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Spring 2010Daiwa Securities Group Business Strategy
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.
2
Index
FY2009 Financial Summary ・ ・ ・ ・ 3
Asia Strategy ・ ・ ・ ・ 6
Retail ・ ・ ・ ・ 11
Wholesale ・ ・ ・ ・ 18
Asset Management ・ ・ ・ ・ 25
4
Consolidated
Financial Summary
4Q 3Q
Operating revenues 537,915 413,936 30.0% 116,549 183,615 -36.5%
Net operating revenues 458,105 199,544 129.6% 98,094 165,509 -40.7%
SG&A 362,844 343,270 5.7% 90,946 99,775 -8.8%
Ordinary income 102,917 -141,150 ― 10,160 67,891 -85.0%
Net income 43,429 -85,039 ― -2,798 26,366 ―
Total assets 17,155,345 14,182,579 17,155,345 14,873,191
Net assets 1,017,528 952,329 1,017,528 938,405
Shareholders' equity* 927,163 720,272 927,163 925,983
EPS (Y) 26.41 -63.16 -1.60 15.08
BPS (Y) 530.27 534.99 530.27 529.60
ROE (Annualized) 5.3% ― ― 11.0%
(Y mil)% Change
vs3Q FY09
FY2009FY2009 FY2008
% Changevs
FY2008
* Shareholders’ equity = owners’ equity + valuation and translation adjustments
ROE (Annualized) FY2009 4Q FY09
12.6%9.9%
10.3%9.5%
Daiwa Capital Markets(consolidated)
Daiwa Securities
FY09 Dividend
FY09 Dividend per Share: 13 yen(including 5 yen interim dividend)
5
Topics for FY 2009
Announced MediumAnnounced Medium--term Management Plan (April 2009)term Management Plan (April 2009)
Issued new shares for the first time in 20 years (July 2009)Issued new shares for the first time in 20 years (July 2009)
Total shareholders’ equity: JPY 927.1bil (end of Mar. 2010) Total portfolio of high-liquidity assets: JPY2,350 bil (end of Mar. 2010)
Dissolved Joint Venture with SMFG (September 2009)Dissolved Joint Venture with SMFG (September 2009)
Changed the corporate name of the wholesale unit from Daiwa Securities SMBC Co. Ltd. to Daiwa Securities Capital Markets Co. Ltd. in January 2010
【Management Target】Consolidated ordinary income:JPY 200bil or higher, Consolidated ROE:10% or higherMarket Capitalization:Within top 40 in Japan
Strengthen Asia BusinessStrengthen Asia Business
Consider all Asian markets including Japan as the Group’s “Home market”
6
Invite local influential people as our joint chairman / advisor
Obtain advice and support for our Asian strategies
Invite local influential people as our joint chairman / advisor
Obtain advice and support for our Asian strategies
Increase personnelIncrease personnelIncrease personnel
Invite local influential people as our advisorsInvite local influential people as our advisorsInvite local influential people as our advisors
Increase approx. 300 staff in Asian equity and derivative business
Increase approx. 100 staff in underwriting and M&A business
Increase approx. 300 staff in Asian equity and derivative business
Increase approx. 100 staff in underwriting and M&A business
Assign five senior executives led by representative deputy president of Daiwa Securities Capital Markets (Hong Kong: 4 executives , Singapore: 1 executive)
Station head of Global Equity Sales Division and co-head of Global Investment Banking Division in Hong Kong
Partial transfer of headquarters functions, from Tokyo to Hong Kong, such as management planning Establish hub functions to supervise Asian offices
Assign five senior executives led by representative deputy president of Daiwa Securities Capital Markets (Hong Kong: 4 executives , Singapore: 1 executive)
Station head of Global Equity Sales Division and co-head of Global Investment Banking Division in Hong Kong
Partial transfer of headquarters functions, from Tokyo to Hong Kong, such as management planning Establish hub functions to supervise Asian offices
Upgrade the Hong Kong Subsidiary to “Second headquarters” status to strengthen Asian operationsUpgrade the Hong Kong Subsidiary to Upgrade the Hong Kong Subsidiary to ““Second headquartersSecond headquarters”” status to strengthen Asian operationsstatus to strengthen Asian operations
Global Markets divisionGlobal Markets division
Global Investment Banking divisionGlobal Investment Banking division
Asia Strategy : Core Action Plans
Strengthen capitalStrengthen capitalStrengthen capital
