Daiwa Securities Group Inc
26 April 2006
+813-3243-2100
2-6-4 Otemachi, Chiyoda-ku
Tokyo 100-8101, Japan
(URL http://www.daiwa.jp/ir/english/)
April 26, 2006
Consolidated financial summary
(For the fiscal year ended March 31, 2006)
(1) Operating results (from April 1, 2005 to March 31, 2006)
(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
Fiscal 2005 (2006/3) 845,659 (62.8)% 579,358 (48.4)% 254,159 (121.2)% 260,651 (116.4)%
Fiscal 2004 (2005/3) 519,337 (14.4)% 390,432 (10.8)% 114,887 (24.2)% 120,433 (25.3)%
Net income Earnings/share Fully diluted Return on
earnings/share stockholders' equity
(annual basis)
Fiscal 2005 (2006/3) 139,948 (165.7)% 103.90 Yen 98.61 Yen 19.4 %
Fiscal 2004 (2005/3) 52,665 (23.5)% 39.03 Yen 37.36 Yen 8.4 %
(Note)
1. Equity in earnings
Fiscal 2005 (2006/3): 1,528 million yen Fiscal 2004 (2005/3):
1,893 million yen
2. Average number of shares outstanding (shares)
Fiscal 2005 (2006/3): 1,328,967,253 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 Mar. 31, 2006 14,898,890 792,281 5.3 % 598.27 Yen
As of Mar. 31, 2005 12,378,961 648,332 5.2 % 486.70 Yen
Number of shares outstanding (shares)
As of Fiscal: 2005 (2006/3): 1,321,164,976 As of 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
Fiscal 2005 (2006/3) 369,860 -911 -324,056 392,350
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: 5 companies
(5) Change in scope of consolidation and equity method
Consolidation: Addition 1 company; Exclusion 1 company: Equity method: Addition:
1 company; Exclusion: 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
Information on Group Companies
Daiwa Securities Group Inc. (the 'Company') and its related companies, 46
consolidated subsidiaries and 5 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.
Investing and financial services business (Parent, 46 consolidated subsidiaries
and 5 affiliates applicable of equity method)
(Parent company) Daiwa Securities Group Inc.
(Securities related and financial business) Retail:
Japan: 16 firms Daiwa Securities Co. Ltd.
Wholesale:
Daiwa Securities SMBC Co. Ltd.
Asset Management:
Daiwa Asset Management Co. Ltd.
Daiwa SB Investments Ltd.
Investment:
Daiwa Securities SMBC Principal Investments Co. Ltd.
NIF SMBC Ventures., Ltd. *1
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, etc.
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.
Management Policy
(a) Principle Management Policy
We provide various high-quality products and services, in order to respond to
the needs of our clients. We aim to become 'the No.1' in each business area. We
will maximize each division's potential by improving inner communication and
will provide integrated supreme services.
(b) Principle Policy on the Distribution of Profits
We aim to maximize shareholder value including distribution of profits.
Considering the consolidated financial results, we will pay dividends based on a
pay-out ratio of approximately 30% semi-annually. However, if we consider the
amount of retained earnings to be enough for future business expansion and the
financial situation to be stable, we intend to proactively implement measures to
distribute profits such as share repurchase.
We plan to pay a dividend of 22 yen per share for this period. Since we paid an
interim dividend of 12 yen per share in last December according to the
resolution of the Board held on 28th October, 2005, the total amount of
dividends will be 34 yen per share for this fiscal year. The dividend
pay-out-ratio for the 2nd half will be 30.9% and that of the fiscal year will be
32.2%.
(c) Principle Policy on New Unit Share System
Taking into account our business results, share price and advantages and
disadvantages to the shareholders and the Company, we are examining the lowering
of the minimum share trading unit of our shares.
(d) Management targets
We have set the following as the main medium-term management targets.
(1) Consolidated ordinary income : 350 billion yen or higher
(2) Consolidated ROE : 15% or higher
(3) Retail assets under custody : 45 trillion yen or higher
(4) Wholesale investment banking : No. 1 in each League table (equity,
fixed income, M&A)
(e) Mid to Long Term Management Strategies
We have established a medium-term management plan titled -'Passion for the
Best'2008- for the three-year period from FY2006 to FY2008.
The following is the vision for the group set in the medium-term management
plan.
'The Japan's Leading Securities Group, built on customers' trust and employees'
passion
-Imagination and our will to realize-'.
We aim to become the best in Japan in various fields such as productivity,
customer satisfaction and employee satisfaction, as well as various business
results.
We have formulated the basic strategies for the group and those for the main
group companies, in order to accomplish the targets noted above and develop into
'The Japan's Best Securities Group'. Basic strategies for the group are as
follows.
(1) Personnel affairs
We will develop an environment and framework where people with the highest
skills in the financial industry can gather and work with high motivation. We
will establish an appropriate compensation package as the leading company in the
financial industry. As for recruitment, we will increase opportunities to
interact with students and continuously acquire sophisticated and loyal students
and strengthen our presence.
(2) Financial affairs
We aim to manage risks, return, and capital in an integrated manner and aim to
maintain our profitability as long as our financial soundness in order to
improve the corporate value along with the growth strategy set in the
medium-term management plan. In each business segment, we aim to maintain the
profit ratio above the capital cost which is derived considering the risks
associated with those segments. We will also refine the schemes to take and
control risks.
(3) Information technology (IT) strategy
In order to use the system related resources effectively and to reduce the
development period, we will promote measures such as the centralization of IT
functions and the standardization of software used within the group.
We will proactively make IT investments to expand our business or to further
promote new businesses and products.
(4) Risk management/ Internal control
We will organize the framework for broad-based risk management, such as the BCP
(Business Continuity Plan). As for internal control, we will implement measures
to create the 'Internal control report' and to respond to the obligation for
external audit.
(5) Investor relations/ Public relations/ Advertisement
We aim to establish the most advanced IR and disclosure framework in Japan, by
strengthening timely and appropriate disclosure which should be appropriate for
'Japan's leading securities group'.
(6) Corporate social responsibility (CSR)
We aim to improve our social reputation and to contribute to the sound
development of the economic society by proactively increasing communication with
our stakeholders. We will focus on topics such as education in economics and
finance, socially responsible investments and environment related matters.
Strategies for the main group companies.
