Consolidated Financial Results For the Three Months Ended June 30, 2014- under Japanese GAAP IINO KAIUN KAISHA, LTD. (IINO LINES) Stock code: 9119 URL: http://www.iino.co.jp/kaiun/english/ Representative: Tomoyuki Sekine, President Contact: Kaoru Odajima Group Manager of Accounting Group Telephone: +81-3-6273-3207 July 31, 2014 (Rounded to the nearest million yen) 1. Consolidated Financial Results for the Three Months Ended June 30, 2014 (April 1, 2014 to June 30, 2014) (1) Operating Results (Three Months) (The percentage figures represent changes from the previous corresponding period) Q1(Apr-Jun) Revenues Operating Profit Recurring Profit Net Income million yen % million yen % million yen % million yen % FY2014 25,378 9.2 2,468 47.8 1,999 42.3 1,951 (10.5) FY2013 23,242 10.4 1,670 283.1 1,405 2,179 Note: comprehensive income Q1 / FY2014 2,162 million yen Q1 / FY2013 2,943 million yen Q1(Apr-Jun) Net income per share yen Net income per share, fully diluted yen FY2014 17.58 FY2013 21.80 (2) Financial Position Total assets Net assets Shareholders equity ratio million yen million yen % Q1(Apr-Jun) / FY2014 221,722 60,175 27.0 FY (Apr-Mar) 2013 225,312 58,568 25.9 Note: Treasury stock: Q1 / FY2014: 59,900 million yen FY2013: 58,304 million yen 2. Dividends Dividend per share Q1 (Apr-Jun) Q2 (Jul-Sep) Q3 (Oct-Dec) Q4 (Jan-Mar) FY (Apr-Mar) yen yen yen yen yen FY2013 3.00-5.00 8.00 FY2014 (Forecast) 5.00 5.00 10.00 1
3. Forecast of Consolidated Earnings for the Six Months Ending September 30(April 1 to September 30, 2014), and the Year Ending March 31, 2015(April 1, 2014 to March 31, 2015) (The percentage figures represent changes from the previous corresponding period) FY2014 Revenues Operating Profit Recurring Profit Net Income million yen % million yen % million yen % million yen % Q2 (Apr-Sep) 49,000 3.7 4,000 5.9 3,000 1.0 3,200 (13.2) FY(Apr-Mar) 96,000 (0.7) 6,900 0.8 5,900 (0.9) 5,800 17.9 FY2014 Net income per share Q2(Apr-Sep) 28.84 yen FY (Apr-Mar) 52.27 Appropriate Use of Earnings Forecasts and Other Important Information This report contains various forward-looking statements and other forecasts regarding performance and other matters. Such statements are based information available at the time of preparation as well as certain reasonable assumptions. Actual results may differ materially from those expressed or implied by forward-looking statements due to a range of factors. 2
Operating Results and Financial Position 1. Results for the Three Months Ended June 30, 2014 In the three months ended June 30, 2014, the European and U.S. economies continued on a recovery track, underpinned by growth in mining and manufacturing production as well as a recovery in consumer spending in Europe, along with an improvement in both corporate earnings and the employment situation in the U.S. In China, the pace of economic growth was modest, including a decline in spending growth. In India, the regime change in May is lifting hopes for a rebuilding of the economy, but overall the economies of emerging countries remained at a standstill. Meanwhile, the Japanese economy has remained on a modest recovery track as domestic demand, including capital investment, has been firm. However, the trend in consumption bears watching going forward, as there has been a recoil in consumption following the surge in demand triggered by the consumption tax rate increase. The environment surrounding the IINO Group s shipping business did not improve significantly, as although freight rates moved higher for some vessel types in response to factors such as heightened demand for cargo transport, freight rates continued to languish on the whole. Amid this business environment, the company worked to renew existing contracts on favorable terms, and reduce fuel costs by effectively deploying vessels and slow streaming. The Real Estate business achieved stable earnings due to the steady utilization of the Iino Building and other buildings. As a result, the Company posted consolidated revenues of 25,378 million (up 9.2% year on year), consolidated operating profit of 2,468 million (up 47.8% year on year), a consolidated recurring profit of 1,999 million (up 42.3% year on year), and consolidated net income of 1,951 million (down 10.5% year on year ). The following is an overview of performance by segment. 3
