Daiwa Securities Group Inc
28 October 2005
+813-3243-2100
2-6-4 Otemachi, Chiyoda-ku
Tokyo 100-8101, Japan
(URL http://www.daiwa.jp/ir/english/)
October 28, 2005
Consolidated financial summary
(For the first half ended September 30, 2005)
(1) Operating results (from April 1, 2005 to September 30, 2005)
(Note) All figures in the financial statements are rounded down to the nearest
millionth.
'-' indicates a loss or negative figure.
(Millions of yen except for per share data and yr/yr % change)
Operating revenues Net operating revenues Operating income Ordinary income
First half (2005/9) 330,812 (36.0)% 229,972 (20.4)% 79,987 (45.3)% 83,956 (46.6)%
First half (2004/9) 243,180 (9.4)% 191,021 (12.3)% 55,060 (29.0)% 57,259 (27.0)%
Fiscal 2004 (2005/3) 519,337 390,432 114,887 120,433
Net income Earnings/share Fully diluted Return on
earnings/share stockholders' equity
(annual basis)
First half (2005/9) 45,822 (89.6)% 34.43 Yen 32.74 Yen 13.6 %
First half (2004/9) 24,165 (25.3)% 18.16 Yen 17.31 Yen 7.9 %
Fiscal 2004 (2005/3) 52,665 39.03 Yen 37.36 Yen 8.4 %
(Note)
1. Equity in earnings
First half (2005/9): 661 million yen First half (2004/9): 333 million yen
Fiscal 2004 (2005/3): 1,893 million yen
2. Average number of shares outstanding (shares)
First half (2005/9): 1,330,577,883 First half (2004/9): 1,330,709,045 Fiscal
2004 (2005/3): 1,330,674,648
3. Change in accounting policies: None
(2) Financial conditions
(Millions of yen except for per share data and percentage)
Total assets Stockholders' equity Stockholders' Stockholders' equity
/share
equity ratio
As of Sep. 30, 2005 14,753,923 701,733 4.8 % 527.40 Yen
As of Sep. 30, 2004 12,430,836 615,303 4.9 % 462.39 Yen
As of Mar. 31, 2005 12,378,961 648,332 5.2 % 486.70 Yen
Number of shares outstanding (shares)
As of Sep: 2005: 1,330,545,932 As of Sep: 2004: 1,330,690,056 Fiscal 2004
(2005/3): 1,330,602,933
(3) Cash flow summary
(Millions of yen)
Operating activities Investing activities Financing activities Ending balance of cash
and cash equivalents
First half (2005/9) 100,992 39,869 -117,605 364,196
First half (2004/9) -861,135 -5,077 841,693 460,663
Fiscal 2004 (2005/3) -1,002,888 -26,062 883,867 338,697
(4) Scope of consolidation and equity method
Consolidated subsidiaries: 46 companies Affiliates
applicable of equity method: 6 companies
(5) Change in scope of consolidation and equity method
Equity method: Addition: 1 company
(Note) The Group's principal business is securities business, and the
performance is influenced by the market environment. Therefore, the Group
doesn't disclose the estimated operating result, considering the difficulty to
forecast the performance.
Representative: Shigeharu Suzuki, President
Contact: Mikita Komatsu, General Manager, Finance Department
Phone: +813-3243-2100
Investing and financial services business (Parent, 46 consolidated subsidiaries
and 6 affiliates applicable of equity method)
(Parent company) Daiwa Securities Group Inc.
(Securities related and financial business) Retail:
Japan: 17 firms Daiwa Securities Co. Ltd.
Wholesale:
Daiwa Securities SMBC Co. Ltd.
Investment:
Daiwa Securities SMBC Principal Investments Co. Ltd.
NIF SMBC Ventures., Ltd. *1
Asset Management:
Daiwa Asset Management Co. Ltd.
Daiwa SB Investments Ltd.
Research, System development and Consulting:
Daiwa Institute of Research Ltd.
Group Support:
Daiwa Securities Business Center Co., Ltd.
Daiwa Property Co., Ltd., etc
America: 11 firms Wholesale, etc:
Daiwa America Corporation
Daiwa Securities America Inc., etc.
Europe: 9 firms Daiwa Securities SMBC Europe Limited
Asia and Oceania: 15 firms Daiwa Securities SMBC H.K. Limited
Daiwa Securities SMBC Singapore Limited, etc.
*1 NIF Ventures Co., Ltd. changed the company name to NIF SMBC Ventures., Ltd.
following the merger of SMBC Capital Co., Ltd.
on October 1, 2005.
Information on Group Companies
Daiwa Securities Group Inc. (the 'Company') and its related companies, 46
consolidated subsidiaries and 6 affiliates applicable of equity method
(collectively the 'Group'), predominantly operate in the investment and
financial segment, focusing on securities businesses such as trading and
brokerage of securities and derivatives, underwriting of securities,
distribution of securities, private offering of securities and other business
related to the securities and financial fields. The Group provides wide range
of services, to meet the worldwide customer needs for raising and investing of
funds through its global networks linking major financial markets in Japan,
America, Europe and Asia and Oceania.
Management Policy
(a) Principle Management Policy
We aim to become Japan's strongest securities group and maximize group corporate
value, by developing its securities related businesses by utilizing the holding
company structure and concentrating group management resources on securities
related businesses.
(b) Principle Policy on the Distribution of Profits
We aim to continuously maximize shareholder value including the distribution of
profits.
We will pay dividends every half of the year based on approximately 30% pay-out
ratio, in consideration of reflecting our financial performance on a
consolidated basis. We are very conscious of maintaining a stable dividend flow
for our investors. We will positively return a part of the profits to investors
by the means of purchasing our own stocks and so on if we achieve a sufficient
level of profits to grow up our business.
We will pay an interim dividend of 12 yen per share, according to the decision
of The Board on 28th, October. The pay-out ratio of this period will be 34.8%.
(c) Principle Policy on New Unit Share System
We recognize that reducing the number of shares per unit is an important measure
to contribute to the expansion of the investor base and to the revitalization of
the Japanese stock market.
Taking into consideration our business results, share price level and advantages
and disadvantages to the shareholders and the Company, we are looking into
timing, methods and other details for lowering the minimum share trading unit of
our shares.
(d) Mid to Long Term Management Targets
We have created a new medium-term management plan titled 'Best Brand Daiwa 2005'
for the three-year period from FY2003 to FY2005.
In the group medium-term management plan, we declare following two points as the
medium-term management goals.
(1) In order for the Group to achieve sustainable growth, we have to be
identified as the leading company by not only its financial results as a
consequence, but also its customer satisfaction. Therefore, we will aim to
become the number one in quality of products and services as a whole group for
the next three years.
(2) Under tough management circumstance, we endeavor to raise the capability
of each employee and rationalize the business process across the whole group
without easy expansion of corporate scale. By enhancing the structure to
provide customers with high-quality products and services promptly and
effectively, we will aim to become the number one in productivity.
Based on the policy mentioned above, we will aim to achieve sustainable growth
by pursuing best-balanced consolidated profit structure and attempting to
reinforce the cooperative relationship within the Group companies.
As for the inter-group measures, we are trying to strengthen the total power of
Daiwa Securities Group according to the policies below.
(1) Personnel policies
We will manage and establish a unique personnel structure that reflects the
needs of each business entity while balancing the needs of the Group as a whole.
We will aim to build satisfactory personnel system by enhancing
performance-based evaluation system, providing diverse career options, and
implementing a fair evaluation system. Specifically, we will promote management
level personnel exchanges within the Group companies and extend the intra-group
job posting system to improve employees' career management.
And, we grow talented people by continuously holding of management development
programs such as 'Daiwa Management Academy' and a wide variety of training
programs.
(2) Finance strategy
We will appropriately allocate management resources mainly in securities related
businesses, maintaining the financial stability of the Group as a whole. To
catch profit chances promptly, we establish the financial base with margin for
suitable capital investment.
(3) Public relations / Investors relations strategy
Based on the Disclosure Policy that defines the Group's attitude toward
disclosure of corporate information, we will endeavor to achieve fair and timely
disclosure so that all stakeholders including shareholders, investors, and
securities analysts understand and maintain realistic expectations of the Group.
And, we will aim to establish the Group brand by putting consistent, effective
and active advertisements to continuously send the Group's vision and endeavor
through various means of media.
(4) Information technology (IT) strategy
While reinforcing IT functions that contribute to our core businesses, we will
establish the IT governance structure to appropriately manage and evaluate IT
investments that have been increasing every year.
Besides, mid to long term management strategies for the Group's each business
are as follows.
(1) Retail (Daiwa Securities)
In addition to various program to improve sales staffs' consulting skills, Daiwa
Securities will establish structure to quickly offer products that meet customer
needs by enhancing its marketing function. Besides focusing on the
equity-related business and equity investment trusts, we aim to become No.1 in
each three key business: Daiwa Direct, Daiwa SMA, and the securities
intermediation business. Attaching importance to these three fields, we will
further expand our customer base and increase assets under custody. We will
improve products and services in quality, aim to become the number one brokerage
house by customer satisfaction and strengthen retail securities business with
the whole Group's ability.
