During fiscal 2003, the Japanese construction industry faced a challenging business climate amid enormous structural changes in the market, including a slump in investment and the imbalance between the falling scale of construction investment and the increasing number of construction businesses. Against a high of 84,000 billion recorded in fiscal 1993, investment in construction for fiscal 2004, amid ongoing structural reform, appears likely to fall as low as 54,000 billion as a result of a reduction in public-sector investment and a decline and shifting offshore of private-sector investment in plant and equipment. A look at the number of construction companies as of March 31, 2003 reveals that there were 9.4% more companies in fiscal 2003 than in the days of peak construction investment, indicating a fiercely competitive environment. Given such circumstances, the current difficult situation is likely to continue for the foreseeable future, as investment in construction is not expected to grow in the medium to long term.

Influenced by these environmental factors, the performance of Kajima's operations in Japan for fiscal 2003 was as follows. The value of contracts awarded decreased 9.6% from the previous term to 1,132.4 billion due to a significant decline in orders for construction projects by non-manufacturing industries. Total revenues across Japan declined 10.8% year on year to 1,449.0 billion. The gross profit margin for completed works decreased from 6.8% in fiscal 2002 to 6.6% for the term under review as a result of a decline in total revenues and continued fierce price competition. Gross income of 101.8 billion was recorded for fiscal 2003.

In light of the performance outlined above, a new Medium-Term Business Plan (fiscal 2004 to fiscal 2006) was recently formulated to overlap the final year of the Next Three-Year Plan (fiscal 2002 to fiscal 2004). The plan was developed to address the negative business environment, which is deteriorating even faster than expected, and is a product of Kajima's awareness of the urgent need to establish a stable revenue base for the aggressive promotion of stronger earnings and more diverse sources of revenue. In the construction business, the core business of the Kajima Group, the most pressing issues are increasing Kajima's share of all contracts, strengthening earnings capacity and diversifying sources of income.

To enhance the Group's share of contracts, Kajima will provide clients with ideas and technical advice to assist the launch of their projects. More specifically, Kajima is putting in place an organizational framework that will help clients coordinate pre-construction tasks, provide clients with strategically sound technical advice, and integrate the Group's marketing, design and construction functions. In addition, the Group will make the most of Kajima's technical expertise in urban renaissance projects and projects involving special zones for structural reform, and will expand and strengthen enterprise and sector-based marketing resources based on market trends. In the engineering sector, where demand is predicted to rise, Kajima intends to increase full-turnkey contracts for building production-related facilities and distribution facilities. In addition to the construction of facilities, Kajima aims to cross new business boundaries by providing unparalleled solutions that encompass all services from the planning of facilities through their operation and maintenance. In the environmental sector, Kajima will expand its recycled-resources business, focusing on waste-to-resource conversion, soil rehabilitation and water treatment. The Group will also deploy resources for the recycling of organic waste, wind power and the dismantling of existing incinerators. In renewal projects, Kajima will generate customer demand that leads to new contracts by making the most of proprietary technologies related to in situ seismic isolation and earthquake-proofing reinforcement, the Group's various consultation and assessment services, and the Kajima Customer Building Support Center.

Kajima's initiatives for enhancing earning power, or increasing the profit margin on work, are aimed at bolstering on-site productivity. To accomplish this, Kajima will take full advantage of a diverse range of production systems that enable rationalized construction costs and shorter work schedules. Kajima is making maximum use of information technology to make labor savings and reduce costs. Furthermore, Kajima's goal is to make thoroughgoing cost reductions by reforming procurement activities through adopting practices such as centralized procurement by branches, overseas procurement and procurement using e-commerce.

To diversify revenue sources, Kajima will engage in strategic large-scale and complex projects, mainly real estate development projects within Japan, such as projects in the Tokyo central business district and developments in the vicinity of transportation hubs. Another source of revenue is expected from the establishment of the Kajima Fund, which aims to promote leasing projects and thus acquire long-term stable revenues. Kajima will also gear up to be a leading figure in the field of PFI projects, taking a careful approach to project selection. The Kajima Group will work together to promote maintenance, control and management services aimed at acquiring a wide array of revenue opportunities. In the LCM (life-cycle management) sector, the framework for LCM initiatives will be strengthened on a Group basis in terms of the maintenance, control and management of facilities as well as consulting services. Kajima has set its sights on increasing contract opportunities by enhancing its services for life-cycle management of buildings.

The essence of Kajima's business is to acquire revenue by providing invaluable services to customers. As it makes ever greater use of its technical capabilities and expertise, the Company's ambition is to provide customers with new services and create new markets by stimulating customer demand. By continuing to accurately assess market changes, Kajima will strive to develop projects that ensure the most effective use of the Group's resources, in particular in sectors where future growth is anticipated. Kajima will do its utmost to ensure growth for the entire Group as it continues to fulfill all its obligations to society.

Kajima Group Medium-Term Business Plan
(Fiscal 2004 to Fiscal 2006)

Domestic Operations
Real Estate Development