March 2, 2004

The Japanese economy for this fiscal year showed evidence of an underlying tone of slight recovery. Corporate profits were recovering and stock prices firming up, thanks to signs of recovery in the world economy led by the US, strong exports combined with the cutting-back on excessive debt mainly in cutting-edge manufacturing industries and other major companies, and companies making efforts to carry out structural reform such as suppressing personnel expenses.
In the construction business, the core business of the Takenaka Group, private-sector capital investment showed encouraging signs such as an increasing level of activity in domestic investment in production facilities by some digital household electrical appliance and IT-related companies, but office building construction and housing investment is sluggish, and the declining trend in public-sector investment has been made even more marked by the tight budget on the back of the government's continued push towards structural reform and the tough financial picture. As a consequence, the business environment continues to remain tough, due to the intense price competition reflecting the balance of supply and demand in the market, with a movement towards reorganization evident in some sectors of the industry.

(1) Takenaka Group

In line with the consolidation policy of consolidating all subsidiaries and affiliates, a total of 68 were consolidated for the period, 46 under the consolidation method and 22 under the equity method.
Consolidated performance for the current period constituted sales of 1,022.4 billion yen (down 3.0 percent from the previous year), ordinary profit of 16.7 billion yen (up 63.9 percent from the previous year), and a net loss for the current term of 18.5 billion yen.
In this period, despite a drop in work completed, with an increase in the profit on work completed and cutbacks in sales and general administrative expenses, Takenaka managed to record an increased profit on lower revenues on an ordinary profit basis. However, giving highest priority to further cleaning up the group's financial standing with an eye to the future, extraordinary losses were recorded, including the treatment of expenses such as numerical differences in accounting for retirement benefits, and operating losses relating to domestic and overseas subsidiaries, thereby generating a significant net loss for the period.

Under the difficult circumstances facing the construction industry, Takenaka has consistently carried out sound management placing top priority on strengthening corporate culture and quality management based on our technical strength. We have worked to improve our performance by strengthening our competitiveness in receiving orders and thoroughly adopting a customer-oriented stance and improving design quality and construction quality.
Takenaka Corporation's performance for the current period comprised sales of 829.2 billion yen (down 2.6 percent from the previous period), ordinary profit of 9.1 billion yen (up 105.4 percent compared to the previous year), and a net loss for the current term of 14.6 billion yen, meaning that although increased profit was recorded despite a fall in revenues on an ordinary profit basis, a dramatic net loss for the current term was recorded due to the extraordinary loss of 37.8 billion yen handling of expenses such as mathematical differentials in accounting for retirement benefits, and operating losses related to domestic and overseas subsidiaries.
Orders received, a leading indicator of performance, were 881.1 billion yen, (a 5.2 percent increase from the previous year), and it was the first time in 12 years since 1991 that orders received exceeded work completed. As a result, construction work carried forward also increased to 1,126.9 billion yen.

2. Performance Outlook for Fiscal 2004

Although there is still a strong sense of hope about the recovery of the Japanese economy, there are fears about a slowing in US business confidence, and there are many elements of uncertainty within Japan, such as the establishment of the strong yen, the deterioration in the monetary situation, and the slump in consumer spending, and the turnaround in the economy is forecast not to attain appreciable levels. Under these circumstances the expected performance outlook for this year is as follows.