Message from Management

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

To our shareholders

It is my honor to have been appointed the new president and CEO of Daiwa Securities Group.

FY17 marks the 115th year of our establishment and is the final year of our current three-year medium-term management plan, "Passion for the Best" 2017. We aim to further enhance our unique corporate culture and DNA, which has evolved over the course of our history, as well as our robust business model, which is largely immune to market fluctuations, as we strive to be the customers' first-choice full-line securities group.

FY16 operating environment
Looking back at FY16, Japanese stock market saw wild gyrations sparked by fears of a slowdown in the global economy, yen strength, and turmoil stemming from the UK's vote to leave the EU. Against such a backdrop, individual investors' risk appetite remained weak. Following Donald Trump's victory in the US presidential election in November, major stock markets advanced across the board and the dollar strengthened on expectations for economic stimulus, including sweeping infrastructure spending and deregulation. Helped also by strength on Wall Street, Japan shares rallied and performed solidly through the end of FY16.

In this operating environment, Daiwa Securities Group reported net operating revenue of Y472.7bn, ordinary income of Y135.6bn, and net income attributable to owners of the parent of Y104.0bn on a consolidated basis for FY16.

The results reflect the good showing by the wholesale division's fixed-income trading operations, which compensated for the retail division's slowdown as individual investors took to the sidelines.

Over the past few years, we have worked to ensure a well-balanced earnings mix across the entire group. Our ability to maintain rather stable profits year in and year out—the wholesale division lends support during challenging periods for the retail division, with the roles reversed when the wholesale division fares poorly—is a testament to our efforts.

Overseas full-year operations were profitable for the first time in seven years and positively contributed to the group's profit thanks to efforts to improve earnings and alliances with overseas partners bearing fruit. In the Americas, the fixed-income division turned in a good showing throughout FY16. In Europe, subsidiary DC Advisory, which offers M&A advisory services, reported sharp earnings growth, while in Asia/Oceania, cost reductions and expansion in the Asia Private Banking Service drove profits higher.

Daiwa Securities Group also announced an annual dividend of Y26 per share for FY16, comprising an interim dividend of Y13 and an end-fiscal year dividend of Y13. Additionally, as part of efforts to further enhance total shareholder payouts, the board of directors decided at its 30 January 2017 meeting to establish a share buyback program of up to Y20.0bn, or 27mn shares (1.59% of total outstanding shares, excluding treasury stock). By 21 April, the group had acquired the 27mn shares, spending Y18.99bn.

Progress with medium-term management plan "Passion for the Best" 2017
In the current medium-term management plan, we signaled our aim to attract customers by offering the industry's highest-quality services and to become their best partner amid the ongoing major shift from savings to investments in household financial assets.

Daiwa Securities Group is also taking various steps to spur a virtuous cycle for this shift to investments and for improved corporate value by providing services that are at the forefront of such a transition and by offering solutions that help raise the corporate value of our commercial customers.

With ROE at 8.4% and a ratio of stable revenue to fixed costs at 66% in FY16, the group missed the targets set out in the management plan. Nevertheless, we will not revise the plan's targets for the final year of FY17 and the group as a whole will strive toward hitting the marks.

Business goals for FY17
In FY17, the Daiwa Securities group will further advance efforts to ensure we offer the industry's highest-quality services as we seek to be customers' first-choice full-line securities group.

Given recent developments domestically and abroad, we believe Japan is finally on the verge of exiting deflation, which has plagued the nation for almost 20 years. Expectations have heightened that this turning point will prove a tailwind in the shift from savings to investments in household financial assets. The global economy is also facing momentous change, sparked by the presidency of Donald Trump, and many customers are seeking professional advice.

In that context, there are three vital ingredients as we strive to be our customers' best partner. First is the highly expert knowledge acquired by each of our employees. Next is the technique to deliver optimal solutions for our customers leveraging such knowledge. And finally is having a customer-first mindset.

The group will implement various initiatives to establish itself as having the industry's highest-quality services, by combining integrity and expertise, and to become customers' first-choice full-line securities group. In this capacity, the Daiwa Securities group will endeavor to lead the shift from savings to investment in securities and contribute to Japan's growth strategy and the prosperous lives of its citizens.

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

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

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