Daiwa Securities Group Inc.

Hello, everyone. This is Yoshida from Diver Securities Group Inc. Thank you very much for taking time out of your busy schedules to join our telephone conference today. Today, I would like to review our second quarter financial results for FY2026 announced earlier today, following the presentation deck available on our corporate website. Please turn to page four. First, I will summarize our consolidated financial results. Percentage changes are compared to the previous quarter of FY2026. Net operating revenues were ¥223.9 billion, up 1.6%. Ordinary income was ¥78.2 billion, down 11.2%. Profit attributable to owners of parent was ¥51.4 billion, down 8.8%. And annualized ROE stood at 11.3%. During the second quarter, despite headwinds for market conditions, we steadily accumulated stable earnings, underpinned by stock-based recurring revenue assets. Wealth Management Division at Daiwa Securities, fund-wrapped services and equity investment trusts continue to see capital inflows, driving asset-based revenues to a record high of 38.3 billion yen. Asset Management Division sustained fund inflows, a lifted AUM to a record high, However, ordinary income declined mainly due to lower capital gains and alternative asset management. As for global markets, it solidly captured domestic and overseas client flows, though profit decreased due to lower revenues in overseas FICC. Global investment banking achieved profit growth driven by debt underwriting and domestic M&A. The interim dividend is set at a record high of 39 yen per share, representing a dividend payout ratio of 50.3%. Please turn to page 8. Base profit, our KPI for stable earnings, as set out in the medium-term management plan, reached 62.3 billion yen, up 41.9% year-on-year. Base profit remained on par with the previous quarter. On a cumulative basis for the first half, it totaled 125.2 billion yen, reached over 80% of our medium-term management plan target of 150 billion yen. Please turn to page 11. I will now explain our consolidated statement of income. Commissions received totaled 137.7 billion yen, minus 4.0%. The breakdown of commissions received is detailed on page 25. Brokerage commission was 26.4 billion yen, down 24.4%. Underwriting and secondary offering commission was 11.7 billion yen, down 31.2%. Distribution commission was 7.7 billion yen, down 16.4%. M&A-related commissions, 15.1 billion yen, up 20.5%. Please turn to page 12. SG&A expenses were ¥152.9 billion, up 7.1%. This increase was primarily due to the consolidation of Oryx Bank, which resulted in higher trading-related expenses, personnel expenses, office costs, and depreciation. Please turn to page 14. Total ordinary income from overseas operation was 7.6 billion yen, down 44.6%. However, it reached 20.4 billion yen for the first half, marking an all-time semiannual high. For region, Europe returned to profitability. Asia and Oceania posted lower profits, reflecting declines in equity revenue and equity method investment income compared to the strong first quarter. Americas recorded lower profits due to reduced revenue in FICC. Next, I will review performance by segment. Please turn to page 15. First, the Wealth Management Division. Net operating revenues were 99.2 billion yen, up 12.5%. Ordinary income was 39.7 billion yen, up 6.6%. Capital inflows from clients continued on the back of progress in total asset consulting, leading to an accumulation of asset balances primarily in equity investment trusts and fund-wrapped services. While flow-based revenues declined due to the market volatility, asset-based revenues expanded steadily. By-product equities, revenues declined by 6.2 billion yen, reflecting a decrease in equity trading for both domestic and foreign equities compared to Q1. Fixed income captured investment demand amidst rising interest rates, maintaining solid revenue levels. WRAP-related revenues. Met client needs for stable management and portfolio diversification increased by 1.6 billion yen to 20.8 billion yen, setting a new all-time high. Asset-based revenues set a record high of 38.3 billion yen driven by ongoing net inflows into equity investment trusts and fund WRAPs. The fixed cost coverage ratio of asset-based revenues in the Wealth Management Division rose to 128.4%. and the total cost coverage ratio increased to 82.1%. Net asset inflows totaled 312.6 billion yen. The individual segment maintained net inflows for the 11th consecutive quarters with new fund flows consistently originating from yen time deposits in addition to equity investment trusts and fund wrap services. Please refer to pages 28 and 29 for detailed figures. Please turn to page 16. This slide presents sales and distribution amount by product in the Domestic Wealth Management Division. WRAP account services. The contract value was 418.2 billion yen. The net increase was 294.6 billion yen, both reaching record quarterly highs. Contract AUM climbed to an all-time high of 6,946.9 billion yen. Equity Investment Trust sales volume was 502.7 billion yen. With redemption remaining low, the net increase stood at a high level of 165 billion yen. For WRAP services and Equity Investment Trust reached 459.6 billion yen, marking an all-time quarterly high. Please turn to page 17.