(1) Oceangoing Shipping Oil tanker freight rates declined during the first part of the period, due to the impact of periodic repairs at oil refineries in the Far East, but freight rates moved higher from the middle of June as a result of the increase in transport demand following the completion of the periodic repairs. Petroleum product tanker freight rates languished on the whole, as among other factors, the increase in U.S. domestic demand stemming from the U.S. economic recovery and the start of the driving season resulted in a decline in exports of petroleum products from the U.S. Chemical tanker freight rates softened during the period. This was due to the decline in long-distance marine transport volume between continents, including from North America to Asia, resulting from the lack of growth in demand for petrochemical products due to restrained buying in association with the slowdown in economic growth in China, as well as the drop in exports caused by strong domestic demand for petrochemical products in the U.S. Meanwhile, palm oil transport was sluggish at the start of the period, but signs of a recovery in transport demand to India and Pakistan emerged in the latter half of the period, with freight rates also showing a simultaneous upward trend. In the large gas tanker segment, LPG tanker freight rates were firm, underpinned by sound transport volume in continuation from the previous period. Meanwhile, LNG tanker freight rates continued to languish in continuation from the previous period, as transport demand failed to grow as initially expected. In the bulk carrier segment, freight rates were slack overall. Freight rates declined for both large vessels and handy vessels, as there was no stop to the softening of freight rates since the start of spring amid the heightened sense of an excess in tonnage supply. During the fiscal year ended June 30, 2014, the IINO Group s average exchange rate was 102.40/US$ (97.72/US$ in the same period of the previous fiscal year), while the average price of bunker oil was US$608/MT (US$642/MT in the same period of the previous fiscal year). Amid this environment, in the Oceangoing Shipping segment, the Company worked to secure stable revenues in the Oil Tanker Division by keeping most of its vessels deployed on medium- to long-term contracts. 4
The Chemical Tanker Division achieved stable transport volume, as on Middle East routes there was a steady consumption of cargo volume loaded in the Middle East and headed for Asia and Europe, and the division also proactively transported liquid phosphoric acid loaded in North Africa headed to India. Furthermore, the division secured stable transport volume by picking up palm oil heading from Asia to India, Pakistan and the Red Sea. The joint venture with a U.S. operator secured stable transport volume by taking on spot cargo in addition to contracts of affreightment, primarily within the Atlantic Ocean region. The Large Gas Tanker Division secured stable revenues through the steady operation of LPG tankers as well as by keeping its LNG tankers deployed on existing medium- to long-term contracts. The Bulk Carrier Division succeeded in securing the earnings it initially expected. Although navigation became less profitable as handy vessel freight rates weakened due to a decline in transport volume in Southeast Asia waters, in addition to steady utilization of vessels hired to transporting thermal coal and woodchips, the division increased the profitability of the bulk carrier fleet, including the deployment of Panamax vessels on contracts of affreightment. As a result, the Oceangoing Shipping segment posted an operating profit of 1323 million (up 156.6% year on year) on revenues of 20,171 million (up 10.3% year on year). (2) Regional Shipping In domestic transport, LPG transport volume declined as demand receded due to higher temperatures. In petrochemical gas transport, despite operation stoppages at some facilities and multiple plants undergoing periodic repairs, other plants maintained high operating rates, ensuring firm domestic transport volume of petrochemical gases. In international short-haul transport, demand in China and the rest of Asia remained weak, while transport volume declined in conjunction with a number of plants in the region undergoing periodic repairs one after another. These factors, along with the deterioration of the tonnage supply-demand balance due to the completion of newbuilds, resulted in a softening of freight rates. 5
Amid this environment, on the domestic transport side, on the domestic transport side, in LPG the division worked to maintain utilization levels through dedicated vessels based on contracts with freight owners, while also booking spot cargo with free vessels, but utilization levels weakened as demand dropped towards the summer months. In petrochemical gas, utilization levels were good due to robust transport volume. Also, the fleet was rejuvenated during the period, as the division began chartering newbuilds as an alternative to superannuated vessels, and disposed of superannuated vessels. Meanwhile, in the international short-haul market, the segment worked to earn stable revenues by deploying most of the fleet on medium- to long-term contracts. The contracts of some vessels with expiring contract terms were renewed despite the impact of softening freight rates, and generally stable revenues were secured overall. As a result, the Regional Shipping Segment earned operating profit of 171 million (up 51.0% year on year) on revenues of 2,397 million (up 8.1% year on year). (3) Real Estate In the