(1) Retail (Daiwa Securities)
'The Accumulation of No.1' is Daiwa Securities' basic strategy.
By establishing a unique business model ('value-added consulting' by the sales
representative, 'Daiwa Direct' which has various products and information, '
SMA', the original separately managed account service for the wealthy class),
Daiwa Securities will provide highly competitive financial products and
services.
(2) Wholesale investment banking (Daiwa Securities SMBC)
Daiwa Securities SMBC will provide various financial services with investment
banking services at its core.
We will be the No.1 in customer satisfaction, by building up firm relationships
with them. We aim to continuously develop and provide the world's 1st or
Japan's 1st products. We will retain the No.1 position in each league table.
These measures will enable us to become 'The Japan's Best Investment Bank' with
a 1st grade reputation internationally.
(3) Asset management (Daiwa Asset Management, Daiwa SB Investments)
In the mutual fund business, we will provide products with global focus and
broad investment methods. We will become the leading company in the industry
with excellent asset management capabilities, various products and various
strong sales channels.
In the investment advisory business, we will provide services not only to the
pension funds and the institutional investors in Japan, but also to those
abroad. We aim to become a top-class firm in terms of assets under management
within the industry in Japan, and especially try to maintain our high reputation
as the leading firm in managing Japanese equity.
Daiwa Asset Management will increase the amount of assets under management by
strengthening its capabilities to manage the funds and customer support and by
selling mutual funds through commercial banks.
Daiwa SB Investments will improve external evaluations by focusing on improving
capabilities to manage assets. We will meet the needs of domestic pension funds
and foreign investors, by diversifying fixed income related products and
alternative products which adopt a contingent fee system.
(4) Investment (Daiwa Securities SMBC PI, NIF SMBC Ventures)
Daiwa Securities SMBC PI nurtures new businesses and firms in new industries, by
investing in non-performing loans, real estate and also by helping firms
restructure their businesses.
On October 1, 2005, NIF merged with SMBC Capital to establish NIF SMBC Ventures.
NIF SMBC Ventures will promote full-line private equity investment utilizing
its infrastructure in the venture capital business. It will also work to
promote commission based businesses by expanding peripheral services related to
its existing fund management business.
(5) Research/ System (Daiwa Institute of Research)
In the research and consulting business, Daiwa Institute of Research will
provide high-quality and value-added research and consulting services, in order
to contribute to the group's securities business which is becoming diversified
and sophisticated.
In the information system business, Daiwa Institute of Research will provide
system solution services which contribute to the business strategies of each
segment in the group.
(f) Current Challenges
Under the condition that Japanese economy keeps recovering steadily and the
shift 'from savings to investment' accelerate, the capital market undertakes
more important roles as a highly public platform. And our social mission, to
develop and support a sound capital market, is becoming more important than
ever. Under this condition, our business chance is expanding dramatically.
Based on this understanding, we think that this fiscal year, which is the first
fiscal year for the medium-term management plan, will be a step toward our
future leap. With that in mind, we recognize that our task is to carry out the
action plan of each division according to the business policy below in this
fiscal year.
We determine our business policy of this fiscal year to be 'Passion, Creation,
Execution and Evolution -Full Throttle-'. We respond to the customers' need
which is changing minute by minute and will stimulate new customers' needs. All
of our management and employees will join together and aim to become 'The
Japan's Leading Securities Group'.
While the share market turn into mid and long term upturn, abundant individual
financial assets are flowing into the capital market. Under this condition, in
the retail division, we try to expand our business by increasing assets under
custody, by refining the framework, that we can respond to all of the customers'
needs, with three platforms, 'Consulting', 'Daiwa Direct' and 'SMA'.
Reorganization and M&As by Japanese companies are intensifying. Therefore, both
the needs of investment activity and those of financing are becoming diverse.
Our business opportunity are increasing, such as in the principal finance, SPS,
and in the traditional investment banking area. Under this condition, in the
wholesale division, we try to expand our business field, by strengthening our
origination capabilities and by providing the best solution related to
investment activities and financing.
In the asset management division, by strengthening the asset management and
product development capabilities, we aim to increase the amount of mutual fund
and fiduciary assets under management.
Considering the tasks above, we aim to develop into 'The Japan's Leading
Securities Group' by accumulating the No.1 performances in each business field.
(g)Matters related to its parent
None
Results of Operation and Financial Conditions
a. Consolidated operating results for fiscal 2005
1. Summary of operating results for 12 months (comparison with the fiscal 2004)
Net operating revenues increased 48.4% to 579,358 million yen mainly because
commissions and net gains on trading grew. Selling, general and administrative
expenses increased 18.0% to 325,199 million yen. As a result, ordinary income
increased 116.4% to 260,651 million yen and net income increased 165.7% to
139,948 million yen.
(1) Commissions
(i) Brokerage commission
Daily average trading value on the Tokyo Stock Exchange increased 68.7% to
2,404.5 billion yen. Brokerage commission increased 43.1% to 119,520 million
yen.
(ii) Underwriting commission
Underwriting commission derived from equity increased 21.1% to 54,066 million
yen mainly because the Group actively acted as lead-manager for public offering
of large amount. As a result, underwriting commission increased 17.5% to 64,313
million yen.
(iii) Distribution commission
Distribution commission grew 88.2% to 43,830 million yen because distribution
commissions in investment trust increased 112.3% to 41,798 million yen, due to
an increase in commission arising from sale of beneficiary certificate.
(iv) Other commission
Other commission on investment trust increase 56.1% to 40,268 million yen
primarily due to an increase in trust fee in line with expanded outstanding
balance of equity-related beneficiary certificate, and other commission on
investment banking and others increased contribution of M&A and management fee
for limited partnerships and similar partnerships. As a result, total other
commission increased 48.7%to 81,523 million yen.
(2) Net gains on trading
Net gains on trading in stock and other increased 121.5% to 124,270 million yen.
As a result, total net gains on trading increased 48.8% to 224,912 million
yen.
(3) Financial income
Interest and dividend income increased 107.8% to 245,210 million yen and
interest expenses increased 123.4% to 231,572 million yen. Net financial income
decrease 4.9% to 13,638 million yen due to the change in presentation of share
of net income raised by the investments in limited partnerships and similar
partnerships.
