Nomura Holdings Inc ADR American Depositary Shares

Good day everyone and welcome to today's Nomura Holdings third quarter operating result for fiscal year ending March 2025 conference call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. During the presentation, All the telephone lines are placed for listen-only mode. The question and answer session will be held after the presentation. Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks. delays, uncertainties, and other factors not under the company's control which may cause actual result, performance, or achievement of the company to be materially different from the result, performance, or other expectations implied by those projections. Such factors include economic and market conditions, political events and investment sentiment, liquidity of secondary market, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we would like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer, please go ahead.

Good evening. This is Takumi Kitamura, CFO. Let me explain our financial results for the third quarter of the fiscal year ending March 2025 using the document titled Consolidated Results of Operations. Please turn to page 2. Group-wide net revenue increased 4% quarter-on-quarter to 502 billion yen. Income before income taxes grew 4% to 138.3 billion yen. Net income was 101.4 billion yen, representing a 3% increase over last quarter. EPS came to 33.08 yen, and annualized return on equity came to 11.8%. This was the seventh straight quarter of profit growth, building on what was already a strong previous quarter, reflecting the positive outcomes of strategic initiatives undertaken to date. Improving profitability in our international operations has been a management priority, and we have made steady progress. In global markets, we made progress with portfolio diversification, and in each region we were able to increase revenue across a wide range of products. Profit contributions from Laser Digital, numerous digital assets subsidiary, have also begun, and income-before-income taxes in the three international regions came to 51.8 billion yen, increasing by 30% over last quarter. The international business came to account for nearly 40% of our group-wide income-before-income taxes, and our effective tax rate fell to 25%, as some international entities made use of tax-loss carry-forwards. Three-segment income before income taxes, shown on the bottom right, was 127.5 billion yen. This was, in fact, the highest level in 17 and a half years since the quarter ended June 2007. In wholesale, income before income taxes increased deeply, led by the international operations, while in wealth management and investment management, stable revenues rose to record high levels amid net inflows. Before going into each business in detail, let's first take a brief look at the results. of the fiscal year. Please turn to page 3. As shown at the bottom left, net revenue for the period came to 1 trillion 439.8 billion yen, up 29% from the same period on previous fiscal year. Income before income taxes grew 106% to 374.2 billion yen, while net income increased by 146% to 268.8 billion yen. EPS came to 87.66 yen, and ROE was 10.4%. The table at the bottom right gives a breakdown of income-before-income taxes. All divisions reported strong gains, with three-segment income-before-income taxes totaling 336.5 billion yen. This means that nine months into the fiscal year, we have already gone nearly 50 billion yen over the target of 288 billion yen for the fiscal year ending March 2025, which we announced at our investor day in May 2023. Net revenue in wealth management increased by 18%, led by the provision of comprehensive asset management services. Net inflows and improved performance lifted recurring revenue assets, such as investment trusts and discretionary investments, to a record high, resulting in an increase by 30% of recurring revenue. In investment management, the asset management business has shown strong performance, with assets under management climbing to a record high, and business revenue also at the highest level since the division was established. Both divisions continued to build up stable revenues, meaning revenues linked to the amount of client assets. In wholesale, all business lines, fixed income, equities, and investment banking, and all regions reported stronger revenues compared with the same period last year, underscoring progress in diversifying our revenue sources. Also worth highlighting is that we were able to realize greater operating leverage in all divisions thanks to continued cost controls. Revenues across the three divisions rose by 27%, while costs increased only 12%, with the result that income before income taxes came to 2.1 times the previous year's level. The income before income taxes margin improved from 16% to 26%. Now, let's take a look at third quarter performance by segment. Please turn to page 6. The percentages I refer to here are all quarter-on-quarter comparisons. Wealth management net revenue was flat quarter-on-quarter at 116.3 billion yen, and income-before-income taxes grew 2% to 46.2 billion yen. This was the seventh consecutive quarter of growth in income-before-income taxes, which reached its highest level in the nine and a half years since the quarter ended