TOKYO GAS ANNUAL REPORT 2018

Financial data
11-Year Consolidated Financial Highlights

As of March 31, 20182008.32009.32010.32011.3

1,487,496

1,660,162

1,415,718

1,535,242

Operating Profit (¥ million)

70,04865,20485,229122,451

Operating Profit Margin (%)

4.71

3.93

6.02

7.98

Ordinary Profit (¥ million)

66,83258,337

83,519121,548

Profit attributable to owners of parent (¥ million)

42,48741,70853,781

95,467

Equity (¥ million)

769,072

772,365

813,886

858,920

1,703,651

1,764,185

1,840,972

1,829,661

Interest-bearing Debt (¥ million)

558,716

593,230

555,919584,169

Operating Cash Flow (¥ million)

184,908

182,791

199,898

244,803

Free Cash Flow (¥ million)

46,90236,862

51,712

94,600EBITDA (¥ million)

212,469

206,287

231,346

271,788

Capital Expenditure (¥ million)

138,006

145,929

148,186

150,202

Depreciation (¥ million)

142,421141,083

146,117

149,336

EPS (Earnings per Share, fully diluted) (¥)

15.50

15.37

19.86

35.63

BPS (Book Value per Share) (¥)

289.49284.72301.58320.702,741,571

2,717,571

2,703,761

2,684,1938899

DOE (Dividends on Equity) (%)

2.72

2.78

3.07

2.88

Payout Ratio (%)

50.19

51.18

45.32

25.26

Total Payout Ratio (%)

73.56

63.35

60.11

60.87

Current Ratio (%)

106.76118.99120.93142.26

D/E (Debt-Equity) Ratio (times)

0.73

0.77

0.68

0.68

Equity Ratio (%)

45.14

43.78

44.21

46.94

ROE (Return on Equity) (%)

5.43

5.41

6.78

11.41

ROA (Return on Assets) (%)

2.50

2.41

2.98

5.20

Total Asset Turnover (times)

0.88

0.96

0.79

0.84

TEP (¥100 million)

17-48186

640

WACC (%)

3.6

3.4

3.2

3.3

10,38010,513

10,637

10,73914,215

13,942

13,666

14,745————Net Sales (¥ million)

Total Assets (¥ million)

Number of Issued Shares (Common Stock) (thousands of shares)
Dividend per Share (¥)

Number of Customers (thousands, meter)
Gas Sales Volume (million m3)
2020 vision basis*

2Notes Depreciation includes amortization of long-term prepaid expenses.
The financial information contained in this annual report is based on annual securities report. However, it has not been audited by certified public accountants.
*1 The Company carried out a share consolidation at a ratio of 5 common shares to 1 on October 1, 2017.
The dividend per share of 55.0 yen is calculated on the post-consolidation basis (the interim dividend of 5.50 yen per share before the share consolidation and the year-end dividend of
27.50 yen per share after the share consolidation).
*2 2020 Vision basis … The figures represent baseline values for sales volume targets set forth in our management vision, Challenge 2020 Vision. They are obtained by adding volume forin-house use and LNG sales volume (excluding volume for Nijio) to consolidated gas sales volume.

