated total 11,798 12,11 12,141 12,65 12,587 -.5% 6.7% 46,438 49,39 6.4% 2,484 1,81 13,914 6,326 5,359-15.3% 115.7% 15,736 27,41 74.1% 1,567 1,618 1,547 1,722 11,23 - - 39,647 43,118-121,618 18,543 13,923 134,997 13,886-3.% 7.6% 472,75 55,35 6.9% Ordinary income 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 Retail Wholesale 8,7 1,391 1,626 18,2 12,312-31.6% 41.5% 29,375 51,331 74.7% 16,429 6,438 12,892 12,789 13,252 3.6% -19.3% 65,437 45,373-3.7% Global Markets 1,759 5,364 7,877 9,817 11,228 14.4% 4.4% 53,595 34,288-36.% Global Investment Banking 5,67 748 4,85 2,794 1,76-37.% -68.6% 11,369 1,19-11.1% Asset Management Investments Other/Adjustments Consolidated total 6,627 7,2 7,137 7,489 7,292-2.6% 1.% 26,572 29,119 9.6% 1,553 1,417 13,175 5,529 4,377-2.8% 181.8% 13,41 24,499 87.9% 1,84-294 -2-594 6,243 - - 1,196 5,353-34,394 25,153 43,829 43,216 43,477.6% 26.4% 135,623 155,676 14.8% Figures calculated based on managerial accounting of each Group companies. Equity in earnings of affiliates is included in each respective segment. 6
Consolidated Segment Summary Net operating revenues Ordinary income Retail Division Wholesale Division Global Markets (Net operating revenues) 59.5 Global Investment Banking (Net operating revenues) 54.5 51.2 45.9 46.4 47.1 49.6 49.6 48.8 45.7 43.7 43.4 43. 44.3 45. 43.7 35.2 47.1 5.3 6.5 4.5 9.5 8.7 1.3 1.6 18. 12.3 GM 12.8 14.8 17.2 16.9 16.4 6.4 12.8 12.7 13.2 215 GIB 215 Asset Management Division Investment Division 13.9 11. 11.6 11.4 11.5 11.7 12. 12.1 12.6 12.5 4.9 5.7 13.1 6.3 5.3 1.1 2.5 2.4 1.8 5.9 6.7 6.6 6.5 6.6 7.2 7.1 7.4 7.2 4.6.5 4.9 5.5 1.8 1.5 1.4 4.3 215 215 7
Consolidated B/S Summary Consolidated Balance Sheet (Mar. 31, 218) ( Y bil) Current assets 2,487 (1,228) Current liabilities 17,36 (1,28) Cash and deposits 3,694 (-134) Trading products 5,3 (372) Short-term investment securities 987 (-754) Trading securities and other 2,83 (568) Trading products 6,667 (12) Stocks, convertible bonds 292 (39) Trading securities and other 4,17 (317) Bonds 2,47 (49) Stocks, Convertible bonds 37 (9) CD/CP and others 13 (12) Bonds 3,177 (613) Derivatives 2,2 (-196) Beneficiary certificates 254 (77) Loans payable secured by securities 5,775 (-242) CD/CP and others 367 (-382) Deposits for banking business 3,388 (42) Derivatives 2,496 (-196) Short-term loans payable 1,91 (172) Operational investment securities 114 () Current portion of bonds 261 (-16) (after allowance for possible investment losses) Daiwa PI Partners + Daiwa Securities SMBC PI 15 (-1) Daiwa Corporate Investment 1 (2) Loans secured by securities 6,496 (1,191) Non-current assets 654 (85) Non-current liabilities 2,731 (259) Property, plant and equipment 124 () Bonds payable 1,315 (96) Intangible assets 15 (15) Long-term loans payable 1,327 (148) Investments and other assets 424 (71) Total liabilities 19,771 (1,287) Listed stocks 158 (12) Net assets 1,37 (27) Unlisted stocks 16 () Owners' equity 1,29 (25) Affliated companies stocks, etc. 151 (22) Accumulated other comprehensiv e income 63 (-3) Other 97 (37) Non-controlling interests 88 (4) Total assets: Net assets: Shareholders equity**: Y21.14 tri Y1.37 tri Y1.27 tri 84.4% of total assets have high liquidity*. * Cash and deposits + Short-term investment securities + Trading products + Loans secured by securities Shareholders equity** increased by Y22.2 bil from March 31, 217. ** Shareholders equity = Owners equity + Accumulated other comprehensive income Total Assets 21,141 (1,314) Total liabilities and net assets 21,141 (1,314) Figures in parentheses indicate changes from March 31, 217 8