(2) Wholesale (Daiwa Securities SMBC)
Daiwa Securities SMBC, a joint venture between the Daiwa Securities Group and
the Sumitomo Mitsui Financial Group, aims to become 'The strongest investment
bank in Japan', and attempts to expand customer base by offering advanced and
comprehensive solutions and offering high-quality products based on integrated
product development and marketing system throughout the Group. By efficient
management resources allocation, we also attempt to expand diversified business
lines that won't be affected by the market condition.
Furthermore, we will reinforce businesses such as M&A and principal finance to
attempt to improve the company presence as an investment bank that contributes
to vitalization of Japanese economy.
(3) Investment (Daiwa Securities SMBC PI, NIF SMBC Ventures)
Daiwa Securities SMBC PI fosters the emergence of new industries, by investing
in non-performing loans and real estate and also by helping firms restructure
their businesses.
On 1st October, NIF merged with SMBC Capital and NIF SMBC Ventures has made a
new start. NIF SMBC Ventures focuses on venture investments, investments to the
companies to be listed on the stock exchange in the future, and buyout
investments, investments to support business restructuring of companies with
high-quality management resources. In addition to the expertise accumulated for
years, we will expand the network to spot potential investment prospects,
strengthen management support capabilities, and reinforce marketing
capabilities, by using network and expertise of Daiwa Securities Group and
Sumitomo Mitsui Financial Group.
(4) Asset management (Daiwa Asset Management, Daiwa SB Investments)
Daiwa Asset Management aims to become a high-quality asset manager. It will
improve fund management capabilities and product development capabilities. It
will also thoroughly manage fund quality and accountability for investors.
Daiwa SB Investments will establish differentiated brand by continuing
competitive fund performance in annuity market and well-kept customer service to
expand its fund business, and aim to become an asset manager with high
management efficiency.
(5) Research, System development and Consulting (Daiwa Institute of Research)
Daiwa Institute of Research ('DIR') operates as one of Japan's leading think
tanks and provides research, system development and consulting services.
Through its research operations, DIR will provide clients with high quality
information such as economic forecasts and analyst reports as well as making
well-timed policy proposals to contribute to the revitalization of the Japanese
economy.
Through its systems operations, in order to provide state of the art technology
to the Group and the Group's clients, mainly in the areas of finance and capital
markets, based on the new medium-term management vision from FY2005, DIR plans
to set a goal and to create an action plan.
(6) Group Support (Daiwa Securities Business Center, Daiwa Property etc)
Daiwa Securities Business Center ('DSC') is a provider of back office services
related to securities business. DSC's diverse activities include securities
custody, settlement of foreign bonds, and customer account management services,
mainly for Daiwa Securities and Daiwa Securities SMBC.
DSC will continue targeting higher levels of service and efficiency in an effort
to improve productivity throughout the securities business in order to maximize
customer satisfaction, which is its basic strategy.
Daiwa Property provides property management services, mainly for branch offices
and other facilities used by the Group companies, and aims to improve its
proposal capabilities about branch offices of Daiwa Securities Group. It also
offers business solutions by consulting on real estate and building management,
and aims to strengthen the business by cooperating with Group members.
(e) Current Challenges
Japanese capital markets diversify in many ways in both asset management and
fund raising businesses.
The Japanese economy has recovered from a long period of decline. The capital
markets must sufficiently carry out its original function, which is to meet all
these expectations above, for the economy to go back on a new growth track. We
recognize that the Group's social mission is to meet these expectations. Our
challenge for this fiscal year is to show our presence with high business
performance as a main player in the capital market.
On this understanding, we have made management policy in FY2005 'Power and
scale', and we have announced the policy that we especially concentrate on the
equity business.
As the economy starts to pick up, risk capital such as equity will draw
attention in both asset management and fund raising businesses.
It has been said that we move 'from saving to investing' for a long time. Now
that financial assets of individuals have started to inflow into the stock
market, the demand for high quality consultancy in equity investments is growing
especially in retail business.
Maximizing shareholder value is an important issue for companies as
reorganization becomes common practice and the presence of institutional and
foreign shareholders increases. Under this environment, the wholesale business
expertise in equity is required not only in the traditional trading or
underwriting businesses, but also in various areas such as M&A and private
equity. The Group will further improve its skills in both asset management and
financing to provide high-quality solutions to its clients.
Moreover, the Group will achieve high performance, particularly in equity
investment trusts, and work to direct individual financial assets to the capital
market.
In this country, there is still a big market where we have not set foot yet. So
we can say that financial service business is a growth industry in 21st century.
Under such an environment, the Group, with the ability to handle risk which is
required for those engaged in the capital market and with the advantage as a
major financial group which provides full range of securities services, will try
to accurately grasp changes in the market and utilize its high professionalism
to take advantage of large scale business opportunities with speed and vigor.
And the Group will endeavor to achieve a No.1 position in various strategic
areas, demonstrate high business performance, lead the Japanese economy to
recovery, and earn the trust from a wide range of stakeholders.
(f) Basic notion concerning the corporate governance, and the present
condition of the policy (Basic notion concerning the corporate governance)
(1) Where globalization and institutionalization of markets have been
progressing and structure of corporate governance has been emphasized in
investment decision, the Group that practices group management with holding
company structure will establish its corporate governance structure that has as
high transparency and objectivity as the global standard. In addition, we will
realize high efficiency and specialty in administration function for the group
companies, promote the group operation with high accountability, and establish
the group management structure with a sense of unity, which puts out synergy
between each group company.
(2) We suppose that the corporate governance is a structure to put CSR into
practice. CSR has so many aspects, including offering superior products and
services to customers, dealing with customers sincerely, bringing a reasonable
profit to shareholders and disclosing information to them, taking steps to
improve the work environment for employees and evaluate personnel, as well as
assuring legal compliance, corporate ethics, environmental management and social
contributions. We will organize appropriate structure to put CSR into practice,
always asking ourselves if the action will win the trust of society. Therefore,
by publishing sustainability report since FY2002, we disclose information about
our social responsibility and our endeavor for sustainable management in terms
of economy, society, and environment, and considering broader stakeholders.
(3) The general shareholders' meeting of the Company in June 2004 featured a
vote to revise the Articles of Incorporation and transition to a 'committee
system' of corporate governance based on the 2002 revisions to the Commercial
Code. Consequently, the Group increased the number of Outside Directors from two
to four. The Group also established three committees -Nominating, Audit, and
Compensation Committees- and Outside Directors constitute more than half the
membership of each committee. This system reinforced the supervisory function of
the Board of Directors. To improve agility in decision making, the Group
delegated a broad range of authorities from the Board of Directors to the
Executive Officers and clarified the Officers' management responsibilities.
(The Present Condition of Corporate Governance Structure)
(A) Group Management Infrastructure for decision-making, business execution,
and supervision on management
Daiwa's corporate governance structure is composed mainly of the Board of
Directors and three committees; the Nominating, Audit and Compensation
Committees as the Group management supervisory system, Executive Committee and
its subcommittees; Internal Control Committee, Disclosure Committee and Group IT
Strategic Meeting as the Group management activity execution mechanism.
a. Organization
(i) The Board of Directors
Headed by a Chairman, the Board of Directors, consisting of 13 members,
hold meetings at least once every three months. The authority of the Board
is delegated to Corporate Executive Officers to maximum extent possible in order
to strengthen the Group operational control function. The Board decides such
matters as basic management policies, matters needed for performance of the
Audit Committee, and matters related to dividing the duties of Corporate
Executive Officers and the decision making process. The number of the outside
directors is four.
(ii) Nominating, Audit and Compensation Committees
We established three committees; the Nominating, Audit and Compensation
Committees as internal organizations of the Board of Directors, based on the
Commercial Code. Majority of each committee consists of outside directors.
A brief profile of each committee is as follows.
The Committee mainly determines the content of proposals to appoint and
dismiss Directors, submitted to the general shareholders' meeting for their
approval. The Chairman of the Board chairs the committee, while three out of
five committee members are outside directors.
The Committee engages in the following businesses: inspecting the duties
of Directors and Corporate Executive Officers, determining the content of
proposals to appoint and dismiss accounting auditors (submitted to the general
shareholders' meeting for their approval), demanding a stop to any improper
conduct by Corporate Executive Officers, auditing accounts and writing
accounting reports. Additionally, the committee works with an internal audit
department to carry out its duties as needed. A director who does not have
another concurrent post chairs the committee, while two out of three committee
members are outside directors.
The Committee sets policies for deciding compensation of individual
Directors and Corporate Executive Officers and determines compensation content
for each individual. The Chairman of the Board chairs the committee, while
three out of five committee members are outside directors.
(iii) Executive Committee
Committee members are all Corporate Executive Officers. Meetings are
held in principle once in a month.
The Executive Committee deliberates and rules on cross-Group business
strategy and management issues and on important financial matters. The
authority is transferred from the Board to Corporate Executive Officers to
maximum extent possible by law, except matters that the Board has to decide, in
order to accelerate decision-making.
The Committee has subcommittees; Internal Control Committee, Disclosure
Committee and Group IT Strategic Meeting. Internal Control Committee analyzes
and decides matters concerning the improvement of internal control, risk
management systems and the internal audit system of the Group. The Committee
holds a meeting in principle once every three months.