Allocate approx. JPY 100bil capital into overseas locationsAllocate approx. JPY 100bil capital into overseas locations
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香港
Mar. 10 A fter cap ita lst rengten ing
韓国
Mar . 10 Future p lan
インド
Mar . 10 A fter cap ita lstrengten ing
シンガポール
Mar. 10 A fter cap ita lstrengten ing
英国
Mar. 10 A f ter f unded by
s ubord i na ted l oa n
Asia Strategy : Capital Boost Plan
+ JPY 28bil
+ JPY 18bil(executed)
+ JPY 6.5bil
+ JPY 2.5bil(executed)
Under consideration
JPY 31bil
JPY 59bil
JPY 5.5bil
JPY 9.5bil
JPY 3bil
JPY 6bil
JPY 10bil
+ JPY 35bil
India Singapore
Hong Kong Korea United Kingdom
JPY 46.5bil
JPY 81.5bil
Each capital figure is approximate figure calculated by foreign exchange rate as of Mar. 2010
For United Kingdom, subordinated loan amount is to be set up
+ 4bil
AsiaAsia EuropeEurope
Note:
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Asia Strategy : Targets
Strengthen Markets and IB Division simultaneously to harness early synergy effectStrengthen Markets and IB Division simultaneously to harness early synergy effect
Target for the Global Markets DivisionTarget for the Global Markets Division
Top 5 Asian equity brokersTop 5 Asian equity brokers
Target for the Global IB DivisionTarget for the Global IB Division
Top 10 Asia ECM League Table*Top 10 Asia ECM League Table*DistributionPower
DistributionPower
Supply PowerSupply Power
*ECM league table: Global Equity, Equity-related – Asia Pacific (Thomson One Banker)
0
10
20
30
40
50
60
2006 2007 2008ResultResult
Image of Asia Oceania revenueImage of Asia Oceania revenue
(Y bil.)
(FY) 2009 2010 2011
Target revenue of Asian business
strategy(JPY 53 billion)
Target revenue of Asian business
strategy(JPY 53 billion)
Aim to become a “World–class, high quality investment bank representing Asia”Aim to become a “World–class, high quality investment bank representing Asia”
9
Basic strategiesBasic strategiesBasic strategies Focus areasFocus areasFocus areas
Increase revenues by strengthening various divisions while giving priorities to each countries and regions
Focus on concentrated global clients coverage methodImprove research products (hire highly-ranked analysts, expand stock coverage, boost pan-Asian research)Boost corporate access serviceStrengthen trade execution infrastructureEnhance principal business
Increase revenues by strengthening various divisions while giving priorities to each countries and regions
Focus on concentrated global clients coverage methodImprove research products (hire highly-ranked analysts, expand stock coverage, boost pan-Asian research)Boost corporate access serviceStrengthen trade execution infrastructureEnhance principal business
Hong Kong /China
Korea
Taiwan
India
Hong Kong /China
Korea
Taiwan
India
Seek to develop Asian derivatives business by leveraging the existing platform built through the derivatives project
Market a broad range of derivatives products in the Asian region as well as on a cross-border basis. Target wide scope of clients such as corporate institutions, institutional investors, hedge funds, and private banks
Seek to develop Asian derivatives business by leveraging the existing platform built through the derivatives project
Market a broad range of derivatives products in the Asian region as well as on a cross-border basis. Target wide scope of clients such as corporate institutions, institutional investors, hedge funds, and private banks
Hong Kong
Singapore
Taiwan
Hong Kong
Singapore
Taiwan
Asia equitiesAsia equities
DerivativesDerivatives
Global Markets Division
Global Markets Global Markets DivisionDivision
Win major IPO/ PO mandates and M&A deals by strengthening the Asian investment banking platform
Increase country bankersStrengthen sector coverage in Hong Kong while deploying the product specialists
Win major IPO/ PO mandates and M&A deals by strengthening the Asian investment banking platform
Increase country bankersStrengthen sector coverage in Hong Kong while deploying the product specialists
Global Investment
Banking Division
Global Global Investment Investment
Banking Banking DivisionDivision
Hong Kong /China
India
Hong Kong /China
