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1H FY2019 Management Strategy Update
Daiwa Securities Group Inc.
Seiji Nakata, President and CEONovember 7, 2019
Daiwa Securities Group Inc.
These materials were produced to provide information on results through the second quarter of FY2019 and the management’s vision for the future. They are not intended as a solicitation for investment in securities issued by Daiwa Securities Group Inc. These materials were produced based on information that was disclosable as of November 7, 2019. The opinions, forecasts, and other forward-looking statements in these materials are based on the company’s judgment at the time they were produced, and Daiwa Securities Group Inc. makes no guarantees in regard to the accuracy and completeness of the information contained herein. This information may also be revised without prior notice in the future.
Table of Contents
Ⅰ – Overview of 1H FY2019・・・・ 3
Ⅱ – Growth of Traditional Securities Business・・・・ 8
Ⅲ – Promotion of Hybrid Strategy・・・・ 18
Ⅳ – In Conclusion・・・・ 22
Appendix ・・・・ 24
1H FY2019 Management Strategy Update
Ⅰ- Overview of 1H FY2019
4
1H FY2019 Consolidated Earnings Results
Net operating revenues Ordinary income Profit attributable to owners of parent
Ordinary income of overseas operations
Ⅰ- Overview of 1H FY2019
239.4 265.8
223.4 217.7 203.4
0
100
200
300
1H 2H 1H 2H 1H
FY2017 FY2018 FY2019
68.9
86.6
46.0 37.1
27.7
0
50
100
1H 2H 1H 2H 1H
FY2017 FY2018 FY2019
51.3 59.2
36.2 27.5
33.3
0
50
100
1H 2H 1H 2H 1H
FY2017 FY2018 FY2019
(¥ Billions) (¥ Billions) (¥ Billions) (¥ Billions)
5.51 5.89
1.27 2.49 2.27
0
5
10
1H 2H 1H 2H 1H
FY2017 FY2018 FY2019
FY2018 FY2019 FY2018 FY2019 FY2018 FY20191H 1H 1H 1H 1H 1H97,924 83,859 -14.4% 16,617 3,813 -77.0%
79,192 79,272 0.1% 14,441 13,954 -3.4%
Global Markets 59,256 55,170 -6.9% 14,635 10,053 -31.3%
Global Investment Banking 19,935 24,101 20.9% -668 3,726 -
24,360 22,980 -5.7% 14,880 12,769 -14.2%
574 -3,867 - -617 -5,663 -
223,444 203,446 -8.9% 46,015 27,784 -39.6% 36,286 33,383 -8.0%
Asset Management
Investments
Consolidated total
（\ Millions）Net operating revenues Ordinary income Profit attributable to owners
of parent company
Retail
Wholesale
YoY YoY YoY
15 17 21 23 26 28 26 25 25 25 27 27 25 25
83
109 91 8389 87
62 5768 68
8164
54 52
105
135
118110
121 121
9688
99 100
114
9787 83
2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H
FY12 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY19
安定収益 ブローカレッジ収益 その他
5,000
10,000
15,000
20,000
25,000日経平均株価（右軸）
Current Status of the Retail Business
5
Trading value of individual investors (2 markets)
Trend in composition of Retail Division net operating revenues
0
20
40
60
80
100
120
140
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Trading value of individual investors is at the lowest level since Abenomics began.Net asset inflows remain at a high level but the trend of decline in brokerage revenues continue.
Trend in net asset inflows in the Retail Division
0
200
400
600
800
2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H
FY12 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY19
資産導入額
Ⅰ- Overview of 1H FY2019
(¥ Trillions)Nikkei Average (right axis)
(¥)
Brokerage revenues: Equity revenue, bond revenue, and investment trust sales commissionStable revenue: Investment trust agency fee, investment advisory and account management fees
(¥ Billions)
(¥ Billions)
Net asset inflows
Stable revenue OtherBrokerage revenue
Two Cornerstones of Business Model Evolution
6
Diversification in the needs of clients of advanced age, including asset preservation, inheritance, business succession, real estate, etc.
Encouraging asset building among the young generation and meeting the needs of investors for long-term, diversified investments
Decline in revenue percentage (decline in bond revenue and expansion of the percentage of no-load investment trusts in the industry due to surplus funds and a low interest rate environment)
Transition from transaction-based revenue to fee-based revenue
Trend toward shrinking risk assets due to the aging of society & increasing lifespan
Increased geopolitical risk from U.S.-China trade friction, etc.
New entrants from other industries
FY2019 is a turning point in business model evolution. We will build a business model that is not easily affected by the market environment by restructuring revenue and pursuing a hybrid strategy.
Customer needs & challenges Changing revenue structureChanging business environment
Strive to improve profitability by expanding the business portfolio around the core of the traditional securities business
Reforming the Income/Expense Structure
Reduce costs+ ¥15 billion
Goal for improvementin income/expenses +¥30 billion (by FY2020)
Improve the top line through reallocation of management resources
& taking other steps + ¥15 billion
Goal for improvementin income/expenses +¥50 billion (by FY2023)
Optimize costs
Improve the top line through reallocation
of management resources & taking
other steps
Ⅰ- Overview of 1H FY2019
7
Progress on Revenue Restructuring
Forecast of ¥15 billion in cost reductions Reallocation to strategic business areas
Financial consultant
Personnel experienced in wealth management
Personnel experienced in M&A/IPOs
Reallocation of human resources
Strengthen existing business Strengthen hybrid business
Personnel experienced in new business
Personnel with external connections
We have accumulated more than the ¥15 billion goal in cost reductions by FY2020 and have shifted to the implementation stage. Management resources will be reallocated to growth business areas in stages.
Retail
Timeframe for achieving cost reductions
Amount of cost reductionDivision
Wholesale
Asset Management
Other
Main items
Eliminating waste in SG&A expenses
Increased efficiency of sales offices (putting sales offices on higher floors in buildings, etc.)
