Progress Report on Iino Lines Medium-Term Business Plan Iino s Evolutionary Growth Plan to 2014 (IEG14) Growth and Evolution

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1 January 31, 2012 Company Name: Iino Kaiun Kaisha, Ltd. (Iino Lines) Stock Code: 9119 Representative: Tomoyuki Sekine, President Contact: Hiromi Tosha, Group Manager, Planning & General Affairs Group Telephone: Progress Report on Iino Lines Medium-Term Business Plan Iino s Evolutionary Growth Plan to 2014 (IEG14) Growth and Evolution In April 2011, the Iino Group formulated IEG14 ( Iino s Evolutionary Growth Plan to 2014 (IEG14) Growth and Evolution ) spanning the three-year period from April 2011 through March IEG14 aims to promote new growth in the Shipping Business and enhance the earnings base of the Real Estate Business. Specifically, the Iino Group is working to improve the profitability of the Chemical Tanker Division, one of the Iino Group s core businesses, by disposing of unprofitable vessels and replacing assets to enhance asset efficiency aimed at bolstering the business base, and by making qualitative improvements to its two-pronged business platform encompassing the Shipping Business and the Real Estate Business. The following is a report on the progress made thus far in implementing IEG14, as well as current forecasts for consolidated earnings for fiscal 2011 (April 2011 through March 2012) and fiscal 2012 (April 2012 through March 2013). The 3 Pillars of IEG14 1. Restructuring Chemical Tanker Division Chemical Tanker A. Key Strategies -Increase profitability of Middle East routes -Develop new core routes -Bolster cargo booking capabilities through joint ventures -Enhance organizational strengths -Reduce unprofitable vessels -Diversify sources of shipping tonnage B. Status of Progress The Chemical Tanker Division accounts for the largest percentage of investment in the Iino Group s Shipping Business (accounted for slightly under 40% of consolidated revenues in fiscal 2010), but this division now finds itself in an adverse business environment plagued by factors such as the strength of the yen, the decline in freight rates, and excess tonnage supply. Restructuring the Chemical Tanker Division is one of the priorities of the Iino Group s medium- 1

2 term business plan IEG14, and various measures have been taken to boost revenues as well as reduce vessel expenses. One type of vessel expense is capital cost, which includes vessel depreciation expenses. As a result of measures ongoing since fiscal 2010, overall capital costs in the Chemical Tanker Division have been reduced by more than 500 million yen per year. Also, as discussed in Iino Lines Announces for Extraordinary Losses and Revisions to Earnings and Dividend s released separately today, we expect to achieve additional cost reductions of approximately 500 million yen per year from fiscal 2012 onward in conjunction with the posting of approximately 4 billion yen in extraordinary losses expected in the fourth quarter of fiscal Chemical tanker freight rates on the core Middle East-to-Far East routes have been moderately recovering after previously plunging in the wake of the Lehman crisis, but rising fuel oil prices have been putting downward pressure on profits. In the chemical tanker group, booking cargo on 1-5 year contracts of affreightment make up 90% of annual transport volume. This is due to concern that increasing contracted volume will lead to a further surge in fuel oil prices and that sluggish volume in 2012 will cause spot freight rates to fall. The freight rates of contracts currently being renewed are pushed up thanks to customers appreciation of our reliability and stability, and as a result, profits have improved to a certain extent. On non-middle East routes, we have continued to expand throughout the world, including the cultivation of global shipping routes heading eastbound from Asia, as well as expanding the deployment of vessels in the Atlantic Ocean and other locations based on a tie-up with a US partner, with a core of routes centered on the Middle East. Some routes have maintained high freight rates in the spot market, such as routes from US to China. We are working to capture business on these routes by deploying vessels as part of a joint venture with a US partner and our around-the-world routes. In 2006, we shifted cargo booking and navigation operations in the Chemical Tanker Division to Singapore, where information on Asia and the rest of the world is gathered. Subsequently, the Singapore office has been solely managing the deployment of our chemical tankers, cargo booking, navigation, and vessel procurement operations, while receiving assistance from the Tokyo office. This platform has allowed us to quickly respond to both changes in the business environment as well as customers various requirements. We have been replacing the existing tonnage with the larger size of vessels on our core routes between the Middle East and Asia. Since fiscal 2010 we have completed the redelivery or sale of a total of 9 twenty thousand ton class chemical tankers, and switched to deploying 30,000DWT class or greater large vessels, in an effort to make navigation more efficient and to increase profitability. Moreover, by utilizing short-term charters of less than one year in addition to medium- to long-term charter vessels, we have estimated the demand for space and tonnage based on contract period and contract volume, and are improving supply-demand imbalances.

