Annual Report Contents. Corporate Philosophy 3. Financial Highlights 4. Message from the President 6

Transcription

1 ANNUAL REPORT 2008

2 Annual Report 2008 Contents Corporate Philosophy 3 Financial Highlights 4 Message from the President 6 Progress in Medium-Term Business Plan ISG12 7 Business Report 8 Corporate Governance 20 CSR Activities 22 Financial Section 24 Investor Information 44 Corporate Data 45 Notes regarding forward-looking statements This annual report includes forwardlooking statements regarding Iino Group s plans, strategies and earnings forecasts. These are based on information currently available. Actual performance may differ, due to the influence of various factors, including economic trends, market conditions, currency exchange rates and taxation systems. 2

3 Management Concepts 1. To secure that safety is the foundation of our business operations 2. To provide good service and merchandise in a stable manner to society at proper price 3. To meet and respond to our customers needs quickly and accurately 4. To observe the law and fully consider social and environmental issues 5. To maximize our Corporate value by striving to strengthen returns to our shareholders, executives and employees Action Charter The Board members and employees of our Company and the Iino Group shall engage in enterprise activities according to this charter: 1. Contribute to society and maximize enterprise value 2. Observe laws and maintain public order 3. Eradicate discrimination and promote respect for human rights 4. Focus on safety 5. Protect the environment 6. Respect customers 7. Disclose information and improve communications 3

4 Financial Highlights (consolidated) 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar Revenue (Billions of Yen) Operating Profit (Billions of Yen) Recurring Profit (Billions of Yen) Net Income (Billions of Yen) Total Assets (Billions of Yen) Net Assets (Billions of Yen) Shareholders Equity Ratio (%) Net Income per Share (Yen) Net Assets per Share (Yen) Dividend (Yen) Financial Highlights ROE (*1) (%) D/E Ratio (*2) *1: ROE = Net Income / Shareholders Equity *2: D/E Ratio = Interest-bearing Debts / Shareholders Equity Revenue (Billions of Yen) Operating Profit (Billions of Yen) Recurring Profit (Billions of Yen) /Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar 0 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar 0 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar 4

5 Net Income/Net Income per Share Total Assets/Net Assets/ Shareholders Equity Ratio Net Assets per Share (Yen) Net Income Net Income per Share (Billions of Yen) (Yen) /Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar Net Assets (Billions of Yen) Total Assets Shareholders Equity Ratio (%) /Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar /Mar 04/Mar 05/Mar 06/Mar /Mar 08/Mar Financial Highlights Dividend (Yen) ROE (%) D/E Ratio /Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar 0 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar 0 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar 5

6 Message from the President Message from the President Looking back, FY2007 saw a strong sense of downturn in the global economy, which had been expanding at a satisfactory pace, triggered by confusion in the financial and capital markets due to the subprime loan issue of the United States, and there still are concerns on its effect on the Japanese economy. In spite of this circumstances, the Company was able to achieve satisfactory performance in the shipping business, owing in particular to the fact that the market remained strong for the Bulk Carrier Division owing to robust cargo movement attributable in part to an increase in the demand for raw materials for China, as well as to the reinforcement of the fleet and the diversification of cargo on the Middle East-Asia route, the Company s principal route, by the Chemical Tanker Division. In the real estate business, the decrease in sales from the Iino Building, caused by the reconstruction plan in progress, was compensated by the Shiodome Shiba-Rikyu Building that was completed in 2006 and was in full operation throughout the fiscal year. As a result of the foregoing, both the operating profit and recurring profit marked a record high for the fiscal year ended March 2008, the first year under the medium-term business plan ISG12 (Iino s Strategic Growth Plan to 2012). The Company was able to maintain the 10% ROE target, having achieved ROE of 10.6%. Although an extraordinary loss was posted due to progress in the Iino Building reconstruction plan, the Company set the annual dividend payment for the fiscal year ended March 2008 at the same level as the previous fiscal year at 15 (an interim dividend of 6 plus a term-end dividend of 9, including a 3 bonus dividend), thanks in part to the achievement of a record high for both the operating and the recurring profit. As regards the future outlook, it is believed that the existing medium- and long-term contracts relating to the energy transport business will contribute to stable revenues in the shipping business, in spite of such causes for concern as decreased income due to the Iino Building reconstruction plan, the strengthening yen against U.S. dollar, and an increase in vessel-related expenses and fuel prices. The annual common dividend payment for the year ending in March 2009 is expected to be 12 (an interim dividend of 6 plus a term-end dividend of 6), based on the Company s basic policy of sustaining stable dividend payments. Amid this situation, a revised medium-term business plan was announced on May 8, 2008, together with the financial results for the year ended March We look forward to your continued support and understanding as we diligently work to fulfill the expectations of all our shareholders. June 2008 President 6

7 Progress in Medium-Term Business Plan ISG12 The Iino Line Group (hereinafter the Company ) is promoting the establishment of business foundations for the enhancement of corporate value, formulating a five-year (April 2007 March 2012) medium-term business plan, ISG12 (Iino s Strategic Growth Plan to 2012). ISG12 aims to make the Company a continuous-growth corporation, with a target of maintaining ROE of 10% as a means of measuring the extent to which this is achieved. The Company was able to maintain the 10% ROE for the fiscal year ended March 2008, the first year of ISG12, having achieved ROE of 10.6%. In the Shipping Business, the Company reinforced the safety and quality management framework, including measures for achieving prolonged use of vessels and for securing competent seamen, in addition to securing newbuilding vessels in order to address the global growth in the demand for marine cargo and the immediate gap between the supply and the demand of vessels, while consolidating the domestic-route gas transport business on April 1, 2007 as a move towards the establishment of a foundation for promoting business efficiency. In the Real Estate Business, the plan to reconstruct the Iino Building is in progress with a view to completing construction by The Company is also rebuilding the compliance structure through the establishment of internal controls relating to financial reports based on the Financial Instruments and Exchange Law, as well as the coordination of Group compliance structures utilizing ISO. Following November 2007 and February 2008, numerical targets were re-examined again on May 8, 2008, based on the plan that was formulated the previous fiscal year and in view of such changes in the business environment as global economic trends, exchange rates, fuel prices, and vessel expenses. Results and revised ISG12 numerical targets (disclosed May 8, 2008) Revenues(Right side) Operating profit(left side) Recurring profit(left side) Net income(left side) Unit:Billions of Yen /Mar (Results) 09/Mar (Forecast) 10/Mar (Forecast) 11/Mar (Forecast) 12/Mar (Forecast) 14/Mar (Forecast) Progress in Medium-Term Business Plan ISG12 Initial numerical targets as of the announcement of the ISG12 Plan (disclosed May 10, 2007) Revenues(Right side) Operating profit(left side) Unit:Billions of Recurring profit(left side) Net income(left side) Yen /Mar (Forecast) 09/Mar (Forecast) 10/Mar (Forecast) 11/Mar (Forecast) 12/Mar (Forecast) 14/Mar (Forecast) Dividend ROE(*1) D/E Ratio(*2) Assumptions Exchange rate 1US$= Bunker oilprice US$/MT Panamax US$ Initial Plan % ,000 08/Mar Results % ,356 (*3) (*4) (*5) Initial Plan % ,000 09/Mar Revised Plan % ,000 Initial Plan % ,000 10/Mar Revised Plan % ,000 Initial Plan % ,000 11/Mar Revised Plan % ,000 12/Mar Initial Plan % ,000 Revised Plan % ,000 14/Mar (reference value) Initial Plan % ,000 Revised Plan % ,000 Initial Plan: Initial numerical targets as of the announcement of the ISG12 Plan (disclosed May 10, 2007) Revised Plan: Revised ISG12 numerical targets (disclosed May 8, 2008) (*1) ROE = Net income / Shareholder's Equity (*2) D/E Ratio = Interest-bearing Debts / Shareholder's Equity (*3) Average interoffice exchange rate (*4) Bond oil weighted average price (*5) Average charterage for 72,000 DWT Pacific Round in FY2007 (Tramp Data Service Co., Ltd.) 7

8 Oil Tanker Division Chemical Tanker Division Large Gas Tanker Division Small Gas Tanker Division Business Report Oil Tanker Division Chemical Tanker Division Large Gas Tanker Division Small Gas Tanker Division 8

9 Bulk Carrier Division Real Estate and Leasing Division Real Estate-Related Business Retail Business Division Business Overview 10 Shipping Business 13 Real Estate Business 18 Retail Business 19 Bulk Carrier Division Real Estate and Leasing Division Real Estate-Related Business Retail Business Division 9