Consolidated Financial Management (Regulatory Capital & Regulatory Liquidity) Consolidated Capital Adequacy Ratio Total qualifying capital Consolidated total capital ratio 1,196 1,147 1,126 1,113 1,119 1,16 1,111 1,13 Common equity tier 1 Consolidated common equity tier 1 capital ratio 1,169 1,131 1,14 1,134 1,142 1,162 1,131 1,14 1,134 1,142 Regulatory Capital (Basel III) (As at December 3, 217) Consolidated Total Capital Ratio : 21.7% Consolidated Tier1 Capital Ratio : 21.7% 21.8% 21.2% 22.4% 22.3% 22.9% 22.6% 22.6% 22.2% 21.7% Consolidated Common Equity Tier 1 Capital Ratio : 21.7% 2.9% 21.% 22.2% 22.1% 22.7% 22.6% 22.6% 22.2% 21.7% Consolidated Leverage Ratio : 5.44% 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 215 Consolidated Leverage Ratio 22,159 2,987 18,654 19,254 18,429 18,979 19,9 18,979 19,524 5.26% Total exposures Tier 1 capital Consolidated levarage ratio 5.99% 5.74% 5.98% 6.12% 5.92% 6.% 5.81% 5.44% Consolidated Liquidity Coverage Ratio High quality liquid assets Net cash outflows Consolidated liquidity coverage ratio 166.4% 165.7% 156.2% 154.5% 155.8% 145.8% 148.9% 145.3% 145.2% 146.6% 2,428 2,317 2,365 2,499 2,627 2,23 2,532 2,687 2,12 2,34 1,571 1,627 1,714 1,88 1,832 1,7 1,273 1,32 1,487 1,345 Figures are as at the end of each quarter. Regulatory Liquidity (Basel III) (Daily average Jan. - Mar. 218) Consolidated Liquidity Coverage Ratio : 146.6% 1,166 1,117 1,16 1,13 1,162 1,131 1,14 1,134 1,142 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 215 3Q 215 Before 3Q : end of month average 9
Consolidated P/L Summary (Y mil) 4Q 1Q 2Q 3Q 4Q Operating revenues 166,322 159,652 176,611 19,875 185,461-2.8% 11.5% 616,497 712,61 15.6% Commission received 76,515 69,746 78,73 85,531 79,616-6.9% 4.1% 273,335 313,625 14.7% Net trading income 28,33 24,68 23,79 3,446 31,411 3.2% 1.9% 128,12 19,5-14.9% Net gain/loss on private equity and other securities 2,6 1,746 13,862 6,217 5,85-18.2% 153.5% 14,846 26,912 81.3% Financial revenue 39,618 43,835 48,96 47,898 5,612 5.7% 27.8% 143,241 19,444 33.% Other operating revenue 19,85 2,255 12,841 2,782 18,733-9.9% -5.6% 56,953 72,613 27.5% Financial expenses 3,612 39,566 34,48 3,441 43,859 44.1% 43.3% 98,725 148,348 5.3% Other operating expenses 14,9 11,542 11,27 25,437 1,714-57.9% -24.% 45,22 58,91 3.8% Net operating revenues 121,618 18,543 13,923 134,997 13,886-3.% 7.6% 472,75 55,35 6.9% SG&A 91,58 87,121 9,924 94,725 97,52 3.% 6.6% 353,687 37,292 4.7% Operating income/loss 3,11 21,422 39,998 4,271 33,365-17.1% 1.8% 119,62 135,58 13.4% Non-operating income/loss 4,284 3,73 3,831 2,944 1,111 243.4% 136.% 16,561 2,618 24.5% Ordinary income/loss 34,394 25,153 43,829 43,216 43,477.6% 26.4% 135,623 155,676 14.8% Extraordinary income/loss -737 2,363 2,131-9,23 2,895 - - 3,381-1,812 - Income/loss before income taxes 33,657 27,516 45,961 34,12 46,373 36.3% 37.8% 139,4 153,864 1.7% Total income taxes 11,156 8,16 9,392 11,277 9,764-13.4% -12.5% 34,726 38,541 11.% Profit (loss) attributable to owners of parent 3Q/17 4Q/16 16 22,358 19,395 31,95 22,697 36,581 61.2% 63.6% 14,67 11,579 6.3% Commission received decreased (-6.9% QoQ). Brokerage commission* declined to Y19.1 bil (-12.% QoQ) as domestic stock trading volume dropped. Underwriting commission* for both equity and debt decreased to Y6.5 bil (-33.9% QoQ). Even though stock investment trust sales was solid, it decreased QoQ resulting in a decline in distribution commission* to Y1.6 bil (-19.9% QoQ). * Breakdown of total commission received (See p.23) Net trading income** rose to Y31.4bil (+3.2% QoQ) as equity trading increased. ** Managerial accounting basis (See p.17) Net gain on private equity secured Y5. bil (-18.2% QoQ) due to an exit of the existing investment. Non-operating income increased due to a replacement of properties in Daiwa Office Investment Corp. 1
Consolidated Breakdown of SG&A SG&A (Y mil) 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 91,58 87,121 9,924 94,725 97,52 3.% 6.6% 353,687 37,292 4.7% Trading related expenses slightly rose (+.9% QoQ) as advertising expenses for sales promotions increased. Trading related expenses 18,884 16,638 18,658 18,488 18,663.9% -1.2% 69,754 72,448 3.9% Personnel expenses 44,395 43,215 44,645 48,387 49,616 2.5% 11.8% 175,83 185,865 5.7% Real estate expenses 9,15 8,818 8,847 9,8 9,163.9%.1% 35,267 35,91 1.8% Personnel expenses rose (+2.5% QoQ) as expenses increased due to consolidation of two M&A advisory firms in the U.S. in 3Q. Office cost rose (+2.3% QoQ) due to an increase in system related office expenses. Office cost 6,963 6,45 6,494 6,728 6,879 2.3% -1.2% 27,47 26,552-1.8% Depreciation 5,955 6,117 6,9 6,119 6,9 -.5% 2.3% 23,46 24,336 4.% Taxes and dues 2,948 2,754 2,736 2,635 2,66-1.1% -11.6% 1,53 1,732 1.9% Other expenses increased (+37.% QoQ) due to amortization of intangible assets including goodwill for two M&A advisory firms in the U.S.. Other 3,21 3,126 3,533 3,284 4,51 37.% 4.2% 11,852 14,446 21.9% 11