Disclosure Committee monitors important information, determines what
information to disclose and so on to assure disclosure that is fair, timely and
appropriate.
Group IT Strategic Meeting proposes the IT investment budget, appoints
system personnel appropriate, reorganizes Group system departments, evaluates
and monitors IT investment implementation at Group companies, deliberates issues
concerning cross-Group system development, and so on.
b. The present condition of internal control structure
Internal Control Committee discusses and decides matters concerning the
improvement of internal control, risk management systems and the internal audit
system of the Group. As we recognize internal audit as an important function to
strengthen our internal control structure, we have established internal audit
function to perform audit comprehensively on a consolidated basis. Major group
companies have their own internal audit departments, and to the companies that
do not have internal audit function, the Company's Internal Audit Department
that is under the direct supervision of CEO conducts internal audits.
c. The present condition of risk management system
We recognize that, in order to maintain a healthy financial and earnings
structure, identifying and evaluating the various types of risks that are
generated from its business activities and managing them appropriately is an
important factor. In the risk management regulation, market risk, credit risk,
liquidity risk, regal compliance risk, system risk, reputation risk and
operational risk was defined. Each director and department in the holding
company has monitored and managed those risks respectively.
d. Audit Committee, Internal Audit, and accounting audit
The Audit Committee audits the directors' and executive officers'
execution of their duties, and has the authority to decide on the proposals
submitted to the General Shareholders Meeting of for the appointment or
dismissal of the independent auditor. The Audit Committee reviews in advance
the annual audit plan of the independent auditor, receives their reports and
discusses with them status of the audits relating to the Company and its
significant Group companies. In addition, the Audit Committee discusses, when
appropriate, the status of audits of the major Group companies with the relevant
corporate auditors.
In accordance with internal audit plan, internal audit departments
regularly conduct internal audits to confirm appropriateness of various internal
controls. The Company's Internal Audit Department regularly communicates with
internal audit departments of Group companies in order to strengthen internal
audit function.
Internal audit plan of the Company is approved by, and its reporting is
made at the Internal Control Committee. Internal audit plan of other Group
companies is approved by, and its reporting is made at the executive committee
like audit committee of each company. The reporting of the Internal Audit
Department is also made at the Audit Committee. The Audit Committee performs
audits appropriately and efficiently in cooperation with the Internal Audit
Department of the Company. The Audit Committee can entrust, when appropriate,
the investigations required for the audits to the Internal Audit Department.
The independent auditor for auditing our consolidated financial
statements are Messrs. Toshiharu Kawai, Takumi Horiuchi, Yoichi Ozawa, who have
been engaged in auditing our financials for 7 years, 1 year and 2 years,
respectively. All of them are Designated Partners of KPMG AZSA & Co. stipulated
by Article 34-10-4 of the 'Certified Public Accountant Law'.
(B) Conflicts of interests between the Company and outside directors
The Company's outside directors are Tetsuro Kawakami, Advisor of Sumitomo
Electric Industries, Ltd., Ryuji Yasuda, Professor, Hitotsubashi University,
Graduate School of International Corporate Strategy, Keisuke Kitajima, Attorney
at law, and Koichi Uno, Certified Public Accountant. We have no conflict of
interest such as capital and personal relationships with outside directors.
(C) The present condition of action to promote corporate governance
From FY2004, we had developed the system inspection structure for the purpose of
improvement of internal control system. And from FY2005, the new structure has
started its operation.
As for the compensation of directors and executive officers, we introduced the
stock option whose exercise price is 1yen to make the compensation more coupled
with shareholder value.
(g) Parent Companies
There is no parent company of ours.
Results of Operation and Financial Conditions
a. Consolidated operating results for the first half of fiscal 2005
1. Summary of operating results for 6 months (comparison with the first half of
fiscal 2004)
Net operating revenues increased 20.4% to 229,972 million yen mainly because net
gains on trading and net financial income increased. Selling, general and
administrative expenses increased 10.3% to 149,985 million yen. As a result,
ordinary income increased 46.6% to 83,956 million yen and net income increased
89.6% to 45,822 million yen.
(1) Commissions
(i) Brokerage commission
Daily average trading value on the Tokyo Stock Exchange increased 17.1% to
1,692.7 billion yen. Brokerage commission edged down 0.9% to 43,965 million
yen.
(ii) Underwriting commission
Underwriting commission derived from fixed income increased 11.0% to 4,421
million yen. Underwriting commission derived from equity declined because
public offerings diminished. As a result, underwriting commission dropped 47.5%
to 14,453 million yen.
(iii) Distribution commission
Distribution commission grew 68.1% to 16,820 million yen because distribution
commissions in investment trust increased 84.8% to 15,849 million yen, due to an
increase in commission arising from sale of beneficiary certificate.
(iv) Other commission
Other commission increased 28.4% to 32,744 million yen due to an increase in
trust fee in line with expanded outstanding balance of equity-related
beneficiary certificate, and due to contribution of M&A and life insurance sales
fee.
(2) Net gains on trading
Net gains on trading in stock and other increased 60.9% to 46,477 million yen.
Net gains on trading in bond, forex and other increased 22.2% to 57,873 million
yen. As a result, total net gains on trading increased 36.8% to 104,351 million
yen.
(3) Financial income
Interest and dividend income increased 120.6% to 95,448 million yen and interest
expenses increased 114.4% to 88,039 million yen. Net financial income increased
238.8% to 7,409 million yen due to an increase in interests received on bonds
and securities borrowed.
(4) Selling, general and administrative expenses
Employees' compensation and benefits increased 8.7% to 77,446 million yen due to
an increase in accrued bonuses in line with operating result. Commission and
other expenses increased 31.0% to 29,258 million yen due to an increase in
advertisement expenses and bond commission paid. As a result, selling, general
and administrative expenses increased 10.3% to 149,985 million yen.
2. Summary of operating results for 3 months (comparison with the first quarter
of fiscal 2005)
Consolidated net operating revenues for the second quarter of fiscal 2005
increased 51.9% to 138,689 million yen as a result of an increase in commission
income and trading gains. Selling, general and administrative expenses for the
second quarter increased 14.6% to 80,106 million yen. As a result, consolidated
ordinary income increased 152.7% to 60,155 million yen. Net income increased
193.8% to 34,185 million yen for the second quarter of fiscal 2005, posting
extraordinary gains/losses, income taxes, and minority interest in income.
3. Operating results of overseas subsidiaries for the first half of fiscal 2005
(6 months)
Ordinary income by geographic area (millions of yen)
America Europe Asia & Oceania Total
992 2,611 1,009 4,613
b. Financial conditions (comparison with March 31, 2005)
Net cash provided by operating activities was 100,992 million yen, compared with
-1,002,888 million yen for fiscal 2004. Net cash provided by investing
activities was 39,869 million yen because of a decrease in time deposits and
others compared with -26,062 million yen for fiscal 2004. Net cash provided by
financing activities was -117,605 million yen mainly due to a decrease in
short-term borrowings compared with 883,867 million yen for fiscal 2004.
Consequently, cash and cash equivalents increased by 25,499 million yen to
364,196 million yen in comparison with March 31, 2005.