This slide shows the result of Dayo NextBank. Net interest income, etc., came to 13.4 billion yen, up 3%, and original income was 7.8 billion yen, up 8.5%, both record highs. Deposit balances declined from the end of the previous quarter as growth in time deposit driven by our promotional campaign was more than offset by increased transfers of funds into security investments and withdrawals of maturity policies. Page 20, page 18. This slide shows the results of Oryx Bank, which we began consolidating this quarter. On the standalone basis, Oryx Bank posted ordinary revenues of ¥24.1 billion up 8.5% and ordinary income of ¥8.3 billion up 20.5%. Its contribution to the consolidated ordinary income of the Wealth Management Division was ¥6.7 billion after deducting amortization of goodwill. The loan balance was flat compared with the end of the previous quarter as an increase in investment property loans and other loans was offset by a decrease in corporate loans. Please turn to page 19. I will now explain the asset management division. First, securities asset management. Net operating revenues were 22.9 billion yen, up 7.9%. And ordinary income was 12.8 billion yen, down 18.3%. While revenues increased on the back of higher AUM during the period, profit declined due in part to valuation losses recorded on certain assets. The AUM in Publicly Offered Investment Trust at Daiwa Asset Management surpassed 44 trillion yen, reaching a record high. Please turn to page 20. Next, Real Estate Asset Management. Net operating revenues were 12 billion yen, down 9.7%, and the original income was 9.8 billion yen, down 0.3%. AUM reached a new record high, reflecting the steady accumulation of assets. Ordinary income was boldly in line with the previous quarter, supported by stable AUM-linked revenues and gains on property sales at Daiwa Securities Reality and Sumity. Please turn to page 21. Next, alternative asset management. Net operating revenues were 3 billion yen and owner income was 1.2 billion yen. Capital gains declined due to lower gains realized from investment exits. In addition, Bioware Energy and Infrastructure recorded losses on renewable energy-related investments. Please turn to page 22. Finally, the Global Markets and Investment Banking Division. First, global markets posted net operating revenues of 45.7 billion yen, down 15.1%, and owner income was 11.1 billion yen, down 38.6%. Iniquity, while trading value in stock market declined globally, we steadily captured institutional investor flows, and performance remained solid. In equity derivatives, despite the lower volatility, we captured client demand, and both the number and the value of new trades increased. In FICC, domestic business remained solid as we steadily captured client flows, mainly in Japanese bonds and derivatives, even amid rising interest rates. Overseas, however, client flows decreased due to rising U.S. interest rates and challenging portion management. Please turn to page 23. Global Investment Banking posted net operating revenues of 23.4 billion yen up 3.4%, and ordinary income of 4 billion yen up 22.7%. Higher revenues from debt underwriting and the domestic amount A contributed. This concludes my explanation of our financial results for the second quarter of fiscal year 2026. Let me make some closing remarks. In the second quarter, the steady accumulation of stable asset-based income supported overall results, enabling us to secure an annualized ROE of 11.3%. With markets partially correcting amid uncertainty about the outlook, flow-related revenues declined, and ordinary income was 78.2 billion yen, down 11.2% from the previous quarter. At the same time, we believe this quarter demonstrated that our earnings foundation remains solid, as reflected in our base income level, even as tailwinds from the external environment temporarily weakened. Asset inflows from clients continue at a high level. Net sales, that is net inflows, of Equity Investment Trust and WAP account services reached a record high for a quarter. Although client activity declined due to factors such as correction in the team stocks and the rising interest rates, we view it as a significant achievement that our net inflows, which are the most important factor in growing our customers' assets over the medium to long term, reached a record high. Turning to the current situation, even as market conditions fluctuate, we sense that client demand for medium to long term asset building and diversified investment remains strong. Since the start of October, wealth management has continued to perform well. Meanwhile, global markets has been affected by market conditions and is slower than in the second quarter. But in the global investment banking, we are still rebuilding our deal pipeline. In addition, OX Bank became a wholly owned subsidiary of Daira Next Bank on August 3rd and has been consolidated since the second quarter. The addition of lending capabilities will diversify our revenue sources and broaden the range of solutions we can offer to meet client needs. Going forward, with wealth management as the core of the group's growth, we will achieve profit growth by deepening and extending our relationships with our clients. We will also work to further expand asset management AUM and to create business opportunities as primary and secondary markets become more active. We'd like to ask for your continued support. This concludes my presentation. Thank you so much.