CFO’s message

Tokyo Gas is committed tosustainable growth investment
and enhancing shareholder
return, while remaining alert tomaintaining financial healthIsao Nakajima
Senior Executive Officer, CFO

As CFO, I participate in the process of reviewing anddeciding on management strategy and am in charge offinancial and capital policy. The basic financial andinvestment policy of Tokyo Gas is to achieve threeobjectives that are mutually related: (1) to make sustainable
investment for growth; (2) to maintain financial health; and(3) to deliver stable and appropriate shareholder return.

Based on a solid financial position as shown by the equity
ratio of 49% and debt-to-equity ratio of 0.65 as of March
31, 2017, we are determined to continue active growthinvestment and maintain our current competitive
shareholder return (total payout ratio of 60%) in fiscal 2017.
Our ordinary income in fiscal 2016 decreased 70% yearon-year to ¥55.6 billion. This does not necessarily indicate
the degree of our earning power. The decline was mainly
due to the sliding time lag associated with changes in oil
prices and actuarial gain or loss, which wiped out profit by

Capital Expenditures and Gas Sales Volume

Shareholder Returns

We have made investments toenhance earning power(¥ billion)

Capital expenditures (LH)

Gas sales volume (RH)

(billion m 3 )(¥ billion)

80

225

1560

58.1

150

1040

34.0

31.2

75

5

20

0

00

10.0

21.3

1995.3

2000.3

Ohgishima LNG Terminal,
Keihin Line, etc.

13Share repurchases

20300

2005.32010.32017.3Chiba-Kashima Line,
Hitachi LNG Terminal, IbarakiTochigi Line, etc.

*1 Non-consolidated basis up to fiscal 1998; consolidated-basis from fiscal 1999

32.2
26.4
5.0
21.4

61.7

36.0

67.3

65.1
58.2

40.0

41.0
33.8

32.3

28.3

7.9

24.3

Dividends paid

7.0

5.0

24.1

23.3

25.7

25.1

24.4

26.3

25.3

2008.3 2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3
Total payout ratio

73.6% 63.4% 60.1% 60.9% 61.4% 60.7% 60.0% 60.8% 60.1% 60.7%*2 Gas sales volumes from fiscal 2011 are on a 2020 Vision basis. (Including the portion used in tolling and the LNG sales volume.)

1

Steadily implement growthinvestments, with consideration
given to investment efficiency
and cost of capital

2

Ensure financial health, to support
sustainable growth investment andstable shareholder returnroughly ¥120 billion. In addition to these one-off factors,
upfront investment for newly-entered retail electricity
business and depreciation expenses in projects, such as
for start-up of the Hitachi LNG Terminal (to greatly improvecity gas supply capacity), depressed profit. However, we
strongly believe that these are advance investments for
future growth, leading to enhance our medium- to longterm earning power.

Shifting into a Yatsugatake Mountains typemanagement to facilitate steady execution ofvarious strategies
Our Challenge 2020 Vision can be summarized as
constructing a business portfolio that enables us to firmly
make money in city gas, our original core business, as wellas in other businesses. Our specific target is to earn in theratio of 2:1:1 in the city gas, overseas, and otherbusinesses including LNG sales and electric power. We aremoving away from management focused on one dominantbusiness, city gas, “Mt. Fuji type”, to management ofseveral large businesses, “Yatsugatake Mountains type”.
Initially, when we launched the Challenge 2020 Vision, we
did not have a fully articulate image. Subsequently, throughcarrying out initiatives, we have organized our vision into
seven business domains: City gas business, Electric powerbusiness, Liquid gas (LPG and industrial gas) business,
Living service business (life support, ideas and hints forliving, comprehensive facilities, etc.), Engineering service
business (energy service, LNG facilities, etc.), Urban
development service business (real estate usage andmanagement), and Overseas business.
In the electric power business, we plan to increase thenumber of customers from about 730,000 in fiscal 2016 toone million in fiscal 2017. Since April 1, 2017, retailing ofcity gas has become fully deregulated. We will not merely
continue our city gas business as it has been. We think it
is important to proactively provide customers with valueadded services by combining city gas, electricity, andlife-related services.
Overseas, we focus on North America and Southeast Asia,
where our initiatives to participate in shale gas or gas-fired
power generation businesses in cooperation with local
major companies have been making progress. We certainly
consider feasibility, risk management, and other factors,
and cautiously make investment decisions. At the sametime, we want to realize a virtuous cycle, in which each3

Sustain specific shareholder
return policy (Total payout ratioof 60%)

achievement is accumulated and leads us to the next
business opportunity.
In the urban development service business, we arecollaborating with a major developer for a large-scale
project “msb Tamachi” in the East Exit area of JR Tamachi
Station in central Tokyo , to be completed by 2020.
As such, each business, representing each peak of amountain range, independently carries out growthstrategies, while the group-wide comprehensive
management system covering all businesses is beingenhanced to realize the Challenge 2020 Vision.

TOKYO GAS ANNUAL REPORT 2017

Basic Financial Policy

Alert to the cost of capital in making investment
decisions; moving toward achieving 8% ROE
The Challenge 2020 Vision has set the amount ofinvestment and loans at ¥2,060 billion for nine years tofiscal 2020. We have already invested over 50% of thistarget amount. In fiscal 2017 and after, we plan to enhancemaintenance, such as pipeline replacement, and to invest
in a high-pressure pipeline network from a longer-term
perspective. Particularly in the overseas business,engineering service business, and real estate business, weare mindful of the cost of capital in making investment
decisions, in order to improve ROE.
Our ROE target in the Challenge 2020 Vision is 8% by
fiscal 2020. While ROE in fiscal 2016 fell short at about 5%,
partly due to the effect of the sliding time lag, a one-off
negative factor, we will steadily maintain and expand
earnings of each business, that comprises our“Yatsugatake Mountains”, so as to achieve our target.

Maintaining a total payout ratio of 60% in
dividends and share buyback
We are on record as pledged to return approximately 60%
of consolidated net profit in dividends and stock
repurchases to shareholders through fiscal 2020. Thismeans we will raise dividends step by step, while returning
earnings, or the outcome of business, on a timely basis toshareholders. Our target of 60% reflects balanced
consideration given to shareholder return, future growthinvestment, and financial health, as diligent use of thegenerated cash flow. We are making our policy on
distribution of the surplus as clear as possible, as a part ofefforts to ask for continued understanding and support ofshareholders.

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