Consolidated Cost Structure 215 4Q 1Q-4Q 1Q 2Q 3Q 4Q 1Q-4Q 1Q 2Q 3Q 4Q 1Q-4Q Total SG&A 88.3 364.5 86. 85.7 9.3 91.5 353.6 87.1 9.9 94.7 97.5 37.2 Variable costs 35.9 15.5 34.1 35.1 36.6 38. 143.9 33.6 37.5 39.8 41.3 152.3 Trading related expenses 17.3 72.3 16.3 16.9 17.5 18.8 69.7 16.6 18.6 18.4 18.6 72.4 Advertising expenses 2.4 8.1 1.9 2.4 3. 3.7 11.1 2.1 3.4 3.1 3.2 12. Bonus and others 12.3 55.5 12.2 13. 13.6 13.3 52.3 11.2 12.7 15.5 15.7 55.3 Overtime, part-time 2.1 9.1 2.3 2.2 2.3 2.2 9.1 2.3 2.3 2.4 2.2 9.3 Fixed costs 52.3 213.9 51.8 5.5 53.7 53.4 29.6 53.4 53.3 54.8 56.1 217.9 Personnel expenses 28.9 117.3 28.4 27.8 28.7 28.5 113.6 29.3 29.3 3.2 31.3 12.3 Real estate expenses 9.1 37.3 8.7 8.5 8.8 9.1 35.2 8.8 8.8 9. 9.1 35.9 Depreciation 5.9 23.8 5.8 5.7 5.8 5.9 23.4 6.1 6. 6.1 6. 24.3 Office expenses 6.3 25.4 5.8 5.7 7.5 6.6 25.7 6.1 6.1 6.4 6.5 25.3 Taxes and dues 1.7 8.8 2.5 2.4 2.5 2.9 1.5 2.7 2.7 2.6 2.6 1.7 12
Consolidated Ordinary Income of Overseas Operation (Y mil) 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 Overseas OperationTotal 5,691 1,7 3,81 1,718 4,174 142.9% -26.7% 13,493 11,43-15.5% Europe 2,844-338 1,577-16 3,4-5.6% 2,759 4,227 53.2% Overseas operation stayed in the black on yearly basis from last fiscal year and for 8 consecutive quarters. Asia / Oceania 378 99 1,24 1,47 1,452 38.6% 283.4% 1,48 4,433 199.5% Americas 2,468 1,129 1,28 687-282 - - 9,254 2,742-7.4% In Europe, both revenues and income significantly increased due to M&A business and global CB underwriting. Europe Asia / Oceania 1 5 Ordinary Income Asia / Oceania posted an increase in income due to a rise in equity brokerage revenues and bond underwriting commission, as well as equity in earnings of affiliates of Saigon Securities. Americas Overseas Operation Total In Americas, FICC slowed down while U.S. equity trading volume remained strong. Amortization of intangible assets including goodwill for DCS Advisory also affected. -5 215 13
Retail Division (Y mil) Net operating revenues Ordinary income 4Q 3Q/17 16 54,573-8.4% 214,247 13.9% 12,312-31.6% 51,331 74.7% Equity Fixed income Net Operating Revenues and Ordinary Income 6 Equity revenues decreased QoQ due to a decline in domestic equity trading volume and sales commission from domestic equity underwriting while foreign equity trading volume was strong. Fixed income revenues decreased QoQ as sales amount of foreign bonds including structured bonds decreased. Distribution commission for investment trust declined QoQ due to a decrease in stock investment trust sales. Agency fee for investment trust dropped QoQ as market decline led to decrease in assets under custody. Other revenues increased QoQ from the rise in investment advisory and account management fees, related to wrap business. Distribution commission for investment trust Agency fee for investment trust Other (includes wrap-related revenues) Ordinary income 4 2 215 Equity 9.9 1.1 1.2 13.9 12.4 14.2 16.1 21. 18.6 Fixed income 12.4 12.9 11.9 11.3 12.2 8.6 9. 9.7 9.4 Distribution commission for investment trust 5.4 5.8 6.2 9.2 9.5 1.6 1.1 12.3 9.8 Agency fee for investment trust 7.6 7.3 7.2 7.2 7.3 7.1 7.2 7.3 7. Other (includes w raprelated revenues) 8.8 8.6 8. 7.7 8. 8.1 8.6 9. 9.6 Net operating revenues 44.3 45. 43.7 49.6 49.6 48.8 51.2 59.5 54.5 Ordinary income 5.3 6.5 4.5 9.5 8.7 1.3 1.6 18. 12.3 14
