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Segmental Overview

Oil Tanker & Gas Carrier Department Oceangoing Shipping

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Fiscal Year 2013 Performance■ Oil TankersOil tanker freight rates rose temporarily during the peak winter period in the northern hemisphere. Shipping delays caused by weather and crude oil price differentials increased long-distance trades from South America and West Africa to Asia, leading to the higher winter freight rates. During other periods, however, freight rates remained soft. The Iino Group owns three Very Large Crude oil Carriers (VLCC) and one Panamax-class tanker. All the vessels are operated under medium- and long-term contracts.

■ Gas CarriersIn the LPG carrier market, U.S. production and export of shale gas LPG gathered momentum, and carriers were shifted from the traditional concentration on Middle East routes to meet the new demand. Very Large Gas Carrier (VLGC) freight rates were also buoyant throughout the year as a result of robust demand in emerging countries, primarily India. The Iino Group owns four VLGC, all of which have long-term contracts to supply Japanese LPG distributors. During the year, the contract for one of the carriers was renewed under favorable terms as a result of the higher market rates. Additionally, we decided to order one new carrier backed with a long-term contract. The new carrier will bolster the stable earnings foundation. In the LNG Carrier Division, negotiations for some contracts continued into the fiscal year 2014. Specifically, although we actively negotiated contracts to transport shale gas to Japanese electric power and gas companies, we did not secure any contracts during fiscal year 2013. The failure to convincingly demonstrate our strengths during negotiations for some vessels will serve as a valuable lesson as we actively continue to seek new contracts in fiscal year 2014.

Future OutlookIn June 2014, the Oil Tanker Division and Gas Carrier Division merged to become the Oil Tanker & Gas Carrier Department. Leveraging this organizational

reform, we will fulfill our mission by aiming to become a pillar of stable earnings for the company.

■ Oil TankersAccording to a medium-term forecast by the International Energy Agency (IEA), global energy demand is expected to increase by one-third from 2011 to 2035, and oil demand is expected to rise by 13% in the period. In the oil tanker industry, the amount of newbuildings are forecasted to decline in coming years, leading to a steady rise in freight rates. The Oil Tanker Division contributes to the safe and secure transport of oil to Japan by providing high-quality transport services underpinned by world-class safety, primarily to Japanese oil and trading companies. We contribute to the company’s stable earnings foundation by continuing to secure medium- and long-term contracts which are less susceptible to fluctuations in freight rates.

■ Gas CarriersThe LPG carrier business is expected to remain robust for the foreseeable future. One of the major factors is the growing convenience of LPG for consumers. LPG prices are stabilizing as a result of the growing production of associated gases, primarily shale gas. At the same time, amid continued speculative orders for VLGC, there is concern over the large amount of capacity on order. Overall, however, we have a positive outlook. Gas transport is our core competency and the market upswing is expected to continue. Under these circumstances, we will closely monitor the transport demand of charterers and firmly navigate the market trends. Fiscal year 2014 will be a moment of truth for our LNG carrier business. The full-�edged development of critical projects will occur in the middle of the fiscal year. Large shipping companies are focusing their new investments into this business, and while the challenges are significant, we will strive to increase the number of managed gas carriers one by one. As with the LPG business, it will be necessary to accurately grasp the needs of customers and make proposals that effectively demonstrate Iino Lines ’ strengths.

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Dry Bulker Department Oceangoing Shipping

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Fiscal Year 2013 PerformanceReviewing the business circumstances of dry bulk market in fiscal year 2013, freight rates slumped severely in the first half of the year until recovering in the second half. Newbuilding demand, which had slumped since the Lehman Brothers bankruptcy, re-emerged during the year. Speculative orders by foreign companies were particularly noticeable. In terms of shipping contracts, two dedicated carriers generating stable earnings completed their contracts, and highly profitable contracts of affreightment signed before the Lehman Brothers bankruptcy expired one after another. As a result, a substantial number of vessels were influenced by market fluctuations, which pressured earnings. In this circumstances, we actively signed new dedicated carrier contracts and extended contracts of existing vessels during the year, while aggressively capturing new contracts of affreightment to improve profitability. In terms of fleet enhancement, we signed new building contracts at competitive prices, focusing on Handy-size vessels. Our Handy-size vessels are mainly assigned to fertilizer shipments and Middle East-bound shipments of steel products. With the recent growth in cargo sizes, we have been gradually replacing existing vessels with larger, more fuel-efficient vessels. As these trends are expected to continue for the time being, we will closely monitor newbuilding prices to enhance our fleet, mainly by replacement.