Consolidated balance sheets
(millions of yen) First half First half Increase/ Fiscal 2004
Sep. 30, 2005 Sep. 30, 2004 Decrease Mar. 31, 2005
Assets
Current assets: 14,290,100 11,890,564 2,399,535 11,936,024
Cash and deposits 369,007 464,667 -95,660 398,688
Cash segregated as deposits for regulatory purposes 175,722 115,985 59,736 153,516
Notes receivable and trade accounts receivable 7,857 6,486 1,370 8,635
Securities 19,727 27,402 -7,675 15,037
Trading assets: 6,338,146 4,777,900 1,560,245 5,242,319
Trading securities and others 5,687,721 4,243,586 1,444,134 4,690,548
Derivative assets 650,425 534,313 116,111 551,771
Trading receivables, net 435,571 94,930 340,641 9,419
Private equity and other securities 240,746 45,553 195,193 149,598
Less: Allowance for possible investment losses -8,202 -5,429 -2,773 -7,051
Other inventories 2,454 1,465 988 816
Receivables related to margin transactions: 369,100 283,170 85,929 312,144
Customer margin loans 163,236 115,849 47,387 126,686
Cash deposits as collateral for securities borrowed 205,863 167,320 38,542 185,457
Collateralized short-term financing agreements: 6,124,106 5,895,740 228,365 5,348,915
Cash deposits as collateral for securities borrowed 6,124,106 5,895,740 228,365 5,348,915
Receivables 14,667 4,670 9,997 11,458
Short-term loans receivable 38,810 62,824 -24,013 75,781
Accrued income 23,952 16,612 7,340 17,463
Deferred tax assets-current 9,840 14,471 -4,631 9,076
Other current assets 128,970 84,460 44,509 190,531
Less: Allowance for doubtful accounts-current -378 -350 -28 -328
Non-current assets: 463,823 540,272 -76,448 442,937
Tangible fixed assets 137,470 141,294 -3,823 137,619
Intangible fixed assets 64,284 59,985 4,298 62,052
Investments and others: 262,068 338,992 -76,924 243,265
Investment securities 205,245 174,968 30,277 178,163
Long-term loans receivable 12,010 11,776 234 11,681
Long-term guarantee deposits 22,515 24,835 -2,319 23,410
Deferred tax assets-non-current 4,612 24,745 -20,132 12,839
Other investments 20,176 114,982 -94,805 25,715
Less: Allowance for doubtful accounts-non-current -2,493 -12,314 9,821 -8,546
Total assets 14,753,923 12,430,836 2,323,086 12,378,961
First half First half Increase/ Fiscal 2004
Sep. 30, 2005 Sep. 30, Decrease Mar. 31,
(millions of yen) 2004 2005
Liabilities
Current liabilities: 12,881,327 10,816,873 2,064,453 10,685,604
Notes payable and trade accounts payable 2,723 2,378 345 3,369
Trading liabilities: 3,929,639 3,797,037 132,601 3,658,544
Trading securities and others 3,345,589 3,346,765 -1,176 3,196,633
Derivative liabilities 584,050 450,272 133,777 461,911
Payables related to margin transactions: 187,816 126,783 61,032 141,972
Payable to securities finance companies 8,126 5,006 3,119 2,981
Proceeds of securities sold for customers' accounts 179,690 121,777 57,913 138,991
Collateralized short-term financing agreements: 5,928,683 3,987,853 1,940,829 3,877,730
Cash deposits as collateral for securities loaned 5,512,569 3,789,989 1,722,580 3,687,840
Payables related to gensaki transactions 416,114 197,864 218,249 189,890
Deposits received 157,121 149,276 7,845 110,415
Cash deposits received as guarantee 79,054 56,895 22,158 53,302
Short-term borrowings 2,175,630 2,396,779 -221,148 2,295,928
Commercial paper 116,681 98,220 18,461 200,220
Bonds and notes due within one year 130,782 115,541 15,241 129,401
Income taxes payable 26,236 4,013 22,222 10,596
Deferred tax liabilities-current 5,281 368 4,912 951
Accrued bonuses 24,371 19,511 4,859 22,811
Other current liabilities 117,304 62,213 55,091 180,359
Non-current liabilities: 959,018 816,449 142,568 850,180
Bonds and notes 749,101 629,547 119,554 666,136
Convertible bonds - 79,986 -79,986 79,985
Long-term debt 167,282 77,708 89,573 74,195
Deferred tax liabilities-non-current 19,141 5,632 13,508 6,225
Retirement benefits 19,835 18,040 1,795 19,173
Other non-current liabilities 3,657 5,534 -1,877 4,465
Statutory reserves 5,649 5,278 370 5,650
Total liabilities 13,845,995 11,638,602 2,207,393 11,541,435
Minority interests 206,194 176,930 29,264 189,193
Shareholders' equity
Common stock 138,432 138,431 0 138,432
Capital surplus 117,940 117,940 -0 117,941
Retained earnings 398,057 341,102 56,955 362,948
Net unrealized gain (loss) on securities, net of tax effect 53,060 24,339 28,721 35,674
Translation adjustments -4,930 -5,785 854 -5,877
Treasury stock -827 -724 -102 -786
Total shareholders' equity 701,733 615,303 86,429 648,332
Total liabilities, minority interests and shareholders' 14,753,923 12,430,836 2,323,086 12,378,961
equity
Consolidated statements of operations
(millions of yen) First half First half Yr/yr Fiscal 2004
Apr. 1, Apr. 1, 2004 % Apr. 1, 2004-
2005 - - change Mar. 31, 2005
Sep. 30, Sep. 30, 2004
2005
Operating revenues: 330,812 243,180 36.0 519,337
Commissions 107,984 107,416 0.5 216,386
Net gain (loss) on trading 104,351 76,268 36.8 151,117
Net gain (loss) on private equity and other securities (* 6,080 - - -
1)
Net gain (loss) on private equity and other securities (* - 1,533 - 171
2)
Interest and dividend income 95,448 43,259 120.6 118,019
Other sales revenues 16,946 14,702 15.3 33,641
Interest expenses 88,039 41,072 114.4 103,676
Cost of sales 12,800 11,086 15.5 25,228
Net operating revenues 229,972 191,021 20.4 390,432
Selling, general and administrative expenses: 149,985 135,960 10.3 275,544
Commission and other expenses 29,258 22,339 31.0 46,720
Employees' compensation and benefits 77,446 71,242 8.7 142,751
Occupancy and rental 16,059 16,261 -1.2 32,697
Data processing and office supplies 8,324 8,007 4.0 16,804
Depreciation expenses 11,140 10,884 2.4 22,129
Taxes other than income taxes 3,599 3,581 0.5 6,755
Others 4,157 3,644 14.1 7,685
Operating income 79,987 55,060 45.3 114,887
Non-operating income: 4,662 3,581 30.2 7,909
Equity in earnings 661 333 98.6 1,893
Others 4,000 3,248 23.2 6,015
Non-operating expenses 693 1,382 -49.8 2,363
Ordinary income 83,956 57,259 46.6 120,433
Extraordinary gains 10,883 2,202 394.2 9,552
Extraordinary losses 614 2,385 -74.2 17,383
Income before income taxes and minority interests 94,225 57,076 65.1 112,603
Income taxes-current 25,176 1,830 - 11,933
Income taxes-deferred 10,795 20,010 -46.0 28,233
Minority interest -12,430 -11,070 - -19,770
Net income 45,822 24,165 89.6 52,665
Net financial income included in net operating revenues 7,409 2,187 238.8 14,342
Note:
*1. Includes share of net income raised by the investments in limited
partnerships and similar partnerships.
*2. Excludes share of net income raised by the investments in limited
partnerships and similar partnerships.
The details are mentioned in 'Change in presentation'.
Consolidated statements of capital surplus and retained earnings
(millions of yen) First half First half Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Sep. 30, 2005 Sep. 30, 2004 Mar. 31, 2005
Capital surplus
Beginning balance of capital surplus 117,941 117,939 117,939
Increase in capital surplus - 1 1
Conversion of convertible bonds - - 0
Net gains on sales of treasury stock - 1 1
Decrease in capital surplus 0 - -
Net losses on sales of treasury stock 0 - -
Ending balance of capital surplus 117,940 117,940 117,941
Retained earnings
Beginning balance of retained earnings 362,948 330,780 330,780
Increase in retained earnings: 46,432 24,165 52,665
Net income 45,822 24,165 52,665
Increase due to merger of subsidiaries 609 - -
Decrease in retained earnings: 11,323 13,843 20,497
Cash dividends paid 10,644 13,307 19,960
Bonuses to directors 678 536 536
Ending balance of retained earnings 398,057 341,102 362,948
Consolidated statements of cash flows
First half First half Fiscal 2004
(millions of yen) Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Sep. 30, 2005 Sep. 30, 2004 Mar. 31, 2005
1. Cash flows from operating activities:
Income before income taxes and others 94,225 57,076 112,603
Depreciation 11,140 10,884 22,129
Increase in allowance for retirement benefits 662 738 1,871
Interest and dividend income -96,697 -41,100 -106,958
Interest expenses 87,988 40,713 103,539
Equity in earnings -661 -333 -1,893
Adjustment of extraordinary gains/losses items:
Gain on sale of fixed assets - -153 -2,000
Loss on sale or disposal of fixed assets 249 203 1,535
Valuation loss of fixed assets - 46 114
Gain on sale of related companies' stocks -3,714 - -
Write-down of related companies' stocks - 40 40
Gain on liquidation of related companies - -594 -599
Loss on liquidation of related companies - - 650
Gain on sale of investment securities -2,443 -952 -6,451
Loss on sale of investment securities 17 482 892
Write-down of investment securities 121 491 3,430
Loss on sale of loans receivable - - 7,595
Reversal of stock purchase warrant - -501 -501
Gain on change in stake in subsidiary -4,725 - -
Provision for doubtful accounts - 576 1,638
Multiemployer pension plan settlement cost in subsidiaries - - 188
Reorganization costs of an overseas banking subsidiary - 398 779
Others 226 146 517
Increase in deposits segregated for customer -21,451 -2,972 -43,042
(Increase) Decrease in loans receivable 37,713 35,046 22,278
(Increase) Decrease in private equity and other securities -66,315 -4,084 -18,342
(Increase) Decrease in trading assets, net of trading liabilities -1,250,472 629,253 111,197
(Increase) Decrease in receivables related to margin transactions, -11,111 -14,300 -28,086
net of payables related to margin transactions
(Increase) Decrease in receivables on collateralized short-term 1,271,393 -1,627,678 -1,183,394
financing agreements, net
Others 54,982 65,398 7,739
Sub-total 101,128 -851,175 -992,528
Interest and dividend received 92,801 42,916 106,770
Interest paid -85,302 -39,288 -103,440
Income taxes refunded (paid) -7,635 -13,588 -13,689
Net cash provided by (used in) operating activities 100,992 -861,135 -1,002,888
First half First half Fiscal 2004
(millions of yen) Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Sep. 30, 2005 Sep. 30, 2004 Mar. 31, 2005
2. Cash flows from investing activities:
Increase in time deposits - - -53,041
Decrease in time deposits 55,201 - -
Payments for purchase of securities -6,064 -5,235 -20,130
Proceeds from sale and redemption of securities 2,228 17,511 44,628
Payments for purchase of tangible fixed assets -4,215 -2,935 -7,786