June 2015. As shown in the lower left, flow revenue fell slightly to 65.9 billion yen. There was a slight decline in revenue related to Japanese stocks and bonds, but we saw revenue growth in investment trusts and foreign stocks. Recurring revenue rose to a record high of 50.4 billion yen. Recurring revenue as a category includes investment advisory fees that are recognized every second quarter and fourth quarter, which means that these fees were absent in this quarter. However, we were able to completely absorb the impact through our efforts across a wide range of other recurring business, including investment trusts, insurance, and discretionary investments. Thanks to continuous cost reduction, the division's net non-interest expenses held at roughly 70 billion yen, with the result that the recurring revenue cost coverage ratio rose to 72%, up two percentage points from the last quarter. This added further to the stability of earnings in the division. Please turn to page 7 for an update on total sales by product. Total sales declined by 11% quarter-in-quarter to 5.2 trillion yen. Within that, sales of stocks fell by 12%. Demand for Japanese stocks slowed as investors stayed largely on the sidelines in October, ahead of major political events in the US and Japan, and the market subsequently stayed range-bound. In bonds, we saw an increase in sales of Japanese government bonds to retail investors as rising yen interest rates made them more attractive. Sales of foreign bonds fell, however, in part due to the absence of major primary transactions, but also because demand for other products increased, including foreign stocks and a newly established publicly offered investment trust that invests in private credit. Sales of investment trusts increased by 9%. We saw growth in demand for U.S. growth stock investment trusts, as well as the aforementioned trusts that invest in private credit. Sales of insurance products and discretionary investments declined quarter-on-quarter, but held up fairly well in absolute terms. Investment trusts, discretionary investments, and insurance products are all product categories in which clients tend to be responsive to the advice and suggestions of our sales partners, and all have continued selling well. Page 8, you will see that we are ahead of target in all of our KPIs for the fiscal year. The bar chart at the top left shows net inflows of recurring revenue assets of 282.2 billion yen. net inflows of recurring revenue assets in the first three quarters of the fiscal year exceeded 1.1 trillion yen, already going well beyond our full-year target of 800 billion yen. At the top right, you can see that recurring revenue assets at the end of the quarter came to 24.9 trillion yen, which is higher than our target of 22.3. The figure at the bottom left shows the number of flow business clients at 1.48 million, up 230,000 from a quarter ago. We have already reached our full-year target of 1.46 million. We saw contributions from effective approaches by our sales partners in client-facing channels, from new client acquisitions in conjunction with the Tokyo Metro IPO, and other primary transactions, and from clients entering into transactions of their own accord through their NISA accounts.

Please turn to page 9 for investment management. Net revenue was down 18% at 45.7 billion yen, while income before income taxes fell 41% to 18.9 billion yen. A major factor was a decline in American century investments related to valuation gain counted under investment gains and losses. At the lower left, you will see that business revenue, a stable revenue source, came to 42 billion yen, the highest level since the division was established. The asset management business had another strong quarter with net inflow for the seventh straight year. Seventh quarter in a row, and assets under management climbing to a record high of 93.5 trillion yen. Revenue also increased queue on queue for the aircraft leasing business of Nomura, Babcock and Brown. Please turn to page 9 for an update on the asset management business, which is the key source of business revenue for investment management. Asset under management at the end of December stood at 93.5 trillion yen. As shown in the chart at the lower left, net inflow came to 260 billion yen, which looks low in comparison to the previous three quarters, but investment trust business saw an inflow of 490 billion yen, and the product mix improved thanks to inflows into private assets, global equities, and privately placed investment trusts where management fees are relatively high. At the lower right, you will see that alternative assets under management rose past 2.5 trillion yen. This was an increase of 400 billion yen in the three months since the end of September, with 180 billion of that has inflows. Next, please turn to page 11 for wholesale. Net revenue increased 10% to 290.5 billion yen. Global markets revenues increased for the seventh straight quarter, while investment banking revenues were at the highest level for the period over which comparisons are possible, stretching back to the fiscal year ended March 2017. As shown on the bottom right, the three overseas regions of Americas, EMEA and AEJ all performed well, with combined net revenue up 23%. with segment revenue growing and expenses