central Tokyo office building leasing market, signs hinting at economic growth, including business expansion and office location upgrades by companies, resulted in many new office buildings being completed with high occupancy rates and robust demand for existing office buildings. This in turn led to a decline in vacancy rates. Amid this environment, relatively new buildings and some buildings with high-grade specifications saw an increase in rent levels, but an overall improvement in rent levels failed to materialize due to the tough battle for tenants among office buildings. In the hall and conference room business, there are a large number of competing venues, and all facilities continued to compete fiercely with one another, including to tie down customers. In the photo studio business of the real estate related business, advertising-related demand is recovering, but magazine sales continued to languish, and photo shoots by publishers were at low levels, both in terms of the number of photo shoots and average sales per customer. Amid this environment, in the office leasing business, stable utilization with full 6
occupancy was maintained by providing quality tenant services at buildings that the Company owns. The hall and conference room business worked to maintain its utilization level by proactively attracting seminars, lectures, sneak previews of movies and other events. Despite the continued challenging business environment surrounding the studio segment, Iino Mediapro Co., Ltd., which is engaged in the studio-related business, maintained strong utilization levels as there were new orders in the location, photo retouching and production segments. As a result, the Real Estate Segment earned operating profit of 972 million (down 6.5% year on year) on revenues of 2,883 million (up 2.2% year on year). 2. Consolidated Financial Position Total assets at the end of the fiscal first quarter (June 30, 2014) were 221,722 million, an decline of 3,590 million from March 31, 2014. The decline was mainly attributable to a drop in cash and deposits. Liabilities totaled 161,547 million, at June 30, 2014, a decline of 5,197 million from March 31, 2014. The decline was mainly attributable to a drop in borrowings. Net assets totaled 60,175 million at June 30, 2014, an increase of 1,607 million from March 31, 2014. The increase was mainly attributable to an increase in retained earnings. 3. Outlook for the Full Year ending March 31, 2015 (Fiscal 2014) The Company s revenues and profits in the three-month period ended June 30, 2014, were higher than expected at the time of the previous announcement (April 30, 2014). However, the Company has lowered its outlook for bulk carrier freight rates in the Oceangoing Shipping segment, and has revised its outlook for bunker oil prices. Consequently, the Company has raised its forecast for revenues and profits for the six-month period ending September 30, 2014, as compared to the previously announced forecast, but no changes have been made to the Company s full-year earnings outlook. 7
Forecast of Consolidated Earnings for the Six Months Ending September 30, 2014 (April 1, 2014 to September 30, 2014) Previous Forecast (Issued April 30, Revised Forecast (Issued 31 July, 2014) 2014) Value Change/Percent Change millions of yen Revenues 48,000 49,000 1,000/2.1% Operating profit 3,400 4,000 600/17.6% Recurring profit 2,600 3,000 400/15.4% Net income 2,600 3,200 600/23.1% Forecast of Consolidated Earnings for the Year Ending March 31, 2015 (April 1, 2014 to March 31, 2015) Previous Forecast (Issued April 30, Revised Forecast (Issued July 31, 2014) 2014) Value Change/Percent Change millions of yen Revenues 96,000 96,000 0/0% Operating profit 6,900 6,900 0/0% Recurring profit 5,900 5,900 0/0% Net income 5,800 5,800 0/0% 8
* Assumptions regarding second quarter and beyond foreign exchange rates and the Port of Singapore bunker price are shown below. Previous Forecast (issued April 30, 2014) Revised Forecast (issued July 31, 2014) Foreign exchange rate 1US$ = 100.0 1US$ = 100.0 Bunker price US$570 / MT US$625 / MT 9
Consolidated Financial Statements (1)Consolidated Balance Sheets Assets Current assets (In million yen) As of June 30, 2014 As of March 31, 2014 Cash and deposits 11,758 16,906 Notes and accounts receivable 9,816 10,812 Supplies 2,998 2,961 Merchandise 73 64 Real estate held for sale 177 177 Deferred and prepaid expenses 1,808 1,929 Deferred tax assets 63 63 Refund of corporation tax claimed as a result of tax loss carry-back, not taxable 177 174 Other current assets 5,105 3,410 Allowance for doubtful accounts (2) (1) Total current assets 31,974 36,496 Fixed assets Tangible fixed assets Vessels, net 68,223 68,310 Buildings and structures, net 49,918 50,400 Land 40,019 40,019 Construction in progress 3,025 2,048 Other tangible fixed assets, net 10,401 10,562 Total tangible fixed assets 171,586 171,338 Intangible fixed assets Telephone subscription rights 9 9 Other intangible fixed assets 527 543 Total intangible fixed assets 536 552 Investments and other assets Investment securities 15,615 14,782 Long-term loans 135 133 Deferred income taxes 222 223 Other long-term assets 1,654 1,788 Allowance for doubtful accounts (0) (0) Total investments and other assets 17,626 16,925 Total fixed assets 189,748 188,816 Total assets 221,722 225,312 10