Proceeds from sale of tangible fixed assets 17 307 5,315
Payments for purchase of intangible fixed assets -10,413 -8,050 -19,108
Payments for purchase of investment securities -10,358 -6,153 -15,348
Proceeds from sale and redemption of investment securities 8,314 12,573 53,979
Payments for purchase of subsidiaries' stocks from non-Group - -3 -13
shareholders
Proceeds from sale of related companies 13,416 - -
Payments for purchase of related companies -7,582 - -
Payments for loan made -66 -53 -77
Proceeds from collection of loans receivable 79 238 334
Others -686 -13,275 -14,814
Net cash provided by (used in) investing activities 39,869 -5,077 -26,062
3. Cash flows from financing activities:
Increase (decrease) in short-term borrowings -157,223 763,486 759,982
Proceeds from issuance of bonds and convertible bonds 186,510 144,274 225,874
Payments for redemption of bonds and convertible bonds -182,238 -65,807 -97,102
Proceeds from long-term debt 101,500 20,600 28,800
Payments for repayment of long-term debt -56,014 -7,145 -14,011
Dividends paid -10,644 -13,307 -19,960
Dividends paid to minority shareholders -9,174 -167 -167
Proceeds from minority shareholders due to issuance of shares 9,999 - -
Proceeds from sale of treasury stocks 14 15 33
Others -333 -255 418
Net cash provided by (used in) financing activities -117,605 841,693 883,867
4. Effect of exchange rate changes on cash and 1,639 5,060 3,819
cash equivalents
5. Net change in cash and cash equivalents 24,896 -19,459 -141,263
6. Cash and cash equivalents at beginning of term 338,697 480,123 480,123
7. Increase in cash and cash equivalents due to merger of 602 - -
subsidiaries
8. Decrease in cash and cash equivalents due to exclusion from - - -161
scope of consolidation
9. Cash and cash equivalents at end of term 364,196 460,663 338,697
Notes to consolidated financial statements
The consolidated financial statements of the Company for the first half ended
September 30, 2005 are prepared in accordance with the 'Cabinet Office Ordinance
Concerning Securities Companies' (Prime Minister's Office Ordinance and Ministry
of Finance Ordinance No. 32, 1998), and the 'Uniform Accounting Standards of
Securities Companies' (set by the board of directors of the Japan Securities
Dealers' Association, November 14, 1974), based on the 'Regulations of
Consolidated Financial Statements' (Ministry of Finance Ordinance No. 24, 1998)
and its Article 48 and 69.
Basis of consolidated financial statements
1. Scope of consolidation
Consolidated subsidiaries: 46 companies
Major companies:
Daiwa Securities Co. Ltd.
Daiwa Securities SMBC Co. Ltd.
Daiwa Asset Management Co. Ltd.
Daiwa Institute of Research Ltd.
NIF Ventures Co., Ltd.
Daiwa Securities Business Center Co. Ltd.
Daiwa Property Co., Ltd.
Daiwa Securities SMBC Europe Limited
Daiwa Securities Trust and Banking (Europe) plc
Daiwa America Corporation
Daiwa Securities America Inc.
Daiwa Securities SMBC Asia Holding B.V.
Daiwa Securities SMBC H.K. Limited
Daiwa Securities SMBC Singapore Limited
Consolidated subsidiary merged with non-consolidated subsidiary during this
first half. The number of consolidated subsidiaries unchanged. Each amount of
total assets, operating revenues (or sales), net income corresponding to equity
holdings and retained earnings corresponding to equity holdings of
non-consolidated subsidiaries has little influence on the consolidated financial
statements and has little materiality as a whole.
2. Application of equity method
Affiliates applicable of equity method: 6 companies
Major companies:
Daiwa SB Investments Ltd.
Daiwa SMBC-SSC Securities Co. Ltd.
Totan Holdings Co., Ltd.
The Tokyo Tanshi Co., Ltd.
One company is newly added to the scope of equity method due to purchase of
shares during this first half. Each amount of net income corresponding to
equity holdings and retained earnings corresponding to equity holdings of both
non-consolidated subsidiaries and affiliates inapplicable of equity method has
little influence on the consolidated financial statements and has little
materiality as a whole.
For affiliates applicable of equity method whose first half other than September
30, 2005, the financial statements for the relevant first half are reflected.
3. Fiscal period of subsidiaries
For subsidiaries with the first half ending other than September 30, 2005, the
financial statements for the relevant first half are employed and important
transactions occurred by discrepancies with closing account date are adjusted
for this consolidated financial statements.
4. Accounting policies
(1) Valuation of financial instruments and inventories
(i) Valuation of trading assets and liabilities
Trading assets and liabilities, including securities and financial derivatives
for trading purposes held by a securities company are recorded mainly on a trade
date basis in the consolidated balance sheet at either market or fair value.
(ii) Valuation of non-trading securities
The Group examines the intent of holding each securities and classifies those
securities as (a) debt securities intended to be held to maturity ('
held-to-maturity debt securities'), (b) equity securities issued by subsidiaries
and affiliated companies, or (c) all other securities not classified in any of
the above categories ('available-for-sale securities').
Held-to-maturity debt securities are stated at amortized cost. Equity
securities issued by subsidiaries and affiliated companies are stated at
moving-average cost. Available-for-sale securities with market value are stated
at market value, based on quoted market prices. Realized gains and losses on
sale of such securities are computed using the moving-average cost. Unrealized
gains and losses on these securities are reported, net of applicable income
taxes, as a separate component of the shareholders' equity.
Debt in available-for-sale securities for which a market value is not available,
are stated at the amortized cost, net of the amount considered not collectible.
Equity in available-for-sale securities for which a market value is not
available, are stated at the moving-average cost.
Of those securities with no fair value, share of net income raised by the
investments in limited partnerships has been reflected on consolidated
statements of operations of last fiscal year and share of net unrealized profits
and losses held by the partnerships directly into stockholders' equity.
(iii) Valuation of other inventories
Cost method determined by the specific identification method is mainly applied.
(2) Depreciation of depreciable assets
(i) Tangible fixed assets
Property and equipment are stated at cost. The Company and domestic
consolidated subsidiaries compute depreciation principally by the
declining-balance method over estimated useful lives as stipulated by
Corporation Tax Law of Japan. Depreciation for buildings purchased in Japan
after April 1, 1998 is computed by the straight-line method. In overseas
consolidated subsidiaries, depreciation is mainly computed by the straight-line
method.
(ii) Intangible fixed assets
Intangible fixed assets are generally amortized under the straight-line method.
The Company and domestic consolidated subsidiaries compute amortization over
estimated useful lives as stipulated by Corporation Tax Law of Japan, and over
internally estimated useful lives (5 years) for software of in-house use.
(3) Accounting policies for various provisions
(i) Provision for doubtful accounts
Provisions for doubtful accounts are provided based on the estimated historical
default rate for normal loans, and based on individually assessed amounts for
doubtful accounts.
(ii) Allowance for possible investment losses
Some consolidated subsidiaries provide the allowances based on estimated losses
on private equity and other securities held at the first half end, assessing the
financial conditions of investee companies.
(iii) Accrued bonuses
The Company and domestic consolidated subsidiaries follow the Japanese practice
of paying bonuses to employees in June and December. Accrued employees' bonuses
represent liabilities estimated as of the balance sheet date. Bonuses to
directors and corporate executive officers of the Company, which are subject to
approval at the Compensation Committee, represent liabilities as of the balance
sheet date. Compensation Committee sets policies for deciding compensation of
individual directors and corporate executive officers and determines
compensation content for each individual. The Chairman of the Board chairs the
committee, while three out of five committee members are outside directors.
Bonuses to directors of consolidated subsidiaries, which are subject to approval
at the shareholders' meeting, are accounted for as an appropriation of retained
earnings.
(iv) Retirement benefits
The Company and most of domestic consolidated subsidiaries provide an unfunded
defined contribution plan to their employees in return for services rendered
each year, where the amount to be contributed to the individual employee's
account is defined by the plan. Contributions by the Company and most of
domestic consolidated subsidiaries under the unfunded defined contribution plan
are accumulated on an annual basis and earn a guaranteed hypothetical return at
a rate predetermined by the Company and most of domestic consolidated
subsidiaries each year.
(4) Accounting for certain lease transactions
Financial leases, whose ownership does not transfer to the lessee at the end of
the lease term (non-capitalized finance leases) are not capitalized and are
accounted for in the same manner as operating leases.
(5) Hedging transaction
The Group states derivative financial instruments at fair value and recognizes
changes in the fair value as gains or losses unless the derivative financial
instruments are used for hedging purposes. Valuation gains or losses on hedging
instruments are mainly deferred as assets or liabilities until the gains or
losses on the underlying hedged instruments are realized. Interest received or
paid on interest swaps for hedging purposes is accrued without being
marked-to-market. The premium or discount on forward foreign exchange for
hedging purpose is allocated to each fiscal term without being marked-to-market.