(4) Selling, general and administrative expenses
Employees' compensation and benefits increased due to an increase in accrued
bonuses in line with operating result. Commission and other expenses increased
in line with the increment of transaction. As a result, selling, general and
administrative expenses increased 18.0% to 325,199 million yen.
2. Summary of operating results for 3 months (comparison with the third quarter
of fiscal 2005)
Consolidated net operating revenues for the fourth quarter of fiscal 2005
increased 14.6% to 186,612 million yen as a result of an increase in commissions
and net gains on trading. Selling, general and administrative expenses for the
fourth quarter increased 2.8% to 88,824 million yen. As a result, consolidated
ordinary income increased 25.4% to 98,287 million yen. Net income increased
42.6% to 55,322 million yen for the fourth quarter of fiscal 2005, posting
extraordinary gains/losses, income taxes, and minority interest.
3. Operating results of overseas subsidiaries for fiscal 2005 (12 months)
Ordinary income by geographic area (millions of yen)
America Europe Asia & Oceania Total
2,695 10,185 3,442 16,322
b. Financial conditions (comparison with March 31, 2005)
Net cash provided by operating was 369,860 million yen compared with -1,002,888
million yen for fiscal 2004. Net cash used in investment activities was 911
million yen due to payments for purchase of investment securities in spite of a
decrease in time deposit, compared 26,062 million yen for fiscal 2004. Net cash
used in financing activities was 324,056 million yen mainly due to decrease in
short-term borrowings, compared with -883,867 million yen for fiscal 2004.
Consequently, cash and cash equivalents increased by 53,652 million yen to
392,350 million yen in comparison with March31, 2005.
Consolidated balance sheets
(millions of yen) Fiscal 2005 Fiscal 2004 Increase/
Mar. 31, 2006 Mar. 31, 2005 Decrease
Assets
Current assets: 14,392,393 11,936,024 2,456,368
Cash and deposits 407,889 398,688 9,201
Cash segregated as deposits for regulatory purposes 297,878 153,516 144,361
Notes receivable and trade accounts receivable 11,368 8,635 2,733
Securities 20,205 15,037 5,167
Trading assets: 6,162,242 5,242,319 919,922
Trading securities and others 4,491,212 4,690,548 -199,335
Derivative assets 1,671,029 551,771 1,119,258
Trading receivables, net - 9,419 -9,419
Private equity and other securities 390,917 149,598 241,319
Less: Allowance for possible investment losses -8,496 -7,051 -1,445
Other inventories 2,271 816 1,455
Receivables related to margin transactions: 563,537 312,144 251,393
Customer margin loans 359,331 126,686 232,644
Cash deposits as collateral for securities borrowed 204,206 185,457 18,748
Collateralized short-term financing agreements: 6,274,505 5,348,915 925,589
Cash deposits as collateral for securities borrowed 6,274,385 5,348,915 925,469
Receivables related to gensaki transactions 120 - 120
Receivables 25,940 11,458 14,481
Securities failed to deliver 25,717 130,176 -104,458
Short-term loans receivable 59,997 75,781 -15,784
Accrued income 36,558 17,463 19,095
Deferred tax assets-current 20,187 9,076 11,110
Other current assets 101,965 60,354 41,610
Less: Allowance for doubtful accounts-current -293 -328 34
Non-current assets: 506,497 442,937 63,560
Tangible fixed assets 126,531 137,619 -11,088
Intangible fixed assets 68,813 62,052 6,760
Investments and others: 311,153 243,265 67,888
Investment securities 249,647 178,163 71,484
Long-term loans receivable 11,866 11,681 184
Long-term guarantee deposits 23,538 23,410 127
Deferred tax assets-non-current 9,300 12,839 -3,539
Other investments 18,651 25,715 -7,064
Less: Allowance for doubtful accounts-non-current -1,851 -8,546 6,694
Total assets 14,898,890 12,378,961 2,519,928
Fiscal 2005 Fiscal 2004 Increase/
Mar. 31, 2006 Mar. 31, Decrease
(millions of yen) 2005
Liabilities
Current liabilities: 12,812,909 10,685,604 2,127,304
Notes payable and trade accounts payable 5,138 3,369 1,768
Trading liabilities: 4,879,188 3,658,544 1,220,644
Trading securities and others 3,321,855 3,196,633 125,222
Derivative liabilities 1,557,332 461,911 1,095,421
Trading payables, net 302,572 - 302,572
Payables related to margin transactions: 197,482 141,972 55,510
Payable to securities finance companies 7,569 2,981 4,588
Proceeds of securities sold for customers' accounts 189,912 138,991 50,921
Collateralized short-term financing agreements: 4,744,007 3,877,730 866,276
Cash deposits as collateral for securities loaned 4,525,203 3,687,840 837,362
Payables related to gensaki transactions 218,803 189,890 28,913
Deposits received 166,508 110,415 56,093
Cash deposits received as guarantee 99,224 53,302 45,922
Securities failed to receive 20,188 138,288 -118,099
Short-term borrowings 1,795,320 2,295,928 -500,608
Commercial paper 234,210 200,220 33,990
Bonds and notes due within one year 159,400 129,401 29,998
Income taxes payable 73,779 10,596 63,182
Deferred tax liabilities-current 2,898 951 1,946
Accrued bonuses 41,713 22,811 18,902
Other current liabilities 91,273 42,071 49,202
Non-current liabilities: 1,049,956 850,180 199,776
Bonds and notes 819,559 666,136 153,422
Convertible bonds - 79,985 -79,985
Long-term debt 167,952 74,195 93,757
Deferred tax liabilities-non-current 39,007 6,225 32,782
Retirement benefits 19,912 19,173 738
Other non-current liabilities 3,525 4,465 -940
Statutory reserves 7,024 5,650 1,374
Total liabilities 13,869,891 11,541,435 2,328,455
Minority interests 236,718 189,193 47,524
Shareholders' equity
Common stock 138,828 138,432 395
Capital surplus 118,339 117,941 398
Retained earnings 476,216 362,948 113,267
Net unrealized gain (loss) on securities, net of tax effect 72,694 35,674 37,020
Translation adjustments 863 -5,877 6,740
Treasury stock -14,660 -786 -13,873
Total shareholders' equity 792,281 648,332 143,948
Total liabilities, minority interests and shareholders' equity 14,898,890 12,378,961 2,519,928
Consolidated statements of operations
(millions of yen) Fiscal 2005 Fiscal 2004 Increase/ Yr/yr
Apr. 1, Apr. 1, 2004- Decrease %
2005 -
Mar. 31, 2005 change
Mar. 31,
2006
Operating revenues: 845,659 519,337 326,322 62.8
Commissions 309,188 216,386 92,801 42.9
Net gain (loss) on trading 224,912 151,117 73,794 48.8
Net gain (loss) on private equity and other securities (* 21,539 - 21,539 -
1)
Net gain (loss) on private equity and other securities (* - 171 -171 -
2)
Interest and dividend income 245,210 118,019 127,191 107.8
Other sales revenues 44,808 33,641 11,167 33.2