10 Business Overview Shipping, real estate and retail distribution are the three main business categories of the Iino Kaiun Group. In the shipping business, the Group engages in vessel operation, leasing, chartering and administration; ship brokerage; purchasing and selling ship equipment; and shipping agent operations. In the real estate business, the Group is involved in building leasing and management, warehousing and real estate-related business. In the retail business, the Group is primarily involved in the retail distribution of oil. Shipping Business Shipping Agent Iino Singapore Pte. Ltd. Iino UK Ltd. Leasing of Vessels Lodestar Navigation S.A. Nestor Lines S.A. Methane Navigation S.A. Jipro Shipping S.A. and 34 other companies Ship Repair and Ship Equipment Sales Business Godo Senpaku Kogyo Co., Ltd. Vessel Management Services Iino Marine Service Co., Ltd., Small Gas Tanker Division Iino Gas Transport Co., Ltd Oil Tanker Division Marine Transport Business Group-I Business Report Sale and Purchase of Ship Equipment Iino Kaiun Kaisha, Ltd. Chemical Tanker Division Marine Transport Business Group-I, V Large Gas Tanker Division Marine Transport Business Group-II Bulk Carrier Division Marine Transport Business Group-IV Customers Real Estate Business Warehousing Taiho Marine Co., Ltd. Iino Enterprise Co., Ltd. Warehousing Building Management Iino Building Technology Co., Ltd. Real Estate and Leasing Division Real Estate Related Business Division Real Estate Business Group Real Estate Related Business Division Iino Media Pro Co., Ltd. Retail Business Retail Business Oil Retail Business Chiyoda Sekiyu Corporation Consolidated subsidiaries Affiliated companies accounted for by the equity method Flow of service 10

11 Overview by Division Division Summary of Business Consolidated Revenue Composition (08/Mar) Oil Tanker Division The Company is a frontrunner in the transportation of oil by tankers and has been involved in the safe transportation of oil for nearly a century. The division currently has a wide variety of tankers ranging from very large crude carriers (VLCC) to medium-sized product tankers, which it operates mainly under medium- to long-term contracts. Further, all of the division s tankers have a double-hull structure in order to preserve the maritime environment. 10.2% Chemical Tanker Division The division has a large chemical tanker fleet with stainless steel tanks. The division transports many kinds of chemical products using operational know-how cultivated over the years. The division enjoys a leading share in the transportation of chemical products, in particular, on the Middle East Far East route. 34.9% Shipping Business Large Gas Tanker Division This division s fleet, comprising mainly refrigerated large gas tankers, transports liquefied petroleum gas (LPG) and liquefied natural gas (LNG). The Company is a pioneer in LPG transport and focuses on securing medium- to long-term contracts with energy companies in Japan and abroad. The Company also participates in joint LNG transport projects, as well as manages LNG tankers on its own. 9.5% Small Gas Tanker Division This division s fleet, comprising mainly pressurized small gas tankers, transports liquefied petroleum gas (LPG), liquefied natural gas (LNG), and petrochemical gases like ethylene and vinyl chloride monomers (VCM) in Japanese coastal waters and in adjacent waters. The division enjoys major market shares in the industry with respect to the domestic transport of LPG and petrochemical gases. The Company also operates one of the few LNG tankers in Japanese coastal waters. 10.2% Business Report Bulk Carrier Division The division provides a wide variety of bulk carriers, including a capesize bulker, panamax bulkers, handysize bulkers and chip carriers. The division has been involved in the transport of coal for electric power generation since Japan first began importing coal, and currently has multiple dedicated coal carriers secured by longterm contracts. 15 vessels / 867,561 DWT in total (as of March 31, 2008) 22.0% 7.8% Real Estate and Leasing Division Having begun with the completion of the Iino Building in 1960, the division currently owns six office buildings in the heart of Tokyo. The division provides comfortable office space in its buildings, undertaking integrated services from planning to operation, administration, and maintenance. 6 buildings / 154, m 2 in total (as of March 31, 2008) Real Estate Business 1.4% Real Estate Related Business Division The Company owns two photo studios in the Tokyo metropolis in addition to operating an office in London. At these centers in two metropolitan areas, it not only leases space but also provides an integrated photography-to-delivery service. Photo studios (as of March 31, 2008): 2 1.6% Retail Business In addition to operating gas stations in Tokyo, the Division sells such products as marine lubricants and petrochemical products. 3 gas stations (as of March 31, 2008) In addition to the above divisions, the Company has "other shipping division" which accounted for 2.4% of consolidated revenue in

12 Breakdown of Revenue and Operating Profit by Business Segment (consolidated) 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar Revenue Shipping Business Real Estate Business Retail Business Operating Profit Shipping Business Real Estate Business Retail Business 55,961 44,600 8,971 2,390 5,165 2,394 2, ,265 47,651 8,666 1,948 5,935 3,632 2,303 (0) 63,763 52,968 8,795 2,000 9,545 7,427 2,128 (10) 73,382 62,629 8,697 2,056 12,430 10,156 2, ,516 69,760 8,906 1,850 13,282 10,782 2,510 (10) (Millions of Yen) 08/Mar 95,090 84,863 8,744 1,483 16,524 13,376 3, ,000 75,000 50,000 Shipping Business 25,000 Real Estate Business Revenue (Millions of Yen) 55,961 58,265 8,971 2,390 8,666 44,600 47,651 1,948 63,763 8,795 52,968 2,000 73,382 8,697 62,629 2,056 80,516 8,906 69,760 1,850 95,090 8,744 84,863 1,483 Retail Business 0 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar 08/Mar Business Report Shipping Business Real Estate Business Retail Business 20,000 15,000 10,000 5,000 0 Operating Profit (Millions of Yen) 5,165 2,747 2,394 03/Mar 24 5,935 2,303 3,632 04/Mar (0) 9,545 2,128 7,427 05/Mar (10) 12,430 2,220 10,156 06/Mar 54 13,282 2,510 10,782 07/Mar (10) 16,524 3,141 13,376 08/Mar 7 Breakdown of Revenue by Business Segment and Division (consolidated) 03/Mar 04/Mar 05/Mar 06/Mar 07/Mar Shipping Business Oil Tanker Division Chemical Tanker Division Large Gas Tanker Division Small Gas Tanker Division Bulk Carrier Division Others Real Estate Business Real Estate and Leasing Division Real Estate Related Business Division Retail Business Total 44,600 7,733 13,779 5,464 5,508 9,688 2,428 8,971 7,677 1,294 2,390 55,961 47,651 7,956 13,630 6,438 6,344 10,657 2,626 8,666 7,247 1,419 1,948 58,265 52,968 9,703 15,211 7,562 6,704 12, ,795 7,613 1,182 2,000 63,763 62,629 9,000 22,308 7,538 7,861 13,807 2,115 8,697 7,583 1,114 2,056 73,382 69,760 9,340 26,135 8,311 8,705 15,126 2,143 8,906 7,767 1,139 1,850 80,516 (Millions of Yen) 08/Mar 84,863 9,695 33,220 9,049 9,690 20,937 2,272 8,744 7,439 1,305 1,483 95,090 12

13 Shipping Business Oil Tanker Division Marine Transport Business Group-I KIHO I FREJA SELANDIA KIHO Market Conditions of Fiscal Year Ended March Oil Tanker Market The spot freight rate remained low due to sluggish cargo movement, even after early spring when the demand for oil is slack, and a sense of surplus vessels resulting from slow progress in the dismantlement of single hull tankers and aged vessels. However, the spot freight rate surged temporarily in the winter, due in part to the move to remodel single hull tankers into bulk carriers triggered by the healthy bulk carrier market and the inclination of oil companies towards double hull tankers resulting from the oil pollution accident in Korea. The market subsequently weakened again, the increase in oil inventory progressing into the adjustment stage and the supply of vessels increasing with the completion of newbuilding vessels. NORTHERN DAWN 2. Product Tanker Market The spot freight rate remained relatively low even after early spring, when demand is slow owing to seasonal maintenance at petrochemical plants and oil refineries, since oil users held off buying due to the soaring price of naphtha. The spot freight rate continued to lag in winter, contrary to the usual trend, due to the buildingup of product inventory caused by the sluggish U.S. economy and supply pressure from newbuilding vessels. Performance for Fiscal Year Ended March 2008 The Oil Tanker Division is maintaining stable revenue, with a large majority of its vessels under medium- to long-term contracts. In July 2007, a 50,000- DWT product tanker was added to the fleet. Business Report Oil Tanker Freight Rate WS (VLCC Loaded: Middle East / Unloaded: Japan) April 2006 October 2006 April 2007 October 2007 April 2008 Product Tanker Freight Rate WS (LR2 Loaded: Middle East / Unloaded: Japan) April 2006 October 2006 April 2007 October 2007 April