(6) Other material items
(i) Accounting for consumption taxes
Consumption taxes are separately recorded.
(ii) Deferred assets
Stock issue costs and bond issue costs are amortized in a lump sum when
incurred.
(iii) Consolidated tax payments system
The consolidated tax payments system is applied.
5. Scope of 'Cash and cash equivalents' in consolidated cash flow statements
'Cash and cash equivalents' in consolidated cash flow statements is defined as
liquid fund including cash in hand, current account deposits, and ordinary
deposits.
Change in presentation
Regarding the investments in limited partnerships and a sort of partnerships
which are regarded as equivalent to securities by the Article2 (2) of Securities
Exchange Act, the profits and losses related to these investments had been
included in 'Interest and dividend income' until fiscal 2004, but those are
included in 'Net gain (loss) on private equity and other securities' since the
beginning of this fiscal year. 'Interest and dividend income' decreased by
6,266 million yen, due to this change in presentation.
Subsequent Events
NIF Ventures Co., Ltd., a consolidated subsidiary of Daiwa Securities Group
Inc., changed the company name to NIF SMBC Ventures., Ltd. following the merger
of SMBC Capital Co., Ltd. on October 1, 2005. This merger has little effect on
the consolidated financial statements.
Notes to consolidated balance sheets
1. Accumulated depreciation of tangible fixed assets
As of Sep. 30, 2005 As of Sep. 30, 2004 As of Mar. 31, 2005
100,264 million yen 102,420 million yen 97,300 million yen
2. Guarantee
As of Sep. 30, 2005 As of Sep. 30, 2004 As of Mar. 31, 2005
3,041 million yen 3,928 million yen 3,513 million yen
3. Short-term and long-term borrowings include the subordinated
borrowings stipulated by Article 2 of the 'Cabinet Office Ordinance on the
Capital Adequacy Rule for Securities Companies' (Cabinet Office Ordinance No.
23, 2001).
Short-term borrowings
As of Sep. 30, 2005 As of Sep. 30, 2004 As of Mar. 31, 2005
- 40,000 million yen 40,000 million yen
Long-term borrowings
As of Sep. 30, 2005 As of Sep. 30, 2004 As of Mar. 31, 2005
102,000 million yen 20,000 million yen 20,000 million yen
Notes to consolidated statements of operations
Details of extraordinary gains/losses
(million of yen) First half First half Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Sep. 30, 2005 Sep. 30, 2004 Mar. 31, 2005
Extraordinary gains:
Gain on sale of fixed assets - 153 2,000
Gain on liquidation of related companies - 594 599
Gain on sale of related companies' stock 3,714 - -
Gain on sale of investment securities 2,443 952 6,451
Reversal of reserve for securities transaction liabilities 0 - -
Reversal of reserve for financial futures transaction - 0 -
liabilities
Reversal of stock purchase warrant - 501 501
Gain on change in stake in subsidiary 4,725 - -
Extraordinary losses:
Write-down of related companies stocks - 40 40
Write-down of investment securities 121 491 3,430
Valuation loss of fixed assets - 46 114
Loss on sale or disposal of fixed assets 249 203 1,535
Loss on liquidation of related companies - - 650
Loss on sale of investment securities 17 482 892
Loss on sale of loans receivable - - 7,595
Provision for doubtful accounts - 576 1,638
Reorganization costs for overseas banking subsidiary - 398 779
Multiemployer pension plan settlement cost in consolidated - - 188
subsidiaries
Provision for securities transaction liabilities - 146 517
Other 226 - -
Notes to consolidated cash flow statements
Reconciliation for 'cash and cash equivalents at end of term' and 'cash and time
deposits' on consolidated balance sheet
(millions of yen) First half First half Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Sep. 30, 2005 Sep. 30, 2004 Mar. 31, 2005
Cash and deposits 369,007 464,667 398,688
Time deposit more than 3 months -4,810 -4,003 -59,990
Cash and cash equivalents 364,196 460,663 338,697
Segment information
1. Net operating revenues by business segment
The Company and its consolidated subsidiaries' world-wide activities include (a)
trading in securities and derivatives, (b) brokerage of securities and
derivatives, (c) underwriting and distribution of securities, (d) other business
related to securities transactions and (e) private offering of securities.
These activities include financing and other services. Accordingly, the Company
and its subsidiaries operate in a single industry segment, 'Investment and
financial services'.
2. Net operating revenues by geographic area
'Net operating revenues', 'Selling, general and administrative expenses (S.G. &
A. expenses)', 'Operating income' and 'Assets' by geographic area are as
follows.
First half ended September 30, 2005
Net operating revenue and expenses
(millions of yen) Japan America Europe Asia and Total Elimination/ Consolidated
Oceania
Unallocated
Net operating revenues 213,878 2,735 8,934 4,423 229,972 - 229,972
from external customers
Intersegment revenues 6,789 3,365 3,955 315 14,426 (14,426) -
Net operating revenues 220,667 6,101 12,890 4,738 244,398 (14,426) 229,972
S.G. & A. expenses 134,921 5,275 10,391 3,700 154,289 (4,304) 149,985
Operating income (loss) 85,746 825 2,499 1,038 90,109 (10,121) 79,987
First half ended September 30, 2004
Net operating revenue and expenses
(millions of yen) Japan America Europe Asia and Total Elimination/ Consolidated
Oceania
Unallocated
Net operating revenues 171,734 2,145 13,813 3,328 191,021 - 191,021
from external customers
Intersegment revenues (31) 2,795 2,203 632 5,599 (5,599) -
Net operating revenues 171,702 4,941 16,016 3,960 196,620 (5,599) 191,021
S.G. & A. expenses 121,076 4,903 12,319 3,259 141,558 (5,598) 135,960
Operating income (loss) 50,626 38 3,696 701 55,062 (1) 55,060
Fiscal 2004 ended March 31, 2005
Net operating revenue and expenses
(millions of yen) Japan America Europe Asia and Total Elimination/ Consolidated
Oceania
Unallocated
Net operating revenues 353,827 3,970 25,377 7,255 390,432 - 390,432
from external customers
Intersegment revenues (2,370) 6,640 5,027 1,278 10,576 (10,576) -
Net operating revenues 351,457 10,611 30,404 8,534 401,008 (10,576) 390,432
S.G. & A. expenses 244,543 10,594 24,202 6,781 286,122 (10,577) 275,544
Operating income (loss) 106,914 16 6,202 1,752 114,886 1 114,887
Note: Method of segmentation by geographic area and principal countries of the
area belonging to each segment are as follows:
(1) Method of segmentation by geographic area: Geographical adjacency
(2) Principal countries of area belonging to each segment area:
America: USA
Europe: United Kingdom, Germany, Switzerland and France
Asia and Oceania: Hong Kong and Singapore
3. Overseas net operating revenues
Overseas net operating revenues include those of the Company and its
consolidated subsidiaries (excluding inter-company profit) are as follows.
First half ended September 30, 2005
(millions of yen) America Europe Asia and Oceania Total
Overseas net operating revenues 4,946 18,727 4,733 28,407
Consolidated net operating revenues - - - 229,972
Percentage of total revenues 2.2 8.1 2.1 12.4
First half ended September 30, 2004
(millions of yen) America Europe Asia and Oceania Total
Overseas net operating revenues 4,613 12,525 3,828 20,966
Consolidated net operating revenues - - - 191,021
Percentage of total revenues 2.4 6.6 2.0 11.0
Fiscal 2004 ended March 31, 2005
(millions of yen) America Europe Asia and Oceania Total
Overseas net operating revenues 8,552 21,148 8,890 38,591
Consolidated net operating revenues - - - 390,432
Percentage of total revenues 2.2 5.4 2.3 9.9
Note: Method of segmentation by geographic area and principal
countries of area belonging to each segment are same as '2. Net operating
revenues by geographic area'.
Other notes
The Group omits to disclose the notes concerning the 'Lease transactions' and
the 'Derivative transactions' on this financial summary. The information will
be disclosed through EDINET, electronic disclosure system in accordance with
Japanese Securities Exchange Law.
The Group will disclose the notes 'Securities' as the 'Additional information on
financial summary' as soon as those are available.