Slimming down headquarter and division
functions
Reassessment of unprofitable businesses & services (such as eliminating the sending of documents via postal mail)
Eliminating waste in SG&A expenses
Reassessment of unprofitable businesses & services
160people +
Oct. 2019 Future projection
Strengthen areas of specialization
Strengthen hybrid business
Right before Revenue
restructuring
Strengthen existing business
Ⅰ- Overview of 1H FY2019
35% 65%
FY2019 FY2020
56% 44%
38% 62%
38% 62%
Around 400people
Ⅱ- Growth of Traditional Securities Business
9
Three-Pillars Retail Strategy for Establishing an Asset Management Business Model
Improve the quality and quantity of consulting to meet the diversifying needs of customers.
NPS® Training
Roles
Contacts
Hold Quality No. 1 Meetings to develop a customer-oriented mindset among all employees.
Establish a training program for employees who have been in the company for 3-5 years. … No. 1 in the industry in the number of
CFP certification holders: 871 holders
Optimize channels according to customer attributes and life stages.
Expand the number of small, low-cost sales offices
Expand points of contact with customers
No. of sales offices: 48 Total number of branches: 162 (in Japan)
Established rules to increase contact with customers.
Analyze transaction data.
The Daiwa version of NPS was introduced to visualize the degree of customer satisfaction
We have already introduced it at All branches
We will aim for ongoing improvement.
* as of October 31, 2019
Anshin PlannerElderly customers
Financial ConsultantsAsset-builders
* as of September 30, 2019
Ⅱ - Growth of Traditional Securities Business
95branches 170planners95branches 170planners
94branches 161consultants94branches 161consultants
Build a sales structure
based on the customer’s perspective
Transition from a headquarter-driven sales structure to a bottom-up sales structure driven by individual branches, based on customer needs.
Channels
Branches
Note: NPS® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.
* as of October 31, 2019
Retail Division
Holding ratio (aged between 60 to 79) 49％ 44％15％
50％13％
Long-term forecast of household financial assets and optimization of channels
0 100 200 300 400
-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85-
PresentBefore
segmentationAfter
segmentation
Client Support
Wealth Consultant
ClientSupport
AnshinPlanner
Elderlycustomers
FinancialConsultant
Asset-builders
Asset-builders
10 years later 20 years later
（Age）
WealthConsultant
Affluent
Asset size
Younggeneration
Ⅱ - Growth of Traditional Securities Business Retail Division
Optimization of Channels according to Customer attributes and Life Stage
Retail Business is facing structural changes such as customer aging.Strengthen capability to meet diverse customer needs by segmentation.
The baby boom generation
Children of the baby boom generation
Source: Compiled by Daiwa Securities Group Inc. based on Komamura Kohei (2019) “Challenges of Aging Society and Future Role of Financial Gerontology” “Quarterly Personal Finance”, National Institute of Population and Social Security Research “Future Estimation of Japanese Households (National Estimation)”(2018 (Heisei 30) estimation), Bank of Japan “Funding Cycle Statistics”, Ministry of Internal Affairs and Communications “National Consumption Survey”
（¥ trillions）（¥ trillions）（¥ trillions）
0 100 200 300 400
Holding ratio (under the age of 49) 19％
10
0 100 200 300 400
統合前 統合後Before
consolidationAfter
consolidationBefore
consolidation統合前 統合後統合前 統合後
11
Further expand the number of agile, low-cost sales offices over the next two to three years, and continue to improve the efficiencies of existing locations.
120 117 114
110
130
150
170
190
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019.10(予定)
Branch consolidation and opening of sales offices in the Nagoya areaLocation strategy: Expand sales offices and consolidate large branches
Trend in number of Daiwa Securities branches & sales offices Further expand sales offices
over the next 2-3 years
Consolidate & improve efficiency of existing &
large locations
Number of locations, excluding sales officesNumber of locations,
excluding sales offices
(No. of locations)
All locations: 162All locations: 162Of which, sales offices: 48Of which, sales offices: 48
(as of October 31, 2019)(as of October 31, 2019) Low-cost, small-scale sales
offices with no back office
Sales offices
Location strategy: Contribution from sales offices to net asset inflows & profit
No. of personnel
15.0％15.0％ 15.9％15.9％
Net asset inflows
Ordinary income
* Figures for the number of sales personnel as of September 30, 2019;Figures for net asset inflows and ordinary income, 1H FY2019 results
Branches(excluding sales offices)
94.1％
Branches(excluding sales offices)
94.1％85.0％85.0％ 84.1％84.1％
Real estate expense
▲32%
Revenue
＋5%
Number of new accounts
＋11%
Kuwanasales office
Tajimi sales office
Narumisales office
Fujigaokasales office
Yagotosales office
Nagoyabranch
NagoyabranchNagoya
Ekimae branch
Before consolidation
After consolidationConsolidate the two large existing branches and put offices on the upper floors of buildings.
Consolidate the two large existing branches and put offices on the upper floors of buildings.Establish five new sales offices in high-potential areas.Establish five new sales offices in high-potential areas.
Clear benefit in terms of improvement in revenues too (monthly basis)
COPYRIGHT (C) 2019 Kokusai Kogyo Co., Ltd.
Before consolidation
Before consolidation
Afterconsolidation
Afterconsolidation
Ⅱ - Growth of Traditional Securities Business Retail Division
Location Strategy to Strengthen Points of Contact with Customers
Sales offices 5.9％Sales offices 5.9％
-58
-57
-56
-55
-60%
-40%
-20%
0%
1.0
1.3
1.8
12
Establishing a Customer-oriented Framework Based on the Daiwa version of NPS
NPS has now been introduced in all locations. We will use it to collect customer opinions and provide higher value-added consulting, products and services tailored to customer perspectives.