India
Asia Strategy : Basic strategies & Focus areas
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Asia strategy : Our History in Asia
Tokyo Headquarters
Mumbai subsidiaryEst.: Feb. 2006
Singapore subsidiaryEst.: Jun. 1972
Bangkok Representative OfficeEst.: Jan. 2006
Taiwan subsidiaryEst.: Jul. 1993
Seoul BranchEst.: Dec. 1982
Beijing Representative OfficeEst.: Sep. 1983
Shanghai Representative Office(Daiwa SSC Securities)
Est.: Aug. 1986
Hanoi Representative OfficeEst.: Oct. 2007
Philippines subsidiaryEst.: Mar. 1995
Honk KongEst.: Dec. 1970
(2nd Headquartersof Daiwa CM)
Lead managed the world’s first Asian dollar bond (DBS bond), establishing Asian dollar bond market in offshore market in Singapore (1971)
Lead managed the world’s first Euro dollar bond issued by ADB (1978)
Managed the world’s first Asian dollar CP by ITOCHU Corporation’s Hong Kong subsidiary (1980)
Participated in establishment of AFIC, and sent first president (1989)
Lead managed overseas tranche for privatization of Singapore Airlines, DBS Land and Singapore Telecommunications in Singapore, and Tenaga National Berhad, Malaysian electric company and Petronas Gas in Malaysia
Lead managed ADB’s “Dragon” Yen bond (JPY 30bil) (1993)
Lead managed Malaysian YTL Group’s IPO – the first-ever listing by Asian company on TSE (1996)
Cultivated offshore market in the Philippines, and lead managed the Philippines offshore yen bond by Development Bank of the Philippines (1997)
Lead managed SinoCom’s IPO on Hong Kong exchange
Lead managed POWL deals of PO/IPO including Ping An Insurance, Industrial and Commercial Bank of China Limited, Bank of China, China Tung Bank, China Construction Bank, China Merchants Bank, Shanghai Electric, Singapore Post and Chunghwa Telecom (Taiwan) etc.
Lead managed China Boqi Environmental Solutions Technology’s IPO – the first–ever listing by Chinese company on the first section of TSE (2007)
Co-lead managed Tong Yang Life Insurance Company’s IPO in Korea (2009)
Lead managed Shanghai Conant Optics’ IPO on Shenzhen exchange as the first Japanese lead manager (2010)
Lead managed IPO deal on ASX in Australia (2010)
12
Action Plans for FY2010Retail
Reduce cost by rationalizing and streamliningReduce cost by rationalizing and streamliningbackback--office operations utilizing Information Technologyoffice operations utilizing Information Technology
Provide attractive products and services to meet Provide attractive products and services to meet customer needscustomer needs
Expand customer base by strengthening consulting capability
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21.3
43.5
65.2
93.0(Only Apriland May)
0
50
100
150
2007 2008 2009 2010
Provide attractive products and services utilizing the Group’s resourcesProvide attractive products and services utilizing the GroupProvide attractive products and services utilizing the Group’’s resourcess resources
Sales of Impact Investment Bonds
JPY 32.6bilClimate Awareness BondMay 21, 2010
JPY 24.6bilMicrofinance BondNov. 20, 2009
JPY 9.7bilGreen World bank BondFeb. 3, 2010
JPY 30.9bilVaccine BondMar. 24, 2010
JPY 60.4bilWater BondApr. 16, 2010
JPY 40.8bilVaccine BondFeb. 20, 2009
JPY 2.7bilWorld Cool “CO2L” BondJun. 26, 2008
JPY 21.3bilVaccine BondMar. 19, 2008
Issue Amount(Yen approximate)NameIssue Date
【Market share of Impact Investment Bonds*】
Daiwa 73%
Source: Daiwa Securities *bonds sold for retail investors (as of Apr. 10)
【 Total Issue Amount 】
More issuesplanned
(Y bil)
(FY)
Consulting DivisionRetail
14
0
50
100
150
200
1Q/09 2Q/09 3Q/09 4Q/09
North Ame ric a an d O the rsB raz ilIn diaCh in a, Hong Kong
Consulting DivisionRetail
Foreign equity trade value by regions Asset-based fee from investment trusts(Y bil)
0
2
4
6
1 Q/ 07 1 Q/ 0 8 1 Q/ 0 9
(Y bil)
10/4Q 11/4Q* Each bar indicates monthly average of each quarter
Provide attractive products and services utilizing the Group’s resourcesProvide attractive products and services utilizing the GroupProvide attractive products and services utilizing the Group’’s resourcess resources
15