Interest expenses 231,572 103,676 127,895 123.4
Cost of sales 34,729 25,228 9,500 37.7
Net operating revenues 579,358 390,432 188,926 48.4
Selling, general and administrative expenses: 325,199 275,544 49,654 18.0
Commission and other expenses 63,909 46,720 17,189 36.8
Employees' compensation and benefits 171,061 142,751 28,310 19.8
Occupancy and rental 32,659 32,697 -38 -0.1
Data processing and office supplies 17,273 16,804 468 2.8
Depreciation expenses 22,640 22,129 511 2.3
Taxes other than income taxes 8,071 6,755 1,316 19.5
Others 9,582 7,685 1,896 24.7
Operating income 254,159 114,887 139,271 121.2
Non-operating income: 8,697 7,909 787 10.0
Equity in earnings 1,528 1,893 -365 -19.3
Others 7,168 6,015 1,153 19.2
Non-operating expenses 2,204 2,363 -159 -6.7
Others 2,204 2,363 -159 -6.7
Ordinary income 260,651 120,433 140,218 116.4
Extraordinary gains 14,825 9,552 5,272 55.2
Extraordinary losses 17,122 17,383 -260 -1.5
Income before income taxes and minority interests 258,355 112,603 145,751 129.4
Income taxes-current 77,675 11,933 65,742 550.9
Income taxes-deferred 391 28,233 -27,841 -98.6
Minority interest -40,339 -19,770 -20,568 -
Net income 139,948 52,665 87,282 165.7
Net financial income included in net operating revenues 13,638 14,342 -703 -4.9
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) Fiscal 2005 Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004-
Mar. 31, 2006 Mar. 31, 2005
Capital surplus
Beginning balance of capital surplus 117,941 117,939
Increase in capital surplus 398 1
Conversion of convertible bonds 395 0
Net gains on sales of treasury stock 2 1
Decrease in capital surplus - -
Ending balance of capital surplus 118,339 117,941
Retained earnings
Beginning balance of retained earnings 362,948 330,780
Increase in retained earnings: 140,557 52,665
Net income 139,948 52,665
Increase due to merger of subsidiaries 609 -
Decrease in retained earnings: 27,290 20,497
Cash dividends paid 26,611 19,960
Bonuses to directors 678 536
Ending balance of retained earnings 476,216 362,948
Consolidated statements of cash flows
Fiscal 2005 Fiscal 2004
(millions of yen) Apr. 1, 2005- Apr. 1, 2004-
Mar. 31, 2006 Mar. 31, 2005
1. Cash flows from operating activities:
Income before income taxes and others 258,355 112,603
Depreciation 22,640 22,129
Increase in allowance for retirement benefits 738 1,871
Interest and dividend income -245,724 -106,958
Interest expenses 231,335 103,539
Equity in earnings -1,528 -1,893
Adjustment of extraordinary gains/losses items:
Gain on sale of fixed assets - -2,000
Loss on sale or disposal of fixed assets 548 1,535
Valuation loss of fixed assets - 114
Gain on sale of related companies' stocks -3,714 -
Write-down of related companies' stocks - 40
Gain on liquidation of related companies - -599
Loss on liquidation of related companies - 650
Gain on sale of investment securities -6,385 -6,451
Loss on sale of investment securities 69 892
Write-down of investment securities 499 3,430
Loss on sale of loans receivable - 7,595
Reversal of stock purchase warrant - -501
Gain on change in stake in subsidiary -4,725 -
Provision for doubtful accounts - 1,638
Loss on litigation settlement 1,279 -
Loss on impairment of fixed assets 6,850 -
Extraordinary depreciation 4,439 -
Multiemployer pension plan settlement cost in subsidiaries - 188
Reorganization costs of an overseas banking subsidiary - 779
Foreign exchange loss from overseas subsidiary capital reduction 1,563 -
Provision for securities transaction liabilities 1,374 -
Contribution to the Securities Market Infrastructure Improvement Fund 200 -
Others 297 517
(Increase) Decrease in deposits segregated for customer -137,291 -43,042
(Increase) Decrease in loans receivable 17,495 22,278
(Increase) Decrease in private equity and other securities -192,644 -18,342
(Increase) Decrease in trading assets, net of trading liabilities 615,610 111,197
(Increase) Decrease in receivables related to margin transactions, net of -195,882 -28,086
payables related to margin transactions
(Increase) Decrease in receivables on collateralized short-term financing -63,703 -1,183,394
agreements, net
Others 59,506 7,739
Sub-total 371,203 -992,528
Interest and dividend received 232,214 106,770
Interest paid -222,153 -103,440
Income taxes refunded (paid) -11,404 -13,689
Net cash provided by (used in) operating activities 369,860 -1,002,888
Fiscal 2005 Fiscal 2004
(millions of yen) Apr. 1, 2005- Apr. 1, 2004-
Dec. 31, 2006 Mar. 31, 2005
2. Cash flows from investing activities:
Increase in time deposits -10,685 -53,041
Decrease in time deposits 55,201 -
Payments for purchase of securities -14,382 -20,130
Proceeds from sale and redemption of securities 10,423 44,628
Payments for purchase of tangible fixed assets -12,525 -7,786
Proceeds from sale of tangible fixed assets 718 5,315
Payments for purchase of intangible fixed assets -24,311 -19,108
Payments for purchase of investment securities -29,589 -15,348
Proceeds from sale and redemption of investment securities 19,763 53,979
Payments for purchase of subsidiaries' stocks from non-Group - -13
shareholders
Proceeds from sale of related companies 13,416 -
Payments for purchase of related companies -7,582 -
Payments for loan made -116 -77
Proceeds from collection of loans receivable 253 334
Others -1,496 -14,814
Net cash provided by (used in) investing activities -911 -26,062
3. Cash flows from financing activities:
Increase (decrease) in short-term borrowings -446,189 759,982
Proceeds from issuance of bonds and convertible bonds 505,357 225,874
Payments for redemption of bonds and convertible bonds -401,373 -97,102
Proceeds from long-term debt 128,500 28,800
Payments for repayment of long-term debt -70,004 -14,011
Dividends paid -26,611 -19,960
Dividends paid to minority shareholders -9,176 -167
Proceeds from minority shareholders due to issuance of shares 9,999 -
Proceeds from sale of treasury stocks 21 33
Others -14,578 418
Net cash provided by (used in) financing activities -324,056 883,867
4. Effect of exchange rate changes on cash and 7,428 3,819
cash equivalents
5. Net change in cash and cash equivalents 52,321 -141,263
6. Cash and cash equivalents at beginning of term 338,697 480,123
7. Increase in cash and cash equivalents due to merger of 1,331 -
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 392,350 338,697
Notes to consolidated financial statements
The consolidated financial statements of the Company for the fiscal year ended
March 31, 2006 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. 28, 1976)
and its Article 46 and 68.