14 Shipping Business Chemical Tanker Division Marine Transport Business Group-I, V CHEMROAD LILY CHEMSTAR DUKE Business Report CHEMWAY ARROW Market Conditions of Fiscal Year Ended March 2008 A worldwide shortage of basic chemical products became apparent during the first half of the fiscal year, due to plant-related problems in the Middle East and the short supply of natural gas in Chile. This caused an increase in the demand for Asian inorganic chemical products for metal refining in South America and U.S. biodiesel in Europe, resulting in an expanded demand for long-distance cargo among Asia, Europe, and the United States, a tightening of the supply-demand balance for vessels, and a steady chemical tanker market. Although the cargo demand for inorganic chemical products and biodiesel remains solid, the demand for chemical products has been on a downward trend and the freight rate has also been falling somewhat from the second half, due to the rising price of crude oil and the subprime loan issue. CHEMROUTE SUN Performance for Fiscal Year Ended March 2008 In the Chemical Tanker Division, stable revenues were secured by promoting the diversification of transport cargo on the key Middle East-Asia route with the signing of contracts of affreightment on palm oil shipped from Malaysia and Indonesia. In addition, vessels are continuously being allocated to the Middle East-Europe route, where transport volume is increasing backed by economic growth in Europe. Two 37,000-DWT chemical tankers and one 25,000-DWT chemical tanker were added to the fleet. $/kt Chemical Tanker Freight Rate Loaded: Middle East / Unloaded: Far East Loaded: Middle East / Unloaded: Rotterdam April 2006 October 2006 April 2007 October 2007 April

15 Shipping Business Large Gas Tanker Division Marine Transport Business Group-II TOYOSU MARU SK SUNRISE ROSE GAS Market Conditions of Fiscal Year Ended March Large LPG Tanker Market LPG prices (FOB) continue to increase throughout the fiscal year, due to the effect of the surging crude oil prices. Although they fell temporarily during summer, when demand is low, they began increasing again from early autumn, with the record-high price being updated four consecutive months from October 2007 and the prices of propane and butane reaching $870 and $875 per ton, respectively, in January The supplydemand balance for vessels tightened in the large LPG tanker market, due to progress in the scrapping of aged vessels and active cargo movement owing to a steady supply from the Middle East, and there was a situation at one point in mid-september 2007, where the freight rate exceeded $60 per ton. However, cargo movement subsequently slowed down and the freight rates also took a downward turn as a result of the consumer Large LPG Tanker Freight Rate $/kt (VLGC Loaded: Middle East / Unloaded: Japan) April 2006 October 2006 April 2007 October 2007 April 2008 ALBANE countries affected by the high LPG prices holding off on purchases, and the dollar freight rate as of the end of the fiscal year was in the lower $30 per ton. 2. LNG Tanker Market While the demand for LNG is increasing even more owing to environmental concerns and the relative advantage of LNG prices against steeply rising crude oil prices, the situation has been tight globally on the supply front, with delays in new projects and plantrelated problems, causing delays in the plans to secure new supplies. Japan s LNG import is increasing, due in part to the effect of the suspension of nuclear power plants, with the demand for short-term charter cargo for long distance transport increasing during winter, when demand is typically high. However, the LNG tanker market has subsequently been on the downward trend, as a result of escalating LNG prices and an increasing sense that there is a surplus supply of vessels. Although delays in new projects have slowed the pace at which orders are placed, the vessel rate continues to remain high. Performance for Fiscal Year Ended March 2008 In the Large Gas Tanker Division, the Company continues to secure stable revenues by placing both LPG and LNG tankers under existing long-term contracts. A 35,000-m 3 ammonia tanker was added to the fleet in April Business Report 15

16 Shipping Business Small Gas Tanker Division Iino Gas Transport Co., Ltd. ORIENTAL OKI NORTH PIONEER Business Report KENTMERE Market Conditions of Fiscal Year Ended March 2008 The domestic demand for LPG this fiscal year increased lightly from the previous fiscal year to million tons. While the steady undertone of demand for butane as a raw material for petrochemicals owing to the sharp rise in the price of naphtha, a competing raw material, resulted in a 5% increase in sales year on year, propane did not see an increase in demand, either for home use or industrial use, and sales fell by 1% year on year, due in part to the effects of the prices that remained high. Meanwhile, petrochemical gas tankers enjoyed a high operation rate for recent years, as well as robust cargo movements, although ethylene production fell by 1% year on year to 7.56 million tons, due in part to plantrelated problems. $/kt Small LPG Tanker Freight Rate Loaded: Southeast Asia / Unloaded: China Loaded: Taiwan / Unloaded: China April 2006 October 2006 April 2007 October 2007 April 2008 SHUHO MARU Some freight rates for domestic routes were raised, including the rate for LPG, which is a base cargo. However, not being sufficient to cover the increase in such vessel costs as construction expenses the raises have not led to an improvement in the ship owners finances. The freight rates for adjacent waters remained steady, there being robust movement of petrochemical gases in the Asian region, mainly destined for China, and the strong pull by European ship owners bearing fruit. Performance for Fiscal Year Ended March 2008 In the Small Gas Tanker Division, the Company secured stable revenues by efficiently operating vessels in Japanese coastal waters, amid robust petrochemical gas movement and reduced LPG movement. In adjacent waters, the Company took the opportunity of a solid market to revise existing contracts in the Company s favor. The Company also developed new trade, introducing an 8,700-m 3 semi-refrigerated LPG tanker into the fleet in October

17 Shipping Business Bulk Carrier Division Marine Transport Business Group-IV AMAKUSA ISLAND JP CORAL BLUE ISLAND Market Conditions of Fiscal Year Ended March 2008 In the bulk carrier market for this fiscal year, healthy cargo movement backed by the increased demand for raw materials in China, the tightening of the supply of vessels, due to incremental weather and congestion in various overseas ports, as well as active speculative chartering from about autumn led to a rapid increase in charter rates, leading to an all-time high in October The market subsequently entered the adjustment phase and softened quickly, hit the bottom in early February 2008, and then increased once again as the end of the fiscal year approached. Although the market underwent intensive fluctuations, the rates remained higher in general than the previous fiscal year. PAX SILVA Performance for Fiscal Year Ended March 2008 In addition to earning stable revenues from vessels dedicated to the transport of wood chips for paper mill companies and coal for electric power companies, the Company expanded revenues through cost-competitive vessel allocation for contracts of affreightment involving coal and fertilizers in a strong bulk carrier market. A 3.6-million-cubic-foot vessel dedicated to carrying wood chips for Japanese paper mill companies was delivered in November Business Report Bulk Carrier Charterage (Pacific Area, Panamax) $/day 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 April 2006 October 2006 April 2007 October 2007 April

18 Real Estate Business Real Estate and Leasing Division Property Business Group Tokyo Sakurada Building Sasazuka Center Building Business Report Iino Building Market Conditions of Fiscal Year Ended March Land Price Trends The nationwide averaged official land price as of January 1, 2008, rose in the three major cities of Tokyo, Osaka, and Nagoya for the second consecutive year for residential land and the third consecutive year for commercial land. Land prices continued to increase in all parts of Tokyo, and there were some parts of commercial areas in Shinjuku-ku and Toshima-ku where land prices increased by 20% or more year on year in anticipation of the opening of the Tokyo Metro Fukutoshin Line. However, the range of increase has decreased compared to 2007 in the downtown and other areas, owing in part to the sharp appreciation in land prices. Increase in land prices appears to have slowed down for both the downtown areas and the suburbs since the beginning of 2008, due also to the effect of the subprime loan issue that emerged during the latter half of Shiodome Shiba-Rikyu Building 2. Lease Building Market The Metropolitan office building market remained strong this fiscal year owing to the corporate demand for office expansion based by the generally healthy Japanese economy, resulting in attempts to increase the rent level. Further, a 100% operational rate was achieved with respect to large buildings that were completed during the fiscal period, most having been placed under contracts with tenants prior to the commencement of construction. Performance for Fiscal Year Ended March 2008 Under current market conditions continued, the Company was able to maintain high occupancy rates for most of the Company s buildings, with the exception of the Iino Building where the tenants are steadily moving out due to progress in the reconstruction plan. This achievement comes as a result of providing high-quality services while working with the tenants to revise rents in the Company s favor. Further, the Shiodome Shiba-Rikyu Building, which was completed in the previous fiscal year, operated throughout the current fiscal year. (yen/tsubo) 40,000 35,000 30,000 25,000 20,000 Average Rent for Office Building in Central Tokyo Tokyo Central 5 Wards Newly-built Buildings in Tokyo central 5 wards 15,000 Apr Oct. Apr Oct. Apr (%) Vacancy Rate in Office Building in Central Tokyo Tokyo Central 5 Wards Newly-built Buildings in Tokyo central 5 wards 0 Apr Oct. Apr Oct. Apr *Source: Miki Shoji *Source: Miki Shoji 18