Focus on marketing competitive products and servicesFocus on marketing competitive products and servicesFocus on marketing competitive products and services
Contract asset under management & Number of customers of Wrap Account Service Market Share in Wrap Account Service
(Y bil) (# of accounts: 000)
0%
10%
20%
30%
40%
50%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Contract AUM# of accounts
FY2007 FY2008 FY2009
0
1 0 0
2 0 0
3 0 0
4 0 0
1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q
0
5
1 0
1 5
2 0Daiwa SMA Contract AUM (left)Daiwa Fund Wrap Contract AUM (left)# of customers of wrap account (right)*
FY2007 FY2008 FY2009
Source: Japan Securities Investment Advisers Association ; compiled by Daiwa Securities
Consulting DivisionRetail
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“Daiwa Direct” DivisionRetail
アクティブな投資家に訴求するサービスの充実アクティブな投資家に訴求するサービスの充実アクティブな投資家に訴求するサービスの充実
Expand product line-up and improve usability
0
500
1,000
1,500
3/07 9/07 3/08 9/08 3/09 9/09 3/10 4/10
“Daiwa Direct” Course: number of accounts
(# of accounts: 000)
Expand services to attract active investors
Expand service contents to attract active investorsExpand service contents to attract active investorsExpand service contents to attract active investors
Trading value of “Daiwa 365 FX”
0
300
600
900
11/09 12/09 1/10 2/10 3/10 4/100%
5%
10%
15%Trading value of "Daiwa 365 FX" (left)
Daiwa's share in trading value at Exchange FX"Click 365" (right)
(Y bil)
Commission discount campaign
Share in newly opened accounts of Exchange FX Trades (“Click 365”)
Share from Nov. 09 to Apr. 10
Daiwa16%
Source: Tokyo Financial Exchange Inc.
17
Preparation for Entry into Banking BusinessRetail
Established a subsidiary on April 1, 2010 for preparing to set up an internet bank Bank operation is to start after the approval from authorities
Enhance convenience by providing services through Daiwa Securities as an agency
Offer high-yield deposit to customers by low-cost management utilizing the Internet and banking agency
Established a subsidiary on April 1, 2010 for preparing to set up an internet bank Bank operation is to start after the approval from authorities
Enhance convenience by providing services through Daiwa Securities as an agency
Offer high-yield deposit to customers by low-cost management utilizing the Internet and banking agency
Maximize use of banking agencyUtilize Daiwa Securities’ branches as banking agency in soliciting accounts opening
Develop Internet banking Develop internet banking; no branch office, no sales staff
Marketing & promotion
Marketing & promotion
High net worth clients preferring deposit accounts and Daiwa Securities’ clientsPooling fund to purchase securities products, such as MRF or bank’s saving depositTarget clientsTarget clients
An instrument to support wealth building, rather than just for bill paymentSaving deposit and time deposit with high yield Offer automatic fund transfer and settlement services between the customers’ bankaccount and the account at Daiwa Securities
Product & service
Product & service
19
Asian Subsidiary
European Subsidiary
100%
100%
Acquisition of Close Brothers Corporate Finance Limited11
22Transfer of the Research Division (Financial Research Center) from Daiwa Institute of Research
33
44
66
55
As of September 2009 After April 2010
Organizational reinforcement for business expansion / promotion has been completed
European Subsidiary
100%
Over 20%
100%
60%
100%
40%
100%
Daiwa Securities Group
Daiwa Securities CM Daiwa PI Partners
100%
100% 100%
US Subsidiary
95%
Daiwa Corporate Advisory Partners*Sagent
Over 20%
Asian Subsidiary
100%
* Former CBCF
Dissolution of joint venture with Sumitomo Mitsui Financial Group
Formulation of strategy for dramatic expansion of Asian business
Transfer of Principal Investment Division to the holding company
Consolidation of Daiwa Securities America
Main initiatives in FY2009
Summary of FY2009 Activities: Reinforced Organization
Daiwa Securities SMBC
Daiwa Securities Group SMFG
Daiwa Securities SMBC-PI
US Subsidiary
CBCF
Sagent
5%
The next stage is to actively pursue profitability
Wholesale
20
Reinforce domestic operations-- Improve broker ranking- Acquire No. 1 League Tables positions