Future OutlookThe dry bulk market is expected to be relatively positive in fiscal year 2014. At the same time, newbuilding demand continues to be high. Japanese shipbuilders are taking orders for delivery in 2017, and vessels prices are rising. In Japan, power companies have announced plans to build new coal-fired power stations throughout the country, which fuels positive forecast of future demand.

In this business circumstance, while our core business is dedicated carriers which earn stable profit and trampers which raise profit by combining partial cargoes and deploying vessels efficiently. We believe it is important to aggressively expand business outside Japan to further efficiency in the future. To enhance our fleet, we will continue the previous year’s strategy of replacing existinig Handy-size vessels with larger, more fuel-efficient vessels. Additionally, we will resume new building orders of Post-Panamax size vessels in order not only to meet growing coal transportation demand but also to secure future contracts of dedicated vessels.

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Dry Bulk Carrier Charter rates (Panamax - Pacific Ocean Round) Dry Bulk Carrier Charter rates (Panamax - Pacific Ocean Round)

Mamoru Chikamitsu, Director, Senior Managing Executive OfficerIn Charge of Oil Tanker & Gas Carrier Department and

Dry Bulker Department

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Chemical Tanker Departments No.1 & No. 2

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Fiscal Year 2013 PerformanceChemical tanker freight rates were generally soft throughout the fiscal year with little fluctuation. Global petrochemical product demand was stagnant due to economic standstill in emerging economies, including China, India, and South American countries. Although a surge in demand prior to the Chinese New Year boosted freight rates temporarily, the increase was not enough to firmly support higher rates. In the clean petroleum product tanker market, rates generally remained soft throughout the year despite temporary periods of recovery driven by the increase in U.S. oil product exports owing to higher shale gas & oil production.

In this business circumstance, we succeeded in generating stable earnings in the time charter business by the chemical tankers and oil product tankers under our control through medium-term and long-term contracts. In our joint-venture with a U.S. chemical tanker operator, we maintained a stable shipping volume by contracts of affreightment, mainly for Atlantic routes, and acquiring contracts for spot cargo. In regard to the chemical tankers under our own operation, we secured a stable shipping volume by raising the ratio of contracts of affreightment on mainstay Middle East-loaded and Asia/Europe-unloaded routes, both inbound and outbound voyages. For South American routes, we completed the target number of voyages and achieved full cargoes on South America-loaded voyages to Asia. During spikes in shipping demand, we procured short-term charters from the market to bolster earnings.

As of March 31, 2014, our fleet of 44 chemical tankers and one oil product tanker generated more than 40% of the Iino Group’s consolidated revenues. Since the Lehman Brothers bankruptcy, seaborne shipments of oil products have slumped and newbuildings have risen, creating a severe market condition. In response, we implemented a restructuring program under the previous three-year medium-term business

plan, IEG14, and established a stable foundation for the business from the perspectives of revenues and expenses. As a result, we have created a firm footing on which to shift to aggressive development under the new medium-term business plan.

Reorganization of Chemical Tanker DepartmentsIn June 2014, we reorganized the Chemical Tanker Group into the Chemical Tanker Department No. 1 and Chemical Tanker Department No. 2. Based at the Tokyo Head Office, the Chemical Tanker Department No. 1 manages the time charter business and the joint venture with a U.S. operator. The department is also in charge of the clean petroleum tanker, which is expected to generate synergy with the chemical tanker business. The Chemical Tanker Department No. 2 is based in Singapore and directly operates chemical tankers.