Introduction of NPS
Score
Correlation between NPS and performance (analysis of our customers)
If 10% of customers change from Detractors to Passives + ¥21.0 bnPassives to Promoters + ¥28.0 bn
Impact of revenue growth in Rerail Division （total of 3 years）
■Commissions per customer* for 3 years（set detractors to 1.0）
Source: Compiled by Daiwa Securities
For detractors and promoters, commissions in total of 3 years differ approximately twice.
Detractors Passives Promoters1st place in external NPS survey (NTT Communication online NPS Benchmark survey 2019 in face to face distribution channel)
1st place in the commissioned research to market research firm
Q. If you were asked “Which securities company should I open an account at?” by a family member or friend, what is the percentage that you would
recommend Daiwa Securities to the family member or friend?
6 5 4 3 2 1 08 710 9DetractorsPassivesPromoters
Percentageof promoters(%)
Percentage of detractors(%) NPS－ ＝
NPS for five competing securities firms
* includes newly introduced customers
Daiwa Securities
Co. A Co. B Co. C Co. D
Score
Daiwa Securities
Co. A Co. B Co. C Co. D
Not at all likely
Extremely likely
Ⅱ - Growth of Traditional Securities Business Retail Division
New Initiatives in the Asset Building Area
We have reached an agreement to proceed with exploring new collaboration with the Japan Post Group in the area of asset building. We have entered a capital and business alliance with Credit Saison aimed at developing and providing next-generation integrated financial services.
Proceed with building a collaborative structure for the development of discretionary investment services and other new consulting services.
Support medium to long-term asset building tailored to the lifestyles and needs of Japan Post Bank customers (JP Bank holds ¥180 trillion in individual deposits).
Explore collaboration in the inheritance business.
Japan Post Group
Proceed with utilization of the financial business expertise and customer networks that Daiwa Securities and Credit Saison have developed thus far and develop integrated financial services.
Credit Saison
Mainly wealthy & elderly customers
3 million accounts*
Mainly customers in the asset-building stage37 million customers
Mutual customer referrals for existing productsDevelopment of new services that utilize the expertise of both companies
Daiwa Securities Group Credit Saison
• Card business• Loan business• Services for asset builders
13
Ⅱ - Growth of Traditional Securities Business Retail Division
(FY)
(¥ Billions) Discretionary Investment Agreement AUM(Daiwa Securities) * Value at fiscal year end
0
2,000
4,000
6,000
2012 2013 2014 2015 2016 2017 2018* Number of accounts with balance
New Initiatives Aimed at Capturing Asset Builders
14
Need for Online
AgeFinancial assets
(large)
Daiwa Securities
Positioning a new brand of securities
Preparations are underway on starting CONNECT, a new brand for providing financial services customized for smartphones. This is mainly targeted at beginner investors and asset builders that have not been approached by Daiwa Securities.
Onlinebrokers
Smartphone securities
Consulting course
Direct courseAge
Financial assets(small)
Japanese stock market fee pool（accumulated total of 5years）*
Limited cannibalization of direct course
customers
Expected customer segmentation
Easy-to-use trading environment on smartphones
Easy-to-use application design for asset building and young
generation
Easy to understand product line-up
Enables customers to start with small-sum equity trades and installment-type investment
Handles IPOs (Initial Public offerings)
Lowest fee level in the industry
Utilization of gamification
CONNECT
Name CONNECT Inc.Shareholder Daiwa Securities Group Inc. (100%)
Date established April 1, 2019
Businesscommencement date Spring of 2020*
Targets People in their twenties to forties and active traders, mainly the millennial generation
* Fee pool (FY2014-FY2018) : Compiled by Daiwa Securities Group Inc. based on TSE trading price data, financial disclosure materials of online securities companies, etc.
face to facesecuritiesonline securities
Japanese equities（cash trading）
¥790 bn
face to facesecuritiesonlinesecurities
Japanese equities（margin trading）
¥330 bn
face to facesecuritiesonlinesecurities
Margin interest rates¥650 bn
* Business is scheduled to commence after the process of registering the business as a financial instruments business operator with the relevant authorities has been completed.
Ⅱ - Growth of Traditional Securities Business Retail Division
Need for face-to-face consulting
▲1,500
▲1,000
▲500
0
500
1,000
1,500
2009 2011 2013 2015 20170
2,000
4,000
6,000
8,000
10,000
2009 2011 2013 2015 2017
ActiveETFIndex
0
20
40
60
80
100
120
2010 2012 2014 2016 2018
Index (excluding ETFs)ETF（BOJ）ETF（excluding BOJ）Other
Establishment of Joint Venture to Expand Domestic ETF Business
15
AUM of publicly offered investment trusts & funds flow in Japan
ETFs are increasing as a percentage of publicly offered investment trusts in Japan, but the market is still in the development stage. In the future, we will launch highly flexible, low-cost ETF products aimed at advancing the transition from saving to asset building to expand the market.
