Within Japan, Kajima has developed a reputation for railways, nuclear power plants, and high-rise buildings. That reputation positions the Company as a corporate leader in the architecture, engineering and construction industries. Kajima has focused on fields appropriate to the needs of the times to deliver what society wants. The construction business is a core activity for the Kajima Group, playing an integral part in the concept of multifunctional operations. The concept underpins the provision of a wide array of services, including engineering, development, and new businesses. Kajima will therefore continue to respond promptly and appropriately to changes in the market environment to give shape to client needs.

In fiscal 2002, the domestic construction market saw reductions in both public investment and in private-sector capital investment. The overall scale of construction investment in Japan has been cut back at a pace far in excess of expectations. In 2002 it is expected to fall below 60 trillion. In order to keep growing in a shrinking construction market, Kajima is focusing on what the Company does best: skyscrapers; large-scale urban redevelopment; environmental projects; seismic isolation and seismic vibration control systems; and engineering services.

In April 2001, Kajima formulated its Next Three-Year Plan, and all divisions are moving ahead strongly with that new medium-term management strategy. Although the level of contracts awarded for construction within Japan in fiscal 2002 was down 7.8% on the previous year to 1,253 billion, overall sales were up 12.9%, to 1,625 billion. The result was due to completion of some large-scale construction and the ongoing effect of the adoption in fiscal 2001 of the percentage-of-completion method. The gross profit margin for completed works was driven down one percentage point from the previous year to 6.8%, by fierce price competition. Despite that result, the Company succeeded in achieving gross profit of 121 billion.

Kajima will continue to focus on improving its cost-competitiveness, diversifying its revenue base, winning more contracts, and enhancing earnings power by developing new business models. To that end, Kajima will direct its investment in R&D to developing technology that will differentiate the Company from its competitors and ensure its superiority in the area it has identified as its core competence for the 21st century.

In the short to medium term, there is no avoiding the expectation that conventional investment in construction will decline. Kajima will therefore focus on aggressively developing business in market sectors where there is ample potential for growth. Specifically, that means Kajima will become even more involved in the following sectors: construction associated with urban redevelopment, primarily in major cities; using the leading-edge expertise of the Company's development division to leverage real estate securitization in development projects; PFI projects to which development-style business methods can be applied; renovation projects, incorporating the Company's unique leading edge technology as embodied in the in situ seismic isolation, and in situ renewal concepts; residential developments appropriate to the times, such as the Free-Plan High-Rise Housing System and i-Mansion (intranet apartment buildings), which are concepts made possible by Kajima's technical capabilities; environmental projects in water treatment, waste treatment, soil rehabilitation, and rooftop gardens, all based on environmentally responsible design; and engineering projects in which Kajima is able to offer a total engineering solution by maximizing its wealth of experience in facilities associated with pharmaceuticals, foodstuffs, distribution, and energy. To diversify sources of revenue, Kajima will offer a higher level of services in building life-cycle management and will expand associated business.

Part of the Company's strategy is to establish intercompany linkages even with companies in other industries that will effectively facilitate the acquisition of undeveloped technology and the creation of expanded business opportunities. As a first step, in April 2002 Kajima established a cooperative business relationship with East Japan Railway Company (JR East) and Tekken Corporation.

The recent fierce price competition in the shrinking construction market is definitely not a transitory phenomenon, but can be considered permanent. There is therefore a need to improve corporate health to a level at which the Company is tough enough to compete even more aggressively than it has in the past on construction costs. Specifically, Kajima must configure a revenue model that will win out against tough price competition by leveraging new procurement models such as e-commerce and centralized purchasing, or introduce systems to improve productivity that leverage IT and networks. Kajima will emphasize and work efficiently on developing technologies that will contribute to cost reductions and shortened works schedules.

The Kajima Digital Network Service (KDNS), an integrated database network being introduced as a guideline for the entire company, will support improved productivity by effecting fundamental reform of the production and operating systems. At the same time, improved operating efficiency in the areas of management and overhead will achieve a leaner organization, and reduce administrative costs.

Obtaining and coordinating the plethora of labor and materials that are required to optimally satisfy customer needs, and the overall ability to plan, design, and implement construction within predetermined budgets and time frames, are the very root of the added value that Kajima offers. The essence of Kajima's business is "to secure profit by providing services that are of benefit to customers," but it is also to bring to bear our technology and expertise to offer new services to our customers, or to awaken customer needs and create markets.

A time of change is, in some respects, a golden opportunity for a company like ours that has a wealth of human and technical resources on which to draw. Kajima will accurately assess market changes, and by dint of choice and focus, will delineate the fields on which it will concentrate its strength, targeting its investment of management resources to achieve rapid business development. Kajima will strive for growth for the entire corporate Group, and in the process will fulfill its social obligations as a good corporate citizen.

Message from the Management

Domestic Operation:
Real Estate Development