In “STEP FORWARD 2020,” the new medium-term business plan announced in April 2014, the 2020 vision for the chemical tanker business is as follows: “We aim to increase our presence in the world market and establish ourselves as a significant global player.” Currently, the chemical tanker business enjoys the top share of chemical shipments from the Middle East to the Far East. Moving forward, as we maintain our leading presence in the Middle East, we plan to take advantage of opportunities to ship shale gas products from the Gulf of Mexico and expand into Atlantic routes. LNG is strongly associated with the shale gas revolution, but new ethylene and methanol plants are scheduled to be built in North America and will offer opportunities to ship petrochemical cargoes. We plan to serve the changing logistics demand by bolstering partnerships with our partner in U.S. and strengthening our own overseas sites.

The Chemical Tanker Division has traditionally been the most global-oriented division in the Iino Group. We manage cargo chartering and vessel operations from Singapore, where our local workforce

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Oceangoing Shipping

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Ryuichi Osonoe, Director, Executive OfficerIn charge of Chemical Tanker Department No.1 and

Chemical Tanker Department No.2

is half Japanese and half non-Japanese, with all communication done in English. We also have personnel working at the U.S. joint venture. We plan to build closer relations with our joint-venture partner and enhance operations at our U.S. site to make a full-fledged push into Atlantic routes. Currently, we operate about 30 vessels from Singapore. In the future, we plan to enhance our fleet. As the first step, we have ended the freeze on new investments put in place after the Lehman Brothers bankruptcy with an order for a 35-class, energy-saving chemical tanker. We will continue to replace existing vessels and add vessels to serve Atlantic routes, maintaining a sound balance between company-owned and chartered vessels.

Future OutlookFor the entire chemical tanker market, freight rates are expected to rebound with the tightening vessel supply-demand balance. The amount of newbuildings is expected to decline compared with past years, while demand is expected to rise on shipments of U.S. petro chemical products stemming from growing shale gas production. In the clean petroleum product tanker market, Europe, Australia, and Japan are expected to import a larger amount of oil products due to the closing of domestic refineries. Additionally, exports from North America and the Middle East are expected to lengthen voyage distances. As a result of these factors, freight rates are expected to increase during the year.

The Chemical Tanker Departments No. 1 and No. 2 will operate a three-pillared business model around time charter business, the joint venture with the North American operator, and the Middle East business, continuing to respond to customer needs to provide safe, high-quality shipping services. We will strive to maintain and enhance our competitive advantage in the mainstay chemical tanker business to secure stable earnings, while aiming to generate

higher earnings in the future by opening new routes and expanding commercial rights in both the chemical tanker and clean petroleum product tanker businesses.

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Fiscal Year 2013 Performance

In the central Tokyo lease building market (Chiyoda, Chuo, Minato, Shinjuku, Shibuya Wards), the office vacancy rate fell to below 7% in March 2014, while rent levels rebounded strongly from a prolonged slump to ¥16,000~¥16,500 per tsubo (one tsubo = approx. 3.3m2) for existing buildings and almost ¥28,000 per tsubo for new buildings. Our flagship building, the Iino Building, has been operational for two and a half years since the completion of the first phase of construction. The building has operated stably with full occupancy since then. In rebuilding the Iino Building, we adopted a next-generation design and leading-edge technologies to ensure superior environmental consciousness and a comfortable office space. These world-class features have been duly recognized by society, as the building has garnered a host of accolades, including the Society of Heating, Air-Conditioning, and Sanitary Engineers of Japan Prize.(See the Footnotes on the next page) Actual CO2 emissions have been reduced to below the original target thanks to the high environmental awareness of our valued tenants. The Iino Building can manage temperature and humidity levels separately through an advanced air conditioning system. In this way, we offer a high level of comfort based on the operational motto, “Energy efficiency without any sacrifices.” At other owned office buildings, we collaborate with building management company Iino Building Technology Co., Ltd. to provide meticulous services. As of April 1, 2014, the six Group-owned office buildings had an average vacancy rate of 0.2%, an improvement of 4.5 points from the previous year.

