Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Result for Fiscal Year Ending March 2018 Conference Call. [Operator Instructions] During the presentation, all the telephone lines are placed for listen-only mode. The question-and-answer session will be held after the presentation. Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks, delays, uncertainties and other factors not under the Company's control which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive condition and size, number and timing of the transactions. With that, we'd like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer, please go ahead.

This is Takumi Kitamura, CFO. I will now give you an overview of our results for the third quarter ended December 2017. Please turn to Page 2. First, let's take a look at the nine months to December. Income before income taxes was ¥281.2 billion, an increase of 17% over the same period last year. Net income was ¥196.7 billion, up 10% year-on-year. ROE was 9.3% and EPS was ¥55.12. Last year's strong corporate earnings in the U.S. listed to a record high and in November, the Nikkei hit ¥23,000 for the first time in 26 years. The market rally led to improve sentiment among individual investors and our retail business reported robust sales across various products including equities and investment trusts. Asset management books continued growth in AUM and gains from American Century Investments contributed to revenues. As a result, income before income taxes from retail and asset management increased more than 60% compared to the same period last year. To enhance capital efficiency, we sold our stake in Takoradi Securities which was an equity method affiliate last April and dispose of our stake in Jafco in July. We also made progress in our booking entities strategies which is aimed at reallocating management resources and I'll go into more detail on this later. As a result segment other income before income taxes increased year-on-year. Turning now to our results for the third quarter, group income before income taxes was ¥120.8 billion, up 45% quarter-on-quarter. Net income grew 70% to ¥88 billion. ROE for the quarter was 12.4% and EPS was ¥25.12. As you can see the graph on the bottom right, three segment income before income taxes was ¥66.2 billion. Earnings growth in retail and robust performance in asset management offset a flow down in wholesale resulting in a…

We have a question-and-answer session now. [Operator Instructions] The first question is from [indiscernible] of Deutsche Securities. Please go ahead.

Thank you. My first question is regarding the retail division. In the presentation material Page 23, you have the earnings of the retail business and your peers have already made announcements and when comparing your results, the investment trust commissions growth has been mild and also the sales commissions, sales credit has declined. So I would like to ask your views on the trends in the commissions and also sales credits? And in the conference, you explained that if we were the Nomura of the past, we might have made more money, but we are now not relying on trading was the just of your comment but for example for some equity products and also structured products, your peers seem to be enjoying growth. So I'd like to hear your views on the past three quarters - three months for Nomura as well as your peers' performance? My second question is regarding Basel-III and there was the finalization regarding Basel. So I would like to ask for your views on that. You have not disclosed the guidance regarding Basel but some according to your internal calculations, you must have had a range of calculation. So are things going towards a better direction or are things deteriorating for you? What are your views for the past on what's happened on past three months?

Thank you. This is Kitamura. Regarding your first point, the investment trust commissions has not grown as much as our peers and sales credit.

You mentioned that we have not grown compared to our peers?

We don't really compare ourselves with our peers. We are focusing on what we have got to do. And as you mentioned yourself, we are focusing on consulting sales from a more comprehensive prospective and trying to help clients with their assets. And for investment trusts, the same thinking or same policy applies. For foreign equities, there has been growth but not as I don't know if I should say we are not as focused as our peers, but I think that's the main reason. We are not exactly product oriented, product focused in our retail sales activities. And in the past quarter, discretionary investment and M&A of mid-sized companies and operating lease transactions have enjoyed growth. Your second point regarding Basel-III and the finalization of discussions, if you look at the contents or the details of what was finalized, I would say it was positive for Nomura. And bluntly put, the introduction of various regulations has been postponed especially floor impacts, which 72.5% will be introduced in 2027. So almost no impact to Nomura and CVA rule was clarified which was also positive for Nomura. However, as you know very well, the biggest item for a Nomura is the FRTB. And the calibration will take place as a result of FRTB. So the question is when that's going to happen. It's still not clear whether it's March or April. And once the details are clarified and also once we figure out how much of the, our internal model can be applied that's when we will be able to finalize the impact calculation. But in terms of your question, the finalization of Basel has worked positively for us. So we see that things going positively. Thank you.