New company established to invigorate the ETF market
AUM of U.S. domestic equity funds & funds flow
Source: The Investment Trusts Association, ICI “2019 Investment Company Fact Book”
Global X Japan
Global X commands a strong presence in the U.S. ETF market
Global X and Daiwa Securities Group made joint investment to establish
Provides differentiated products, mainly theme-based and smart beta products
Aiming to expand overall passive business as a supplement to outsourced management of investment trusts by Daiwa Securities
High growth in AUM• Has differentiated its entire ETF line-up since SEC registration in 2008• AUM: USD10.9 billion (approx. ¥1.2 trillion)• Growth in AUM over past three years (Jun. 2016 vs. Sep. 2019):
2.8 times(Increased to USD7 billion from USD3.9 billion on June 30, 2016)
• Ranked 18th in the U.S. ETF league table
Differentiated product line-up• Number of products: 70• Smart beta, promising investment themes, niche sectors, country strengths
(Figures as of June 30, 2019)
Investment trusts managed by Daiwa Securities under contract
Global X Japan
Basic indicator ETFs
Basic indicator publicly offered
investment trusts
Smart β, theme-based
& other publicly offered investment trusts
Smart β, theme-based & other ETFs
AUM Funds flow
Funds flowAUM
Daiwa Securities Group
(¥ Trillions)
(Year)
(USD Billions)
(Year)
-500
-1,500-1,000
Ⅱ - Growth of Traditional Securities Business Asset Management
0
20
40
60
80
2010 2012 2014 2016 2018
Further evolution of the Daiwa IPO platform
Sourcing Capability (Deal-finding skill) Strengthen relationships and partner with external venture capital firms
and universities. Cooperate with Daiwa PI Partners and Daiwa Corporate Investment
Quality of Human Resources Continuous reinforcement of personnel Strengthen the coverage of unicorn IPO companies
Networking Skills Execution & Marketing Skills Knowledge & experience backing our extensive track record Solid sales base in Japan and overseas
Further evolution of the Daiwa Innovation Network (DIN)
Expansion of the IPO Ecosystem
16
Continuously provide risk money to promising startups using external venture capital.Build an ecosystem that supports new industries full-circle, from development through exits.
＜Major VC Fund investees＞
approx. ¥30.0 bn
A number of presentersfrom startups：451companies（80 sessions）
USD 0.88 bn
WiL Fund Ⅰ, II
SONY×Daiwa Securities Group Inc.
＜IPO related personnel ＞
Block chain / AI / VR/AR / Security /
Bio healthAI・Robotics
B2B／Sharing／Market place
＜IPO market share*＞
VC
FundTotal amount
Theme
Innovation Growth Fund¥15.0〜20.0 bn
2008.4 2013.4 2019.4
Approx. Doubled
1.8%6.7%
10.6% 9.3%
26.0%19.0% 20.4%
2013 2014 2015 2016 2017 2018 2019上期
*League tables show share captured in terms of value
2019.1H
Ⅱ - Growth of Traditional Securities Business Wholesale Division
9.110.3
11.4
16.2
21.7
22.8
13.0
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Japan Asia DC Europe DC US
Further Strengthening the Global M&A Network
17
Integrate DC Advisory brand name globally, and strengthen and consolidate theM&A network. Target top share in the global mid cap market in the future.
* Mergermarket. M&A deals with a total transaction value of USD500 million or less in all regions.Excluding accounting firms. Disclosed deal basis.
Main initiatives (from FY2018)
Green Giraffe
DC US
Asia/Oceania approx.500people
Overseas M&A structure
M&A-related revenues
Global mid cap advisory rankings (FY2018)*
Target inclusion in top tier in the mid cap market
Trend of steady increase in the top line
57100
50 30 19
Amortization of goodwill, etc. * Indexed to FY2018 = 100
FY2020 FY2021
Target expansion of the top line
（1H results）
Rank Financial & advisory No. of deals
8 Daiwa Securities Group/DC Advisory 120
(¥ Billions)
Ⅱ - Growth of Traditional Securities Business Wholesale Division
December 2018 October 2019 Launch of Corporate Advisory S.r.l (DC Italy)
Acquisition
* Source：inspiratia (1H FY2019, value base)
Opened new locations in DC Europe (Madrid, Milan) Integrated global brands of M&A advisory
October 2019 Invested in Green Giraffe * Speciality advisory firm focused on the renewable
energy sector* Retained 1st place on global league table
DC Europe Future imageof balance
Ⅲ- Promotion of Hybrid Strategy
Promotion of Hybrid Strategy
19
Provide new value to customers even if difficult environment continues and existing traditional securities business grows moderately. Build a business model that is less susceptible to market conditions by entering into new business areas with a low correlation to cyclicality of securities business.
Image of future ordinary incomeApprox. 35%
% of hybrid business in consolidated ordinary
income：18%
Retail
Existing hybrid business※1：¥15.1 bn
Company Similar industry Correlation coefficient with securities business
Daiwa Next Bank, Ltd. Banking 0.8
Real Estate Asset・Asset Management（Daiwa Real Estate Asset Management Co. Ltd., Daiwa Office Investment Corporation etc.）
Real estateBusiness 0.6
Daiwa Food & Agriculture Co. Ltd. Agriculture 0.4
Healthcare（Good Time Living etc.） Medical,welfare 0.3
Daiwa Energy & Infrastructure Co. Ltd. Power 0.09
Correlation coefficient of ordinary income at macroeconomic level
Profitability improvement target in traditional securities business：Around ¥40.0 billionWholesale
Traditional securities business excluding hybrid business
Profit growth in the traditional securities business（3%)
Ⅲ - Promotion of Hybrid Strategy
Main Hybrid Business
Retail DivisionCONNECT Co. Ltd.Business partnership（Japan Post Bank Co., Ltd.etc.）
Asset Management
Division
Daiwa Real Estate Asset Management Co. Ltd.Daiwa Office Investment CorporationSamty Asset Management Co.,Ltd. / Samty Residential Investment Corporation
Investment Division
Daiwa Energy & Infrastructure Co. Ltd.ACA Investments Pte Ltd
Other
Daiwa Next Bank, Ltd.Fintertech Co. Ltd.ORIX Living Corporation etcDaiwa Food & Agriculture Co. Ltd.