Supplemental information for the first half of fiscal 2005
1. Breakdown of commissions
First half ended September 30, 2005 (A)
(millions of yen) Equity Fixed income Investment Investment Others Total
banking
(Bond) trust
Brokerage commission 43,383 479 102 - - 43,965
Underwriting commission - - - 14,453 - 14,453
(Stock and other) (-) (-) (-) (9,162) (-) (9,162)
(Bond and other) (-) (-) (-) (4,421) (-) (4,421)
Distribution commission - - 15,849 970 - 16,820
Other commission 883 1,245 16,790 6,639 7,185 32,744
(Agency commission) (-) (1,235) (9,305) (-) (-) (10,540)
Total 44,266 1,725 32,743 22,062 7,185 107,984
First half ended September 30, 2004 (B)
(millions of yen) Equity Fixed income Investment Investment Others Total
banking
(Bond) trust
Brokerage commission 43,657 619 99 - - 44,376
Underwriting commission - - - 27,536 - 27,536
(Stock and other) (-) (-) (-) (22,845) (-) (22,845)
(Bond and other) (-) (-) (-) (3,984) (-) (3,984)
Distribution commission - - 8,576 1,432 - 10,008
Other commission 939 1,432 12,234 5,930 4,957 25,495
(Agency commission) (-) (1,400) (6,558) (-) (-) (7,958)
Total 44,596 2,051 20,910 34,899 4,957 107,416
Yr/yr percentage change (First half ended September 30, 2005 (A) / First half
ended September 30, 2004 (B) - 1)
(percentage) Equity Fixed income Investment Investment Others Total
banking
(Bond) Trust
Brokerage commission -0.6 -22.5 3.0 - - -0.9
Underwriting commission - - - -47.5 - -47.5
(Stock and other) (-) (-) (-) (-59.9) (-) (-59.9)
(Bond and other) (-) (-) (-) (11.0) (-) (11.0)
Distribution commission - - 84.8 -32.3 - 68.1
Other commission -6.0 -13.0 37.2 11.9 44.9 28.4
(Agency commission) (-) (-11.8) (41.9) (-) (-) (32.4)
Total -0.7 -15.9 56.6 -36.8 44.9 0.5
Fiscal 2004 ended March 31, 2005
(millions of yen) Equity Fixed income Investment Investment Others Total
banking
(Bond) trust
Brokerage commission 81,919 1,463 159 - - 83,542
Underwriting commission - - - 54,743 - 54,743
(Stock and other) (-) (-) (-) (44,659) (-) (44,659)
(Bond and other) (-) (-) (-) (8,573) (-) (8,573)
Distribution commission - - 19,687 3,597 - 23,285
Other commission 1,967 2,800 25,793 12,828 11,425 54,815
(Agency commission) (-) (2,748) (14,014) (-) (-) (16,763)
Total 83,887 4,263 45,640 71,170 11,425 216,386
2. Breakdown of net gains on trading
(millions of yen) First half First half Yr/yr % change Fiscal 2004 (2005/3)
(2005/9) (2004/9)
Stock and other 46,477 28,891 60.9 56,104
Bond, forex and other 57,873 47,376 22.2 95,012
(Bond and other) (28,802) (35,659) (-19.2) (62,407)
(Forex and other) (29,070) (11,716) (148.1) (32,605)
Total 104,351 76,268 36.8 151,117
Quarterly consolidated statements of operation
(millions of yen) 2nd quarter 3rd quarter 4th quarter 1st quarter 2nd quarter
Jul. 1, Oct. 1, Jan. 1, Apr.1, 2005- Jul.1, 2005-
2004- 2004- 2005- Jun. 30, Sep. 30,
Sep. 30, Dec. 31, Mar. 31, 2005 2005
2004 2004 2005
Operating revenues 118,519 118,067 158,088 135,435 195,376
Commissions 53,116 46,702 62,268 45,039 62,944
Brokerage commission 16,831 16,757 22,408 17,756 26,209
(Stock and other) 16,485 16,322 21,939 17,467 25,916
(Bond and other) 307 404 439 251 228
Underwriting commission 17,299 11,801 15,405 5,320 9,132
(Stock and other) 15,001 9,822 11,991 2,501 6,661
(Bond and other) 1,751 1,764 2,824 2,410 2,011
Distribution commission 4,155 5,617 7,659 7,515 9,305
(Beneficiary certificates) 3,434 4,691 6,420 6,949 8,900
Other commission 14,829 12,524 16,795 14,447 18,297
(Beneficiary certificates) 6,169 6,491 7,006 7,663 9,049
Net gain (loss) on trading 33,831 30,452 44,397 35,804 68,547
(Stock and other) 9,606 5,635 21,577 7,435 39,042
(Bond and other) 18,431 18,216 8,531 20,566 8,236
(Forex and other) 5,794 6,600 14,288 7,802 21,268
Net gain (loss) on private equity - - - 4,009 2,071
and other securities (*1)
Net gain (loss) on private equity 583 201 -1,563 - -
and other securities (*2)
Interest and dividend income 23,761 33,385 41,374 42,965 52,483
Other sales revenues 7,226 7,326 11,612 7,616 9,330
Interest expenses 23,145 30,466 32,137 38,531 49,507
Cost of sales 5,410 5,420 8,720 5,621 7,178
Net operating revenues 89,963 82,180 117,230 91,282 138,689
Selling, general and administrative expenses: 67,640 66,002 73,581 69,878 80,106
Commission and other expenses 11,779 11,295 13,086 13,748 15,509
Employees' compensation and benefits 34,199 33,472 38,036 34,961 42,485
Occupancy and rental 8,359 7,992 8,443 7,746 8,312
Data processing and office supplies 4,223 4,225 4,571 4,309 4,014
Depreciation expenses 5,426 5,486 5,758 5,551 5,588
Taxes other than income taxes 1,751 1,617 1,556 1,594 2,004
Others 1,900 1,911 2,129 1,966 2,191
Operating income 22,322 16,177 43,649 21,404 58,582
Non-operating income 1,141 2,436 1,891 2,705 1,957
Non-operating expenses 397 591 389 308 384
Ordinary income 23,066 18,022 45,151 23,800 60,155
Extraordinary gains 1,883 2,043 5,307 321 10,562
Extraordinary losses 1,607 1,388 13,608 - 614
Income before income taxes and minority 23,341 18,676 36,850 24,122 70,102
interests
Income taxes-current 939 307 9,795 2,698 22,478
Income taxes-deferred 7,384 6,683 1,539 6,690 4,104
Minority interests -5,136 -2,221 -6,479 -3,096 -9,333
Net income 9,881 9,464 19,035 11,636 34,185
Net financial income included in net operating 615 2,918 9,236 4,434 2,975
revenues
Note:
*1. Includes share of net income raised by the investments in limited
partnerships and similar partnerships.
*2. Excludes share of net income raised by the investments in limited
partnerships and similar partnerships.
Non-consolidated financial summary
(For the first half ended September 30, 2005)
(1) Operating results (from April 1, 2005 to September 30, 2005)
(Note) All figures in the financial statements are rounded down to the nearest
millionth.
'-' indicates a loss or negative figure.
(Millions of yen except for per share data and yr/yr % change)
Operating revenues Operating income Ordinary income
First half (2005/9) 33,671 (48.4)% 27,821 (72.8)% 29,333 (65.7)%
First half (2004/9) 22,692 (101.9)% 16,102 (360.7)% 17,699 (418.0)%
Fiscal 2004 (2005/3) 26,236 13,884 16,302
Net income Earnings/share
First half (2005/9) 35,573 (95.3)% 26.73 Yen
First half (2004/9) 18,213 (538.9)% 13.68 Yen
Fiscal 2004 (2005/3) 32,228 24.21 Yen
(Note)
1. Average number of shares outstanding (shares)
First half (2005/9): 1,330,587,381 First half (2004/9): 1,330,718,543 Fiscal 2004 (2005/3):
1,330,684,146
2. Change in accounting policies: None
(2) Dividends
Interim dividends/share Annual dividends/share
First half (2005/9) 12.00 Yen - Yen
First half (2004/9) 5.00 -
Fiscal 2003 (2004/3) - 13.00
(3) Financial conditions
(Millions of yen except for per share data and percentage)
Total assets Shareholders' equity Shareholders' Shareholders' equity/
share
equity ratio
As of Sep. 30, 2005 1,050,264 609,470 58.0 % 458.05 Yen
As of Sep. 30, 2004 1,101,131 559,794 50.8 420.67
As of Mar. 31, 2005 1,088,665 573,115 52.6 430.71
(Note)
1. Number of shares outstanding (shares)
As of Sep. 30, 2005: 1,330,555,430 As of Sep. 30, 2004: 1,330,699,554 As of Mar. 31, 2005: 1,330,612,431
2. Treasury stock (shares)
As of Sep. 30, 2005: 1,180,742 As of Sep. 30, 2004: 1,035,704 As of Mar. 31, 2005: 1,123,741
(Note)
The Company, the holding company for the Daiwa Securities Group, is
influenced by the performance of subsidiaries.
The subsidiaries' principal business is securities business, and the economic
and market environment affects their performance. Therefore, the Company
doesn't disclose the estimated operating result, considering the difficulty to
forecast the performance.