19 Real Estate Business Real Estate Related Business Division Property Business Group Iino Media Pro Co., Ltd. Iino Hiroo Studio Performance for Fiscal Year Ended March 2008 The Company not only leased space at its photo studios, but also reinforced its system of providing a wide range of support, from location services, design, and retouching all the way to delivery. Further, the London office was opened in 2007 and provides photography and related coordination services, among other things, both in Japan and overseas. Iino Minami Aoyama Studio Business Report Retail Business Retail Business Division Chiyoda Sekiyu Corporation Performance for Fiscal Year Ended March 2008 Although surging oil costs drove up sale prices resulting in reluctant consumer spending and other effects, the Company made efforts to secure operating profit by closing underperforming outlets. Chiyoda Gas Station 19

20 Corporate Governance (1) Iino Kaiun s Fundamental Policy on Corporate Governance The Iino Kaiun Group defines corporate governance as a framework to realize efficient business activities by coordinating the interests of various entities (stakeholders) that make up the enterprise. Under this policy, the Group has consistently worked hard to achieve the best possible business performances by giving due consideration to the relationships with shareholders, employees and other stakeholders in addition to the purpose of associated statutes in decision-making and business execution at the Board of Directors and each management organization. (2) Implementation of measures concerning Corporate Governance (1) The Company s Board of Directors and Board of Corporate Auditors supervise and audit the execution of operations. Regular Board of Directors Meetings are held once a month to make important decisions and supervise the execution of directors duties. Regular meetings of the Board of Auditors, consisting of two external auditors and two internal auditors, are held once a month. The Company adopts a three-way audit structure involving collaboration among accounting auditors, corporate auditors and the Internal Audit Office, which directly reports to the president. Corporate Governance (2) With regard to the execution of operations, the Executive Committee, consisting of directors and full-time auditors, meets every week. The committee deliberates on issues to be referred or reported to the Board of Directors Meeting, as well as important matters regarding representative directors execution of duties. Members also exchange opinions and information concerning management. (3) The Group maintains the following risk management system for ensuring the appropriateness of business tasks. 1) The Action Charter and the Compliance Provisions provide the foundation for the Compliance System to ensure compliance in the execution of duties by directors and employees. The Compliance Committee plans and promotes compliance policies. The Chief Compliance Officer takes the initiative in compliance-related duties in cooperation with the Internal Audit Office and the auditing officers. All officers and employees are obliged to report violations of compliance. 2) The Safety and Environment Committee, established under the Safety and Environment Committee Provisions, plans and promotes the Group s safety and environment policies and ensures implementation and enhancement of measures, including preventive actions, to reduce the risks of serious accidents and incidents that may occur in vessels or buildings managed by the Group. 3) The Quality and System Committee, established under the Quality and System Committee Provisions, plans and promotes the Group s system and administrative policies and ensures implementation and enhancement of measures, including preventive actions, to reduce system failure and administrative risks. 4) Further, in the event of such emergencies as contingencies, particularly environmental pollution including oil pollution, and material accidents and 20

21 incidents involving human lives and/or assets, the Company shall engage in crisis management by establishing an emergency headquarters led by a representative director in accordance with the Basic Rules on Crisis Management and the Basic Rules on Disaster Countermeasures. 5) As regards the storage and management of information pertaining to the execution of duties by directors and employees, a structure is in place to designate a person responsible for management to store and manage said information appropriately in accordance with various internal rules, including the Document Retention Rules, Basic Document Management Policies, Document Retention Implementation Rules, and Basic Information Security Rules. 6) The Company enforces thorough risk management for the entire Group based on a three-committee structure comprised of the lateral organizations: Compliance Committee, Safety and Environmental Committee and Quality and Systems Committee, which also include presidents of Group companies as members. Corporate Governance Shareholders Meeting Appointment Dismissal Appointment Dismissal Board of Auditors Audit Board of Directors Accounting Auditor Internal Audit Office Audit Audit Instruction Report Audit Appointment Dismissal Discussion Report Representative Director Executive Committee Discussion Instruction Discussion Instruction Compliance Committee Safety and Environment Committee Quality and System Committee Report Instruction Shipping and Real Estate Business Divisions and Each Group Company 21

22 CSR Activities The Company s CSR (Corporate Social Responsibility) Activities CSR Activities In recent years, there has been a growing interest in CSR (Corporate Social Responsibility). More and more, companies are expected to act with consideration for all stakeholders as responsible members of society instead of merely pursuing smooth relationships with their business partners. The Company has also established the Management Concepts, together with the Action Charter as a measure for realizing the Concept (see page 3), and is promoting corporate activities with the aim of enhancing corporate value while contributing widely to society. In terms of organization, the Safety Committee was established in 2002, followed by a re-examination of the group risk management structure from the perspective of corporate governance. In 2005, the Compliance Committee, Safety and Environmental Committee, and Quality and Systems Committee were established by constructively reorganizing the Safety Committee. The Company will continue to address social requirements in an accurate manner and make efforts to fulfill its social responsibilities based on safety. Focus on Safety Listing to secure that safety is the foundation of our business operations as the first item in the Company s Management Concept, the Company has been conducting its operations with safety in mind for more than a century since its establishment. The establishment of a safety and quality management framework is also covered by the medium-term business plan ISG12, which was formulated in FY2007, as a part of securing a stable business foundation for the realization of sustainable growth. Here again, the Company is continuing to take the stance of aiming for further growth based on the reinforcement of safety efforts that are being made since its establishment. Protect the Environment In environmental protection activities, Iino Marine Service Co., Ltd., a ship management company set up by the Company, obtained ISO14001 and ISO9001 certifications in 2002 (obtained ISO9002 certification in 1994). The Company simultaneously obtained ISO14001 and ISO9001 certifications as a maritime transport company in March 2004, and gained additional certification in 2005 for its building leasing business. 22

23 Specific activities include the promotion of double hulling of vessels (double hull structure) in the shipping business and the adoption of the natural ventilation system in the real estate business. The administration department also implemented resource saving and other activities at the head office. The Company will continue to implement measures for the protection of global environment, including the foregoing. CSR Report Safety and Environment Report The Company has been publishing safety and environment reports since FY2004 to introduce the Company s CSR activities. The fifth edition of the report, Safety and Environment Report 2008, was recently published. The report follows last year s format of a brochure version with special reports and a web version focusing on data, both of which are posted on the Company s web site ( Please direct your communication on the Safety and Environment Report, including inquiries and requests for the brochure versions of the Report, as follows: CSR Activities Stakeholder Relations Management Research Group Iino Kaiun Kaisha, Ltd. Tel: srm-1@ex.iino.co.jp 23

24 Oil Tanker Division Chemical Tanker Division Large Gas Tanker Division Small Gas Tanker Division Financial Section Oil Tanker Division Chemical Tanker Division Large Gas Tanker Division Small Gas Tanker Division 24

25 Bulk Carrier Division Real Estate and Leasing Division Real Estate-Related Business Retail Business Division Analysis of Financial Position and Business Performance 26 Consolidated Balance Sheets 28 Consolidated Statements of Operations 30 Consolidated Statements of Changes in Net Assets 31 Consolidated Statements of Cash Flows 32 Notes to Consolidated Financial Statements 33 These Consolidated Financial Statements have been prepared by Iino Kaiun Kaisha, Ltd. and have not been audited by a third party. Bulk Carrier Division Real Estate and Leasing Division Real Estate-Related Business Retail Business Division 25