3 The aforementioned efforts have been made in order to steadily reduce costs and improve revenues, but the positive results of this string of measures have become somewhat overshadowed by the rapid appreciation of the yen. However, given the relatively low number of orders for chemical tankers and the current environment favoring the tightening of tonnage supply and demand, we expect the Chemical Tanker Division s profitability to improve along with the recovery in freight rates. In fact, the profitability of vessels is currently improving and profits in the division in the three months spanning October 2011 through December 2011 exceeded both our forecast announced on October 31, 2011, as well as actual profits recorded in the fiscal second quarter spanning July 2011 through September Reinforcement of Stable Earnings Base including the Real Estate Business A. Key Strategies -Open the Iino Building -Expand the dedicated vessel business B. Status of Progress Amid extremely fierce competition for tenants, we steadfastly worked to lease office space in the reconstructed Iino Building. The March 2011 Great East Japan Earthquake caused concerns about possible difficulties in procuring construction materials, but in October 2011 all office floors opened under full tenant occupancy. The Iino Building features an extremely high level of environmental performance as well as earthquake resistance. Iino Lines office in the Iino Building was awarded the highest possible rank of Platinum Certification in the LEED certification scheme, a U.S. environmental assessment system. This marks the first time that a Japanese company has received platinum certification in Japan. In addition, the Iino Building has been ranked Platinum by the Development Bank of Japan under the DBJ Green Building Certification System, and was certified by the New Energy and Industrial Technology Development Organization (NEDO) as an urban energy-saving model project. The building also expects to receive the S ranking under CASBEE (Comprehensive Assessment System for Built Environmental Efficiency). The Iino Group owns six office buildings (including the Iino Building) in central Tokyo (some of the buildings are co-owned). As of December 31, 2011, the vacancy rate of the total office rental space was only 1.5%, evidence of the high occupancy rate. Going forward, we will continue to focus on providing tenants with working environments that are both comfortable and energy efficient. Iino Building Concerning the expansion of the dedicated vessel business, in addition to the contracting out of a very large LPG vessel (VLGC) to a domestic charterers which was obtained in February 2010 as announced in April 2011 when we issued the

4 new medium-term business plan, we concluded an alternative agreement on a 100,000 DWT class petroleum product tanker, and have place orders for both vessels to be built. We are working on both new projects and redevelopment plans aimed at further bolstering the stable revenue base in both the shipping business and the real estate business 3. Development of the Small- and Medium-Size Vessel Business to Capture Emerging Market Demand A. Key Strategies -Dry bulk business -Small- and medium-size gas tanker business B. Status of Progress In the Iino Group s dry bulk tanker business, in the dedicated vessels business that transports thermal coal to electric utilities, we use large vessels of between 70,000 and over 80,000 tons which are classified as either conventional Panamax or Over Panamax. We also operates Small Handy vessels of approximately 30,000 tons or woodchip carriers. With respect to business development in emerging countries, last year we invested in the port and harbor business in China s Caofeidan and established a temporary office in Dalian as part of the launching of our dry bulk cargo booking operations in China. Panamax The dry bulk tanker business involves the dedicated vessel business and the dedicated navigation vessel business, which include vessels transporting coal to electric utilities and vessels transporting woodchips to paper manufacturers. These vessels are centered on medium- to long-term charter contracts and have small fluctuations in profits. There is also the voyage charter business, in which there is a certain amount of annual contract of affreightment, which are also vulnerable to swings in spot freight rates. Currently, around 50% of the vessels are impacted by fluctuations in spot freight rates. Since the start of 2012, the Baltic Dry Index (BDI) has remained low, and even fallen below 1,000. However, we expect the BDI to recover to a certain extent following the Chinese New Year through the spring months. In the small- and medium-size gas tanker business, we are taking advantage of the know-how gained through the Iino Group s domestic LNG, LPG, VCM and propylene transport to deploy 3,500m3 8,700m3 small-size vessels in international short haul waters. In addition to the chemical tanker business, our Singapore office is also working on the dry bulk tanker business and the small- and medium-size gas tanker business.

