Nomura Holdings, Inc 2027 Q2 Earnings Call

This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the first half and second quarter of the fiscal year ending March 2027. Please turn to page 2. The first half of this fiscal year got off to a volatile start, with crude oil prices at one point exceeding $110 per barrel because of the turmoil in the Middle East. Thereafter, stock markets and major markets then registered all-time highs, driven by rises in AI and semiconductor-related stocks, and client transactions picked up, too. Later on, though, the outlook became increasingly uncertain again. With a combination of rising interest rates, renewed geopolitical risk, and equity market corrections, our ROE came in at 13.3% in the first half of the fiscal year, representing a solid performance in light of changing market conditions that testifies to our improved earning power.

I would like to highlight the following three points in particular. First, profits rose substantially across all divisions, with total four division income before income taxes up 50%. Our earning power has risen sharply over the past year. Second, growth in asset management-based business has steadily strengthened the stable revenue base. Recurring revenue assets in wealth management rose 20% compared with the end of September last year to around JPY 31 trillion, while assets under management in investment management rose by JPY 50 trillion to around JPY 150 trillion, particularly reflecting the impact of acquisition. As a result, stable revenue increased roughly 1.6 fold year-on-year. Third, structural reforms have led to a steady improvement in ROE. Based on these results, the interim dividend, with a record date of September 30th, will be JPY 35 per share, representing a payout ratio of 41%. I would now like to run through second quarter results.

Please turn to page three. Earnings remained solid in the second quarter despite uncertain market conditions, and ROE came in at 10.9%. Group-wide net revenue came in at JPY 607.5 billion, down 12% quarter-on-quarter. Income before income taxes fell 30% to JPY 148 billion, while net income fell 29% to JPY 103.7 billion. Earnings per share for the quarter came to JPY 34.61. Although performance moderated from the first quarter, we achieved our quantitative target for ROE of 10%-12% or higher toward 2030, which we raised in May 2026. Stable revenue also expanded as we responded steadily to long-term asset formation needs. We will now look at second quarter results for each division, starting with Wealth Management. Please turn to page eight. All percentages discussed from here out are based on quarter-on-quarter comparison.

On the top left, you can see that Wealth Management net revenue fell 3% to JPY 141.5 billion, while income before income taxes fell 8% to JPY 65.6 billion. Favorable developments in the asset management business ensured strong performance despite uncertain market conditions, and margin on income before income taxes remained high. On the bottom left, you can see that recurring revenue rose 13% to an all-time high of JPY 66.7 billion. Net inflows of recurring revenue assets also rose to an all-time high of JPY 755.4 billion, reflecting increased inflows. Flow revenue fell 13% but remained high in absolute terms, with several major deals countering a lull in equity market trading. The recurring revenue cost coverage ratio came in at 79%, testifying to the improved stability of earnings within the division. Please turn to page nine where you can see an update on total sales by product.

Total sales fell 13% versus the previous quarter to JPY 7.4 trillion. Despite increased uncertainty about the outlook amid rising interest rates in Japan and the U.S., purchases of assets for long-term diversified investment continued to gain traction. Sales of equities fell 21% but remained high in absolute terms. Bond sales rose 66%, with increased sales of public and corporate bonds, thanks to rising yen interest rates and contributions from a major primary deal too. Sales of investment trusts, which constitute recurring revenue assets, fell 14%. Investors adopted a wait-and-see stance towards thematic funds, but there were sustained inflows into assets designed to be held over the long term, including Japan equity funds and balanced funds. Discretionary investments rose 9%, with SMA contract value reaching an all-time high. Insurance also registered growth of 14% on demand for pension and estate planning.

Next, we take a look at KPIs on page 10. On the top left, you can see that net inflows into recurring revenue assets rose 40% quarter-on-quarter to an all-time high of JPY 755.4 billion. This shows that we are having success in the steady accumulation of recurring revenue assets, irrespective of market conditions. Recurring revenue assets, which you can see on the top right, were down slightly at the end of the quarter because of market factors, but recurring revenue rose to an all-time high, thanks to steady growth in recurring revenue assets over the course of the quarter and by investment advisory fees received semi-annually. As shown on the bottom right, assets under custody in workplace services remained solid, supported by continued inflows from employee share ownership plans. Next, let's take a look at Investment Management. Please turn to page 11.