26 Analysis of Financial Position and Business Performance Financial Section (1) Significant Accounting Policies and Estimates The Iino Line Group s consolidated financial statements are prepared based on the generally accepted accounting standards of Japan. Estimates and assumptions that impact the amounts of assets and liabilities reported at the end of the fiscal year, as well as the income and expenses during the reporting period, must be made in preparing the consolidated financial statements. The Group s management is assessing the estimates and determinations concerning bad debts, inventories, investments, income taxes, financial activities, retirement benefits, contingencies, and legal actions, among other things, on an ongoing basis. Estimates and determinations are made based on various factors believed to be reasonable in accordance with the past records and the current status, and the results thereof serve as the basis for determining the book values of assets and liabilities and the values of income and expenses to be reported, which are otherwise difficult to determine. Actual results may vary from these estimates due to uncertainties inherent in estimates. (2) Analysis of Business Performance 1. Analysis of Results of Operations Revenues for the consolidated fiscal year increased by 18.1% from the previous year to 95.1 billion, due to the reinforcement of the fleet and efforts to improve vessel allocation efficiency by the Chemical Tanker Division in addition to the boost provided by the bulk carrier market that remained strong. Operating profit increased by 24.4% from the previous consolidated fiscal year to 16.5 billion. This is due mainly to the increase in revenue. Recurring profit increased by 38.0% from the previous consolidated fiscal year to 16.1 billion. This is due mainly to the increase in operating profit and dividend income. Net income increased by 42.5% from the previous consolidated fiscal year to 5.5 billion in spite of the extraordinary losses from the progress in the reconstruction plan for the Iino Building, owing to the increase in recurring profit. 2. Analysis of Financial Position Total assets as of the end of the consolidated fiscal year increased by 9.5 billion from the previous year to billion. This was due in part to the increase in fixed vessel assets in construction, although long-held investment securities were redeemed and market value assessment results in the devaluation of stock holdings. Total liabilities as of the end of the consolidated fiscal year increased by 8.9 billion from the previous year to billion. This is due mainly to the increase in borrowings related to the acquisition of fixed vessel assets. Net assets as of the end of the fiscal year increased by 600 million from the beginning of the year to 52.6 billion. This was due mainly to the increase in retained earnings, although there also were some decreases due to the payment of dividends and the market value assessment of stock holdings. As a result of the foregoing, the shareholders equity ratio as of the end of the consolidated fiscal year decreased by 1.5% from the previous year to 29.7%, and the net assets per share increased by 2.42 to (3) Liquidity and Funding 1. Financial Requirements The principal operating fund requirements, as they pertain to the Group s business activities, are the cost of operation, vessel expenses, and vessel lease payments relating to the Shipping Business, such real estate expenses as administration and repair costs relating to the Real Estate Business, and the general administration costs for each business. As regards equipment fund requirements, there are intangible fixed asset investments for information processing, among other things, in addition to investments in vessels and real estate. 26

27 2. Financial Policies Funding is procured by utilizing internal funds, borrowing from financial institutions, and issuing corporate bonds to secure the funds necessary for the maintenance and expansion of the Group s business activities. Operating and equipment funds, including those for overseas subsidiaries, are managed centrally by the Head Offices. Equipment funds relating to vessels, which are the Group s principal business assets, are loaned by the Head Offices to overseas subsidiaries as a short-term fund until the completion of the vessels. The fund is switched over and procured as equipment fund following completion, giving consideration to the value of the relevant vessel, the details of the contract to which it is applied, and other factors. The foreign currency risk for a large majority of these equipment funds for overseas subsidiaries is hedged by means interest-rate swap agreements, and the balance of interest-bearing liabilities denominated in yen and the U.S. dollar, including borrowings, as of the end of the consolidated fiscal year is 98 billion. Efforts are being made to reduce interest-bearing liabilities in procuring funds by working to reduce interest costs, as well as taking into consideration the balance between the vessels under medium- to long-term lease from shipowners and bareboat charters. In addition to expecting an abundant cash flow supported by its healthy performance, the Group has earned ratings from two domestic rating agencies. As of the submission of this Report, the Group has a BBB+ rating from Japan Credit Rating Agency, Ltd., and a BBB rating from Rating and Investment Information, Inc. It is believed that it is possible to continue to procure the operating and equipment funds necessary for the maintenance, expansion, and operation of the Group s business, since there are sufficient credit lines with financial institutions, due to the hypothetical value of the Group s prime assets. The Group also has a 5 billion commitment line with the Japanese financial institutions, rendering it possible to supplement liquidity. 3. Cash Flow As concerns the cash flows from operating activities for the consolidated fiscal year, the Shipping Business performed solidly, resulting in an income before income taxes and minority interests of billion (up billion from the previous year), in spite of the expenses related to the reconstruction of the Iino Building that were posted in the Real Estate Business. Other positive contributors, specifically billion in depreciation and 4.03 billion increase in accounts payable, and the deduction of such expenditures as the billion in income tax payments, resulted in a positive cash flow of billion (up 870 million from the previous year). Cash flows from investing activities were negative billion (increase in expenditures by 778 million from the previous year), due to an expenditure of billion for the acquisition of fixed assets, including vessels, as opposed to the main income of 5.34 billion from sales of fixed assets and 3.82 billion from the sale and redemption of investment securities. Cash flows from financing activities were positive billion (up billion from the previous year) in spite of the billion net increase from short-term borrowings and an income of billion from long-term loans, due to expenditures including billion for the repayment of long-term loans, 1.6 billion for the redemption of corporate bonds, and billion for the payment of dividends. As a result of the foregoing, the cash and cash equivalents at end of year were billion (up billion from the previous year). Financial Section 27

28 CONSOLIDATED BALANCE SHEETS (At March 31, 2008 and 2007) Assets Millions of yen Current assets: Cash and time deposits (Note 3) 9,237 6,970 Notes and accounts receivable 5,679 4,790 Allowance for doubtful accounts (36) (45) Inventories (Note 6) 2,658 1,991 Other current assets (Note 9) 7,132 6,098 Total current assets 24,670 19,804 Vessels, property and equipment: Vessels 107,634 96,713 Buildings 18,332 30,210 Equipment Financial Section Other fixed assets 1,135 1,282 Construction in progress 20,685 6, , ,113 Less: accumulated depreciation (52,650) (54,437) 95,363 80,676 Land 39,097 39,097 Total vessels, property and equipment 134, ,773 Investments and other assets: Investment securities (Notes 4 and 7) 11,600 21,143 Investments in non-consolidated subsidiaries and affiliates 1,920 1,493 Long-term loans (Note 7) Other assets (Notes 7 and 9) 3,577 4,406 Allowance for doubtful accounts (124) (124) Total investments and other assets 17,098 27,159 Total assets 176, ,736 28

29 Millions of yen LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings (Note 7) 19,334 1,660 Current portion of long-term debt (Note 7) 10,365 14,229 Accounts payable 10,655 6,625 Advances received 1,882 2,228 Income taxes payable 2,148 2,252 Deposits received 1,349 2,777 Other current liabilities 1,768 1,577 Total current liabilities 47,501 31,348 Long-term liabilities: Long-term debt (Note 7) 68,350 73,823 Accrued employees pension and severance costs (Note 8) 1,445 1,367 Reserve for retirement benefits to directors and statutory auditors Reserve for periodic overhaul of vessels Other long-term liabilities 5,662 7,479 Total long-term liabilities 76,136 83,380 Total liabilities 123, ,728 Net assets Shareholders equity: Common stock, no par value Authorized 440,000,000 shares in 2008 Issued and outstanding 111,075,980 shares in ,51913,092 13,092 Additional paid-in capital 6,431 6,430 Retained earnings 31,237 27,291 Treasury stock, at cost 1,508,315 shares in 2008 (467) (458) Total Shareholders equity 50,293 46,355 Revaluation and translation adjustments Unrealized gain (loss) on available-for-sale securities (Note 5) 804 4,605 Gain on deferred hedges 1,171 1,050 Translation Adjustments 4 Total revaluation and translation adjustments 1,979 5,655 Minority interests in consolidated subsidiaries 319 (2) Total net assets 52,591 52,008 Financial Section Total liabilities and net assets 176, ,736 29

30 CONSOLIDATED STATEMENTS OF OPERATIONS (For the years ended March 31, 2008 and 2007) Financial Section Millions of yen Revenue 95,090 80,516 Costs and expenses 72,074 61,278 Gross profit 23,016 19,238 Selling, general and administrative expenses 6,492 5,956 Operating income 16,524 13,282 Other income (expenses): Interest and dividend income 1, Interest expense (2,591) (2,731) Foreign exchange gain (loss), net (418) (74) Investment enterprise income Gain on sale of fixed assets, net Non-recurring depreciation (3,475) Rebuilding related loss (7,787) (1,940) Impairment loss Profit from liquidation of affiliates Loss on write-down of investment securities (11) Equity in earnings of affiliates Other income Other expenses (100) (110) (7,792) (6,843) Income before corporate income taxes 8,732 6,439 Corporate income taxes (Note 9) Current 4,625 4,576 Deferred (1,420) (2,009) 3,205 2,567 Minority interest in income (loss) of consolidated subsidiaries 6 (3) Net income 5,521 3,875 Net income per share, basic and diluted Cash dividends per common share yen 30