5 IEG14 s 5 Cornerstones In addition, the Iino Group continues to work on initiatives on the following 5 cornerstones, a platform on which the 3 pillars are founded. 1. Bolster Resilience to Market Fluctuations (Variable external factors including freight rates, foreign exchange rates, business costs, etc. Enterprise risk management) 2. Bolster Financial Base (Reduce interest-bearing debt, diversify financing sources) 3. Make Qualitative Improvements (Enhance technological, organizational and marketing capabilities, develop personnel) 4. Enhance Safety (Vessel operation, building management) 5. Reduce Environmental Footprint (Vessels, buildings) Iino s Evolutionary Growth Plan to 2014 Status of Consolidated Operating Performance Although we expect to post a consolidated operating profit in fiscal 2011, we are expecting to record our first recurring loss since we began consolidated accounting in This indicates the extremely challenging situation we are facing. However, our business environment bottomed out in the fiscal second quarter and the performance of the Real Estate Business has improved from the fiscal third quarter onward due to the completion of the Iino Building. In the Shipping Business, freight rates for dry bulk carriers are currently languishing, but we envisage a gradual increase in profits, as we are restructuring costs and renewing contracts of affreightment on favorable terms in the chemical tanker business, which accounts for 40% of the Iino Group s revenues.

6 Current for Revised Profits in Fiscal 2011 and Fiscal Results 2011 Revised (note 1) 2012 Revised (millions of yen) 2013 Medium- Term Business Plan (note 2) Market Assumtions Foreign exchange rate/us$ Bunker price USD/mt Middecade target Panamax USD/day - 1 st half 12,000 2 nd half 14,000 20,000 Small Handy USD/day - 1 ST half 10,500 2 nd half 12,500 14,000 Revenues 74,500 77,000 82,000 86, ,000 Operating Profit 2, ,600 6,200 10,000 Recurring Profit 1,100 (400) 2,000 4,000 8,000 Net income 700 (4600) 1,700 3,800 6,000 (Note 1) Assumptions for fiscal 2011 freight rates are expected values for the fiscal fourth quarter. Assumptions for dry bulk tankers are not shown because there are few remaining free days. (Note 2) Fiscal 2013 medium-term business plan figures are the numerical targets as of April 14, Prior Disclosed Values 2010 Results 2011 as of 31 st Oct 2011 (note 3) 2012 Medium- Term Business Plan (note 4) (millions of yen) 2013 Medium- Term Business Plan (note 4) Middecade target Market Assumtions Foreign exchange rate/us$ Bunker price USD/mt Panamax USD/day 15,000 20,000 20,000 Small Handy USD/day 12,500 14,000 14,000 Revenues 74,500 77,000 83,000 86, ,000 Operating Profit 2,400 1,000 5,400 6,200 10,000 Recurring Profit 1,100 (700) 3,200 4,000 8,000 Net income 700 (700) 2,000 3,800 6,000 (Note 3) Fiscal 2011 forecasts are the consolidated earnings forecasts disclosed in the overview of operating performance for the fiscal second quarter released on October 31, (Note 4) Fiscal 2012 and fiscal 2013 medium-term business plan figures are the numerical targets as of April 14, 2011.

7 Iino Group s Long-Term Consolidated Figures (millions of yen) IEG14 30, ,000 25,000 90,000 80,000 20,000 70,000 15,000 Medium-Term Plan Numerical Target 60,000 10,000 50,000 5,000 0 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY ,000 30,000 20,000-5,000 10,000 Dividends The fiscal 2011 year-end dividend is expected to be 2 yen per share From fiscal 2012, we aim to be able to provide a stable dividend in the 8-10 yen range. The forecasts of business performance and other forward-looking statements given in these materials reflect the Company s best judgment based on the information available at the time of preparation. These forward-looking statements are subject to various potential and underlying risks and uncertainties. Actual results may vary materially from forecasts due to changes in various factors.