JPMorgan, Natsumu Tsujino, the floor is yours.

First about personnel cost, what is your view on this, from the second quarter it has increased? There was an extraordinary loss ¥14 billion in three segments totall3ed profit divided recalculation summing them up then first quarter to the third quarter it has increased. The closest level was shows and last - third quarter but compared with that it's lower this time despite that you can look at the personnel cost, it's higher than the previous year's third quarter. So how would you look at the HR cost, human resources cost? That's question one. Second question. It also true for the revenues, equities investment trust quarter-on-quarter some companies enjoy 20% increase, there are several companies who enjoy 20% increase and the structured and the bond and to the volume bonds, the total some companies they show some decrease but somebody enjoyed the increase. So Japanese equities, the sales, the transaction amount, this regarding that the selling just fall in the equities and then the equity investment trusts and structured bonds or the foreign bonds to the extent that I can see by accumulate the numbers and looking at your numbers quarter-on-quarter maybe it has not increased significantly, ¥300 billion, ¥400 billion, some companies have enjoyed that level of the increase of ¥300 or ¥400 billion, some peers. So under your current business model that kind of performance cannot be achieved. What's actually happening concerning the sales force talking with - speaking with the customers, clients? They are likely to see what's happening elsewhere, why are they resulted in this number of sales activities, could you give us some more information, please?

First, regarding your first question about personnel costs. Just to share with you our assumptions regarding personnel costs, we're looking at the full year bases landing level, we keep that in our mind. That being the case, if we look at the numbers quarterly you have given us some questions maybe those questions might arise if you just look at quarter-on-quarter. In that sense, quarterly the factor analysis can be rather difficult to conduct. Looking at this quarter, the Retail Asset Management, the performers have been brisk and then the bonus, the provisions have to increase naturally speaking first quarter - compared with the first in the second quarter. If you look at the third quarter, there was a onetime effective. Still wholesale has been improving a little bit of addition have to be taken into consideration. It's a technical matter, it's something related to employees who deferred compensation for our employees, part of them that's linked to our share prices. The Nomura's share price has increased, so accounting wise, deferred compensation impact has become more significant. Because among others such a technical factor in the third quarter, you might get an impression that HR cost has increased. But as I said at the outset, on the quarterly basis, your comparison, it might be rather difficult for you to see the actual situation. Regarding the second question compared with peers, investment trust growth has been rather modest especially the Japanese are good investment trends. As I repeatedly shared with you product based retail activities have not conducted. Taking into the needs of clients and customers, we do the work. Concerning this quarter, the investment trust discretionary and the insurance to product sales, they have increased significantly. If you look at the asset part, you can find it Nomura Chemical bond funds. And Indian Equity Investment Trust, they have been selling briskly. And as I pointed out, Japanese equity products are not included, but we are going to the needs of the customers clients in terms of our sales activities.

So, all the companies, they all have to emphasize meeting the needs of clients but cool on duty, some companies enjoyed great growth and some didn't enjoy much growth, for instance the Nomura Securities, Nomura. And regarding those differences within the group, are you going to actually study about them going forward?

To be honest with you about the peers what kind of sales activities are they doing? On our part, we have our business models that we developed that, we deployed that and as a partner to customers, clients we do our business. To be honest with you, we are not that conscious of what other companies are doing, whether there's going to be a difference or not in the future, we don't know at the moment. But for the long term, there we want to be a partner to customers and we believe that we are doing that kind of consolidation based activities and as a result, I think that it's going to really have an effect on the bottom line. This may not be the expression, but we believe that this is going to be actually show the results. Thank you.

The next question is from Mr. Watanabe from Daiwa Securities. Watanabe, please go ahead.

Thank you. This is Watanabe from Daiwa. Two questions please. First is regarding the wholesale expenses. In Q3, the run rate level and compared to the past, has there been any changes in your targets for cost control? The second point is regarding your share buyback. In Q2, you sets allocation which you used up and was there any reason why you did not set another budget or another allocation for share buybacks? And in the past, there were cases where you said made an announcement about share buybacks a little while after your results announcement but is that going to happen again?

