Market Conditions and Performance

New construction contract awards of overseas subsidiaries for the fiscal year ended March 31, 2008 totaled ¥163.0 billion. Revenues totaled ¥244.9 billion and represented 13 percent of consolidated revenues. Net income totaled a record ¥31.5 billion and represented about 75 percent of consolidated net income. Kajima U.S.A. Inc. (KUSA) and Kajima Overseas Asia Pte Ltd. (KOA) posted record earnings and made a substantial contribution to the Kajima Group’s financial performance.

In the United States, Hawaiian Dredging Construction Co. Inc., KUSA’s construction arm in Hawaii, and Industrial Developments International, Inc., a logistics facility and warehouse developer, were among the subsidiaries that made considerable progress and further improved KUSA’s performance. In addition, East West Development Corporation sold all of its portfolio properties, which also enhanced KUSA’s bottom line during the fiscal year ended March 31, 2008.

In order to maintain and reinforce its business portfolio, KUSA moved forward in reorganizing and strengthening its group of companies. The January 2008 addition of Batson-Cook Company, a Georgia-based construction and real estate development firm, to the KUSA Group was one of the major steps that further strengthened the Group.

In Asia, KOA achieved steady growth in construction contract awards, revenues and earnings. The strong construction market in Singapore resulted in a constant stream of contract awards for large-scale projects. The market was also strong in Thailand, where KOA expanded its construction business for Japanese manufacturers. In the real estate development business, KOA sold part of its share of the Millenia Singapore Development Project, which contributed substantially to Kajima’s consolidated financial performance. The year was marked by significant progress as KOA worked aggressively yet prudently to enhance the property portfolio in Singapore over the medium to long term while keeping a close eye on real estate market trends. Initiatives included the start of new residential and office development projects.

In Europe, Kajima Europe (KE) leveraged Kajima’s strengths and tailored its activities to match local market needs. In the building construction business, steady acquisition of sizable projects in Poland and the Czech Republic resulted in a substantial year-on-year increase in new construction contract awards, and demonstrated that the Kajima brand is rapidly broadening its presence in these markets. In the real estate development business, KE focused on PFI projects in the United Kingdom and a resort development in southern France.

In Taiwan, Chung-Lu Construction Co., Ltd. focused on pursuing steady progress of large-scale construction projects at hand. Revenues increased as its construction projects reached their peaks. In Shanghai, competition for contract awards from Japanese manufacturers intensified. Kajima (Shanghai) Construction Co., Ltd. (Kajima Shanghai) strengthened its organization to increase its technological and price competitiveness. Kajima Shanghai is expected to make significant contributions to consolidated results in the future.
 

Strategies and Initiatives

Kajima’s overseas subsidiaries, primarily KUSA and KOA, have made large contributions to consolidated results over the last several years. With the progressive slowdown of the domestic construction market, the growing importance of our overseas subsidiaries has become apparent. While carefully monitoring risk, we will make full use of our strength in developing businesses that ensure further growth.

We will continue to be an active player in overseas markets, both in construction and real estate development. Construction contract awards, for example, are expected to exceed ¥230.0 billion in the fiscal year ending March 31, 2009, with the addition of Batson-Cook Company to our Group. Although we do not project large sales of properties in the real estate development business as in previous years, we expect to maintain a high level of profitability in regular operations.
 

Market Conditions

The International Division is currently managing projects in over 20 countries and regions around the world.

The operating environment in the fiscal year ended March 31, 2008 was characterized by continued strong demand for infrastructure in the oil- and natural gas-rich countries and regions in the Middle East, including Maghreb countries. In Asia, demand for construction remained strong, especially in Taiwan and Southeast Asia, driven by ongoing economic development.

Performance

A key characteristic of overseas operations in recent years has been the rapid growth in the backlog of projects in progress due to large-scale projects such as the Dubai Rapid Link and the East-West Motorway in Algeria. During the fiscal year ended March 31, 2008, new contract awards totaled more than ¥100 billion. However, most of the contract awards were for subsequent phases of construction projects already in progress.

In our marketing activities for new construction projects, we carefully reviewed the project information and did not venture into projects that appeared to entail a certain degree of risk for the contractor. As work on the Dubai Rapid Link and the East-West Motorway in Algeria was approaching a peak, the scale of projects in progress was at its highest level ever.
 

Strategies and Initiatives

Our top priority for the fiscal year ending March 31, 2009 is making steady progress on existing projects, particularly large-scale projects, to improve the division’s financial performance. A key task is to avoid cost overruns caused by high labor, material and other costs incurred in construction. To help achieve this, we are promoting global procurement to further enhance our sourcing capabilities. Moreover, we are reinforcing strategic alliances with key partners, subcontractors and suppliers, and executing projects in the most effective manner and under the best terms.

As in the previous fiscal year, our marketing policy is to selectively make bids for profitable projects according to region and type so we can fully exercise our competitive advantages.

Geographically, our primary targets continue to be the promising markets of Taiwan, Southeast Asia and the Middle East, including Maghreb countries, with a focus on roads, bridges, subway shield tunnels and dams.