Retail Division Daiwa Securities Stock Investment Trusts Global EV Revolution Fund, investing in electronic vehicle related stocks, saw strong sales. Equity* 1,5 Sales and Distribution Amount by Product ( Y bil) 2, 1,8 1,6 1,4 1,2 1, 8 6 4 2 Wrap Account Service At the end of March, contract AUM reached a record high of Y1,971.3 bil on quarterly basis due to an increase in sales contract amount QoQ with less reduction amount. Daiwa Advance Wrap which can change portfolio reflecting investment environment was introduced on March 218. Expanded product line up to meet customers needs. Contract AUM of Wrap Account Service 1Q 2Q 3Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 213 214 215 SMA + Fund Wrap** 1, Insurance*** Domestic bonds Foreign bonds**** 5 Stock investment trusts***** 215 Equity* 24.8 39.2 65.8 19.5 68.7 64.8 371.8 93.2 53.6 SMA + Fund Wrap** 61.5 62.9 78.1 113.6 161.5 114.2 13. 155.6 158.2 Insurance*** 27.9 29.6 14.6 12.4 12.7 11.4 11.4 12.3 12.5 Domestic bonds 125.2 186.2 241.8 178.6 372.3 17.9 197.8 183.9 24.3 Foreign bonds**** 244.9 229.2 187.8 224.6 28.5 196.4 198.9 36.4 281.1 Stock investment trusts***** 388.4 396.8 379.3 54.2 494.9 55.3 513.7 624.1 527.5 *Distribution amount from equity underwriting **Total contract amount of Daiwa fund wrap and Daiwa SMA ***Insurance include pension insurance, life insurance and business insurance ****Foreign bonds include yen-denominated foreign bonds *****Stock investment trusts include switching transactions between funds 15
Wholesale Division Global Markets (Y mil) Net operating revenues Ordinary income 4Q 3Q/17 16 33,616 3.% 123,697-13.4% 11,228 14.4% 34,288-36.% Equity FICC* Net Operating Revenues and Ordinary Income 4 Others Equity Equity revenues rose QoQ due to an increase in domestic equity trading volume and client flow of foreign equities even though brokerage commission declined from stock market correction after February. Ordinary income 2 FICC* Unfavorable market situation continued as a long-term interest rate stayed within the narrow range. FICC revenues remained at a low level due to a decline in client flow of financial products including structured bonds even though credit products recovered. 215 Equity 12.5 9.3 13.1 15.2 15.3 13.7 16.4 18.2 2.5 FICC* 22.4 26. 22.6 2.7 17.1 12.7 12.2 13.3 12. Others.7.6.6.7 1.2.7 1.4 1. 1. Net operating revenues 35.8 36. 36.3 36.8 33.6 27.3 3. 32.6 33.6 Ordinary income 13.5 14.1 14.5 14.1 1.7 5.3 7.8 9.8 11.2 *FICC: Fixed Income, Currency and Commodities 16
<Reference> Equity & FICC Income: Consolidated Trading Gain/Loss (Daiwa Securities/Overseas) Managerial accounting basis 4Q 3Q/17 16 Equity 18. 2.% 56. 6.% FICC 2. -4.8% 81. -35.7% Total 38. 5.6% 137. -14.9% 4 Equity Consolidated Trading Gain / Loss (Managerial Accounting Basis) FICC <Reference> Financial accounting basis: Net gain/loss on trading + Net financial income 2 (Y mil) Equity 13,769 2.8% 38,985 81.6% Bond and forex Net financial income 4Q 3Q/17 16 17,641-7.4% 7,19-34.3% 6,753-61.3% 42,95-5.4% Total 38,164-2.3% 151,11-12.5% 215 Equity 7 5 9 11 1 11 12 15 18 FICC 33 36 31 31 28 2 2 21 2 Total 4 41 4 42 38 31 32 36 38 17
Wholesale Division Global Investment Banking (Y mil) Net operating revenues Ordinary income Equity 4Q Steadily managed global CB, IPO and PO deals. <Selected lead managed deals> 3Q/17 16 13,518 3.3% 47,495 18.7% 1,76-37.% 1,19-11.1% <Offering size> CyberAgent, Inc. Euro yen CB Y4. bil QB Net Holdings Co.,Ltd. IPO Y25.3 bil Daiwa House REIT Investment Corporation REIT Global PO Y56.8 bil Yakult Honsha Co.,Ltd. Global PO Y14. bil Debt Lead managed a number of straight bonds and Samurai bonds even though the amount of newly issued bonds decreased in the overall market. <Selected lead managed deals> <Offering size> Sumitomo Forestry Co.,Ltd.(7/1/15yrs) SB Total Y3. bil Hulic Co.,Ltd.(35yrs) Subordinated Bond Y5. bil BPCE(France/bank)(5/7/1/15yrs) Samurai Bond Total Y116.1 bil Hungary(3yrs) Samurai Bond Y3. bil Denmark Finance Corporation(3yrs) Benchmark Bond USD1. bil M&A Sagent and Signal Hill integrated to launch DCS Advisory on March 218. Managed a number of cross-border deals utilizing our global network. <Selected deals> Share Acquisition of H.C. Starck Tantalum and Niobium (Germany) by JX Nippon Mining & Metals Corporation Sale of Northgate Public Services(UK) to NEC by Cinven (UK) Acquisition of Trescal (France) by OMERS Private Equity (Canada) Sale of System Control (US) to Combest Partners (US) by Northern Star Industries (US) Equity 12 underwriting Debt underwriting 8 M&A / others Ordinary income Net Operating Revenues and Ordinary Income 14 1 6 4 2-2 215 Equity underwriting 1.1 2.1 2.6 3.5 3. 1.7 6.3 4.5 3. Debt underwriting 1.9 2.4 2.8 2.2 2.5 2.3 2.5 2.4 1.9 M&A / others 4.7 2.7 4. 3.8 7.8 3.8 4. 6.1 8.5 Net operating revenues 7.8 7.3 9.5 9.6 13.4 7.9 12.9 13. 13.5 Ordinary income -.7.7 2.4 2.4 5.6.7 4.8 2.7 1.7 18
