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Management Division to attract a large net inflow of funds to invest- ment trusts, elevating the balance of assets under management. As a result, net operating revenues increased by 3.0% year on year, to ¥37.4 billion. Operating income declined 8.4%, to ¥14.6 billion. 

## [Investment Division] 

Existing private equity stakes and the collection of existing troubled loans contributed to income in this Division. Net operating revenues were ¥1.1 billion (a return to profitability from FY2010) and the Division posted an ordinary loss of ¥2.0 billion. 

## <Overseas Activities> 

In Europe, the Group won the lead manager role in underwriting KDDI’s euro-yen convertible bond issue, and there was a good flow of advisory business for M&A deals. This supported an increase in commission income. However, the market turmoil created by the European debt crisis caused stock prices to tumble and bond markets to panic, depressing income from trading activity. Overall net operating revenues remained at almost the same level as in FY2010. However, due to efforts aimed at expanding overseas operations, which were implemented in FY2010, SG&A expenses increased year on year particularly in the Asia and Oceania region. Operations in Europe generated an ordinary loss of ¥5.0 billion, Asia and Oceania recorded a ¥17.7 billion loss and ordinary losses from the Americas amounted to ¥3.1 billion. 

## Ordinary Loss From Overseas Operations, 

## Broken Down by Region 

<img src='content_image/190085.jpg'>

## Analysis of Consolidated Balance Sheets and 

## Cash Flow Statements 

## <Assets> 

The balance of collateralized short-term financing agreements declined by ¥1,592.6 billion year on year, but the value of trading assets rose ¥2,106.4 billion and securities increased by ¥1,389.9 billion, due in part to securities managed by Daiwa Next Bank. As a result, total assets increased by ¥2,081.6 billion, to ¥18,924.0 billion. 

## <Liabilities and Net Assets> 

Trading liabilities increased by ¥1,136.4 billion year on year, while deposits for banking business increased by ¥1,169.9 billion. As a result, total liabilities rose ¥2,051.3 billion year on year, to ¥17,972.3 billion. 

Due to the net losses posted in FY2011, retained earnings declined by ¥49.7 billion year on year. The conversion of Daiwa Office Investment Corporation into a consolidated subsidiary increased minority interests by ¥80.6 billion. As a result, net assets increased by ¥30.3 billion year on year, to ¥951.7 billion. 

## <Analysis of Cash Flows> 

Cash flow from operating activities was affected mainly by increases/decreases in trading assets and liabilities, and collateral- ized short-term financing agreements. Another major source of cash flow was the inflow of deposits for the banking business. As a result, the Group experienced a net cash inflow of ¥2,032.7 billion, compared with a net inflow of ¥1,676.9 billion in FY2010. In the cash flow from investing activities section, a substantial cash out- flow from the purchase of securities contributed to a net outflow of ¥973.5 billion (versus a ¥79.5 billion outflow in FY2010). Cash flow from financing activities was affected by the decrease in short-term borrowings and commercial paper, and showed a net outflow of ¥1,063.0 billion (versus a ¥1,301.7 billion outflow in FY2010). After adjustment for exchange rate impact, the consolidated balance of cash and cash equivalents at the end of the fiscal year stood at ¥1,039.0 billion. 

## Liquidity 

## <Maintaining Financial Efficiency and Stability> 

The Daiwa Securities Group operates securities-related businesses that require it to maintain very large balances of both assets and liabilities. Therefore, it is essential that the Group develop a policy for obtaining the funds needed to maintain the necessary liquidity to support operations, in the most efficient way possible. 

Methods used by the Group to obtain unsecured funds include corporate bonds, medium-term notes, borrowing from financial institutions, commercial paper, call money, banking deposits, as well as secured gensaki  transactions (repurchase agreements) and repo operations. The Group seeks an appropriate balance of these diverse methods in order to maintain an effective and stable supply of operating funds. 

In order to ensure financial stability and business continuity, even in the case of sudden changes in the business environment, the Group takes care to maintain an ample reserve of liquidity at all times. Particularly in light of the global financial uncertainty and credit concerns of recent years, the Group has endeavored to maintain ample liquidity on hand by obtaining funds from the market and by borrowing from financial institutions. Furthermore, the Group strives to diversify the maturities and sources of its bor- rowing, to limit the difficulties it might face if market turmoil should prevent it from raising new capital or refinancing existing debt. 

