Construction is Kajima's core business, accounting for more than 90% of contract awards. It is divided into Building Construction, which handles typically private-sector projects as office buildings, production plants and condominium apartments, and Civil Engineering, which manages construction of dams, bridges, tunnels and other infrastructure projects.

During the financial year ended March 31, 2007, Kajima was awarded contracts totaling ¥1,125 billion (domestic construction business on a non-consolidated basis), of which building construction accounted for 80.9%, and civil engineering 19.1%. Design-build contracts accounted for 46.3% of the entire construction business.

Tama Art University, Tokyo

Pioneer Kawasaki Plant, Kanagawa Prefecture

X-Tower Osaka Bay at X-City

Spending on domestic building construction projects during the financial year ended March 31, 2007 is estimated to have reached ¥30.6 trillion. While public spending on construction projects continues to decline, the continued growth in private-sector investment is estimated to have produced a third ― albeit slight ― consecutive year-on-year increase. The expanding number of people returning to central cities continues to drive demand for condominiums, and demand is considerable for high-rise office buildings as part of urban redevelopment projects. Private-sector investment and personal spending is expected to continue to grow, and we anticipate demand for production and commercial facilities to remain steady for the foreseeable future.

Domestic building construction contracts for the financial year ended March 31, 2007 totaled ¥911 billion (up 0.1% year on year), of which design-build contracts accounted for 50.8%. Kajima offers an integrated approach to design-build, incorporating expertise gained through numerous construction projects to create high-quality buildings. By involving itself in projects during the planning and design stage, Kajima can draw on its experience and technology to make proposals for high-value-added buildings. This versatile ability has won high praise from clients. Kajima's design and engineering capabilities have been fully utilized for such projects as large-scale housing complexes, production facilities for sophisticated electronic devices and large-scale retail complexes, lowering costs and shortening construction periods. This approach also helps to strengthen our price competitiveness and increase earnings.

Although the Japanese economy is likely to remain strong, with capital expenditure expanding to a wide range of industries, customer needs have become even more sophisticated and diverse, and competition for contracts is becoming fiercer. In consideration of this market environment, Kajima has set its target for value of domestic contracts in the Building Construction division at ¥920 billion for the financial year ending March 31, 2008. We will also continue to make a concerted effort to provide the best value for our customers, maintain trust and credibility among clients and society and achieve stable growth. To accomplish this, for large-scale redevelopment projects we will focus on projects with excellent business potential, offering solutions for high quality, high-value-added buildings that employ such cutting-edge technologies as environmentally friendly facilities and sophisticated IT security systems. We will also utilize our dedicated project teams with specialized skills to obtain more contracts in a range of fields including for medical-care facilities, high-tech production facilities for electronic devices and other sophisticated equipment as well as logistics centers and commercial facilities.

While continuing to strengthen our construction capabilities, we will raise earning capacity by establishing a low-cost structure and making further increases in productivity. Kajima is also moving ahead with efforts to diversify its sources of revenue through proactive efforts in such fields as private finance initiatives (PFI), engineering, renovation and the environment-related business.

Metropolitan Expressway, Central Circular Shinjuku Route, Tokyo

Uchimaki Viaduct, Shizuoka Prefecture

Nerima Tunnel, Tokyo

Investment in domestic civil engineering projects during the financial year ended March 31, 2007 was estimated at ¥21.6 trillion, of which ¥16.4 trillion was public-sector investment and ¥5.2 trillion was from the private sector. Although private-sector investment is showing signs of recovery, public-sector investment (which accounts for the majority of civil engineering projects) has been declining since 1998, and the government continues to show no signs of relaxing restraints on such spending.

Domestic civil engineering contracts for the financial year ended March 31, 2007 totaled ¥215 billion (up 0.6% year on year). This success in maintaining the level of new order book in a tightening market was the result of the high regard placed in Kajima's consulting and engineering capabilities, along with its overall management strength.

Of particular note during the financial year under review were contracts awarded to bidders in recognition of both their price competitiveness and technological skill. Such projects included phase one of construction of the Tono Dam in Tottori Prefecture, which Kajima won on an independent basis, and the construction of the Shield Tunnel for the Central Circular Shinagawa Route (Northbound), the Metropolitan Expressway, for which Kajima was appointed the representative company.

In the public sector, partly as a consequence of a law aimed at ensuring the quality of public works projects enacted in 2005, there is an increasing emphasis on technological capabilities of contractors, and the comprehensive evaluation bidding formats are more commonly adopted in the public works tenders. As it has done previously, Kajima will aim to win contracts by focusing on large-scale projects, concentrating the technological capabilities of the entire company to enhance its comprehensive evaluation. To accomplish this, we will review the functions of the head and branch offices and build a structure in accordance with the type of projects, to be able to draw on our collective ability. We will also continue to pursue research and development focused on fields where future growth is expected, such as the large-scale urban development, environmental, renovation and PFI projects that allow Kajima to fully demonstrate its collective abilities.