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 SMBC Ventures Co., Ltd.
Daiwa Securities Business Center Co. Ltd.
Daiwa Property Co., Ltd.
Daiwa Securities SMBC Europe Limited
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
One non-consolidated subsidiary is added to scope of consolidation due to its
increased materiality on the consolidated financial statement. One consolidated
subsidiary is excluded from the scope of consolidation, as two consolidated
subsidiaries merged with a non-consolidated subsidiary during this fiscal year.
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: 5 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 fiscal year. One affiliate is excluded from the scope of
equity method due to merger with a consolidated subsidiary during this fiscal
year. A 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 with the fiscal year ending other
than March 31, 2006, the financial statements for the fiscal year are reflected.
3. Fiscal period of subsidiaries
For subsidiaries with the fiscal year ending other than March 31, 2006, the
financial statements for the relevant fiscal year 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 securities companies are recorded mainly on a trade
date basis in the consolidated balance sheet at either market or fair value.
(ii) Valuation of non-trading assets and liabilities
The Group examines the intent of holding each securities and classifies those
securities as (a) debt and equity securities intended to held for trading by
non-securities companies ('trading securities'), (b) debt securities intended to
be held to maturity ('held-to-maturity debt securities'), or (c) all other
securities not classified in any of the above categories ('available-for-sale
securities').
Trading securities are carried at fair value with unrealized gains or losses
included in income. Held-to-maturity debt securities are stated at amortized
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 available, share of net income raised by
the investments in limited partnerships is reflected on consolidated statements
of operations and share of net unrealized profits and losses on securities held
by the partnerships is directly posted into stockholders' equity. Private
equity and other securities held by certain consolidated subsidiaries are
categorized in current assets.
(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.
(Additional Information)
The removal of headquarters of the Company and some consolidated subsidiaries
has been resolve. The useful lives of buildings and equipments for those
headquarters are shortened up to the removal. Extraordinary depreciation of
4,439 million yen was recorded as extraordinary losses, due to shortened useful
lives. 'Income before income taxes minority interests' decreased by that amount
as a result.
(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) Deferred assets
Stock issue costs and bond issue costs are amortized in a lump sum when
incurred.
(4) 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 and failed loans.
(ii) Allowance for possible investment losses
Some consolidated subsidiaries provide the allowances based on estimated losses
on private equity and other securities held, assessing the financial conditions
of invest 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. As for the closed pension fund, accrued retirement
benefits for the portion of 12 months are provided based on the difference
between projected benefit obligation and fund fair value expected on March 31,
2006.
(5) 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.
(6) Hedging transaction
Marked-to-market profits and losses on hedging instruments are principally
deferred as assets or liabilities until the profits or losses on the hedged
instruments are realized. Interest received or paid on certain eligible
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.
(7) Other material items
(i) Accounting for consumption taxes
Consumption taxes are separately recorded.
(ii) Consolidated tax payments system
The consolidated tax payments system is applied.
5. Valuation of assets and liabilities of consolidated companies
Assets and liabilities of the consolidated subsidiaries are recorded at fair
value when the majority of ownership is acquired.
6. Amortization of consolidation adjustment account
Consolidation adjustment account is amortized in a lump sum when incurred due to
its immateriality in amount.
7. Recording of appropriation of retained earnings
Appropriations of consolidated retained earning in the consolidated statement of
retained earning are recorded in the fiscal year when the appropriations are
resolved.
8. 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 similar partnerships
regarded as securities, 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
17,142 million yen, due to this change in presentation.
Notes to consolidated balance sheets
1. Accumulated depreciation of tangible fixed assets
As of Mar. 31, 2006 As of Mar. 31, 2005
105,753 million yen 97,300 million yen
2. Guarantee
As of Mar. 31, 2006 As of Mar. 31, 2005
2,506 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 Mar. 31, 2006 As of Mar. 31, 2005
20,000 million yen 40,000 million yen
Long-term borrowings
As of Mar. 31, 2006 As of Mar. 31, 2005
82,000 million yen 20,000 million yen
Notes to consolidated statements of operations
Details of extraordinary gains/losses
(million of yen) Fiscal 2005 Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004-
Mar. 31, 2006 Mar. 31, 2005
Extraordinary gains:
Gain on sale of fixed assets - 2,000
Gain on liquidation of related companies - 599
Gain on sale of related companies' stock 3,714 -
Gain on sale of investment securities 6,385 6,451
Reversal of stock purchase warrant - 501
Gain on change in stake in subsidiary 4,725 -
Extraordinary losses:
Loss on litigation settlement 1,279 -
Write-down of related companies stocks - 40
Write-down of investment securities 499 3,430
Valuation loss of fixed assets - 114
Loss on sale or disposal of fixed assets 548 1,535
Loss on impairment of fixed assets 6,850 -
Extraordinary depreciation 4,439 -
Loss on liquidation of related companies - 650
Loss on sale of investment securities 69 892
Loss on sale of loans receivable - 7,595
Provision for doubtful accounts - 1,638
Reorganization costs for overseas banking subsidiary - 779
Foreign exchange loss from overseas 1,563 -
subsidiary capital reduction
Multiemployer pension plan settlement cost in consolidated - 188
subsidiaries
Provision for securities transaction liabilities 1,374 517
Contribution to the Securities Market 200 -
Infrastructure Improvement Fund
Others 297 -
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) Fiscal 2005 Fiscal 2004
Mar. 31, 2006 Mar. 31, 2005
Cash and deposits 407,889 398,688
Time deposit more than 3 months -15,539 -59,990
Cash and cash equivalents 392,350 338,697
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.
