Review of Operations

OITA CANON INC.

Fullcast Stadium Miyagi for the Tohoku Rakuten Golden Eagles

Shiodome Sumitomo Building

Tokyo Prince Hotel Park Tower

Karuizawa Ohga Hall

Kajima was awarded contracts in the domestic construction business during the financial year to March 2005 totaling ¥1,307.7 billion, a rise of 22.6% year on year. Building construction accounted for 74.3% and civil engineering 25.7%.

In the course of its projects Kajima purchases a portion of its construction materials and equipment from its consolidated subsidiary Taiko Trading, and certain construction machinery from Kajima Mechatro Engineering. Certain aspects of construction work are also contracted out to Kajima Road, Chemical Grouting, Nippon Foundation Engineering, Ilya Corporation, and affiliate Japan Sea Works. A portion of architectural and structural design work is contracted out to affiliates Armo Architects & Engineers and ARTES Corporation.

Building Construction & Architectural Design

Private investment for office buildings and commercial facilities in the Tokyo metropolitan area grew, and there was an increase in the number of urban redevelopment projects. New projects also continued to originate in the manufacturing industry, reflecting capacity increases for the production of electronic devices such as plasma displays and large-screen LCD televisions. This increase in activity slowed the tightening of construction investment that has continued for the last decade. Particularly welcome was the growing demand for high-rise office buildings and condominiums in urban areas, an area in which Kajima is especially strong.

Domestic building construction contracts for the financial year to March 2005 rose 24.1% to ¥995.1 billion, of which approximately 48.8% was from contracts for design/build contracts (commissioned design projects: 508, consulting projects: 1,250). Because Kajima offers an integrated approach to design and construction, and continuously applies the expertise and experience it gains through construction projects in the design process, Kajima buildings offer longer building life and higher levels of quality.

The main reason for the increase in contracts during the financial year under review was the proactive stance that Kajima takes toward the design and planning proposals, suggesting optimal construction methods and means of shortening the construction period. This approach, which draws on Kajima's extensive technological capabilities and experience, was well received by clients. In particular, projects such as large-scale housing complexes, production plants for electronic devices and logistics facilities allow for full utilization of Kajima's design and engineering talent, lowering costs and shortening the construction period. This capability raises both competitiveness and earnings.

There is a growing need among contractors and builders for both greater sophistication in buildings and lower costs. Kajima will meet these needs with the superior quality made possible by its unique technological capabilities, as it strives to continue increasing its share of construction contract awards, and enhance earnings capacity. Particular focus will be placed on large-scale redevelopment projects, where Kajima will concentrate on offering proposal-based solutions from a solid business perspective, and incorporating high degrees of added value by utilizing such leading-edge technologies as environmentally-friendly design and sophisticated IT security systems.

Kajima is focusing on enhancing its engineering, environment, and renovation capabilities, and has established the Office of Life Sciences to handle projects in the biological and genomic field. Kajima is also stepping up its efforts in response to a growing number of projects involving private finance initiatives (PFI) and life-cycle management (LCM), areas in which its collective strength can be fully utilized.

In facilities for the manufacture of electronics devices Kajima will continue to pursue the originality and ingenuity that sets it apart from the competition and leads to an increase in contracts. One example is the recently developed multi-floor base-isolation manufacturing plant, which significantly reduces earthquake risk (a foremost concern in earthquake-prone Japan) by employing long-span, earthquake-resistant structures.

Minatomirai Station

Central Japan International Airport "Centrair"

Eshima Ohashi Bridge

Underground expressway job site temporarily underpinning a subway system

Shield machine for tunnel project

Civil Engineering

Domestic investment in civil engineering construction for the industry as a whole during the financial year to March 2005 has been estimated at approximately ¥23 trillion, of which ¥18 trillion was from government-funded projects, and ¥5 trillion from the private sector. Despite the persistent problem of oversupply in the construction industry, the Japanese government-which accounts for the majority of civil engineering projects-is expected to maintain its policy of scaling back on public works. This reduction, along with a decline in the number of large-scale projects, will continue to make the business environment for civil engineering even more difficult.

Kajima led the industry during the financial year to March 2005 with contracts awarded totaling ¥343.6 billion (a rise of 19.0% year on year). This was the result of Kajima's technical, consulting and engineering capabilities, combined with a collective ability for management that was highly regarded by its clients.

Of particular note during the financial year under review was the tender offer for construction of a new runway at Tokyo's Haneda Airport as part of the expansion of facilities. Kajima, representing a consortium of 15 companies, was the successful bidder for the project. The airport expansion will include a fourth runway built offshore in Tokyo Bay, for which Kajima proposed a new type of construction method that combines land reclamation with a landing pier. With a total construction cost of roughly ¥600 billion, this project is the largest of its type to date. Design work is currently underway.

There has recently been an increase in new contract awards emphasizing the technical capabilities of major construction companies such as Kajima. And with a new law enacted in April 2005 designed to enhance and ensure the quality of public works projects, those technical capabilities are also being more thoroughly evaluated from the standpoint of quality.

In response to these developments Kajima is implementing a tailored, proposal-oriented marketing strategy that fully utilizes the distinctive technologies it has acquired in the course of numerous projects. Kajima also continues to aggressively pursue R&D and the technological advancements to support the growth expected in select areas of civil engineering related to the urban renewal, environmental, renovation and private finance initiatives (PFI) that allow Kajima to fully capitalize on its extensive capabilities.

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