Overall, the financial year ended March 31, 2007 was a year of immense challenge and momentous change in the business environment surrounding Japan’s construction industry. Our financial performance during the year reflected the deteriorating conditions and intensified competition that characterized the market, while also demonstrating our position in the market vis-á-vis industry peers and pointing a direction for us to take going forward.

In particular, the maturity and subsequent contraction of the public sector forced down prices for public works projects to levels detrimental to the industry’s health, and remains a significant structural barrier to the industry’s ability to regain its dynamism and confidence. While competition within the industry appeared to let up slightly over the second half of the year, the industry is inevitably facing the prospects of intensified competition over the long term, which is magnifying uncertainty about its future.

In contrast to the malaise in the public sector, however, the private sector has continued to sustain robust growth due primarily to active corporate capital expenditures and urban redevelopment in Tokyo and other metropolitan areas. While medium- to long-term trends in private construction spending remain uncertain, we anticipate further growth in this sector, which we expect will form the base of our earnings structure going forward.

At this moment, however, competition for contracts in the private sector, too, has intensified partly as a result of more companies trying to make up for the falloff in the public sector with a more aggressive approach to the private sector. This, coupled with increases in labor and material costs, has begun to exert downward pressure on profitability and will continue to do so unless industry leaders take steps to address the issue.

Despite the difficult business climate, however, the Kajima Group recorded revenues of ¥1,891 billion, an increase of 6.5% from the previous year, while registering positive growth for the third year in a row. Our real estate development business within and outside of Japan grew by around 37.7% year on year, contributing to the Group’s higher revenues. Despite declining profitability mainly in the domestic construction sector, we managed to increase our consolidated recurring profit from ¥55 billion in the financial year ended March 31, 2006 to ¥59 billion in the financial year ended March 31, 2007.

Consolidated net income was ¥41 billion, an increase of ¥19 billion from the financial year ended March 31, 2006 and our highest total since the financial year ended March 31, 1992. Given the backdrop of Japan’s tightening construction market, we consider this a commendable if not entirely satisfactory achievement, demonstrating the diverse strengths of the Group in terms of both business scope and geography, cultivated over decades of experience.

One area of strength that we believe puts us at the forefront of the industry is our real estate development business, both domestic and overseas. In Japan, we made significant strides in the financial year ended March 31, 2007, pushing forward on a number of quality condominium, office and commercial developments, all of which received warm praise in the marketplace. Our real estate development business enjoyed success overseas too, with projects in the U.S. and Southeast Asia in particular making a valuable contribution to the Group’s financial performance. In addition to the substantial earnings from our normal real estate development operations, our bottom line received a significant boost from our successful sale of the Hualalai Resort in Hawaii, further evidence of the Group’s depth and breadth.

In April 2006, we launched a new Medium-Term Business Plan, which identifies our growth strategies and earnings targets over the three-year period ending in the financial year ending March 31, 2009. Underlining the importance of our construction business, we set a core strategy of “Aggressively cultivating our mainstay construction business and strengthening technology and marketing” as a means of reaching or exceeding our earnings goals of “Maintaining consolidated recurring profit at a stable level of more than ¥60 billion per year” and “Achieving a debt/equity ratio of around 1.0” at the close of the financial year ending March 31, 2009.

Due to the swift and deep change in the market structure and the intensifying competition, we believe it is vitally necessary that we accelerate efforts to reach the targets specified in the Medium-Term Business Plan. We are therefore preparing to undertake a number of measures — including revamping our technological proposal capability — to bolster our cost-competitiveness and improve profitability.

The construction industry has entered a period of unprecedented change, a time of uncertainty and metamorphosis. But regardless of whatever the challenges facing our industry, our future will be determined by the wisdom that guides our strategies and the resolution that drives our actions. As we cope with today’s onerous business conditions and the fast-changing needs of our customers, we maintain the same lofty aspirations that have helped us reach the top levels of our industry. We will continue to evolve, pursue steady development and growth, extend our market leadership and strive to maximize corporate value. In these endeavors, we hope we can count on the generous support of our stockholders and other stakeholders.

Sadao Umeda Chairman, Representative Director		Mitsuyoshi Nakamura President, Representative Director