Balance sheets
(millions of yen) First half First half Increase/ Fiscal 2004
Sep. 30, 2005 Sep. 30, 2004 Decrease Mar. 31, 2005
Assets
Current assets: 136,508 302,755 -166,246 227,816
Cash and deposits 92,342 153,488 -61,145 117,897
Short-term loans receivable 26,073 131,683 -105,610 87,369
Accounts receivable 15,981 8488 7,493 17,728
Accrued income 752 1,646 -893 1,845
Deferred tax assets-current 210 6,346 -6,136 1,886
Other current assets 1,147 1,101 45 1,088
Non-current assets: 913,755 798,376 115,379 860,849
Tangible fixed assets 10,091 10,308 -217 10,187
Intangible fixed assets 668 787 -118 717
Investments and others: 902,995 787,280 115,714 849,944
Investment securities 683,926 649,007 34,919 658,209
Long-term loans receivable 198,126 114,103 84,022 171,406
Long-term guarantee deposits 12,464 13,473 -1,009 12,471
Others 8,974 11,206 -2,232 8,351
Less: Allowance for doubtful accounts -496 -510 13 -494
Total assets 1,050,264 1,101,131 -50,867 1,088,665
(millions of yen) First half First half Increase/ Fiscal 2004
Sep. 30, 2005 Sep. 30, 2004 Decrease Mar. 31, 2005
Liabilities
Current liabilities: 229,611 286,309 -56,698 263,444
Short-term borrowings 70,710 123,910 -53,200 67,710
Commercial paper - - - 25,000
Bonds and notes due within one year 79,985 100,000 -20,015 100,000
Collateralized short-term financing agreements 75,339 58,884 16,454 66,855
Income taxes payable 111 133 -21 138
Accrued bonuses 791 597 194 769
Other current liabilities 2,674 2,784 -110 2,970
Non-current liabilities: 211,182 255,027 -43,844 252,105
Bonds and notes 135,400 120,000 15,400 124,900
Convertible bonds - 79,986 -79,986 79,985
Long-term debt 46,500 38,000 8,500 37,000
Long-term cash deposits received as guarantee 4,093 4,411 -317 4,100
Deferred tax liabilities-non-current 20,394 8,288 12,106 1,916
Retirement benefits 3,527 3,273 253 3,408
Other non-current liabilities 1,266 1,068 198 793
Total liabilities 440,793 541,336 -100,543 515,549
Shareholders' equity
Common stock 138,432 138,431 0 138,432
Capital surplus 117,940 117,940 -0 117,941
Additional paid-in capital 117,786 117,786 0 117,786
Other capital surplus reserve 153 154 -0 154
Net gains on sales of treasury stock 153 154 -0 154
Retained earnings 314,338 282,048 32,290 289,409
Earned surplus reserve 45,335 45,335 - 45,335
General-purpose reserve 218,000 218,000 - 218,000
Unappropriated retained earnings 51,003 18,712 32,290 26,074
(Net income for the current term) (35,573) (18,213) (17,360) (32,228)
Net unrealized gain (loss) on securities, net of tax 39,585 22,098 17,486 28,119
effect
Treasury stock -826 -724 -102 -786
Total shareholders' equity 609,470 559,794 49,675 573,115
Total liabilities and shareholders' equity 1,050,264 1,101,131 -50,867 1,088,665
Statements of operations
First half First half Yr/yr Fiscal 2004
(millions of yen) Apr. 1, 2005 - Apr. 1, 2004 - % Apr. 1, 2004 -
Sep. 30, 2005 Sep. 30, 2004 change Mar. 31, 2005
Operating revenues: 33,671 22,692 48.4 26,236
Dividends from related companies 32,243 19,127 68.6 19,136
Interest on loans to related companies 1,371 1,903 -27.9 3,704
Other interest and dividend income - 54 - 100
Royalty on trademark - 1,607 - 3,295
Other 56 - - -
Operating expenses: 5,849 6,589 -11.2 12,352
Selling, general and administrative expenses: 4,301 3,897 10.4 7,731
Commission and other expenses 971 422 129.9 917
Employees' compensation and benefits 1,858 1,832 1.4 3,650
Occupancy and rental 308 384 -19.6 681
Data processing and office supplies 405 441 -8.2 870
Depreciation expenses 175 215 -18.4 428
Others 580 600 -3.4 1,182
Interest expenses 1,548 2,692 -42.5 4,620
Operating income 27,821 16,102 72.8 13,884
Non-operating income 1,559 1,713 -9.0 2,669
Non-operating expenses 47 117 -59.5 251
Ordinary income 29,333 17,699 65.7 16,302
Extraordinary gains 9,061 1,587 470.8 9,149
Extraordinary losses 179 301 -40.3 3,396
Income before income taxes 38,215 18,985 101.3 22,055
Income taxes-current -9,647 -3,161 - -8,064
Income taxes-deferred 12,288 3,933 212.4 -2,109
Net income 35,573 18,213 95.3 32,228
Unappropriated retained earnings-carryforward 15,429 498 - 498
Interim dividends - - - 6,653
Unappropriated retained earnings 51,003 18,712 172.6 26,074
Notes to financial statements
The financial statements of the Company for the first half ended September 30,
2005 are prepared in accordance with 'Regulations of Interim Financial
Statements' (MOF Ordinance No. 38, 1977).
Basis of financial statements
1. Valuation of securities
(1) Subsidiary stocks and affiliated company stocks are valued at moving average
cost method.
(2) Other securities than subsidiary stocks and affiliated company stocks are
valued at fair value on the closing date with posting net unrealized gains net
of tax effect directly in shareholders' equity, if their fair value is
available. The cost of those securities is based on moving average method.
Other securities are valued at moving average cost method if their fair value is
not available. Of those securities with no fair value, share of net income
raised by the investments in limited partnership is reflected on statements of
operations and share of net unrealized profits and losses on securities held by
the partnership are directly posted into shareholders' equity.
2. Depreciation of depreciable assets
(1) Tangible fixed assets
The Company computes depreciation by the declining-balance method over estimated
useful lives as stipulated by Corporation Tax Law of Japan. Depreciation for
buildings purchased in Japan after April 1, 1998 is computed by the
straight-line method.
(2) Intangible fixed assets, and investments and others
Intangible fixed assets are amortized under the straight-line method. The
Company computes amortization over estimated useful lives as stipulated by
Corporation Tax Law of Japan, and over internally estimated useful lives (5
years) for software of in-house use.
3. Accounting for various provisions
(1) Provision for doubtful accounts
Provisions for doubtful accounts are provided based on the estimated historical
default rate for normal loans, and based on individually assessed amounts for
doubtful accounts.
(2) Accrued bonus
Accrued employees' bonuses represent liabilities estimated as of the balance
sheet date. Bonuses to directors and corporate executive officers, which are
subject to approval at the Compensation Committee, represent liabilities as of
the balance sheet date.
(3) Retirement benefits
The Company provides an unfunded defined contribution plan to its employees in
return for services rendered each year, where the amount to be contributed to
the individual employee's account is defined by the plan. Contributions by the
Company under the unfunded defined contribution plan are accumulated on an
annual basis and earn a guaranteed hypothetical return at a rate predetermined
by the Company each year. As for the closed pension fund, accrued retirement
benefits for the portion of 6 months are provided based on the difference
between projected benefit obligation and fund fair value expected on March 31,
2006.
4. Accounting for certain lease transactions
Financial leases, whose ownership does not transfer to the lessee at the end of
the lease term (non-capitalized finance leases) are not capitalized and are
accounted for in the same manner as operating leases.
5. Hedging transaction
Interest received or paid on interest swaps for hedging purposes is accrued
without being marked-to-market. The premium or discount on forward foreign
exchange for hedging purpose is allocated to each fiscal term without being
marked-to-market.
6. Other material items
(1) Accounting for consumption taxes
Consumption taxes are separately recorded.
(2) Deferred assets
Stock issue costs and bond issue costs are amortized in a lump sum when
incurred.
(3) Consolidated tax payments system
The consolidated tax payments system is applied.
Change in presentation
'Other interest and dividend income' and 'Royalty on trademark' which had been
separately presented until fiscal 2004 are included in 'Other' of Operating
revenues from the beginning of this fiscal year, due to lessened materiality in
amount. 'Other interest and dividend income' and 'Royalty on trademark' for the
first half of fiscal 2005 are 50 million yen and 6 million yen, respectively.
Notes to balance sheets
1. Accumulated depreciation of tangible fixed assets
As of Sep. 30, 2005 As of Sep. 30, 2004 As of Mar. 31, 2005
2,992 million yen 3,418 million yen 3,218 million yen
2. Guarantee
As of Sep. 30, 2005 As of Sep. 30, 2004 As of Mar. 31, 2005
8,694 million yen 13,484 million yen 8,969 million yen
3. Fair value of subsidiary and affiliated company stocks as of Sep. 30, 2005
(millions of yen)
Carrying value Fair value Difference
Subsidiary 12,065 35,403 23,337
Affiliated company 274 609 334
Notes to statements of operations
Details of extraordinary gains/losses
(millions of yen)
First half First half Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Sep. 30, 2005 Sep. 30, 2004 Mar. 31, 2005
Extraordinary gains:
Gain on sale of fixed assets - - 20
Gain on liquidation of related companies 1,200 698 5,529
Gain on sale of related companies' stocks 6,146 - -
Gain on sale of investment securities 1,714 387 3,098
Reversal of stock purchase warrant - 501 501
Extraordinary losses:
Write-down of related companies' stocks - 37 42
Write-down of investment securities 74 40 3,035
Valuation loss of fixed assets - 42 52
Loss on sale or disposal of fixed assets 104 85 116
Provision for doubtful accounts - 94 150
Other notes
The Company omits to disclose the notes concerning the 'Lease transactions' on
this financial summary. The information will be disclosed through EDINET,
electronic disclosure system in accordance with Japanese Securities Exchange
Law.
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