only rising five percent the cost to income ratio improved to 79 percent income before income taxes of 62.4 billion yen represents the highest level in the four four quarters four years since the quarter ended december 2020 please turn to page 12 for an update on each business line first global markets net revenue increased eight percent There was a slow start to the quarter in October ahead of major political events in Japan and the U.S., but net revenue improved month on month. Fixed income net revenue increased 9% to 139.9 billion yen. In macro products, revenues from FX-EM increased in EMEA and AEJ. In spread products, revenues from securitized products were at a record high, particularly in the Americas, and with increased visibility over U.S. rates cuts, there was strong demand for a wide range of sub-products, including in the origination and financing businesses. Credit revenues increased in EMEA and AEJ. Equities net revenue increased 6% to ¥99.1 billion. Equity products revenues were particularly strong in Americas and revenues also grew in AEJ as we expanded our franchise. Please turn to page 13 for investment banking. Net revenue increased 22% to 51.5 billion yen with multiple M&A and ECM deals contributing to revenue increase in all regions. Byproduct, advisory revenues grew sharply as we worked to monetize transactions in Japan, EMEA, and the Americas, including several financial sponsor and cross-border deals. Revenues in financing and solutions also increased. ECM revenues were particularly strong, driven by deals related to the unwinding of cross-shareholdings, and several large IPOs, including Kansai Electric Power, and major IPOs, including Tokyo Metro, Rigaku Holdings, and Kyokusha Holdings. These are shown on the right. ALF revenue throws on contributions from several refinance and acquisition finance deals. Please turn to page 14 for non-interest expenses. Group-wide expenses rose 4% to 363.7 billion yen. Compensation and benefits were up 3% to 3% at 190.9 billion yen, mainly due to an increase in stock-based compensation following the rise in our share price. Other expenses totaled 50 billion yen, up by around 9 billion yen from the previous quarter due to a rise in professional fees and transaction-related expenses. and an increase in expenses related to the disposal of software. Please turn to page 15 for an update on our financial position. The table on the bottom left shows Tier 1 capital of roughly ¥3.6 trillion up by ¥0.2 trillion from the end of September. Risk-weighted assets also rose by ¥0.8 trillion to ¥19.9 trillion, resulting in a Tier 1 capital ratio of 18.1% and a common equity Tier 1 ratio of 16.3% as of the end of December. This concludes our view of our third quarter results. To wrap things up, we achieved annualized ROE this quarter of 11.8%, the highest since the quarter ended in December 2020. At that time, wholesale accounted for about 60% of three segments, income before income taxes, and the profit structure was quite skewed with rates products accounting for nearly all of the wholesale earnings. Now, earnings are well balanced across all three divisions. This did not happen overnight. We think the path that we have strategically followed is finally leading to tangible results. Recurring revenue in wealth management and business revenue in investment management, both of which are sources of stable revenues, increased to an annualized level of 370 billion yen. lifting baseline pre-tax ROE to around mid 4% range. Pre-tax ROE comes to around 6% when we take into account recurring business such as financing in wholesale. We think further accumulation of such highly stable and recurring profits will increase the stability of earnings and boost our intrinsic earnings power. We aim to achieve consistent ROE of 8 to 10% or more by 2030. This means we want to achieve 8% even when market conditions are challenging, and we will aim to achieve more than 10% when market conditions are favorable. We will endeavor to build a franchise that can always aim higher while striving to lower our cost of capital by steadily achieving our minimum ROE target of 8% backed by the accumulation of stable recurring ROE as mentioned earlier. Wealth management and wholesale have gotten off to a somewhat slow start in January compared with the third quarter, but the revenue levels remain acceptable. We continue to aim for bottom-line growth while delivering operating leverage as we maintain cost controls. As we announced today, For an effective use of management resources, our subsidiary Nomura Properties has signed a sale agreement for the transfer of the land and building of the training center it owns at Takanawa. The execution of the sale is scheduled from mid-March to mid-April this year, and following the completion of the asset transfer, we expect to book a pre-tax income of approximately 56 billion yen. In closing, Nomura will celebrate its 100th anniversary on December 25, 2025, to express our sincere gratitude to our shareholders for their support over the years. We will pay a commemorative dividend of 10 yen per share to shareholders of record as of March 31, 2025. We plan to steadfastly forge ahead in pursuit of our purpose. We aspire to create a better world by harnessing the power of financial markets. Thank you.