FY2018 FY2023 FY2028
Approx. 25%
Asset Management ¥20.1 bn,24%¥25.4 bn,31%¥24.7 bn,30%
Source: Calculated by Daiwa Securities Group Inc. based on “Corporate Statistics” from the Ministry of FinanceAll companies with capital of 500 million yen or more (finance and insurance: 100 million yen or more)
¥83.1 bn
Profit growth in existing and new hybrid businesses※2
※1 Real Estate AM Business, Next Bank※2 The profit outlook of the hybrid business is based on the basescenario of each profit assumption
1.7
5.2
7.0
9.1
7.06.0
6.7
8.2
Daiwa Hotel Private Investment Corporation
Samty Residential Investment Corporation
20
Real estate asset management related business: Ordinary income (¥ Billions)
2011 2012 2013 2014 2015 2016 2017 2018 2019(E) 2020(E)(FY)
311 350 424 477 800 834 903 1,000 1,033*
Capital & business alliance
with Samty Strengthen alliance in the
asset management business.
Launch a joint development fund for large hotels.
Collaborate with the Daiwa Securities Group on expansion in Asia, etc.
Daiwa Office Investment Corporationchanged from a consolidatedsubsidiary to an equity-method affiliate（42.68％→38.89％）* 38.27％(as of September30, 2019)
2015
Real estate asset management AUM (¥ Billions)
2012
Daiwa ResidentialPrivate Investment
Corporation
Residence
Daiwa Office Investment Corporation
2009
Office
Japan Rental Housing Investments Inc.Residence
Healthcarefacility
2014 2018
Residence
Hotel
Capital & business alliance with SamtySamty Residential Investment Corporation acquired as a consolidated subsidiary
2019
* As of September 30, 2019
Ⅲ - Promotion of Hybrid Strategy
Diversification & Expansion of AUM in the Real Estate Asset Management Business
Continue to diversify & expand AUM to achieve stable revenue growth and surpass ¥1 trillion in AUM.Strengthen alliances with external companies and continue work on initiatives aimed at improving the efficiency of the business portfolio.
Nippon Healthcare Investment Corporation
* Total of ordinary income of real estate AM business and profit from investment in Samty Group
Expansion into New Business Domains
21* Daiwa Energy & Infrastructure Co., Ltd. was established in October 2018.* AUM: Fiscal year-end figures for past results; Average AUM during the fiscal year for forecasts.
[Daiwa Energy & Infrastructure Co., Ltd.] Capture stable income growth by investing in renewable energy and infrastructure.[Daiwa Food & Agriculture Co., Ltd.] Supply risk money for solving the challenges of the agriculture business.
Daiwa Energy & Infrastructure Co., Ltd. (DEI) Daiwa Food & Agriculture Co., Ltd.
Lessee(Airline
company)
Electric power distributor
Aircraft leasing
Leasing feeNormally fixed for around 6 to 10 years
Solar power generation
Feed-in tariff systemFixed for 20 years
max.
Lessor (DEI)
Electric power generator (DEI)
Ⅲ - Promotion of Hybrid Strategy
Targeting AUM of ¥300 billion over the medium to long term
Infrastructure assetsRenewable energy assets (solar power, etc.)
・・・
¥58.4 bn
(¥ Billions)
0
1,000
2,000
3,000
FY20183Q
FY20192Q
FY2019 FY2020
Development and production of agritech
Latest ICT technology used in produce cultivation
＋ *
conventional
＋40％*vs.
conventionalConventional
method ICT use
① Investment in agricultural productive equipment – production of baby leaf with external companies
Aims to achieve annual operating margin on
amount invested: more than 10％
Yield
In the Netherlands, advanced horticulture techniques have been used since the 1990s. Large-scale consolidation is increasing. The high yield per land unit is 4 to 5 times that of Japan.
Even in Japan, advanced horticulture techniques provide much room for growth in productivity. We aim for large development by accumulating know-how through the establishment and operation of in-house agricultural fields.
We start from several hectares of production and produce large-scale Dutch-type production of tens of hectares in the future.
* Current target value, depending on the weatherin the cultivation area and the supply demand balance
②Founding and operating horticultural techniques – entering in-house production business
*Tomato cultivation (high-performance greenhouse, 10ha)Amount invested ¥3 billionTarget annual operating income ¥300 million
Investment
100
0
200
300
Ⅳ- In Conclusion
-88
224
178
26 29
96
120
261
195
90
-141
103
-33 -12
95
197185
165
136156
83
FY2019 is a Turning Point in Business Model Evolution
23
FY1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Future
The key concept is “business model evolution that captures changes.”We will evolve our traditional securities retail business while simultaneously pursuing a hybrid strategy to build a business model that is not easily affected by the market.
Ordinary income (¥ Billions)Chart: Nikkei Average
Stagnation of economy in the wake of the global
financial crisis
Increased uncertaintyResponse to progressively aging society
Slump after IT bubble
burst
Revenue restructuring
Cost reductions targeting return to
profitability
Stable revenue expansion initiative
Revision of cost structure
Diversification of revenue sources
(expansion of investment bank business) Three-point
integrated retail strategy
Pursuit of hybrid strategy
Business model evolution that
captures changes
Market rebound Market rebound
Ⅳ - In Conclusion
Appendix
Initiatives Aimed at Achieving SDGs
25
New investment in renewable energy via Daiwa Energy & Infrastructure Co. Ltd.
・・・ Swimsol GmbH (offshore solar power development in the Republic of Maldives)
・・・ Participating in geothermal power generation business Hakodate.
Daiwa Institute of Research engaged in mutual cooperation with Tanabe Consulting Co., Ltd. to provide advisory services to support implementation of initiatives to achieve SDGs.
Expanding SDG-based finance products that contribute to solving social challenges
Promoting marketing of SDGs aimed at market expansion
Developing & supporting an industrial base that contributes to achievement of SDGs
Strengthening engagement that accelerates the investment cycle
Implement an action plan aimed at building an SDG value chain
Daiwa Securities Group “Make it your own” plan
Participate in clean-up around branches and community clean-up activities. Participate as a volunteer in tree-thinning in the water conservation forests
owned by the Tokyo Metropolitan Government Bureau of Waterworks., a recipient supported by Daiwa Next Bank Ouen Time Deposits.