Phase II Construction at the Iino BuildingThe Iino Building’s second phase of construction is progressing smoothly on the north side of the building adjacent to Hibiya Park, with a target completion date of November 2014. The completed underpass will directly connect the Iino Building’s first basement level with Kasumigaseki subway station.

Construction of seven new restaurants on either side of the underpass is also underway (in addition, one restaurant will open on the first basement level). The new eateries will complement the existing 13 restaurants in the Iino Dining area to offer a diverse dining experience.The Iino Forest will open in the above-ground space, boasting a gently sloping green environment of 2,000m2 filled with more than 160 medium- and large-size trees representing 32 varieties. The forest trees, mostly of the broad-leaf variety, were selected from among those indigenous to Japan to offer a truly natural environment. The 16 cherry trees, for example, will include such traditional varieties as double-weeping rosebud cherry and mountain cherry, along with the famous garyu and shokawa cherry trees from Takayama, Gifu Prefecture. This vibrant greenery will also serve to absorb CO2 and offer a comfortable resting spot with fresh air. In the middle of the forest, stunning and expressive works of art from two up-and-coming artists will be exhibited. Please look forward to the exhibition.As a new initiative, the Iino Building also opened a Japanese honeybee apiary on the roof of the Disaster Preparedness Center. We look forward to welcoming visitors to the Iino Forest.

Future OutlookIn recent quarters, the �nancial performance of Japanese companies has improved. Although the consumption tax increase is expected to have a temporary negative impact on the Japanese economy from April 2014, overall the economy is expected to expand approaching the 2020 Tokyo Olympics. Under these conditions, o�ce relocations are expected to continue in the Tokyo lease building market. In terms of rent levels, a growing rent gap is expected to emerge between high-quality buildings o�ering safety and comfort, and buildings without these features. Additionally, the supply of new private-sector o�ce buildings is expected to decline in coming years as a result of a decline in the working-age population amid Japan’s aging trend, as well as higher construction fees stemming from a concentration on public facilities construction for the Tokyo Olympics.

Property Business Department Real Estate

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Footnotes: A list of accolades received by the new Iino Building1) Platinum certification from U.S. green building certification

program LEED2) CASBEE S-rank certification for real estate 3) DBJ Green Building Certification, Platinum4) CASBEE-S rank5) Sustainable Building Award, IBEC President Award6) Society of Heating, Air-Conditioning, and Sanitary Engineers

of Japan Prize

If these trends hold true, rent levels for high-quality buildings are expected to remain �rm. Our department will strive to further raise the level of services while monitoring future supply and demand trends in the lease building market to take advantage of potential asset replacement opportunities.

Fiscal Year 2013 PerformanceIn the two and a half years since the reopening of the Iino Hall & Conference Center, public relations campaigns and other marketing initiatives have been taken to raise its presence in the community. The occupancy rate is increasing thanks to the growing number of repeat clients. In addition to the Japanese rakugo storytelling, concerts, and movie previews traditionally held at the old Iino Hall, the new facilities is hosting a growing number of symposiums, seminars, and lecture events. Situated near government o�ces and transportation, the Iino Hall & Conference Center features a convenient location and meticulous attention to detail. The success of the facilities lies in the painstaking and consistent on-site care of clients, from event reservation to planning, hosting, and after-sales services. 　

Future OutlookIn recent years, more newly constructed buildings have added halls, conference rooms, and other facilities to gain the bene�t of increased overall capacity ratio when adding human development spaces. As a result, the competition among facilities is expected to intensify. In this environment, we are strengthening our on-site and administrative structures in order to raise service quality a notch higher and di�erentiate ourselves from other facilities. We �rmly believe that we need to put more e�ort to further promote the bene�ts of Iino Hall & Conference Center and have the facilities used by a greater number of people. Currently, we hold lunchtime concerts in the �rst �oor lobby on the third Wednesday of every month. We plan to increase these types of cultural and artistic events in the future to support the creation of rich urban lifestyles and spaces.

