Daiwa Securities Group extends its sincere condolences to the victims, families, and others impacted by the East Japan Earthquake.

The Group has been supporting reconstruction efforts since immediately after the earthquake. These include making monetary donations, allowing transfer of Daiwa Securities' customer reward points for donations, and proposing post-earthquake restoration policies. We will continue our assistance as durability is the key to aiding the recovery of Japan. Our employees will unite under common interests in contributing to the reconstruction work through the financial markets.

FY10 Economy and Market Conditions
FY10 was marked by concern that economic growth would lose momentum both at home and abroad. The source of apprehension ranged from the European debt crisis to tension in the Middle East and the earthquake in Japan.

Emerging nations kept the global economy brisk until around June 2010. Exports and production expanded in Japan, and corporate earnings improved. However, the Japanese economic recovery started to lose momentum from summer, when unease about European state finances and lower impact from US economic policies kindled concerns about stagnation in the global economy and yen appreciation. A number of countries embarked on monetary easing measures after that, sparking a turnaround in the global economy that helped Japan's exports and production to gain steam. Nevertheless, the earthquake in March 2011 and the subsequent nuclear crisis and electricity shortages eroded conditions and raised doubts about the future.

Meanwhile, the Nikkei 225 dropped from 11,089 at the end of FY09 to below 8,880 in August 2010, reflecting anxiety about the European debt crisis, the global economic slowdown, and rapid yen appreciation. Currency intervention by the government and the Bank of Japan and additional monetary easing policies of both Japan and the US pushed the Nikkei 225 up to 10,800 range in February 2011. The next month, the Nikkei 225 plummeted to nearly 8,200, and the Japanese currency surged to a historical high of roughly 76 yen against the dollar in the aftermath of the earthquake. G7 nations quickly coordinated a yen-selling intervention, so the yen depreciated to approximately 83 yen against the dollar, and the Nikkei 225 rose to 9,755 at the end of March 2011.

Summary of FY10 Earnings
Daiwa Securities Group began disclosing earnings by business segments in FY10. In Retail segment, led by Daiwa Securities, equity brokerage commissions lost ground due to the lackluster Japanese stock market. Net trading gains rose, though, backed by sales of foreign bonds denominated in emerging market currencies. Ordinary income came to 41.8 billion yen, 3% above the FY09 level.

Global Markets segment, part of Daiwa Securities Capital Markets' operations, handles sales and trading of equities, bonds, and derivatives. Brokerage turnover set a historically high record in the Hong Kong and Singapore stock markets, supporting further growth in Asian nations. Nevertheless, concerns about European state debt triggered volatility in currency exchange rates, and impact from the earthquake sent markets into turmoil. All told, the segment reported ordinary losses of 52.1 billion yen.

Global Investment Banking segment provides underwriting and M&A advisory services. The segment has been strengthening operations in rapidly growing Asian countries, but total underwritten securities dropped sharply due to lower demand for equity financing at domestic firms. This translated into ordinary losses of 14.7 billion yen.

In Asset Management segment, the AUM moved briskly, pushing ordinary income up 42% above the year-earlier level to 15.9 billion yen. The growth was underpinned by successful management and sales promotion of products in sync with client needs, including mutual funds targeting emerging economies and monthly dividend type funds.

Investment segment includes private equity investment. Market fluctuations caused the segment to add several deals to its allowances for losses . This translated into ordinary losses of 21.4 billion yen.

As a result, Daiwa Securities Group reported consolidated ordinary losses of 32.6 billion yen in FY10. The Group paid an annual dividend of 6 yen per share, which broke down into 3 yen at the end of each half of the fiscal year.

Two Management's Visions
We have responded to these conditions by progressing toward two visions: Establishment of a Robust Business Structure and Path to Asia's Leading Financial Services Firm.

Establishment of a Robust Business Structure
Due to the nature of our business, we will always be impacted by market trends to some degree. However, we plan to fulfill our social responsibilities by establishing a business structure that will prevent us from booking losses even amidst strong headwind from the business climate. Naturally, this structure would generate high profits in favorable times.

Our business structure must lead to stable revenues expansion. In FY10, profit grew in Retail and Asset Management segments despite the difficult operating environment. The primary reason is that both deal with asset of mutual funds and other financial vehicles that are less sensitive to market fluctuations. Net inflows of mutual funds have been brisk across the industry, and those that monthly dividend type funds remain popular. We intend to keep mutual fund asset on an uptrend by strengthening investment and sales platform, keeping a vigilant eye on investor needs in both business segments.

Additionally, the Group is making a foray into banking operations in FY11. Japanese households have amassed huge amounts of financial assets, much of which has been tied up in cash and deposits. We have strong intent to foster this area as a solid earnings stronghold.

Since we moved to a holding company structure in 1999, employees have increased in middle-back office at both Daiwa Securities Group Inc. and the two subsidiaries. We have started to streamline middle-back office operations and shift personnel to sales forces in order to increase efficiency and strengthen our sales team. We also are reviewing IT and real estate expenses with an eye on curbing fixed costs, which have risen over the past several years.

The Group plans to use these measures to establish a robust business structure that can achieve 100 billion yen profit improvement over the medium term, withstand a financial crisis on the scale of the Lehman's Fall, and generate high profits when the economy and market are brisk.

Path to Asia's Leading Financial Services Firm
The center of the global economy is likely to keep shifting from industrialized regions such as Europe and the US to emerging economies, primarily in Asia. Growth in these areas has become an important theme for Japan, which is faced with a maturing economy and a meaningful population decline, and for numerous companies as well. The Group is striving to shore up and expand our Asian operations more quickly and on a larger scale than ever before. We plan to make all of Asia our home market and serve as a bridge between Japan and Asian growth markets. We view this as a path to medium-term growth.

We have laid the foundation of this initiative by building up capital and raising employees at our Asian bases. We believe we are poised to enter a new stage of earnings growth, backed by our strategic spending in areas such as human resources through FY10. We have steadily increased our equity trading value share in Hong Kong and other Asian stock markets since last fiscal year, which should serve as a launching pad for significant growth. Brisk sales of Asia-related bonds and mutual funds for individual domestic investors have been boosting earnings in Retail and Asset Management operations as well. Additionally, Daiwa Securities Capital Markets acted as a financial advisor and a joint lead manager for Elpida Memory's listing of Taiwan Depository Receipts and also acted SBI Holdings' listing of Hong Kong Depository Receipts as a sole sponsor and a global coordinator earlier in 2011. These were the first listings by Japanese companies on the Taiwan and Hong Kong stock exchanges.

These strategic measures are not just a tactical movement to expand revenues from Asian regions, but portions of a challenging endeavor achieving the Group's medium-term growth by assisting the "Asianization" of Japan, with our financial business, and contributing to the prosperity of Asia as a whole. Collaborating our domestic and foreign operations close together to expand Asia-related business, we view our destination as "Daiwa of Asia", a Japanese financial services firm centred on Asia, and well known throughout the world.

Conclusion
These two strategies are key components for sustainable growth for Daiwa Securities Group. We view steady movement toward these goals as an integral way to lift the Group's enterprise value and build a stronger social presence. We are grateful to our shareholders for their support as we chart a path toward a promising future.

June 2011