Hold regular SDG meetings at overseas locations. Cooperate with the check-out register bag reduction campaign in Tokyo office
buildings.
Actively communicate information on SDGs/ESG that will facilitate dialog.
・・・Establish a new ESG Research Dept. in the Daiwa SecuritiesEquity Research Division.Invite rating institutions and hold seminars for institutional investors on ESG investment and sustainable finance.
・・・Post simply explained information on SDGs in publicationsfor individual investors as well.
(Daiwa investment information monthly report, Daiwa Institute of Research quarterly report, etc.)
Hold SDG seminars to promote sales of SDG bonds and
SDG-related funds, etc. at each branch. Revise promotional tools and use environmentally
friendly materials.
Continue to form and sell SDG-related funds.・・・Establish EdTech Open.・・・Sell Global SDGs High Income Fund.
Underwrite issuance of the first SDG bonds for retail investors.
・・・GLP J-REIT/Green bonds (first J-REIT specializing in logistics facilities)
・・・Mitsui O.S.K. Lines/Sustainability bonds (first for a company)
Appendix
Current Medium-Term Management Plan
Next Medium-Term Management Plan
Sustained development of
society & economyLong-term vision
for FY2023
Transforming uncertainty into growth
Accelerating growth
Time
Potential
Passion
Required Elements
Professionalism
AUC¥68.1 trillion
Market cap¥1.2 trillion
Extrapolation from present
Resolution of social issues
FY2021–FY2023FY2018–FY2020“Passion for the Best” 2017
Where Daiwa Securities Group stands now
(As of March 31, 2018)
AUC¥80 trillion
Expanding individual assets under
management (AUM)
Expanding individual assets under
management (AUM)
Driving transition from savings to asset-buildingDriving transition from
savings to asset-building
Expanding and diversifying the investor baseExpanding and diversifying the investor base
Promoting corporate innovation throughinternal and external direct investmentPromoting corporate innovation throughinternal and external direct investment
AUC¥100 trillion
Japan’s growth potential
26
Direction for the FutureAppendix
A Financial and Capital Market Pioneer that Creates the FutureExpansion of custom
er assets
Grow
th of companies driving the
Japanese economy
“Passion for the Best” 2020
FY2020FY2020FY2019FY2019FY2018FY2018“Passion for the Best” 2017“Passion for the Best” 2017
Asset scale and corporate value
Establishment of a sales organization, products, and services
Realization and evolution of “Customer First” operations
Dramatic improvement in customer satisfaction
Strengthening of conventional business and full utilization of Group resources
Expansion and strengthening of external networks and surrounding businesses
Enhancement of products and services
Digital Transformation
Basic Policy Progress
Passion
PotentialProfession-alism
Innovation
Providing new value as an integrated
securities group with a hybrid business model
Providing high value-added solutions
through the use of our “Quality No. 1”
consulting capabilities
1
2
Time
Customer-oriented KPI
Performance KPI
FinancialKPI
Group Numerical Targets
Outline of “Passion for the Best” 2020, Our Medium-Term Management Plan
27
Appendix
Performance KPIPerformance KPIFinancial KPIFinancial KPI
Customer-oriented KPICustomer-oriented KPI
• NPS (Net Promoter Score®), etc.Customer Satisfaction
• 10% or higherROE• 18% or higherConsolidated total
capital ratio
Employee satisfaction survey
Liquidity coverage ratio, net stable funding ratio (NSFR)
Fixed cost coverage ratio, operating efficiency ratio / digitalization index, earnings of overseas divisions
• ¥80 trillion or more (FY2020)AUCat Daiwa Securities
• ¥200 billion or more (FY2020)Ordinary income
Monitoring indicator
Monitoring indicator
Monitoring indicator
Group Numerical Targets
28
Appendix
Note: Net Promoter Score® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.
FY2017 FY2018 FY2019.1QFY2017 FY2018 FY2019.1H
2018.3 2019.3 2019.9
Progress Toward Quantitative Goals
29
Customer-oriented KPI (Daiwa version of NPS) Customer-oriented KPI (Assets Under Custody)
Finance KPI (Consolidated total capital ratio)Performance KPI (ROE) Performance KPI (Ordinary income)
¥80 trillion or more (FY2020)
¥200 billion or more (FY2020) 18% or higher10% or higher
Improvement in score
8.8%
5.1%
21.8% 21.6％
Retail Division: Trend in Net Asset Inflow
（annualized）FY2017 FY2018 FY2019.1H
5.4％
¥27.7billion
21.1%
AllAllAlready introduced at branches
Steps to improve scores will be taken as needed
¥68.1trillion
¥66.3trillion
¥65.2trillion
¥155.6billion
¥83.1billion
（¥ billions）
0
200
400
600
1Q 2Q 3Q 4Q 1Q 2Q
FY2018 FY19
Individual Corporate
Appendix
Shareholder Return
30
Dividends per share
(yen)
Acquisition of treasury
shares
34.9％ 34.1％ 34.5％
42.5％ 42.3％ 41.9％
Actual payout ratio (full year)
15 34 30 29 26 28 213 12 17 17 14 16 17 12 13 13 13 15 12 9 11
Interim Year-end Interim Year-
end Interim Year-end Interim Year-
end Interim Year-end Interim Year-
end Interim Year-end Interim Year-
end
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019“Passion for the Best”2014
（FY2012-FY2014）“Passion for the Best”2017
（FY2015-FY2017）“Passion for the Best” 2020
（FY2018-FY2020）
50％ or higher
52.6％
Dividends FY2019 interim dividend per share: 11yenDividend payout ratio: 51.5％
ShareRepurchase
Total number of shares to be repurchased: 37 million sharesTotal amount to be paid for repurchase: ¥18.0 billion(as of October 31, 2019)
Set up the share repurchase programmax. of 50 mil shares,
max. repurchase amount of ¥30 bil
51.5％（1H results）
Approx. 30％
Approx. 40％
Amount repurchased
¥18.6 bn
Total return ratio
58.3％ Amount repurchased
¥19.0 bn
Total return ratio
60.4％
Total return ratio
75.2％Amount
repurchased
¥37.1 bn
Total return ratio
106.9％Amount
repurchased
¥34.8 bn
Announced on July 31, 2019
Appendix
31
Views on Financial and Capital StrategiesImplement a financial strategy that takes all stakeholders into consideration by striving to balance investment in growth, improving capital efficiency, maintaining financial health, and enhancing shareholder returns to achieve sustainable growth by earning healthy profits.