Asset Management Division (Y mil) Net operating revenues Ordinary income 4Q 3Q/17 16 12,587 -.5% 49,39 6.4% 7,292-2.6% 29,119 9.6% Daiwa AM Net Operating Revenues and Ordinary Income 15 Others 1 Daiwa Asset Management Revenues and income dropped QoQ due to a decrease in AUM affected by the weak stock market from February. Ordinary income 5 Others Daiwa Real Estate Asset Management, operator of REITs, increased management fees by replacement of properties. 215 Daiwa AM 9.9 9.9 9.9 1. 1.3 1.4 1.7 11. 1.6 Others 1. 1.6 1.4 1.4 1.4 1.5 1.4 1.5 1.9 Net operating revenues 11. 11.6 11.4 11.5 11.7 12. 12.1 12.6 12.5 Ordinary income 5.9 6.7 6.6 6.5 6.6 7.2 7.1 7.4 7.2 Others includes Daiwa Fund Consulting, Daiwa Real Estate Asset Management and Mi-Casa Asset Management (since 1Q ). Equity in earnings of affiliates is included in non-operating revenues. 19
Asset Management Division Assets Under Management Daiwa Asset Management and Daiwa SB Investments AUM DAM Stock investment trusts 15 DAM 1 Bond investment trusts DSBI Stock investment trusts 5 DSBI Investment advisory 212 213 Daiwa Asset Management (DAM) 1Q 2Q 3Q 4Q Stock investment trusts 7,875 8,958 11,32 1,84 12,454 12,832 13,491 14,298 14,123 Bond investment trusts 2,6 3,64 3,314 2,563 2,36 2,151 2,35 1,663 1,465 Total 1,476 12,23 14,346 13,43 14,491 14,983 15,526 15,962 15,588 Stock investment trust 14.4% 15.% 14.8% 14.5% 14.7% 14.8% 14.8% 14.4% 14.3% share Daiwa SB Investments (DSBI) Stock investment trusts 2,345 2,249 2,526 2,481 2,237 2,28 2,213 2,227 2,221 Investment advisory 2,356 2,327 2,671 2,249 2,435 2,637 2,793 2,955 2,736 Total 4,72 4,577 5,198 4,73 4,673 4,845 5,6 5,182 4,957 Stock investment trust share 214 215 216 3.2% 2.8% 2.6% 2.7% 2.3% 2.2% 2.1% 2.% 2.% Daiwa Asset Management and Daiwa SB Investments Net Asset Inflow (Stock Investment Trusts, excl. ETF) 1,5 Daiwa Asset Management 1, Daiwa SB Investment 5 Total Other -5 212 Real Estate Asset Management Business AUM 1, Japan Rental Housing Investments Inc. Nippon Healthcare Investment Corp. Daiwa Residential Private Investment Corp. Daiwa Office Investment Corp. 5 74 768 213 355 212 1,93 214 418 213 1,271 215 477 214-56 216 78 215 439 217 216 34 57 69 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 278 819 828 829 825 82 2
Investment Division (Y mil) Net operating revenues Ordinary income 15 4Q 3Q/17 Principal Investment Values 16 5,359-15.3% 27,41 74.1% 4,377-2.8% 24,499 87.9% Net Operating Revenues and Ordinary Income 15 Net operating revenues 1 Private equity and PIPEs Monetary claims 1 Real estate 5 Ordinary income 5 Private equity and PIPEs 215 49 49 6 54 54 57 63 59 62 Net operating 1.1 4.9 5.7 2.5 2.4 1.8 13.9 6.3 5.3 revenues 215 Monetary claims 35 35 32 31 34 35 33 52 58 Real estate 2 2 2 2 2 55 35 35 Total 14 14 112 15 18 147 132 147 12 Ordinary income.5 4.6 4.9 1.8 1.5 1.4 13.1 5.5 4.3 Principal investment values are the sum of Daiwa PI Partners and Daiwa Securities SMBCPI PIPEs: Private Investment in Public Equities All figures are as at the end of each quarter 21
Reference
Consolidated Breakdown of Commission (Y mil) 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 Total commission 76,515 69,746 78,73 85,531 79,616-6.9% 4.1% 273,335 313,625 14.7% Brokerage commission 16,672 16,214 16,688 21,753 19,142-12.% 14.8% 6,947 73,797 21.1% Underwriting commission 7,926 5,74 13,1 9,89 6,537-33.9% -17.5% 29,729 35,18 18.3% Distribution commission 1,99 11,143 1,83 13,247 1,613-19.9% -2.7% 34,287 45,87 33.6% Other commission Investment advisory and account management fees 41,7 36,648 38,228 4,64 43,323 6.6% 5.6% 148,37 158,84 7.1% 5,358 5,569 5,925 6,285 6,489 3.2% 21.1% 21,28 24,269 15.4% Insurance sales commission 942 724 745 739 864 17.% -8.3% 4,363 3,73-29.6% M &A commission 7,51 3,131 3,596 5,676 7,142 25.8% 1.3% 16,186 19,546 2.8% Management fee 2,299 2,349 2,84 21,388 2,318-5.%.1% 8,231 82,897 3.3% Other 7,354 6,872 7,121 6,55 8,59 29.9% 15.7% 26,56 29,53 9.4% 23