Fiscal 2005 ended March 31, 2006
i. Net operating revenue and expenses
(millions of yen) Japan America Europe Asia and Total Elimination/ Consolidated
Oceania
Unallocated
Net operating revenues 541,666 5,527 21,672 10,492 579,358 - 579,358
from external
customers
Intersegment revenues 1,529 8,758 12,085 1,605 23,979 (23,979) -
Net operating revenues 543,195 14,286 33,758 12,097 603,337 (23,979) 579,358
S.G. & A. expenses 294,984 11,920 23,679 8,471 339,055 (13,856) 325,199
Operating income 248,211 2,366 10,078 3,625 264,281 (10,122) 254,159
ii. Assets 12,239,341 2,807,086 1,145,933 72,880 16,265,243 (1,366,352) 14,898,890
Fiscal 2004 ended March 31, 2005
i. 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 106,914 16 6,202 1,752 114,886 1 114,887
ii. Assets 10,078,853 2,098,375 811,191 62,560 13,050,981 (672,019) 12,378,961
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.
Fiscal 2005 ended March 31, 2006
(millions of yen) America Europe Asia and Oceania Total
Overseas net operating revenues 10,312 19,370 11,015 40,698
Consolidated net operating revenues - - - 579,358
Percentage of total revenues 1.8 3.3 1.9 7.0
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'.
Notes to Post-Employment benefit plan
1. Post-Employment benefit plan
The Company and domestic consolidated subsidiaries adopt retirement lump-sum
system and some of domestic companies adopt the closed pension fund applied only
to annuitant. The Company and almost all of domestic consolidated subsidiaries
introduced defined contribution pension plan in December, 2001. Some
overseas-consolidated subsidiaries adopt defined contribution pension plan.
2. Post-employment benefit obligation and provision for employees' retirement
allowance on consolidated financial statement
Fiscal 2005 (Mar. 31, Fiscal 2004 (Mar. 31,
2006) 2005)
(1) Post -employment benefit obligation 19,912million yen 19,173 million yen
Accrued retirement benefits:
(2) Provision for employees' retirement allowance 6,156million yen 6,247million yen
Provision for employees' retirement allowance:
Note: Provision for employees' retirement allowance is included in 'Employees'
compensation and benefits' of 'Selling, general and administrative expenses'.
3. Basis of measurement of post -employment benefit obligation
(1) Method of allocation of projected post-employment benefit obligation: Straight-line period method
Fiscal 2005 (Mar. 31, Fiscal 2004 (Mar. 31,
2006) 2005)
(2) Discount rate: Mainly 0.8% to 1.2% Mainly 0.6% to 0.8%
(3) Expected rates of return on asset: Mainly 0.5% to 1.0% Mainly 0.5% to 1.0%
(4) Term of amortization of net actuarial loss: Mainly 4 to 5 years Mainly 4 to 5 years
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 concerning 'Transactions with related
parties', 'Deferred tax assets and liabilities, and ''Securities' as the '
Additional information on financial summary' as soon as those are available.
Supplemental information for fiscal year 2005
1. Breakdown of commissions
Fiscal 2005 ended March 31, 2006 (A)
(millions of yen) Equity Fixed income Investment Investment Others Total
banking
(Bond) trust
Brokerage commission 118,261 923 336 - - 119,520
Underwriting commission - - - 64,313 - 64,313
(Stock and other) (-) (-) (-) (54,066) (-) (54,066)
(Bond and other) (-) (-) (-) (8,554) (-) (8,554)
Distribution commission - - 41,798 2,031 - 43,830
Other commission 1,955 2,278 40,268 16,389 20,631 81,523
(Agency commission) (-) (2,259) (22,275) (-) (-) (24,535)
Total 120,216 3,202 82,403 82,735 20,631 309,188
Fiscal 2004 ended March 31, 2005 (B)
(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
Yr/yr percentage change ((A) / (B) - 1)
(percentage) Equity Fixed income Investment Investment Others Total
banking
(Bond) Trust
Brokerage commission 44.4 -36.9 111.4 - - 43.1
Underwriting commission - - - 17.5 - 17.5
(Stock and other) (-) (-) (-) (21.1) (-) (21.1)
(Bond and other) (-) (-) (-) (-0.2) (-) (-0.2)
Distribution commission - - 112.3 -43.5 - 88.2
Other commission -0.6 -18.6 56.1 27.8 80.6 48.7
(Agency commission) (-) (-17.8) (58.9) (-) (-) (46.4)
Total 43.3 -24.9 80.6 16.2 80.6 42.9
2. Breakdown of net gains on trading
(millions of yen) Fiscal 2005 Fiscal 2004 (2005/ Yr/yr % change
3)
(2006/3)
Stock and other 124,270 56,104 121.5
Bond, forex and other 100,641 95,012 5.9
(Bond and other) (39,025) (62,407) (-37.5)
(Forex and other) (61,615) (32,605) (89.0)
Total 224,912 151,117 48.8
Quarterly consolidated statements of operation
(millions of yen) 4th quarter 1st quarter 2nd quarter 3rd quarter 4th quarter
Jan. 1, Apr.1, 2005- Jul.1, 2005- Oct.1, 2005- Jan.1, 2006-
2005-
Jun. 30, Sep. 30, Dec. 31, Mar. 31,
Mar. 31, 2005 2005 2005 2006
2005
Operating revenues 158,088 135,435 195,376 245,284 269,562
Commissions 62,268 45,039 62,944 89,853 111,351
Brokerage commission 22,408 17,756 26,209 39,072 36,482
(Stock and other) 21,939 17,467 25,916 38,628 36,249
(Bond and other) 439 251 228 307 136
Underwriting commission 15,405 5,320 9,132 16,378 33,482
(Stock and other) 11,991 2,501 6,661 13,504 31,398
(Bond and other) 2,824 2,410 2,011 2,277 1,854
Distribution commission 7,659 7,515 9,305 13,214 13,796
(Beneficiary certificates) 6,420 6,949 8,900 12,627 13,321
Other commission 16,795 14,447 18,297 21,188 27,590
(Beneficiary certificates) 7,006 7,663 9,049 10,796 12,584
Net gain (loss) on trading 44,397 35,804 68,547 57,749 62,810
(Stock and other) 21,577 7,435 39,042 31,102 46,690
(Bond and other) 8,531 20,566 8,236 5,751 4,471