Financial strategy that enables the Group to achieve its medium and long-term visions for growth
Support investment in growth by establishing a healthy financial base that will enable the Group to respond to changes in the management environment.– Target capital investment and
development of human resources at expanding our customer bases in the securities business.
– Make it possible to take on challenges in areas that are compatible with and peripheral to our core businesses.
Financial strategy that encompasses and shareholders and other stakeholders Improve capital efficiency and
provide returns to shareholders. Clearly specify management
continuity.– Earn the trust of customers, and
provide employees with peace of mind and a satisfying workplace.
Disclose information appropriately and in a timely manner.– Ensure management
transparency that will help to enhance corporate value.
Financial strategy that contributes to society
Contribute to the sustainable development of society by paying appropriate taxes based on high ethical values.
Improvecapital efficiency
Improvecapital efficiency
Enhanceshareholder
return
Enhanceshareholder
return
Invest in growth
Invest in growth
Maintain financial health
Maintain financial health
Achieve sustainable growth by earning
healthy profits
Appendix
Minimum regulatory requirements(When Basel Ⅲ is fully applied)
11% or more
Buffer for loss from stress testing
Use for growth investments, shareholder returns, etc.
Extent of decline due to the impact of financial regulations
11.0%
Consolidated total capital ratio: 21.11% (as of June 30, 2019)
View on Financial KPI
Breakdown of minimum regulatory requirements
Factors that affect risk-weighted assets (RWA)・ Fundamental review of the trading book・ Review of credit risk calculations・ Review of the CVA risk framework
* Finalization of the method of risk calculation and future regulatory rules remain elements of uncertainty, and the effects of such factors are subject to review in the future.
Strive for an optimal balance of growth investment, improvement in capital efficiency, maintenance of financial soundness, and strengthening shareholder returns
The buffer takes minimum regulatory requirements and comprehensive stress tests into account
Minimum required level of capital 8.0%
Capital conservation buffer 2.5%
D-Sib surcharge 0.5%
Total 11.0%
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.
18.0%
Consolidated Total Capital Ratio
32
Appendix
Daiwa Securities Group Inc.Daiwa Securities Co., Ltd.
A2 A2A3 A3
Baa1 Baa1Baa2 Baa2Baa3 Baa3
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QFY2018 FY2019FY2013 FY2014 FY2015 FY2016 FY2017
33
Trend in Credit Ratings for Our Group
S&P
Moody’s
Fitch
Daiwa Securities Group Inc.Daiwa Securities Co., Ltd.
A AA- A-
BBB+ BBB+BBB BBBBBB- BBB-
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QFY2018 FY2019FY2013 FY2014 FY2015 FY2016 FY2017
Daiwa Securities Group Inc. / Daiwa Securities Co., Ltd.
A AA- A-
BBB+ BBB+BBB BBBBBB- BBB-
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QFY2018 FY2019FY2017FY2013 FY2014 FY2015 FY2016
Appendix
2,442 2,175
1,664 1,676 1,636 1,566 1,614 1,776 1,921 1,963
0
500
1000
1500
2000
2500
1 2 3 4 5 6 7 8 9 10
Overseas BusinessOverseas operations have succeeded in initiatives aimed at improving business efficiency thus far, and have generated profits for 14 consecutive quarters. We will continue to strengthen the global M&A network and alliances, and will strive to provide high growth results, mainly in Asia.
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY19.1H
Large-scale restructuring phase
No. of personnel in overseas locations
Number of Personnel at Overseas Locations and Trend in Ordinary Income
Overseas ordinary income
Strengthen the global M&A
network
Optimization of businessPursuit of alliance strategy
Investment in growth areas
Pursuit ofalliancestrategy
34
Launch of Daiwa Corporate Advisory S.r.l.（Italy）
Established the subsidiary in Frankfurt
Opened theSydneybranch
(¥ Billions)
(No. ofpersonnel) *Orange indicates the number of
personnel in DC (Europe, Americas)
Tanachart Securities (Thailand)
Bahana Securities (Indonesia)Affin Hwang Investment Bank (Malaysia)Australia and New Zealand Bank (Australia & New Zealand)
Sanford C Bernstein (UK)CSC Financial Co., Ltd. (China)
Development Bank of Philippines (Philippines)
COL (Philippines) investment
Ambit (India)SSI (Vietnam) investment stake increased, making it an equity-method affiliate 9 Basil (Thailand)
Sagent Advisors Signal Hill acquisition(U.S.A.)
Montalbán Atlas Capital acquisition (Spain)
Branches closed in Dubai
& MilanWithdrew from European equity
research
Withdrew from Asian equity derivatives
Sold the global equity finance
business
Withdrew from the Hong Kong
warrant business
Closed the Frankfurt branch
Appendix
▲ 21.5▲ 25.8
▲ 10.5▲ 5.1 ▲ 3.9 ▲ 4.6
13.4 11.4
3.7 2.2
▲ 30
▲ 20
▲ 10
0
10
20
Europe Asia Americas Overseas total
Main Business Lines of Global Bases
35
Americas
Americas San Francisco Chicago New York Washington D.C.