Thank you. Your first question about the wholesale expenses. This time, we on an annualized basis in U.S. dollars, the costs will be 5.4 billion U.S. There are several items for example new hires which led to the cost increase. So on a run rate basis is above 5 billion U.S. or it's within 5.3 billion U.S. and it is under control. So the answer to your question would be about that our targets, no change to our target in terms of cost control. But frankly speaking in the future, when we think about our cost reductions and streamlining our operation, we may make some one-off investments it might become necessary. So this time, we have seen this cost increase. Your second point regarding share buybacks. This time why we did not make an announcement of the share buybacks and why we're not. Well in this calendar year, we have already done 170 million shares, we have already bought back 170 million. And in the past, in the previous 100 million shares, some of them some of that was the overseer from the previous share buyback program. And this was a return in related to last fiscal year's result. And the most recent share buyback was related to the interim period. It was part of the shareholder return for the interim period. So in Q3, this is Q3 after all, so we felt we did not need to conduct additional buybacks.

Thank you. Understood.

The next question is from David Lui from Guoco Management Company. Please go ahead.

Hi, Kitamura, thank you for a great set of results. I have a few questions. The first question is on Page 5 of your PowerPoint presentation on the lower right hand side, it says stocks plus 18% Q-on-Q, higher trading of Japan and international stocks. Can you tell me for trading value in the secondary trading market, I'm not talking about IPO's, for secondary trading, what is the racial of the trading value of Japanese stocks to International stocks, is it like go a ratio of like 3:1, 4:1 and has this ratio been changing? That's my first question.

Thank you, David for your question. So your question is for secondary volume of the secondary trading?

Yeah.

And the next is the portion have been Japan stock and non-Japan stock Japanese stock?

Yes. Japan versus foreign, among your retail customers, yes.

We don't disclose when a portion of non-Japanese stock unfortunately. And as I mentioned previously, we don't focus for the foreign stock trading or services. Of course due to the strong U.S. market environment, there are some uptick for the Japanese, retail clients and volumes have to be increased. But we don't disclose the portion of the how much for Japan stock and how much non-Japanese stock. And based on your first question, which is more stronger. Non-Japanese related stocks in a boardroom have been in comparing a much stronger than in Japanese stock in this quarter.

Okay. Great. Let me move on to my next question, Kitamura, how about the retail investor margin loan balance at the end of December versus the end of September. Did you see any meaningful increase in the retail investor margin loan balance how much they borrow from Nomura to invest in the stock market?

Okay. So due to strong Japanese from market in a margin loan transaction also was very strong and balance in December end was an increase 20% up from the September end.

Great. Okay, that's great news. Okay, great. Thank you. My next question is on Page 27 of the PowerPoint. Right now there are as of December in the table on the lower part of the page for the December quarter, Nomura asset management has ¥53.3 trillion of assets, ¥ 2.9 four Nomura funds research and technologies and ¥2.8 for Nomura corporate research and asset development. Do you have any idea about how much of these assets actually are sold to Nomura clients and how much actually is sold to non-Nomura clients?

This is a very good question. I don't have any clear number but as we told Nomura corporate research and asset management is for the non-Nomura client I guess. And yeah honestly speaking and I don't have any image for how much - how many portion for Nomura client and for the non-Nomura client.

Okay. That's fine. No problem. Let's go back to Page 5, please, Page 5 of your PowerPoint, this is my last question. Earlier you said that they…

I got a number about your previous question. So 14 on them, so you mentioned about the ¥53 trillion.

Yes.

About 30% for the Nomura retail client.

30%. Is it 30% to the Nomura.

Yes.

Okay. Great.

It is Nomura management provided that to a Nomura asset management is approaching it on 30%.

Okay. Great. Thank you. My last question is on Page 5 of the PowerPoint. Earlier in your commentary, Kitamura you said that the momentum from the retail investor continued into the new year meaning in the month of January. If we look at the table on the upper left hand side of Page 5, we can see that the net revenue from the retail segment grew 9% quarter-on-quarter and year-on-year 10%. Are you suggesting that for the current quarter so far based on what you saw that the plus 9% and plus 10% have been matched?