Daiwa Securities Balance Sheet Daiwa Securities Balance Sheet (Mar. 31, 218) Current assets 11,577 (1,399) Current liabilities 9,421 (1,194) Trading products 5,163 (57) Trading products 3,85 (321) Trading securities and other 2,668 (73) Trading securities and other 1,651 (516) Derivatives 2,495 (-196) Derivatives 2,198 (-194) Margin transaction assets 256 (58) Margin transaction liabilities 7 (9) Loans on margin transactions 224 (55) Loans payables secured by securities 2,92 (246) Cash collateral pledged for securities borrowing on margin transactions 31 (3) Short-term loans payable 1,242 (75) Loans secured by securities 3,811 (638) Current portion of bonds 185 (63) Short-term guarantee deposits 37 (-21) Non-current liabilities 1,456 (241) Short-term loans receivable 32 (79) Bonds payable 583 (-11) Long-term loans payable 838 (252) Non-current assets 16 (-1) Total liabilities 1,882 (1,435) Property, plant and equipment 3 () Net assets 81 (-38) Intangible assets 65 (7) Shareholders' equity 796 (-36) Capital stock 1 - Total assets 11,683 (1,397) Total liabilities and net assets 11,683 (1,397) Figures in parentheses show changes from March 31, 217 24
Daiwa Securities Financial Summary Ⅰ (Y mil) Operating revenues 4Q 1Q 2Q 3Q 4Q 4Q/16 16 84,742 81,949 86,224 99,158 91,52-7.7% 8.% 334,911 358,835 7.1% Commission received 5,354 47,399 52,877 58,694 5,212-14.5% -.3% 181,235 29,183 15.4% Brokerage commission 12,388 12,149 12,364 17,1 14,681-13.7% 18.5% 44,652 56,25 25.9% Stock and others 12,71 11,797 12,19 16,661 14,173-14.9% 17.4% 42,654 54,74 28.3% Underwriting commission 6,613 5,163 1,157 8,315 4,623-44.4% -3.1% 27,535 28,259 2.6% Equity 3,496 1,92 7,21 5,386 2,645-5.9% -24.3% 13,67 17,163 25.5% Bond and others 3,117 3,242 2,947 2,928 1,977-32.5% -36.6% 13,865 11,96-2.% Distribution commission 1,788 11,19 1,74 13,118 1,515-19.8% -2.5% 33,477 45,357 35.5% Investment trust 9,415 1,498 9,992 12,463 9,766-21.6% 3.7% 3,99 42,72 41.9% Other commissions 2,564 19,68 19,65 2,25 2,392.7% -.8% 75,569 79,361 5.% Agency fee and others 8,3 7,847 8,6 8,135 7,858-3.4% -1.8% 31,574 31,848.9% Investment advisory and account management fees 5,358 5,569 5,925 6,285 6,489 3.2% 21.1% 21,28 24,269 15.4% Insurance sales commission 942 724 745 739 864 17.% -8.3% 4,363 3,73-29.6% M &A commission 2,944 1,771 1,25 1,736 1,388-2.% -52.8% 7,124 5,921-16.9% Net trading income/loss 25,184 22,184 2,291 27,834 29,651 6.5% 17.7% 116,273 99,962-14.% Equity 6,795 7,563 6,69 12,67 14,173 12.4% 18.6% 21,715 4,414 86.1% Bond and forex 18,389 14,621 14,222 15,227 15,477 1.6% -15.8% 94,557 59,548-37.% Financial revenues 9,23 12,364 13,55 12,629 11,638-7.8% 26.5% 37,42 49,689 32.9% Financial expenses 5,76 8,929 7,57 9,239 7,516-18.6% 48.1% 2,88 32,742 57.3% Net operating revenues 3Q/17 79,666 73,2 79,167 89,919 83,985-6.6% 5.4% 314,12 326,92 3.8% 25
Daiwa Securities Financial Summary Ⅱ (Y mil) 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 SG&A 59,923 56,564 6,128 61,181 62,664 2.4% 4.6% 231,688 24,538 3.8% Trading related expenses 1,57 8,836 1,713 1,321 11,144 8.% 6.1% 39,456 41,15 4.% Personnel expenses 25,246 24,19 25,413 26,667 26,556 -.4% 5.2% 99,719 12,746 3.% Real estate expenses 6,272 6,73 6,178 6,24 6,342 1.6% 1.1% 24,48 24,833 3.3% Office cost 11,455 11,447 11,572 11,723 11,762.3% 2.7% 44,133 46,56 5.4% Depreciation 4,5 4,85 4,39 4,79 4,166 2.1% 2.9% 15,666 16,371 4.5% Taxes and dues 1,245 1,95 1,245 1,168 1,66-8.7% -14.3% 4,671 4,575-2.% Other 1,145 917 966 98 1,624 65.7% 41.8% 3,991 4,488 12.4% Ordinary income Net income ROE( Annualized) Capital adequacy ratio 2,728 16,883 19,31 28,679 22,69-23.% 6.5% 85,234 86,664 1.7% 13,711 11,618 13,418 21,712 17,686-18.5% 29.% 58,461 64,436 1.2% 6.6% 5.8% 7.1% 11.2% 8.9% 7.2% 7.9% 45.2% 34.% 343.9% 336.2% 348.3% 45.2% 348.3% 26