31 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (For the year ended March 31, 2008) Millions of yen Shareholders equity Additional Total Common paid-in Retained Treasury Shareholders Stock capital earnings stock equity Balance as of March 31, ,092 6,430 27,291 (458) 46,355 Dividends from surplus (1,644) (1,644) Bonuses to Directors Net income 5,521 5,521 Net adjustment to additional paid-in capital and retained earnings due to change in scope of consolidation (1) (1) Gain on sales of treasury stock 1 1 Acquisition of treasury stock (9) (9) Increase (decrease) in Retained Earnings due to merger Items other than changes in shareholders equity Total changes in shareholders equity for the year ended March 31, ,946 (9) 3,938 Balance as of March 31, ,092 6,431 31,237 (467) 50,293 Millions of yen Revaluation and translation adjustments Total Minority Net unrealized Gain (loss) revaluation and interest in gains on other on deferred Translation translation consolidated Total securities hedges Adjustments adjustments subsidiaries net assets Balance as of March 31, ,605 1,050 5,655 (2) 52,008 Dividends from surplus (1,644) Bonuses to Directors Net income 5,521 Net adjustment to additional paid-in capital and retained earnings due to change in scope of consolidation (1) Gain on sales of treasury stock 1 Acquisition of treasury stock (9) Increase (decrease) of retained earnings due to merger 70 Items other than changes in shareholders equity (3,801) (3,676) 321 (3,355) Total changes in translation and revaluation adjustments for the year ended March 31, 2008 (3,801) (3,676) 321 (583) Balance as of March 31, , , ,591 Financial Section 31

32 CONSOLIDATED STATEMENTS OF CASH FLOWS (For the years ended March 31, 2008 and 2007) Millions of yen Cash flows from operating activities: Income before income taxes and minority interests 8,732 6,439 Depreciation and amortization 8,352 7,519 Non-recurring depreciation 3,475 Interest and dividend income (1,489) (479) Interest expense 2,591 2,731 Gain on sale of fixed assets (192) (186) Loss on write-down of investment securities 11 Other, net 565 (277) Sub-total 18,559 19,233 Interest and dividends received 1, Interest paid (2,633) (2,714) Income taxes paid (4,704) (5,190) Net cash provided by operating activities 12,780 11,910 Financial Section Cash flows from investing activities: Payments for purchases of fixed assets (28,663) (19,332) Proceeds from sale of fixed assets 5,340 2,094 Purchase of investment securities (147) (1,882) Proceeds from sale of investment securities 1, Proceeds from redemption of investment securities 2, Other, net Net cash used in investing activities (18,946) (18,168) Cash flows from financing activities: Net increase (decrease) in short-term borrowings 17,666 (1,788) Proceeds from long-term debt 8,949 17,914 Repayments of long-term debt (14,545) (10,521) Proceeds from issuance of bonds 500 Redemption of bonds (1,600) Proceeds from sale of treasury stock 2 1 Payments for repurchases of treasury stock (9) (8) Dividends paid (1,644) (1,644) Dividends paid for minority interests (2) (9) Net cash provided by (used in) financing activities 8,817 4,445 Effect of exchange rate changes on cash and cash equivalents (399) (28) Net decrease in cash and cash equivalents 2,252 (1,841) Cash and cash equivalents at beginning of year (Note 4) 6,890 8,669 Effect of changes in scope of consolidated subsidiaries Cash and cash equivalents at end of year (Note 4) 9,237 6,890 32

33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation of the consolidated financial statements The accompanying consolidated financial statements of IINO KAIUN KAISHA, LTD. (the Company ) and its consolidated subsidiaries (collectively, the Companies ) are prepared on the basis of accounting principles generally accepted in Japan. The application and disclosure requirements under the aforementioned accounting principles differ from International Financial Reporting Standards in some respects. The accompanying consolidated financial statements are prepared by the Company as required under the Financial Instrument Exchange Law of Japan. Certain items presented in the consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan have been reclassified for the convenience of readers outside Japan. 2. Summary of significant accounting policies a. Basis of consolidation The consolidated financial statements include the accounts of the Company and its 47 significant subsidiaries in 2008 (43 in 2007). The other subsidiaries are excluded from consolidation since, in aggregate, the combined total assets, net sales, net income and retained earnings of these subsidiaries do not have a material effect on the consolidated financial statements of the Companies. For the purposes of preparing the consolidated financial statements, all significant intercompany transactions, account balances and unrealized profits among the Companies have been eliminated. b. Equity method Investments in significant affiliates are accounted for under the equity method as of March 31, 2008 and Investments in the remaining 16 non-consolidated subsidiaries and 3 affiliates of the Company are stated at cost as of March 31, 2008 (16 non-consolidated subsidiaries and 3 affiliates at March 31, 2007) since the Company s equity in their net income (loss), on aggregate, does not have a material effect on the consolidated financial statements. Financial Section c. Fiscal periods of consolidated subsidiaries The accounts of the consolidated subsidiaries, except for Taranaki Shipping S.A. and 4 other subsidiaries whose fiscal year ends are December 31, are prepared as of the same date as the consolidated financial statements. The aforementioned 5 subsidiaries with differing financial years are included in the consolidated financial statements based on their accounts as of December 31 (their fiscal year ends), and necessary adjustments for significant transactions during the period between their fiscal year ends and the consolidated balance sheet date are reflected in the consolidated financial statements. d. Foreign currency translation All monetary assets and liabilities of the Company and its domestic consolidated subsidiaries denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at the balance sheet dates. The foreign exchange gains and losses from translation are recognized in the statements of income to the extent that they are not hedged by forward exchange contracts. Revenue and expenses are translated using the average exchange rates of the respective periods. Foreign currency translation of foreign subsidiaries follows the accounting policy of the Company and its domestic subsidiaries as permitted under Japanese generally accepted accounting principles for foreign subsidiaries located in taxhaven jurisdictions e. Vessel operating revenue and related costs Vessel operating revenue and related costs are recognised using the percentage-of-completion method. 33

34 f. Income taxes The provision for income taxes is computed based on income before income taxes in the consolidated statements of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the amounts of assets and liabilities recorded for tax purposes. g. Net income and dividends per share Net income per share of common stock is based on the weighted average number of shares of common stock outstanding during each year, appropriately adjusted for stock splits during the year. Cash dividends per share shown for each year in the accompanying statements of operations represent dividends approved as applicable to the respective year. Net income is adjusted by deducting bonuses paid to directors as well as the payment of dividends to shareholders of preferred stocks to be recognized as an appropriation of retained earnings, and the calculation of net income per share is made on that adjusted net income basis. h. Cash and cash equivalents Cash and cash equivalents in the consolidated statements of cash flows comprise of cash in hand, bank deposits able to be withdrawn on demand and marketable securities with an original maturity of three months or less and which represent a minor risk of fluctuation in value. Financial Section i. Marketable securities and investment securities Equity securities classified as Other securities (available-for-sale securities) for which market quotations are available, are stated at fair market value. Net unrealized gains or losses on these securities are reported as a separate item in net assets at a net-of-tax amount. Equity and debt securities classified as Other securities (available-for-sale-securities) for which market quotations are not available, are stated at cost calculated using the weighted average method. j. Derivative financial instruments and hedge accounting In accordance with the Accounting Standard for Financial Instruments and the Guidelines for Accounting for Financial Instruments, gains or losses arising from changes in the fair value of interest rate swap agreements and forward exchange contracts designated as hedging instruments are carried until the profits and losses on the hedged items or transactions are recognized. In addition, net cash flows from interest rate swap agreements which meet certain criteria under the accounting standard, are offset against or added to the interest arising from the hedged interest-bearing debt. Derivatives that do not meet the criteria for hedge accounting are marked to market, and the unrealized gains or losses on the derivative instruments are charged or credited to current earnings. k. Allowance for doubtful accounts An allowance for doubtful accounts is generally provided at an amount calculated using the bad debt loss ratio, primarily based on past experience, plus the estimated uncollectible amount of specific receivables. l. Inventories Real estates held for sale are stated at cost, determined using the specific cost method. Other inventories are stated at cost, determined using the first-in first-out method. 34

