Operating Environment
Japanese domestic demand remained subdued overall throughout fiscal 2003 (ended March 31, 2003), as persistent deflation and steadily deteriorating job markets kept personal consumption and business investment in check. Business confidence suffered amid deflationary spirals involving falling land and stock prices. Concern over a stalling U.S. economy added to the uncertainty, further clouding the economic outlook.

In the Japanese construction market, private domestic demand for construction services continued to slide, most notably in the manufacturing sector. Public-sector demand also fell, as fiscal consolidation induced central and local governments to rein in public works spending.

Geopolitical risks constrained overseas markets in the latter half of the period, preventing the economies of the U.S. and Europe from achieving a robust recovery.

Results
Unable to completely avoid the negative influence of these market conditions, the Kajima Group on a consolidated basis recorded mixed results for fiscal 2003.

Revenues fell 9.0% from the previous term to 1,874.8 billion, primarily due to a decrease in the total construction revenues of the Company and its consolidated companies in Japan and overseas.

These shrinking construction revenues and a less favorable gross profit margin combined to bring gross profit down 9.6% year on year. As a result, operating income declined 14.2% to 36.3 billion. Consolidated net income bounced back to 10.1 billion, after a loss of 41.2 billion in the previous fiscal year, when the Group booked a large loss to restructure its asset holdings.

A New Medium-Term Business Plan
To achieve sustained growth and development into the future, the Kajima Group has been aggressively pursuing a medium-term business plan, known as the Next Three-Year Plan, which was formulated in fiscal 2002. However, the rapid changes in the business environment surrounding the Group, including the shrinking construction market and the deepening of deflationary trends in Japan, have significantly exceeded the assumptions made when the plan was drafted early in 2001.

Therefore, while vigorously pursuing measures to strengthen the Group's earning power and diversify sources of profits, we prepared a new medium-term plan one year earlier than originally intended, targeting the three years from fiscal 2004 to fiscal 2006 (ending March 31, 2006). During the fiscal 2004 to fiscal 2006 period, we aim to swiftly enhance profitability through measures that include a revamp of our retirement pensions system. We are currently focusing the efforts of the entire Group on this plan.

In terms of practical business strategies, we will work to secure orders in our construction business by strategically shaping projects through planning and technical proposals and by taking more initiative in urban renewal projects. On the production side, we will further streamline our production systems, promote centralized and overseas procurement, and reinforce synergies among Group companies through renewal and other projects, in an effort to further improve project revenues. At the same time, we will expand and strengthen overseas operations, development projects, private finance initiative (PFI) projects, engineering projects, and the environmental business, and build in further earning opportunities over the whole life-cycle of buildings. As a result of these strategies, we hope to diversify sources of revenue and build a solid base for long-term, stable profitability. We will also promote strategic and selective research and development.

Along with these policies, we will improve and strengthen corporate structures and financial performance by focusing strong and sustained efforts on paring fixed costs and personnel expenses, restructuring the head office and branches, cutting back on asset holdings, and reducing interest-bearing debt.

We are also reviewing our corporate pension system in an effort to establish a stable system that is free from asset management risk. (The medium-term business plan is outlined on the following pages.)

Finally, we would like to request the understanding and support of our shareholders and all other interested parties.