On the top left, you can see that net revenue fell 14% to JPY 84.8 billion, and that income before income taxes fell 39% to JPY 27.4 billion. While not as strong as in the previous quarter, revenues nevertheless remained high in absolute terms. On the bottom left, you can see that business revenue, which constitutes stable revenue, came in at JPY 82.3 billion. Asset management fees remained solid. Furthermore, assets under management in actively managed Japanese equity fund established in July exceeded JPY 150 billion, while fund inflows enabled assets under management in flagship balanced funds to rise to almost JPY 2 trillion. Investment gain fell to JPY 2.5 billion, reflecting a lower contribution from American Century Investments-related gains. Let's now turn to page 12 and examine our asset management business. The graph on the upper left shows that assets under management remain high at quarter end.

As shown at the bottom left, net inflows over the quarter amounted to JPY 478 billion. Net inflows into investment trusts totaled roughly JPY 1 trillion, with inflows into private equity, balanced funds, and actively managed Japanese equity funds, including newly established funds. Domestic investment advisory and international businesses saw net inflows in Japan, mainly into Japanese bonds and private assets, but net outflows overseas outweighed on a smaller scale than in the first quarter, with sustained outflows from mutual funds, but inflows into high-yield U.S. bonds. As shown at the bottom right, alternative assets under management rose to a new high owing to net inflows.

Next, Wholesale. Please turn to page 13. Following the division's record high results in the first quarter since its establishment, net revenue for the second quarter was JPY 308.9 billion, down 16%, while income before income taxes was JPY 46.1 billion, down 51%. On the bottom left, you can see that Global Markets revenue fell amid increasingly uncertain market conditions, but Investment Banking revenue increased with contributions from its major products. Please turn to page 14 for an update on each business line. Net revenue in the Global Markets business fell 20% to JPY 254.2 billion. Please look at the middle section on the right. Fixed income revenue fell 14% to JPY 119.2 billion. In macro products, rates revenue declined amid rising rates globally, while FX/EM revenues fell relative to strong performance in the first quarter. In spread product, credit client activity was subdued as spreads widened.

However, securitized products revenue rose mainly in the Americas and thereby offset some of the decline in macro products revenue. International wealth management revenue also remained high, thanks to growth in assets under management. Equities revenue fell 25% to JPY 135 billion. In equity products, financing revenue performed solidly, but derivatives revenue declined from the first quarter, when it benefited from a wide range of revenue opportunities. Execution services revenue fell as well on lower market trading volumes. While there was some quarterly volatility, sustained growth in the revenue base for equities and international wealth management helped to diversify and stabilize revenue within Wholesale. Let's now turn to page 15 and look at Investment Banking. As you see on the top left, Investment Banking net revenue rose 9% to JPY 54.7 billion.

Major products such as advisory and financing solutions, et cetera, saw growth in revenue, and we ranked first in both Japan-related ECM and DCM league tables for April through September periods this year. Advisory revenue benefited from growth investment and portfolio realignment deals in multiple sectors, including sponsor-related deals and infrastructure deals. In financing and solutions, et cetera, ECM continued to benefit from major public offerings and CB deals in Japan, and acted as bookrunner for nine of the 10 biggest deals in Japan in the first half of the fiscal year. In DCM, we addressed strong funding demand from domestic companies through a wide range of financing methods. We also supported bond issuance overseas, including SSA bonds. Solutions business also continued to perform strongly, mainly in Japan. Next, Banking Division. Please turn to page 16.

As shown on the top left, net revenue was up 7% to JPY 16.4 billion, and income before income taxes was up 20% to JPY 4.4 billion. As you can see in the middle on the right, banking net revenue rose 11% to JPY 4.5 billion. The deposit sweep service grew steadily in terms of contracts and balances, while funding costs were also kept in check thanks to growth in balance of deposits. Revenue from investment activities also increased on contribution from growth in holdings of securities and other investments, as well as rising market interest rates. Trust and agent service net revenue rose 6% to JPY 11.9 billion. Trust fees increased steadily as new trust boosted investment trust balances, resulting in solid revenue growth. Next, KPIs on page 17. As you can see on the top left, loans outstanding totaled JPY 1,361 billion.