Daiwa Securities Assets under Custody 75 Equity Domestic bonds 6 Foreign bonds Stock investment trusts Bond investment trusts 45 3 Foreign investment trusts15 Others 215 (Y tri) Equity 3.1 28.8 29.4 32.7 32.9 34.4 36.8 39.9 46.3 Domestic bonds 6.8 6.7 6.9 7. 7.1 7.1 7.2 7.5 8.1 Foreign bonds 5. 4.7 4.8 5. 4.9 4.9 4.9 4.8 4.8 Stock investment trusts 6.2 5.9 5.9 6.3 6.3 6.4 6.5 6.8 6.4 Bond investment trusts 1.3 1. 1. 1..9.9.9 1..9 Foreign investment trusts.1.1.1.1.1.1.1.2.1 Others 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Total 51. 48.7 49.5 53.5 53.6 55.2 57.9 61.5 68.1 Daiwa Next Bank deposit balance All figures are as at the end of each quarter. ETFs are recorded in Equity. 3.1 3. 3. 3.2 3.1 3.3 3.4 3.7 3.5 27
Daiwa Securities Number of Accounts and Equity Trading 215 Accounts with balance (thousands) 2,973 2,973 2,976 2,963 2,974 2,965 2,969 2,965 2,989 Accounts holding equity (thousands) 1,381 1,42 1,48 1,396 1,396 1,388 1,399 1,386 1,395 Online trading accounts (thousands) Newly opened accounts (thousands) NISA accounts* (thousands) 3,4 3,6 3,8 3,13 3,127 3,14 3,164 3,187 3,214 31 34 31 39 39 35 4 4 41 753 765 776 785 796 83 811 815 829 Wrap account service (end of quarter) Contract assets under management 1,54 1,498 1,537 1,64 1,661 1,738 1,834 1,944 1,971 Number of customers (thousands) 118.4 12. 122.3 121.5 125.2 127.7 13.9 131.4 134.8 Contracts and trading value for individual investors at Daiw a Securities (Japanese Equity) Total number of contracts (thousands) 3,13 2,757 2,374 3, 2,86 2,783 2,73 3,476 3,35 Online out of total (thousands) 2,775 2,442 2,13 2,593 2,459 2,432 2,384 3,3 2,98 Total trading value 2,561 2,341 2,144 2,873 2,635 2,692 2,666 3,737 3,42 Online out of total 2,63 1,826 1,692 2,177 2,24 2,39 2,26 2,743 2,63 Foreign equity trading value (Retail) Trading value 75 127 137 157 151 248 276 387 47 * The accumulated number of opened NISA accounts from 4Q 215 to 3Q are modified to be including Junior NISA in 4Q. 28
Daiwa Securities Net Inflow of Assets Retail Division (Daiwa Securities) Net Inflow of Assets Retail Division (Daiwa Securities) Net Inflow of Assets (Individuals) 3 3 25 2 Corporation Individual 25 2 Net inflow of cash Net inflow of securities 15 15 1 1 5 5-5 -5-1 -1-15 215 Corporation 8.8 39.9 58.8 57.6-2.2 58.2 16.7 128.6 44.5 Individual 81.7 119.9-2.6-11.2 129.3 43.3 17. 85.7 111. Total 9.6 159.9 56.2-43.6 127.1 11.6 267.8 214.4 155.6-15 Net inflow of cash Net inflow of securities 215 49.6 56.9-22.9-114. 23.8-13.2 74. -13.6 23.7 32.1 63. 2.3 12.7 15.5 56.6 33. 99.4 87.2 Total 81.7 119.9-2.6-11.2 129.3 43.3 17. 85.7 111. Net inflow of assets = net inflow of cash and securities 29
Daiwa Securities Stock Investment Trusts & Wrap Accounts Retail Division (Daiwa Securities) Sales of Stock Investment Trusts Wrap Account Contract and Contract AUM 75 Sales amount (left) 25% 2 Contract amount (left) Contract assets under management (right) 2, 6 Net increase ratio (right) 2% 15 1,5 15% 45 1% 1 1, 3 5% 15 % 5 5 Sales amount 388.4 396.8 379.3 54.2 494.9 55.3 513.7 624.1 527.5 purchase - (sell-off + redemption) Net increase ratio (%) = 1 purchase -5% 215 215 Contract amount Contract AUM 61.5 62.9 78.1 113.6 161.5 114.2 13. 155.6 158.2 1,54 1,498 1,537 1,64 1,661 1,738 1,834 1,944 1,971 Includes switching transaction between funds. 3
Daiwa Securities League Table Primary and secondary equity offerings IPO Straight bonds (excl. family bonds) Agency bonds Municipal bonds Samurai bonds (excl. family bonds) M&A (Number of deals) 4Q League Table 1st 2nd 3rd 4th 5th Daiwa Nomura Nomura Mitsubishi UFJMS Daiwa Mizuho 26.5% 26.7% 23.2% 24.9% 19.1% 28.1% Nomura Daiwa Daiwa Nomura Nomura SMBC Nikko 23.7% 26.% 19.1% 2.6% 18.2% 21.7% Mizuho Mitsubishi UFJMS Mizuho Mizuho Mitsubishi UFJMS Nomura 11.6% 13.6% 19.% 19.5% 17.9% 21.3% Mitsubishi UFJMS Mizuho SMBC Nikko SMBC Nikko SMBC Nikko Daiwa 9.4% 12.% 17.4% 17.7% 17.9% 16.6% Goldman Sachs SMBC Nikko Mitsubishi UFJMS Daiwa Mizuho Mitsubishi UFJMS 6.9% 11.8% 17.2% 15.8% 15.4% 11.4% SMFG MHFG Nomura Kaede Group KPMG Source: Daiwa Securities Apr. 217 Mar. 218 M&A: THOMSON REUTERS Apr. 217 Mar. 218 M&A advisory league table for any Japanese involvement announced (AD19) Note: Primary and secondary equity, IPO, Straight bonds, Agency bonds, Municipal bonds and Samurai bonds are based on settlement date Joint lead manager allotment of Primary and secondary equity, IPO, Straight bonds, Municipal bonds and Agency bonds is based on underwritten amount Joint bookrunner allotment of Samurai bonds is divided up evenly among the bookrunners 9th Daiwa 31