35 m.depreciation and amortization Tangible assets: Vessels, property and equipment, including significant capital expenditures and additions, are stated at cost. Maintenance and repairs are charged to income as incurred. Depreciation of vessels is computed using the straight-line method over the estimated useful lives of the assets as designated by the Japanese income tax laws. Depreciation of buildings (except for those acquired on or after April 1, 1998; excluding building fixtures) and other equipment is computed using the declining-balance method. Depreciation of buildings acquired on or after April 1, 1998 is computed using the straight-line method in accordance with the revision of the Japanese income tax law in Intangible assets: Amortization of intangible assets is primarily computed using the straight-line method over the estimated useful life of the assets as designated by the Japanese income tax laws. Software for internal use are depreciated using the straight-line method over the period of estimated use (5 years). n. Accrued employees pension and severance costs Accrued employees pension and severance costs under the defined benefit plans of the Companies are determined based on the actuarial present value of projected benefit obligations at year end, calculated by applying the plan s benefit formula to employee service rendered to that date, and the fair value of plan assets at year end. o. Reserve for retirement benefits to directors and statutory auditors A reserve for retirement benefits to directors and statutory auditors is provided for at the amount which would have been paid based on the Companies internal policies, if all eligible directors and statutory auditors had retired at the balance sheet date. Effective from the shareholders meeting of the Company, held on June 28, 2006, the Company abolished the retirement benefit plan for directors and statutory auditors. Accordingly, the Company recognized the liabilities for retirement benefit for directors and statutory auditors until the completion of the shareholders meeting on June 28, 2006, which would be paid up on their retirement, as other non-current liabilities. Financial Section p. Reserve for periodic overhaul of vessels Under Japanese law, the vessels of the Companies are subject to periodic overhaul. Japanese law requires that vessels be overhauled every five years. The Companies provide for the estimated cost of the future periodic overhaul of vessels. q. Appropriation of retained earnings The Corporation Law of Japan provides that an amount equal to 10% of distribution of surplus (aggregate of capital surplus and retained earnings) must be appropriated as a legal reserve or as additional paid-in capital depending on which surplus is distributed, until the total of such reserve and additional paid-in capital equals 25% of common stock. r. Leases Finance leases, other than those under which the ownership of the leased assets are substantially transferred to the lessees, are accounted for using a method conforming to the accounting treatment applicable to ordinary operating leases. 35

36 s. Accounting standard for impairment of fixed assets On August 9, 2002, the Business Accounting Council in Japan issued Accounting Standard for Impairment of Fixed Assets. The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss shall be recognized in the statement of operations by reducing the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of net selling price and value in use. t. Change in accounting policies (Depreciation Method of tangible assets) Effective from the fiscal year ended March 31, 2008, the Company has changed its depreciation method for tangible assets acquired on or after April 1, 2007, to conform to the revised Japanese corporate income tax law. The effect of the change in the depreciation method does not have a significant impact on the consolidated financial statements. u. Additional information When the tangible assets acquired prior to March 31, 2007, for which the Japanese corporate income tax laws prior to the aforementioned revision apply, are depreciated to 5% of their acquisition value, the difference between the memorandum price and 5% of the acquisition price is depreciated by applying the straight-line method over the following 5 years. Due to the above, the operating income and the income before income taxes has decreased by 52 million. Financial Section 3. Cash and cash equivalents Cash and cash equivalents in the consolidated statement of cash flows as of March 31, 2008 and 2007 comprised of the following: Millions of yen March Cash and time deposits 9,237 6,970 Time deposits with a deposit term of over three months (80) Marketable securities with original maturity of three months or less and which represent a minor risk of fluctuation in value 9,237 6,890 36

37 4. Investment securities Comparison of the aggregate cost and fair value of the Other securities for which market quotations are available at March 31, 2008 and 2007 are as follows: Millions of yen Fair value Net unrealized Net unrealized Cost (carrying amount) gains losses March 31, Equity securities 6,597 8,200 2, Debt securities Other 6,597 8,200 2, March 31, Equity securities 6,490 13,992 7,507 5 Debt securities Other 6,490 13,992 7,507 5 For the year ended March 31, 2008 proceeds from sales of Other securities were 3,820 million and the gross realized gains and losses were 252 million and 1 million respectively. For the year ended March 31, 2007 proceeds from sales of Other securities were 333 million and the gross realized losses were 3 million. Financial Section 5. Derivative financial instruments In the normal course of business, the Companies employ forward exchange contracts to manage their exposure to adverse fluctuations in foreign exchange rates in respect of receivables and payables. In addition, the Companies use interest rate swap agreements to limit their exposure to loss in relation to underlying debt resulting from adverse fluctuations in interest rates. The Companies do not use derivatives for speculative or trading purposes. There are no derivative instruments outstanding to which hedge accounting is not applied. 6. Inventories Inventories as of March 31, 2008 and 2007 comprised of the following: Millions of yen March Real estate held for sale Supplies 2,225 1,558 2,658 1,991 37

38 7. Short-term borrowings and long-term debt Short-term borrowings principally comprised of short-term notes with interest rates ranging from % to % and from 1.009% to 1.275% at March 31, 2008 and 2007, respectively. Long-term debt at March 31, 2008 and 2007 comprised of the following: Millions of yen March Secured loans, principally from banks and insurance companies, due 2005 to 2024 with interest rates ranging from 1.10% to 8.50% at March 31, 2008 (0.841% to 8.50% at March 31, 2007) 77,315 85, % unsecured bonds due on September 28, , % unsecured bonds due on March 31, % unsecured bonds due on May 11, ,000 1, % unsecured bonds due on February 29, ,715 88,052 Less : portion due within one year (10,365) (14,229) 68,350 73,823 As of March 31, 2008 and 2007, the following assets were pledged as collateral for long-term debt: Financial Section Millions of yen March Investment securities 2,090 2,724 Vessels, property and equipment, net of accumulated depreciation: Vessels 45,107 50,156 Buildings 6,395 7,156 Land 9,843 9,843 63,435 69,879 Guarantee money deposited ,450 69,894 The aggregate annual maturities of long-term debt at March 31, 2008 are summarized below: Year ending March 31, Millions of yen , , , and thereafter 54,874 78,715 38

39 8. Employee s pension and severance costs Under the terms of the employee severance indemnity plans of the Companies, substantially all employees are entitled to consider benefits at the time of their severance. The amount of the benefit is, in general, based on the length of service, basic salary at the time of severance and the circumstances under which severance occurs. The Company and certain of its consolidated subsidiaries have a funded, tax-qualified pension plan to cover a certain portion of the severance indemnity benefits to their employees. Accrued employees pension and severance costs as of March 31, 2008 and 2007 is summarized as follows: Millions of yen Projected benefit obligations (3,000) (3,028) Plan assets 1,555 1,661 Accrued employees pension and severance costs (1,445) (1,367) Net pension and severance costs in respect of retirement benefits for the years ended March 31, 2008 and 2007 were as follows: Millions of yen Service cost and interest cost Accrued employees pension and severance costs Financial Section 39

40 9. Corporate income taxes The statutory corporate income tax rate used for calculating deferred tax assets and liabilities as of March 31, 2008 and 2007 was 39.0%. At March 31, 2008 and 2007, significant components of deferred tax assets and liabilities were as follows:: Millions of yen March Deferred tax assets: Elimination of unrealized inter-company profit Accrued employees pension and severance costs Reserved for retirement benefits to directors and statutory auditors Write-down of inventories Non-recurring depreciation 1,294 1,355 Rebuilding related loss 2, Other Total 5,276 3,636 Less: valuation allowance (39) (47) Financial Section Deferred tax assets 5,237 3,589 Deferred tax liabilities: Retained earnings appropriated as tax deductible reserves (459) (370) Taxable earnings of subsidiaries, carried forward (311) (130) Unrealized gain on available-for-sale securities (512) (2,934) Unrealized gain on deferred hedges (749) (671) Other (5) (47) Deferred tax liabilities (2,036) (4,152) Net deferred tax liabilities (assets) 3,201 (563) For the years ended March 31, 2008, reconciliation of the statutory corporate income tax rate to the effective income tax rate is as follows: March Statutory corporate income tax rate 39.0% Adjustment: Dividends and other items which are excluded from gross revenues (2.5%) Entertainment expenses and other items which are non-deductible 0.6% Other (0.4%) Effective corporate income tax rate 36.7% For the year ended March 31, 2007, the reconciliation of tax rate has been omitted because the difference between statutory tax rate and the effective corporate income tax rate was not material. 40

41 10. Commitments and contingent liabilities As of March 31, 2008, contingent liabilities for loans guaranteed amounted to 38,097 million ( 58,536 million at March 31, 2007). 11. Leases a. Operating leases Future minimum lease payments under operating leases as of March 31, 2008 and 2007 are as follows: Millions of yen March Due within one year 330 1,256 Due after one year , Segment information The operations of the Companies, by line of business, for the years ended March 31, 2007 and 2006 were as follows: Millions of yen March Revenue (before elimination of inter-segment amounts) Shipping 84,863 69,760 Real-estate 8,829 9,012 Other 1,676 1,906 Financial Section 95,368 80,678 Identifiable operating costs and expenses: (before elimination of inter-segment amounts) Shipping 71,487 58,978 Real-estate 5,688 6,502 Other 1,669 1,916 78,844 67,396 Operating income: Shipping 13,376 10,782 Real-estate 3,141 2,510 Other 7 (10) 16,524 13,282 41