(Forex and other) 14,288 7,802 21,268 20,896 11,648
Net gain (loss) on private equity - 4,009 2,071 9,037 6,421
and other securities (*1)
Net gain (loss) on private equity -1,563 - - - -
and other securities (*2)
Interest and dividend income 41,374 42,965 52,483 73,869 75,892
Other sales revenues 11,612 7,616 9,330 14,774 13,087
Interest expenses 32,137 38,531 49,507 70,425 73,107
Cost of sales 8,720 5,621 7,178 12,085 9,843
Net operating revenues 117,230 91,282 138,689 162,773 186,612
Selling, general and administrative expenses: 73,581 69,878 80,106 86,389 88,824
Commission and other expenses 13,086 13,748 15,509 16,148 18,503
Employees' compensation and benefits 38,036 34,961 42,485 47,355 46,260
Occupancy and rental 8,443 7,746 8,312 8,042 8,557
Data processing and office supplies 4,571 4,309 4,014 4,379 4,569
Depreciation expenses 5,758 5,551 5,588 5,669 5,830
Taxes other than income taxes 1,556 1,594 2,004 2,109 2,363
Others 2,129 1,966 2,191 2,685 2,739
Operating income 43,649 21,404 58,582 76,383 97,788
Non-operating income 1,891 2,705 1,957 2,196 1,838
Non-operating expenses 389 308 384 172 1,338
Ordinary income 45,151 23,800 60,155 78,407 98,287
Extraordinary gains 5,307 321 10,562 3,020 921
Extraordinary losses 13,608 - 614 1,867 14,640
Income before income taxes and minority 36,850 24,122 70,102 79,560 84,569
interests
Income taxes-current 9,795 2,698 22,478 20,940 31,558
Income taxes-deferred 1,539 6,690 4,104 7,187 -17,591
Minority interests -6,479 -3,096 -9,333 -12,629 -15,279
Net income 19,035 11,636 34,185 38,803 55,322
Net financial income included in net operating 9,236 4,434 2,975 3,444 2,785
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.
April 26, 2006
Non-consolidated financial summary
(For the fiscal year ended March 31, 2006)
(1) Operating results (from April 1, 2005 to March 31, 2006)
(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
Fiscal 2005 (2006/3) 35,215 (34.2)% 23,033 (65.9)% 25,140 (54.2)%
Fiscal 2004 (2005/3) 26,236 (67.6)% 13,884 (921.5)% 16,302 (778.5)%
Net income Earnings/share Fully diluted Return on stockholders'
earnings/share equity (annual basis)
Fiscal 2005 (2006/3) 51,335 (59.3)% 38.62 Yen 36.79 Yen 8.7 %
Fiscal 2004 (2005/3) 32,228 (-)% 24.21 Yen 23.31 5.7 %
(Note) 1. Average number of shares outstanding (shares)
Fiscal 2005 (2006/3): 1,328,976,751 Fiscal 2004 (2005/3): 1,330,684,146
2. Change in accounting policies: None
(2) Dividends
Dividend / share Dividends Pay-out ratio Dividends on
stockholders'
equity
Yen Interim Year-end Millions of yen % %
Yen Yen
Fiscal 2005 (2006/3) 34.00 12.00 22.00 45,032 88.0 7.3
Fiscal 2004 (2005/3) 13.00 5.00 8.00 17,298 53.7 3.1
(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 Mar. 31, 2006 1,224,643 613,824 50.1 % 464.60 Yen
As of Mar. 31, 2005 1,088,665 573,115 52.6 430.71
(Note)
1. Number of shares outstanding (shares)
As of Mar. 31, 2006: 1,321,174,474 As of Mar. 31, 2005: 1,330,612,431
2. Treasury stock (shares)
As of Mar. 31, 2006: 11,285,635 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) Fiscal 2005 Fiscal 2004 Increase/
Mar. 31, 2006 Mar. 31, 2005 Decrease
Assets
Current assets: 313,632 227,816 85,816
Cash and deposits 129,130 117,897 11,233
Securities 3,542 - 3,542
Short-term loans receivable 133,404 87,369 46,034
Account receivable 44,244 17,728 26,515
Accrued income 753 1,845 -1,092
Deferred tax assets-current 564 1,886 -1,321
Other current assets 1,993 1,088 904
Non-current assets: 911,010 860,849 50,161
Tangible fixed assets 10,026 10,187 -161
Intangible fixed assets 755 717 38
Investments and others: 900,228 849,944 50,284
Investment securities 706,934 658,209 48,724
Long-term loans receivable 170,946 171,406 -460
Long-term guarantee deposits 12,885 12,471 413
Others 9,911 8,351 1,559
Less: Allowance for doubtful accounts -449 -494 45
Total assets 1,224,643 1,088,665 135,977
(millions of yen) Fiscal 2005 Fiscal 2004 Increase/
Mar. 31, 2006 Mar. 31, 2005 Decrease
Liabilities
Current liabilities: 278,064 263,444 14,620
Short-term borrowings 62,235 67,710 -5,475
Commercial paper - 25,000 -25,000
Bonds and notes due within one year 79,193 100,000 -20,807
Collateralized short-term financing agreements 132,112 66,855 65,256
Income taxes payable 176 138 38
Accrued bonuses 1,613 769 843
Other current liabilities 2,734 2,970 -235
Non-current liabilities: 332,754 252,105 80,649
Bonds and notes 236,400 124,900 111,500
Convertible bonds - 79,985 -79,985
Long-term debt 49,000 37,000 12,000
Long-term cash deposits received as guarantee 4,042 4,100 -58
Deferred tax liabilities-non-current 38,739 1,916 36,822
Retirement benefits 2,361 3,408 -1,047
Other non-current liabilities 2,211 793 1,417
Total liabilities 610,819 515,549 95,269
Shareholders' equity
Common stock 138,828 138,432 395
Capital surplus 118,339 117,941 398
Additional paid-in capital 118,182 117,786 395
Other capital surplus reserve 156 154 2
Net gains on sales of treasury stock 156 154 2
Retained earnings 314,133 289,409 24,723
Earned surplus reserve 45,335 45,335 -
General-purpose reserve 218,000 218,000 -
Unappropriated retained earnings 50,798 26,074 24,723
Net unrealized gain (loss) on securities, net of tax 57,183 28,119 29,063
effect
Treasury stock -14,660 -786 -13,873
Total shareholders' equity 613,824 573,115 40,708
Total liabilities and shareholders' equity 1,224,643 1,088,665 135,977
Statements of operations
Fiscal 2005 Fiscal 2004 Increase/ Yr/yr
(millions of yen) Apr. 1, 2005 - Apr. 1, 2004 - Decrease %
