Message from Management

Takashi Hibino; President and CEO of Daiwa Securities Group Inc.

FY17 marks the final year of our current three-year medium-term management plan. Our ultimate goal is sustainable growth fueled by solid earnings. To this end, we are making steady progress in measures toward achieving the remaining targets mapped out in our current plan. We are also working to further enhance our unique corporate culture and DNA as well as our robust business model, which is built on the growth of stable revenue streams.

Looking back at 1H FY17, the Japanese stock market was buoyant, aided in large part by growth in exports and production volumes, and improved corporate earnings amid the recovery in the global economy. However, that is not to say the entire picture was rosy. There were stock market pullbacks sparked by concerns over the protectionist policies favored by US President Donald Trump, as well as heightened wariness in the face of geopolitical risks, such as moves made by North Korea. However, overall the market environment was solid, with Japan shares staging a bull run through the end of 1H on the back of the rally in US stock market and yen depreciation against the dollar.

In this operating environment, Daiwa Securities Group reported net operating revenues of Y239.4bn and ordinary income of Y68.9bn for consolidated earnings results in 1H FY17, as well as profit attributable to owners of the parent of Y51.3bn. We also announced an interim dividend of Y13. In addition, as a part of efforts to deliver more shareholder returns, the board of directors authorized a share buyback program of up to Y40.0bn, or 52.0mn shares (3.12% of total shares outstanding, excluding treasury stock), at its 25 October 2017 meeting.

In recent years, we have worked to establish a well-balanced profit structure for the entire group. The manner in which the different divisions have complemented each other is a testament to these efforts, and has given rise to stable streams of revenue.

The Retail Division adopted a new sales promotion strategy from April this year, espousing a bottom-up sales approach with more emphasis on the customer's perspective. This new approach paid off handsomely in 1H, enabling us to help customers capitalize on the advances being made across major stock markets in Europe and the US. As a result, we saw a surge in the value of foreign shares traded. Going forward, the Daiwa Securities group will work to further these efforts to ensure that we offer the highest quality products and services in the industry. Our sales representatives, who speak with customers face to face, play a pivotal part in achieving this goal. By knowing customers, they can identify issues customers wish to tackle, as well as shine a light on underlying needs customers have yet to recognize.

The Wholesale Division, which consists of the Global Markets and Global Investment Banking departments, turned in a mixed showing in 1H. In Global Markets, revenue from fixed-income trading operations was sluggish amid the low volatility in interest rates at home and abroad. Meanwhile, the picture was much more upbeat for Global Investment Banking, which enjoyed a steady increase in revenue. This growth owed to two main factors. The first was the second sale of government-owned shares in Japan Post Holdings since its listing in 2015 (Y1,308.9bn). This share sale, in which Daiwa Securities Group served as the global coordinator, proved to be the largest secondary offering during 1H. The other underlying factor was the aggressive pursuit of M&A deals in Japan and overseas. Looking down the road, we foresee hefty growth in our M&A business, in particular cross-border M&As involving Japanese and foreign companies. With this in mind, we have made moves and will work to expand our M&A advisory services leveraged by our global network. These include the acquisitions of Sagent Holdings and Signal Hill Holdings, which expect to strengthen our M&A business in North America.

Overseas operations continue to make positive contributions to the group's profit, and have now stayed in the black for six straight quarters. This sustained strength owes to efforts to improve profitability, as well as revenue growth through joint efforts with partner firms.

Today, securities companies are taking on an increasingly greater role with the creation of more systems that encourage individuals to build up their long-term investments. Examples of this include broadening the scope for those eligible to sign up for individual defined contribution plans (iDeCo), as well as the new monthly investment-type NISA program, which is slated to start in January 2018.

Daiwa Securities Group is committed to serving the public through the securities market. In this capacity, we will endeavor to play an active part in Japan's growth strategy and help its citizen lead prosperous lives.

I would like to express my deepest appreciation to our shareholders for your continued support.

November 2017
Daiwa Securities Group Inc.
President and CEO,
Seiji Nakata

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