More collaboration with Daiwa Securities
Make Asia business profitable quickly
Strengthen global management system
Action plans and Priorities for FY 2010Wholesale
21
Recruit talented and well-experienced staff Accelerate infrastructure build-up
Enhance service and support for Daiwa Securities’ promotion of foreign stock business
Promote cross-selling of Japanese and Asian equities under the common marketing platform
Improve competitiveness in Asian equity principal trade business
Raise broker ranking to gain higher commission share
Increase revenue related to equity-finance and electronic trading
Action plans for FY2010Action plans for FY2010
Equity Division : Enhance Asian Equity BusinessWholesale
22
0
20
40
60
80
100
120
140
3Q/08 4Q/08 1Q/09 2Q/09 3Q/09 4Q/090%
20%
40%
60%
80%
100%Total sales of structured bond% of sales for retail customers
Sales of structured bond
Offer structured bond and foreign currency-denominated bond. Promote emerging market currency bond
Daiwa Securities(Retail)
Daiwa CM(Wholesale)
FICC Division : Strengthen Intra-Group Collaboration
Strengthen support and product development for retail customers
Expand product lineupProvide information for sales promotion
Feedback customer needsUnderstand marketing trends
Wholesale
(Y bil)
23
Provide derivative products such as Asian currencies interest rate swap, FX trade and other currency options
Provide Asian products for retail investors
Establish risk management and middle-and-back-office operations in derivative business (Tokyo, London and Asia)
Acquire required licenses for derivative operation in Asia (Taiwan, Korea and India)
Global expansion of derivatives business
FICC Division : Derivative Business to Stabilize RevenuesWholesale
▲ 40
▲ 30
▲ 20
▲ 10
0
10
20
30
40
3Q/08 4Q/08 1Q/09 2Q/09 3Q/09 4Q/09
Trading gain and loss of Daiwa CM
(Y bil)
Set up Asia Derivative TeamSet up Asia Derivative Team
Strengthen organization for global derivative operationStrengthen organization for global derivative operation
Refining of valuation for derivative position
Lehman shock
24
No.1 in the straight bond underwriting league table for 2H (excl. own issue)
11 Reinforcement of core business platformReinforcement of core business platform
Strengthened origination function
Collaboration with Sagent Advisors in the U.S.
Collaboration with CBCF* in Europe
22 Full-fledged operation of global M&A structureFull-fledged operation of global M&A structure
Recruiting of Asia IB head and China IB head
Development of equity underwriting platform in Asia
33Enhancement of marketing platformin Asia / Oceania Enhancement of marketing platformin Asia / Oceania
Organization Reshuffling /build up the sector coverage system
Organization Reshuffling /build up the sector coverage system
Enhance service quality by strengthening solution and origination function
Identify client needs
Continue to recruit capable investment bankers
Develop operational structure by FY 2010
Strengthen the Asia IB businessStrengthen the Asia IB business
Global Investment Banking DivisionWholesale
(*Current Daiwa Corporate Advisory Partners)
Achievements for 2H FY 2009 Strategy for FY 2010
Increase number of mandates and expand revenues
Increase number of mandates and expand revenues
Achieve top 10 in the Asia Pacific equity league table
Achieve top 10 in the Asia Pacific equity league table
26
0
5
10
15
20
6 / 0 8 9 / 0 8 1 2 / 0 8 3 / 0 9 6 / 0 9 9 / 0 9 1 2 / 0 9 3 / 1 0
15 .0 %
15 .5 %
16 .0 %
16 .5 %
17 .0 %
17 .5 %Daiwa AM (Bond funds)
Daiwa AM (Equity funds)
Daiwa SB Investments (Investment trusts)
Daiwa SB Investments (Investment advisory)Daiwa Securities Group share* (right)
Assets Under Management
(Y tri)
* Daiwa Asset Management (Bond funds + Equity funds)+Daiwa SB Investments (Investment trusts)
▲200
0
200
400
600
800
1,000
Net inflow into equity investment trust(excluding ETF) for FY 2009 (from Apr. 09 to Mar. 10)
(Y bil)
Source: The Investment and Trust Association
Expand AUM by Maintaining Net InflowAsset Management
Company A
Company B
Company C
Daiwa Asset Management
Daiwa SB Investments