Daiwa Securities Group Annual Report 2012 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. 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. 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. 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. 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. 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. 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. 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. 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. 58 [Investment Division] <Analysis of Cash Flows> <Overseas Activities> Ordinary Loss From Overseas Operations,  Broken Down by Region Liquidity <Maintaining Financial Efficiency and Stability> Analysis of Consolidated Balance Sheets and  Cash Flow Statements <Assets> <Liabilities and Net Assets> Millions of yen FY2010 FY2011 Europe ¥ (8,955) ¥ (5,040) Asia & Oceania (11,133) (17,721) America (1,448) (3,058) Total ¥(21,536) ¥(25,818) Corporate Summary Executive Messages Business Strategy Management Systems & CSR Financial Section Other Information