No, no, no. I don't mention that kind of Q-on-Q or year-on-year two to end this quarter. I just and I just mention that top prime revenue is almost same as third quarter.

Okay. Great. Thank you very much, Kitamura. Good night.

The next question is from Koichi Niwa of Citigroup Japan. Niwas, please go ahead.

Thank you. Two questions, please. First with regarding retail and also the margin loan. My first point for retail, I mean in terms of client assets you are targeting ¥150 trillion, what is the current cash and security based on the current net cash and securities inflow, the ¥150 trillion seems quite ambitious. My question is, is it becoming more challenging to achieve the ¥150 trillion based on the current environment? My second point is, the cash in securities inflow is strong but in terms of the net inflow of cash and securities, why isn't it leading to the growth in net cash and net inflow of cash and securities. So in order for the trend to really turn positive and turn to a net inflow mode, what is needed? That's my first question. My second point is the margin loan one-off losses. In terms of exposure, is this loss basically recover or the exposure or do you still have other positions other exposure which could be future risks?

Thank you. This is Kitamura. Your first question regarding the retail business and the AUM or client assets on retail, the ¥150 trillion, ¥150 trillion target for 2020 has been has always been challenging but we do not feel the need to change this target at all. And in terms of the inflow of cash and securities, we still need to keep growing this inflow cash and securities. Meanwhile the net inflow of cash and securities at the moment there is a lot of outflow I must admit. So in that sense, the share price has rallied quite significantly from last October or so. And that has led to a very strong sales pressure of stocks that's my - that I really feel that watching the markets today. So the challenges that must be overcome are clear and we know what we have to do and what kind of organizational structure is needed and what kind of approach we have to take in facing our clients is what we are thinking of at the moment. And last April, we abolished the divisional system and we changed our organization. We have also reinforced the clients segment and also we have reviewed our product and we are focusing more on the lower risk product and diversifying the product offering. We are focusing on the consulting sales. So there are a lot of things we are doing and we are still in progress, this is still a work in progress and we want our clients to trust Nomura even more than they have done in the past. And if we can do that, then I'm sure that the inflow of cash and securities will improve meanwhile we will be able to hold the outflows. So we don't feel we need to change our current approach. It's just that there's more work we need to do and we need to keep accelerating our efforts. As for your second point, regarding the losses related to margin loans. In terms of the remaining exposure, frankly I don't think there is almost there's almost no remaining exposure and of course there are other transactions or other positions we have in terms of our margin loan type businesses, but we will continue to focus on risk control and monitor the situation and implement risk control measures. Thank you.

Thank you. This is Niwa again. Just one additional point regarding the first question. I understand what you said in your answer but your clients are basically higher quality and the sales pressure seems to have been ongoing for a while not just most recently. So if the stock market keeps rallying, at some point, will there be a net inflow and will the outflows stop at some point, is that the natural way to look at it?

Hi, this is Kitamura. The Japanese retail assets, initially and if you look at the overall balance of these assets, the deposits have actually increased over the past few years, even though it has been said that the deposit level has been very excessively high. I think this is - I think people are sensing that the exit of deflation is near and which means there should be a shift away from deposits into other financial products and this applies not just to a Nomura's clients but basically to the entire retail market in Japan. So in terms of stopping the outflows, we may have to change our approach when we face our customers, but I think the external environment will start turning more favorable and once Japan reaches the exit of deflation then we will - that will be a positive trend for Nomura.

Thank you. I understand.

[Operator Instructions]

Thank you. This is Kitamura and thank you very much for participating today. This quarter we had the losses from the margin loans, so we feel the need to further strengthen our risk control, make it more thorough. And in terms of cost control, there were some questions raised. And again we will continue to focus on cost control and make sure we seek the upside in our earnings. So we look forward to your continued support. There are - there is news that there may be some snow this evening, so please make sure you go home early. Thank you.

Thank you for taking your time. And that concludes today's conference call. You may now disconnect your lines.