Building Construction

Market Conditions

During the fiscal year ended March 31, 2009, the turmoil in the financial and capital markets that originated in the U.S. spread to Japan’s economy. Together with factors such as the rapid appreciation of the yen, it has had a major impact on corporate earnings and household spending. Consequently, building construction investment including housing construction is estimated to have been about ¥27.5 trillion, a marginal decrease from the previous fiscal year. The decline in capital expenditures has made the environment for the construction industry even more challenging.

Performance

Despite these rapid changes in the market environment that began during the fiscal year, our teams of experts in a range of sectors continued to identify new projects. We brought together our diverse expertise in areas from planning to after-sale service. For example, we formed special teams of experts in a wide range of sectors and employed marketing approaches capitalizing on the comprehensive capabilities we are known for.

As a result, despite the deterioration of market conditions during the fiscal year ended March 31, 2009, contract awards for domestic building construction projects reached ¥913.2 billion, which was essentially in line with our initial target. Revenues rose 7.0 percent to ¥1,003.7 billion, primarily due to the large amount of new orders received in the previous fiscal year. Despite high construction material costs, initiatives emphasizing profitability paid off, and the gross profit margin recovered from 3.6 percent to 4.4 percent.

Strategies and Initiatives

With GDP expected to continue shrinking, the outlook of the Japanese economy remains challenging for the fiscal year ending March 31, 2010. Coupled with increasingly sophisticated and diverse customer needs, we anticipate that competition for contracts will intensify further.

Given this outlook, we will continue to optimize our leading technological and comprehensive capabilities to boost our core domestic construction business and enhance profitability by improving our gross profit margin.

We recognize that the application of the latest knowledge and techniques is always the key to securing new business opportunities. Accordingly, we will differentiate ourselves from competitors by proposing high-quality, high-value-added buildings, precisely tailored to customer needs, with leading-edge technologies such as environmentally sensitive design and advanced IT security systems.

Moreover, we aim to ensure a stable flow of contracts by making the most of our comprehensive capabilities. We will assign dedicated project teams with specialized expertise to a range of key sectors, including medical-care facilities, high-tech production facilities for electronic devices and other sophisticated products, logistics facilities and commercial facilities.

Improving profitability is one of our most important missions. We will use our advanced technical proposal capabilities in a more effective and strategic manner to secure appropriate project pricing. We will adapt rapidly to changes in the procurement environment resulting from price fluctuations and increase production efficiency with stronger production capabilities to raise the gross profit margin.

Further, we will work to diversify our revenue sources by becoming more actively involved in sectors such as PFI, engineering, renovation, and environment-related projects through closer collaboration with related divisions.