Mar. 31, 2006 Mar. 31, 2005 change
Operating revenues: 35,215 26,236 8,978 34.2
Dividends from related companies 32,257 19,136 13,121 68.6
Interest on loans to related companies 2,805 3,704 -898 -24.3
Other interest and dividend income - 100 -100 -
Royalty on trademark - 3,295 -3,295 -
Other 152 - 152 -
Operating expenses: 12,181 12,352 -170 -1.4
Selling, general and administrative expenses: 9,210 7,731 1,478 19.1
Commission and other expenses 1,747 917 829 90.5
Employees' compensation and benefits 4,130 3,650 480 13.2
Occupancy and rental 614 681 -67 -9.9
Data processing and office supplies 855 870 -15 -1.7
Depreciation expenses 350 428 -78 -18.2
Others 1,512 1,182 329 27.9
Interest expenses 2,971 4,620 -1,649 -35.7
Operating income 23,033 13,884 9,148 65.9
Non-operating income 2,841 2,669 171 6.4
Non-operating expenses 733 251 482 191.4
Ordinary income 25,140 16,302 8,838 54.2
Extraordinary gains 9,681 9,149 531 5.8
Extraordinary losses 3,255 3,396 -141 -4.2
Income before income taxes 31,566 22,055 9,511 43.1
Income taxes-current -37,973 -8,064 -29,908 -
Income taxes-deferred 18,205 -2,109 20,314 -
Net income 51,335 32,228 19,106 59.3
Unappropriated retained earnings-carryforward 15,429 498 14,930 -
Interim dividends 15,966 6,653 9,313 -
Unappropriated retained earnings 50,798 26,074 24,723 -
Statement of appropriation of retained earnings
(millions of yen)
( Appropriation plan )
Fiscal 2005 Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004-
Mar. 31, 2006 Mar. 31, 2005
Unappropriated retained earnings 50,798 26,074
Total 50,798 26,074
Appropriations of retained earnings
Dividends (*) 29,065 10,644
(Note 1) 29,065 (Note 2) 10,644
Unappropriated retained earnings carried forward 21,732 15,429
(Note 1): 22 yen per share
(Note 2): 8 yen per share
(*)The Company paid interim dividend of 6,653 million yen (5 yen per share) on
December 1, 2004 and 15,966 million yen (12 yen per share) on December 1, 2005.
Notes to financial statements
The financial statements of the Company for fiscal 2005 ended March 31, 2006 are
prepared in accordance with 'Regulations of Financial Statements' (MOF Ordinance
No. 59, 1963).
Basis of financial statements
1. Valuation of securities
The Company examines the intent of holding each securities and classifies those
securities as (a) debt and equity securities intended to held for trading
purpose ('trading 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').
Trading securities are carried at fair value with unrealized gains or losses
included in income. 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 available, share of net income raised by
the investments in limited partnerships is reflected on statements of operations
and share of net unrealized profits and losses on securities held by the
partnerships is directly posted into stockholders' 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 12 months are provided based on the difference
between projected benefit obligation and fund fair value expected on March 31,
2006.
4. Deferred assets
Stock issue costs and bond issue costs are amortized in a lump sum when
incurred.
5. 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.
6. Hedging transaction
Marked-to-market profits and losses on hedging instruments are principally
deferred as assets or liabilities until the profits or losses on the hedged
instruments are realized. Interest received or paid on certain eligible
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.
7. Other material items
(1) Accounting for consumption taxes
Consumption taxes are separately recorded.
(2) 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
fiscal 2005 are 134 million yen and 12 million yen, respectively.
Notes to balance sheets
1. Accumulated depreciation of tangible fixed assets
As of Mar. 31, 2006 As of Mar. 31, 2005
3,054 million yen 3,218 million yen
2. Guarantee
As of Mar. 31, 2006 As of Mar. 31, 2005
4,589 million yen 8,969 million yen
3. Details of increase in shares out standing
Number of shares issued Issuance amount Capitalized amount
Conversion of convertible bonds 723,937 791 million yen 395 million yen
Notes to statements of operations
Details of extraordinary gains/losses
(millions of yen)
Fiscal 2005 Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004-
Mar. 31, 2006 Mar. 31, 2005
Extraordinary gains:
Gain on sale of fixed assets - 20
Gain on liquidation of related companies 1,200 5,529
Gain on sale of related companies' stocks 6,146 -
Gain on sale of investment securities 2,333 3,098
Reversal of stock purchase warrant - 501
Extraordinary losses:
Loss on litigation settlement 1,279 -
Write-down of related companies' stocks - 42
Write-down of investment securities 75 3,035
Loss on sale of investment securities 4 -
Valuation loss of fixed assets - 52
Loss on sale or disposal of fixed assets 120 116
Provision for doubtful accounts 211 150
Foreign exchange loss from overseas subsidiary capital reduction 1,563 -
Notes to securities
Fair value of subsidiary and affiliated company stocks as of Mar. 31, 2006
(millions of yen)
Carrying value Fair value Difference
Subsidiary 19,648 142,464 122,816
Affiliated company 274 649 375
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. The Company will disclose the notes concerning the 'Deferred income tax
assets and liabilities' as the 'Additional information on financial summary' as
soon as it is available.
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