Liberec Plaza Center, the Czech Republic

The Royal Alexandra Children’s Hospital, UK

Building Construction and
Real Estate Development
(by overseas subsidiaries)

Market Conditions and Performance

The business environment changed dramatically from fall 2008. Around the world, construction investment dropped and real estate markets deteriorated markedly as a result of the global economic recession sparked by the financial crisis in the United States. The situation was compounded by sharp fluctuations in foreign exchange rates.

In this environment, new construction contract awards at overseas subsidiaries for the fiscal year ended March 31, 2009 totaled ¥162.5 billion. Total revenues decreased to ¥238.2 billion, accounting for 12.2 percent of the Kajima Group’s consolidated revenues, and net income declined to ¥3.3 billion.

In the United States, construction contract awards at Kajima U.S.A. Inc. (KUSA) increased year on year, although numerous projects were either downsized, postponed or suspended due to the rapid meltdown of the economy toward the end of the year. In January 2008, Batson-Cook Company joined and brought in higher construction revenues to KUSA. The business of Hawaiian Dredging Construction Company, Inc., KUSA’s main source of earnings in the construction sector for several years, was generally solid. However, after generating substantial income for KUSA on a consolidated basis in prior years, the logistics facility and warehouse development business of Industrial Developments International, Inc. posted lower revenues and income due to the stagnant real estate market.

In Europe, the worsening economy caused a sharp drop in contract awards, particularly in central Europe. Kajima Europe Ltd. (KE), however, managed to secure earnings through the sale of real estate in the United Kingdom.

The Royal Alexandra Children’s Hospital, a PFI project developed by KE in Brighton, England, received the judging committee chairman’s prize this year in the JAPAN PROJECT International Awards established by Japan’s Ministry of Land, Infrastructure, Transport and Tourism. The project was comprehensively evaluated and judged outstanding according to standards such as “local trust earned by demonstrating superior expertise, technological skills and project management capabilities” and “contribution to local economic and social development by encouraging economic activity and enhancing quality of life.”

In Asia, new contract awards at Kajima Overseas Asia Pte Ltd. (KOA) stayed at the same high level as in the previous year, with the acquisition of a large-scale contract for the construction of the Sentosa Resort in Singapore. Construction work in progress, such as the Marina Bay Financial Centre (MBFC), proceeded smoothly, and the performance of other operating businesses was solid. Both contributed to KOA’s financial results.

Contract awards declined at Chung-Lu Construction Co., Ltd. in Taiwan due to the economic recession, but revenues were firm due to steady progress on large-scale construction projects for Japanese manufacturers such as AvanStrate Inc. as well as for local developers.

In China, Kajima (Shanghai) Construction Co., Ltd. was awarded the contract to build Unicharm Corporation’s factory in Shanghai, an opportunity it had been pursuing for more than a year. This project is expected to generate revenues for Kajima Shanghai from 2009.

Strategies and Initiatives

In the fiscal year ending March 31, 2010, our overseas subsidiaries will strive for solid results by stepping up management activities to establish a business base capable of withstanding the present global recession and achieving income targets. Amid challenging economic conditions, each subsidiary will work to maintain sound operations by streamlining and enhancing organizational efficiency and strengthening risk management.

FedEx Express Mid-Atlantic Hub, USA

The East-West Motorway, Algeria

Dubai Rapid Link, UAE

Sewage Treatment Plant Project, Malaysia

Civil Engineering

Market Conditions

The global recession caused corporate earnings to deteriorate in countries and regions around the world, resulting in lower demand for construction and a slowdown in construction investment. Consequently, competition for new projects became more intense.

Construction in progress was impacted by persistently high construction materials and other costs in some countries and regions. These and other factors pressured earnings. Moreover, the rapid appreciation of the yen during the fiscal year affected the results of the civil engineering business.

Performance

Smaller construction investment budgets, high construction costs, the appreciation of the yen and other factors made the operating environment increasingly challenging. We took a more rigorous approach toward marketing for new projects and project management for construction projects in progress, implementing measures to strengthen management in every phase from contract award to construction and post-construction maintenance.

Among these initiatives, at the East-West Motorway, Algeria, and the Dubai Rapid Link, the United Arab Emirates, we focused on accelerating the progress of work while maintaining the high quality of construction, as these mega-sized projects have a major impact on the financial performance of Kajima Corporation.

Strategies and Initiatives

The performance of International Division, which operates under the direct control of Kajima Corporation, has become a significant component of our overall financial results. In the fiscal year ended March 31, 2009, as in the previous fiscal year, revenues were well over ¥100.0 billion. Consequently, the division is strengthening project management in line with its top priorities: steady progress on projects that are under way and increased earnings. In particular, we are working to maximize earnings on the East-West Motorway, Algeria, and the Dubai Rapid Link, the United Arab Emirates, by making full use of our comprehensive capabilities, including the provision of technological and personnel support.

For new contract awards, we are focusing on countries, regions and types of business in which we have a competitive advantage, including roads, bridges, subways and other projects in Southeast Asia, Taiwan and elsewhere. At the same time, the division meticulously examines project and contract details to win construction business in which it can minimize risk.