Bangalore Mumbai
Asia/Oceania
India
Korea Seoul
Singapore
Thailand Bangkok
Taiwan Taipei
China Beijing Shanghai Hong Kong
Philippines Manila
Vietnam Hanoi
Myanmar Yangon
Australia Sydney Melbourne
Europe/Middle East
Manchester London
Italy Milan
Germany Frankfurt
France Paris
Poland Warsaw
Russia MoscowBahrain
Switzerland Geneva
Spain Madrid
● The Daiwa Securities Group offices▲ Overseas business alliances
Singapore
Locations of global bases
22Major Business linesM&A advisory (DC Europe)Primary (equity underwriting, debt underwriting)Equity (Japanese equities, European equities, Asian equities)FICC
Equity (Japanese equities, Asian equities)FICCM&A advisory (DC US)Primary (equity underwriting, debt underwriting)
Major Business linesFICCEquity (Japanese equities, US equities, Asian equities)M&A advisory (DC US)Primary (equity underwriting, debt underwriting)
Bahrain
Major Business lines
countries andregions
England
Appendix
36
Alliances and Investments in Asia
Mirae AssetGlobal Investments
Cooperation onmanagement & sale of
investment trusts
South KoreaDaiwa-Cathay
Capital Markets
Oct. 2001:Joint venture established
TaiwanValue Partners
Cooperation on management &
sale of investment trusts
Hong Kong
China Securities
Nov. 2014:Business alliance
Dec. 2016:Investment
China
Philippines
Nov. 2015: Business alliance
Development Bank of Philippines
Mar. 1995: JV established
COLFinancial Group
Apr. 2017:Investment
SSI
June 2008:Capital & business alliance
Apr. 2016:Increased stake and
became an equity method affiliate
VietnamMyanmar Securities
Exchange Centre（MSEC）
Feb. 2016: Securities license granted
Mar. 2016: Began trading
Myanmar
Affin Hwang Investment Bank
Dec. 2013:Business alliance
Malaysia
Ambit Private Limited
Dec. 2016:Business alliance
India
Bahana Securities
Sep. 2013:Business alliance
IndonesiaAustralia andNew Zealand
Banking Group
Feb. 2014:Business alliance
Australia &New Zealand
Thailand
ThanachartSecurities
Feb. 2013:Business alliance
Applied to the China Securities Regulatory Commission to establish a joint venture securities firm with Beijing State-owned Capital Operation and Management Center (September, 2019)
9 Basil Co., Ltd.
Dec. 2018:Business alliance
Appendix
37
External Ratings & Certifications
0
Inclusion in Indices Awards from External Organizations
MSCI Japan Empowering Women (WIN)
Select Index
FTSE Blossom Japan Index
BloombergFinancial Services Gender Equality
Index
GRESB SurveyGRESB 2018 “Green Star”
FTSE4 Good Index
U.S. Dow Jones & Company, Inc. &RobecoSAM
DJSI World / Asia Pacific
Selected for 3 consecutive years
Obtained for 8 consecutive years (Daiwa Office Investment Corporation)
Included for 14 consecutive years
Continually included since 1999
0
Health & Productivity Stock/Outstanding Company in Health &
Productivity Management
Nadeshiko Brand(enterprises that encourage the
success of women)
Competitive IT Strategy Company
Kurumin MarkCertification for companies that
provide childcare support
Mark for companies that promote the establishment of a workplace
environment that enables employees to both work and care for elders
Selected for 5 consecutive years
Selected for 5 consecutive years/Selected for 3 consecutive years
METI & Tokyo Stock Exchange Inc.
METI & Tokyo Stock Exchange Inc.
Ministry of Health,Labour & Welfare
Ministry of Health, Labour
& Welfare
Total ranking: 4thFinancial industry: 1st
Toyo Keizai Online, 2020 Graduates (2nd half period)
Employment popularity ranking
METI &Tokyo Stock
Exchange Inc.Selected for 2 consecutive years
Appendix
120.9
9.417.6
0
50
100
150（兆円）
-28.58.2
130.1
-9.1
30.8
-50
0
50
100
150（兆円）
99 1955370
857
991
33
25482
5271,575
1,860
0
400
800
1,200
1,600
2012/9 2019/6
（兆円）
株式等 投資信託 現⾦・預⾦債券 保険・年⾦等 その他
38
Progress on Shift from Savings to Investments Since Abenomics Began
Factor analysis
Transaction factors
+ ¥ 129.7 tn(45.4%)
Marketfactors
+ ¥143.8 tn(＋53.4%)
Stocks/equityinterests
+ ¥96.4 tn(+97.8%)
Investmenttrusts
+ ¥17.3 tn(+32.6%)
Cash/Deposits+ ¥134.2 tn(+15.7%)
Bonds- ¥7.8 tn(-23.7%)
Insurance/Pensions
+ ¥45.2 tn(+9.4%)
Total assets+ ¥285.8 tn(+18.1%)
Stocks/Equity interests
Investment trusts
Cash/Deposits
Insurance/Pensions
Insurance/Pensions
Investment trusts
Bonds
(Cash: ¥93 trillion)
(Cash: ¥69 trillion)
Stocks/Equity interests
Household Financial Assets (Sept. 30, 2012 vs. June 30, 2019) Transaction Factors (Asset Inflows/Outflows)
Market Factors (Market Value Adjustment)
Net inflow
Net outflow
Valuation Profit
Source: Compiled by Daiwa Securities Group Inc. based on the Bank of Japan’s Flow of Funds Account
(¥ Trillions)
(¥ Trillions)
(¥ Trillions)
Stocks, equity interestsBonds
Investment trusts
Insurance/Pension
Cash/Deposits
Others
Appendix
Investor Relations Office, Daiwa Securities Group Inc.TEL: 03-5555-1300 FAX: 03-5555-0661
E-mail: [email protected]: http://www.daiwa-grp.jp/english/ir/