42 Identifiable assets as at March 31, 2008 and 2007, and depreciation and capital expenditures by line of business for the years then ended are summarized as follows: Millions of yen Identifiable assets: Shipping 102,502 86,532 Real estate 53,090 54,006 Other , ,184 Elimination, unallocatable or headquarters 20,045 25, , ,736 Depreciation and amortization: Shipping 7,103 6,095 Real estate 1,220 4,862 Other ,352 10,994 Financial Section Capital expenditures: Shipping 27,867 14,901 Real estate 283 4,405 Other ,161 19,332 Depreciation and amortization for the year ended March 31, 2007 includes 3,475 million of non-recurring depreciation. (Shipping 23 million, real estate 3,452 million) Overseas sales for the years ended March 31, 2008 and 2007 comprised of the following: Millions of yen North America 4,448 3,009 Middle East 27,778 22,873 Asia & Oceania 23,570 15,780 Other areas 20,445 17,867 76,241 59,529 Overseas sales consist primarily of income from ocean-going vessels and revenue of foreign subsidiaries. Segment information by geographic area has not been prepared or disclosed, since net sales and total assets in Japan represented more than 90 percent of consolidated net sales and total assets. 42

43 13. Subsequent events Appropriations of retained earnings of IINO KAIUN KAISHA, LTD. applicable to the year ended March 31, 2008 and approved at the shareholders meeting held on June 27, 2008 were as follows: Total amount of dividends paid Date of resolution Type of stock (Millions of yen) Dividend per share Ex-dividend date Payment date June 27,2008 Common stock yen March 31, 2008 June 30, 2008 Shareholders meeting Financial Section 43

44 Investor Information Investor Information Business year From April 1 through March 31 of the following year General Shareholders Meeting Held in June. Base date for General Shareholders Meeting March 31 If a date other than the above is necessary, the Company will give advance notification Dividend record date Term-end dividend: March 31 Interim dividend: September 30 (in case the Company is implementing an interim dividend payment) Trading unit 100 shares Administrator of shareholders register Chuo Mitsui Trust & Banking Co., Ltd. 33-1, Shiba 3-Chome, Minato-ku, Tokyo Handling office Chuo Mitsui Trust & Banking Co., Ltd. Stock Agency Department 8-4 Izumi 2-chome, Suginami-ku, Tokyo, Tel: (toll free call) Agencies Chuo Mitsui Trust & Banking Co., Ltd.: All branches nationwide Japan Securities Agents, Ltd.: Head office and all branches nationwide (Request for Forms) Request for forms necessary for transferring shares, requesting purchase of shares of less than one unit, making designations for the transfer of dividends, and other procedures, may be directed below, in addition to the aforementioned handling office and agencies of the administrator of shareholders register. Tall free call: (24 hours a day) Website: Official notification Electronic Notification However, in the event that electronic notification is impossible due to an accident or other unavoidable circumstances, official notification will be made in the Nihon Keizai Shimbun newspaper. Official notifications are posted on the Company s website. IINO KAIUN KAISHA, LTD. Shiba-Daimon Front Bldg , Shiba-Kouen, Minato-ku, Tokyo, , Japan Tel: Website: Distribution of Shareholders by Type (as of March 31, 2008) Foreign Investors 24.5% Individuals and Others 10.9% Financial Instruments Business Operators 0.2% Financial Institutions 40.8% Domestic Companies 23.6% Distribution of Stock Price and Trading Volume 44 (Thousands of Shares) 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Trading volume Stock price (Yen) 1,600 1,400 1,200 1,

45 Corporate Data (as of March 31, 2008, unless otherwise noted) Corporate Profile Operating Vessels Company Name Iino Kaiun Kaisha, Ltd. Iino Lines Established July 1899 Head Office Shiba-Daimon Front Bldg , Shiba- Kouen, Minato-ku, Tokyo, , Japan *The registered Principal Office is located at the following address. Actual operations are conducted at the Head Office. Principal Office 1-1, Uchisaiwaicho 2-chome, Chiyoda-ku, Tokyo, , Japan (Contact) tel fax Offices Overseas Office Dubai Overseas Affiliated Companies Singapore, Connecticut, London Stock Exchange Listing The First Section of the Tokyo Stock Exchange, the First Section of the Osaka Securities Exchange, the First Section of the Nagoya Stock Exchange, the Sapporo Securities Exchange and the Fukuoka Stock Exchange Capital 13,091,775,488 Group Companies Consolidated subsidiaries 47 Equity method affiliates 2 Non-consolidated affiliates 16 Total 65 Businesses Shipping business, Real Estate business, Retail business Total Tonnage of Fleet (including commonly owned vessels) 4,414,305 DWT for 116 vessels Main Buildings for Rent (including commonly owned buildings) 6 buildings Total floor area: 154,658.16m 2 Employees 129 persons as non-consolidated (85 onshore, 44 at sea) 612 persons as consolidated Class Ownership No. of Vessels KDWT Owned vessels Self-owned 13 1,122,859 Domestic subsidiaries 17 23,769 Foreign subsidiaries 23 1,592,253 Subtotal 53 2,738,881 Chartered 63 1,675,424 Total 116 4,414,305 Notes: 1. The Company owns 13 vessels, of which 12vessels are held jointly with other companies. The holdings of the partners are 773,721tons (K/T). 2. The tonnages listed include commonly owned. Major Buildings for Lease Name Location Total Floor Area (m 2 ) Iino Building Uchisaiwaicho, Chiyoda-ku, Tokyo 76, Tokyo Sakurada Building Nishishinbashi, Minato-ku, Tokyo 17, Tokyo Fujimi Building Fujimi, Chiyoda-ku, Tokyo 10, Iino Takehaya Building Koishikawa, Bunkyo-ku, Tokyo 4, Sasazuka Center Building Sasazuka, Shibuya-ku, Tokyo 11, Shiodome Shiba-Rikyu Building Kaigan, Minato-ku, Tokyo 32, Total 6 buildings 154, Corporate Data Notes: 1. Tokyo Sakurada Building, Tokyo Fujimi Building and Shiodome Shiba-Rikyu Building are owned jointly; total floor area figures include the portions owned by other entities. 2. Iino Building is scheduled to be reconstructed. 45

46 Management (as of June 27, 2008) Position Name Duties and Responsibilities Chairman of the Board Chairman Executive Officer President President Executive Officer Director Vice President Executive Officer Director Senior Managing Executive Officer Director Senior Managing Executive Officer Director Managing Executive Officer Director Managing Executive Officer Shoji Noguchi Katsuyuki Sugimoto Kei Koga Takahiko Matsumoto Mitsuhiko Aiba Tomoyuki Sekine Kenichi Hoshino Management of Marine Transport Business Group-IV President, Iino Enterprise Co., Ltd. In charge of Seamen Group President, Iino Marine Service Co., Ltd. Management of General Affairs Group In charge of Stakeholder Relations Management & Research Group, Marine Transport Business Group-I, Marine Transport Business Group-V, Overseas Office Chairman, Iino Gas Transport Co., Ltd. In charge of Marine Transport Business Group-II, Marine Transport Business Group-IV Management of Personnel Group In charge of Property Business Group Shoji Noguchi Katsuyuki Sugimoto Executive Officer Osamu Yamane Managing Director, Iino Marine Service Co., Ltd. Executive Officer Hiroyuki Ishikawa President, Iino Building Technology Co., Ltd. Corporate Data Executive Officer Executive Officer Kenji Asada Yoichiro Anzai Managing Director, Iino Marine Service Co., Ltd. Group Manager, Marine Transport Business Group-I President, Iino Singapore Pte.Ltd. Kei Koga Executive Officer Mitsuhiro Kakinuma Group Manager, Stakeholder Relations Management & Research Group Director Executive Officer Shinji Ohno President, Iino Management Data Processing Co., Ltd. Executive Officer Shigeki Miyake Managing Director, Iino Gas Transport Co., Ltd. Director Executive Officer Yoshihiko Nakagami In charge of Planning Group, General Affaires Group Takahiko Matsumoto Director Executive Officer Mamoru Chikamitsu Group Manager Finance & Accounting Group In charge of Personnel Group, Finance & Accounting Group Executive Officer Shigeru Nemoto Fairfield Chemical Carriers Inc. Executive Officer Fudenori Kubo Group Manager, Property Business Group Full-time Auditor Toshio Okada Mitsuhiko Aiba Full-time Auditor Kazuo Kawahara Auditor Shinichi Suzuki Outside Auditor Auditor Nobuhiko Isii Outside Auditor 46