Daiwa Securities Group Annual Report 2012 FY2011 was a challenging year for the Daiwa Securities Group as the harsh economic climate intensified. Earnings started  to recover in the fourth quarter when global markets finally began to stabilize, but the overall market outlook remained  cloudy. In light of these conditions, the Group decided to merge Daiwa Securities Co. Ltd. with Daiwa Securities Capital  Markets Co. Ltd. on April 1, 2012, reuniting Retail and Wholesale operations for the first time in 13 years. As the “new”  Daiwa Securities Co. Ltd. opens a new chapter in its history, the Group also formulated a new Medium-Term Management  Plan designed to “return to profitability by pursuing management efficiencies.” The plan also seeks to “achieve high- quality earnings growth” by more precisely addressing customer needs. In this way, the Group aims to establish a  robust business platform that can withstand short-term fluctuations in the global economy and business environment. A Stormy Business Climate  in FY2011 During FY2011, the Japanese economy struggled to recover from the shattering impact of  the East Japan Earthquake, which hit right at the end of FY2010, severing supply chains  and creating electric power shortages. Other natural disasters, such as massive flooding in  Thailand, also affected industrial activity. Financial and capital markets, particularly the foreign  exchange market, were thrown into turmoil by factors ranging from a debt crisis in Europe  to credit rating downgrades on US treasuries and the US Federal Reserve Bank’s intro- duction of quantitative easing measures (QE2). The resulting rapid appreciation of the yen  further depressed the earnings of Japanese export-oriented companies. The stock market  dropped particularly during the summer and remained weak through the end of the fiscal  year, sharply curtailing demand for equity financing. All of these factors weighed heavily on  the earnings of Japanese securities companies. Overseas economic conditions were not much better either. Adverse business conditions  caused stock prices throughout Europe and Asia to fall over 20% between April and  December 2011, depressing overseas equity financing demand as well. Since the start of calendar 2012, signs of an economic recovery began to emerge as the  US Federal Reserve Bank’s financial easing measures took hold and fears of a debt crisis in  Europe also started to recede. This brought a gradual recovery to most of the world’s major  stock markets. On the domestic front, the Nikkei 225 responded by edging back above the  10,000 level due to improvements in the financial environment, such as a slight yen weakening  from new financial easing policies by the Bank of Japan. The bond market regained strength  too as electric power companies—which accounted for some 10% of total domestic bond  issuance—returned to the market for the first time since the East Japan Earthquake  (Tohoku Electric Power issued new bonds). Since the start of the new fiscal year, however,  market conditions have weakened again and the longer-term outlook remains uncertain. The stormy business climate deteriorated earnings in every segment of the Daiwa Securities  Group over the full course of the fiscal year. Although the Retail and Asset Management  businesses were able to withstand these harsh conditions and post relatively steady earnings,  profit figures declined slightly from the previous year. The Global Markets and Global Investment  Banking businesses, which make up the Group’s Wholesale securities operation, continued to  generate losses, but losses from Investment operations were dramatically reduced compared  with FY2010. As a result, consolidated net operating revenues rose 5.5% year on year, to  ¥336.0 billion and the Group posted a consolidated net loss of ¥39.4 billion. On a positive note, efforts to control SG&A expenses are bearing fruit and earnings in all  business segments showed signs of improvement in the fourth quarter. In FY2012, as the  Daiwa Securities Group opens a new chapter in its organizational history, we will strive to  further improve efficiency and strengthen profitability in accordance with the trust and high  expectations of all stakeholders. 09