Fiscal Year 2013 PerformancePhoto studio company Iino Mediapro Co., Ltd. was founded in 1997 as a way to diversify business and has since developed into an important culture dissemination organization for the Iino Group. Fiscal year 2013 was an important year for promoting new directions at Iino Mediapro. Following the Great East Japan Earthquake, the company’s revenues su�ered amid clients’ voluntary restraint on advertising. The company responded by expanding from photo studio management into retouching services, which includes digital video editing and retouching, as well as production services, which covers advertisement creation, design, and TV commercial video production. In April 2014, Iino Mediapro merged retouching divisions divided between the Hiroo and Minami-Aoyama studios into a new Retouching Division. The division is expected to make take bold new strides in the future.

Future OutlookIino Mediapro has branched out from studio operations to take on new challenges in the world of video production. The company will strive to evolve into an organization that creates new culture on this video frontier. Iino Mediapro will continue to attract attention as one of the most creative divisions in the Iino Group.

Iino Hall & Conference Center Iino Mediapro Co., Ltd

Akihiko Okada, Director, Executive OfficerIn charge of Property Business Department

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Fiscal Year 2013 PerformanceWith respect to domestic shipping of fuel-use LPG is the main business of Iino Gas Transport Co., Ltd., shipping demand remained weak throughout the year by growing energy saving, surplus of tonnage emerged by fuel-use LPG lower demand in the summer season.However, for petrochemical gases including ethylene, production was robust throughout the year, and cargo volume was also increased. As a result, shipping demand recovered and shortage of tonnage emerged from the winter season through March.Looking at domestic shipping market conditions, by the e�ect of “Abenomics” economic policies and holding in Tokyo of the Summer Olympics, shortage of tonnage became remarkable in the domestic dry bulk ship for steel product, cement and other industrial materials, and upward momentum of charter hire and freight being emerged. These positive factors have yet to in�uence the market of domestic tanker including gas carrier. In the Regional Shipping Business, China's economic slowdown has become more pronounced and the inter-Asia petrochemical gas cargo volume declined. As a result, market of 3,500m3 type gas carrier has softened.With the yen depreciation, newbuilding ship prices are more attractive and orders from foreign companies have increased. In this business circumstance, Iino Gas Transport will strive to secure stable earnings in both the Domestic Shipping Business and Regional Shipping Business by signing dedicated vessel contracts and medium- and long-term contracts with shippers for most of the �eet.We actively enhanced our �eet during the year. Three newbuilding vessels were delivered to our domestic �eet, and in order to respond �exibly to the demand trends in the Regional Shipping Business, we ensured proper �eet through optimal type of vessel. As a result, our earnings surpassed the original target.

Future OutlookIn the Domestic Shipping Business, fuel-use LPG demand is expected to decline in �scal year 2014, while ethylene

and other petrochemical gas plants are expected to maintain a high operating capacity due to the continued economic recovery trend. Although there is concern that U.S. petrochemical product imports will increase amid the shale gas revolution, the number of new vessel deliveries is expected to be limited. Therefore, the tight supply-demand balance is expected to support a steady improvement in market of domestic gas tanker. In the Regional Shipping Business, the number of new vessel deliveries is expected to gradually increase from this �scal year, while the number of orders is expected to decline.In consideration of the gradual scrapping of aged vessels, it is unlikely that the supply-demand balance will loosen signi�cantly beyond the current level. A recovery in China demand, meanwhile, is expected to take more time, and therefore a rebound in Asia is not expected to occur until the second half of �scal year 2014. In this circumstance, we will continue to rejuvenate and enhance our �eet in the Domestic Shipping Business. We will take delivery of one new vessel in �scal year 2014 and one new vessel in �scal year 2016, while taking other initiatives moving forward to ensure we are a leader in �eet development. In the Regional Shipping Business, we will take delivery of two new vessels in �scal year 2014 and create new �eet development and business expansion plans to meet the expected near-term rise in Asian demand. Based on this policy, although depreciation expenses are expected to rise with the increase in new vessel deliveries, we expect to renew existing contracts on favorable terms and acquire new contracts to buttress our earnings.

Iino Gas Transport Co., Ltd. Regional Shipping

Shigeki Miyake, PresidentIino Gas Transport Co., Ltd.