Daiwa Asset Management Financial Summary (Y mil) 4Q 1Q 2Q 3Q 4Q 3Q/17 4Q/16 16 Operating revenues Management fee 2,36 2,411 2,949 21,484 2,398-5.1%.2% 8,474 83,244 3.4% 2,167 2,225 2,77 21,299 2,214-5.1%.2% 79,747 82,51 3.5% Stock investment trust 2,122 2,177 2,717 21,246 2,167-5.1%.2% 79,588 82,38 3.4% Bond investment trust 45 48 52 53 47-1.9% 5.4% 158 21 26.9% Other operating revenues SG&A Commission paid Other SG&A Operating income Ordinary income 193 186 178 184 184 -.3% -4.7% 727 733.8% 16,68 15,953 16,254 16,61 16,14-3.6% -.3% 63,92 64,832 1.4% 1,33 9,989 1,226 1,39 9,785-5.8% -2.5% 4,11 4,392.7% 6,35 5,963 6,27 6,219 6,229.2% 3.2% 23,89 24,439 2.6% 4,292 4,458 4,694 4,874 4,384-1.% 2.1% 16,554 18,411 11.2% 4,396 4,67 4,757 4,944 4,431-1.4%.8% 16,935 18,741 1.7% Net income 3,165 3,176 3,24 3,396 2,857-15.9% -9.7% 11,533 12,67 9.9% 32
Daiwa Next Bank Earnings and Deposit Balance 25 2 Gross Profits / Ordinary Income Gross profits (annually) Gross profits (quarterly) Ordinary income (annually) Ordinary income (quarterly) Ordinary deposits Daiwa Next Bank Deposit Balance & Number of Accounts 4, 3,5 (thousands) 1,5 3, 15 Time deposits 2,5 1, 1 5 Negotiable certificate of deposits / Other Number of accounts (thousands) 2, 1,5 1, 5 5 211 212 213 214 215 216 1Q 2Q 3Q 4Q -5 Gross profits Ordinary income 211 212 213 214 215 216 217 1Q 2Q 3Q 4Q 3.9 1.5 12.3 2.7 17.3 11.5 11.9 2.9 2.7 2.9 3.2 -.4 5. 5.7 13.6 9.5 3.5 4.2 1. 1. 1. 1.1 Ordinary deposits 429 771 1,85 1,455 1,41 1,653 1,73 1,655 1,917 1,756 Time deposits 792 1,125 1,261 1,528 1,711 1,48 1,555 1,694 1,725 1,746 Negotiable certificate of deposits / Other 211 314 52 62 8 59 54 56 57 53 Deposit balance 1,432 2,21 2,399 3,47 3,121 3,193 3,313 3,46 3,71 3,556 Number of accounts (thousands) 486 719 91 1,18 1,133 1,213 1,228 1,248 1,269 1,289 All figures are as at the end of the period. 33
Consolidated Value at Risk Range and Assumption of VaR Confidence level:99% (one-side test) Holding period:1 day Adjusted for price correlation between products 215 VaR (Quarter end) 1.55 1.1 1. 1.25 1.96 1.29 1.16 1.93 1.13 High 3.14 2.26 2.53 2.97 3.16 3.41 4.19 2. 2.3 Low 1.17.99.98 1.2 1.56 1.28 1.16 1.6 1.7 Average 1.67 1.53 1.4 2.2 2.17 2.59 2.29 1.34 1.46 By risk factors (Quarter end) Equity.28.27.44.4.54.34.43.68.28 Interest 1.64 1. 1. 1.15 1.89 1.4 1.15 1.43 1.6 Currency.33.19.17.26.29.2.15.21.21 Commodity....3..6... Figures of VaR (Quarter end) and VaR by Interest from 3Q to 1Q are modified in 2Q due to reviewing of scenarios about Interest risk. 34
Consolidated Number of Group Employees 215 Total 15,28 15,637 15,559 15,41 15,93 16,256 16,27 16,2 16,88 Overseas 1,566 1,592 1,597 1,592 1,614 1,634 1,683 1,76 1,776 Number of employees as at the end of each quarter. Total figures are the sum of consolidated group companies and Daiwa SB Investments. Number of employees of DIR Information Systems has been included from 1Q as it shifted to a consolidated company. Overseas figures are the sum of consolidated group companies under Daiwa International Holdings and Daiwa Securities. The figure also includes overseas subsidiaries of Daiwa Asset Management which have become consolidated companies since 1Q. Number of employees of Sagent Advisors and Signal Hill are also included which have become consolidated companies since 2Q and 3Q respectively. Figures include temporary staff. 35
Contact Daiwa Securities Group Inc. Investor Relations TEL: +81-3-5555-13 FAX: +81-3-5555-661 E-mail: ir-section@daiwa.co.jp URL: http://www.daiwa-grp.jp/ir/english/