Liabilities Current liabilities (In million yen) As of June 30, 2014 As of March 31, 2014 Accounts payable 6,371 7,249 Current portion of bonds - 100 Short-term borrowings 24,285 33,187 Accrued expenses 306 301 Income taxes payable 102 288 Advances received 2,099 2,322 Reserve for bonuses 70 288 Deferred tax liabilities 40 103 Other current liabilities 2,612 2,468 Total current liabilities 35,885 46,306 Fixed liabilities Bonds - - Long-term borrowings 102,336 96,902 Reseve for employees' retirement benefits - - Reserve for directors' retirement benefits 35 56 Net defined benefit liability 726 731 Reserve for special repairs 1,549 1,831 Leasehold deposits received 7,979 7,990 Lease obligations 9,903 10,064 Deferred tax liabilities 1,969 1,693 Other fixed liabilities 1,165 1,173 Total liabilities 125,662 120,439 Total liabilities 161,547 166,744 Net assets Shareholders' capital Common stock 13,092 13,092 Additional paid-in capital 7,613 7,613 Retained earnings 35,403 34,007 Treasury stock (48) (48) Total shareholders' capital 56,060 54,664 Valuation and translation adjustments Net unrealized gains (losses) on other securities 2,258 1,816 Deferred hedge gains (losses) 950 1,119 Foreign currency translation adjustments 632 705 Total valuation and translation adjustments 3,840 3,640 Minority Interests 275 263 Total net assets 60,175 58,568 Total liabilities and net assets 221,722 225,312 11
(2)Consolidated Statements of Operations Three Months Ended June 30, 2014/2013 (In million yen) Three Months Ended June 30, 2014 Three Months Ended June 30, 2013 Revenues 25,378 23,242 Costs and expenses 21,293 20,057 Gross profit 4,085 3,184 Selling, general and administrative expenses 1,617 1,514 Operating profit(loss) 2,468 1,670 Non-operating income Interest income 8 9 Dividend income 148 115 Foreign exchange income - 133 Equity income of non-consolidated subsidiaries and affiliates 36 174 Others 33 14 Total 226 444 Non-operating expenses Interest expenses 655 706 Equity expense of non-consolidated subsidiaries and affiliates 29 - Others 10 3 Total 694 709 Recurring profit(loss) 1,999 1,405 Extraordinary profit Gain on sale of fixed assets 39 849 Gain on sale of investment securities 20 - Total 60 849 Extraordinary losses Loss on write-down of investment securities 4 10 Loss on disposal of fixed assets 1 - Loss on sale of fixed assets 4 - Loss on write-down of golf club memberships - 1 Total 9 11 Income(loss) before income taxes 2,049 2,243 Income tax, inhabitants tax and enterprise tax 101 41 Income before M inority interests (loss) 1,949 2,202 Minority interests in income (loss) (2) 22 Net income(loss) 1,951 2,179 12
(3)Consolidated Statements of Comprehensive Income (loss) Three Months Ended June 30, 2014/2013 Three Months Ended June 30, 2014 (In million yen) Three Months Ended June 30, 2013 Income before Minority interests (loss) 1,949 2,202 Other Comprehensive Income Net unrealized gains (losses) on other securities 442 664 Deferred hedge gains (losses) (25) (267) Foreign currency translation adjustments (74) 291 Equity income of non-consolidated subsidiaries and affiliates (129) 54 Total of other Comprehensive Income(loss) 213 741 Comprehensive Income(loss) 2,162 2,943 (A breakdown of Comprehensive Income(loss) Comprehensive Income attributable to the parent company's shareholders 2,151 2,986 Comprehensive Income attributable to the subsidiary company's shareholders 12 (43) 13
(4)Business Segment Information ThreeMonths Ended June 30, 2014 (April 1, 2014 to June 30, 2014) I. Revenues Oceangoing Shipping Regional Shipping (In million yen) Real estate Total Adjustment Consolidated (1) External sales 20,286 2,275 2,817 25,378-25,378 (2) Inter-segment sales (116) 122 16 22 (22) - Total 20,171 2,397 2,833 25,400 (22) 25,378 Segment profit (loss) 1,323 171 973 2,468-2,468 Three Months Ended June 30, 2013 (April 1, 2013 to June 30, 2013) I. Revenues Oceangoing Shipping Regional Shipping Real estate Total Elimination or corporate (In million yen) Consolidated (1) External sales 18,370 2,116 2,756 23,242-23,242 (2) Inter-segment sales (86) 100 17 31 (31) - Total 18,284 2,216 2,772 23,273 (31) 23,242 Operating profit (loss) 516 113 1,041 1,670-1,670 Significant Subsequent Events (Gain on Sale of Fixed Assets) On July 3, 2014, the Company transferred one oil tanker as per the resolution passed at the Board of Directors meeting held on May 30, 2014. With this transfer, the Company plans to post a gain on sale of fixed assets (extraordinary income) of approximately 1.5 billion for the second quarter of the fiscal year ending March 31, 2015. 14