55

Introduction

1,754,257

1,915,639

2,112,117

2,292,548

1,884,656

1,587,085

1,777,344

77,075

145,633

166,044

171,753

192,008

58,365

116,302

4.39

7.60

7.86

7.49

10.19

3.68

6.54

75,620147,453

159,613

168,169

188,80955,688111,546

46,060101,678

108,451

95,828111,936

53,13474,987

839,166

927,634

1,011,787

1,069,515

1,100,271

1,101,498

1,136,027

1,863,885

1,992,403

2,176,816

2,257,662

2,251,518

2,230,269

2,334,721

625,830

642,550

713,823

730,739715,769

713,596

724,940

194,565

240,448

248,831237,680

257,122

217,439

240,328

48,15256,651827

13,08425,08914,081

31,583

225,580

284,403

306,424

313,605

337,194

222,670

281,643

146,413

183,797

248,004

224,596

232,033

203,358

208,745

148,505

138,770

140,380

141,852

145,187

164,305

165,341

17.70

39.52

43.10

39.15

46.68

23.02

164.12*1

324.67360.70402.91438.28460.35479.742,487.58*1

2,590,715

2,577,919

2,517,551

2,446,778

2,396,778

2,302,856

458,073*1

910

10

10

11

11

55*1

2.74

2.91

2.59

2.34

2.58

2.29

2.25

50.85

25.30

23.20

25.55

23.57

47.79

33.51

61.36

60.70

60.00

60.80

60.10

60.71

60.20

156.89162.16

156.67150.63155.48142.69138.51

0.75

0.69

0.71

0.68

0.65

0.65

0.64

45.02

46.56

46.48

47.37

48.87

49.39

48.66

5.42

11.51

11.18

9.21

10.32

4.83

6.70

2.49

5.27

5.20

4.32

4.96

2.37

3.29

0.95

0.99

1.01

1.03

0.84

0.71

0.78

91

598

507

434676-62

244

3.1

3.2

3.2

3.6

3.4

3.0

3.1

10,855

10,978

11,111

11,263

11,398

11,536

11,67815,19015,39014,735

15,541

15,436

15,72015,56815,833

16,741

17,22518,36018,587

19,05319,052Computations
Operating Cash Flow = Profit attributable to owners of parent + Amortization of Long-term Prepaid Expenses + Depreciation
Free Cash Flow = Profit attributable to owners of parent + Amortization of Long-term Prepaid Expenses + Depreciation – Capital Expenditure
Current Ratio = Current Assets (year-end) / Current Liabilities (year-end) x 100
Debt-Equity Ratio = Interest-bearing Debt (year-end) / Equity (year-end)
Equity Ratio = Equity (year-end) / Total Assets (year-end) x 100
Total Asset Turnover = Net Sales / Total Assets (average)
TEP (Tokyo Gas Economic Profit) = Profit after taxes and before interest payments – Cost of capital (invested capital x WACC)

Financial data

2018.3Invisible assets

2017.3

Corporate governance2016.3Business overview

2015.3Overall image after
full deregulation

2014.3

GPS2020

2013.3Message2012.3

WACC calculation data (fiscal 2017 actual)∙ Interest-bearing debt cost: Real interest rate of 1.04%(after tax)
∙ Cost of shareholders’ equity∙ Risk-free rate: 10-year JGB yield of 0.05%∙ Risk premium: 5.5%, Beta coefficient of 0.75

56

TOKYO GAS ANNUAL REPORT 2018

Financial data
Operating cash flow

Total payout ratio(¥ million)(%)

300,000

75.0

250,000

62.5

200,000

50.0

150,000

37.5

100,000

25.0

50,00012.5002009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Return on equity (ROE)(%)(¥100 million)

12750

10600

8450

6300

4150

200-150
2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Gas sales volume3(million m )21,00017,50014,00010,500

7,000

3,500

0
2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

57

TEP

2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Consolidated Statement of Income(¥ million)

2017.3.31(¥ million)

2018.3.31

Assets

Net sales

Non-current assets

Cost of sales
Gross profit

Property, plant and equipment
Production facilities
Distribution facilities
Service and maintenance facilities
Inactive facilities
Construction in progress
Total property, plant and equipment

236,334
560,216
52,244406,221316
157,913
1,413,246

1,600
77,615
79,215

1,254
92,16793,422Intangible assets
Goodwill
Other intangible assets
Total intangible assets
Investments and other assets

239,379
27,9291730,864
36,693(378)
334,505
1,841,174

Current assets
Cash and deposits
Lease receivables and investment assets
Securities
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets
Other current assets
Allowance for doubtful accounts
Total current assets

General and administrative expenses
Total selling, general andadministrative expenses
Operating profit

56,39596,413
10,33320,000145,843
328,987
1,117,461

58,09480,8197,800
30,237
179,376
356,328
1,186,288

476,834

457,050

58,365

116,302

901
2,178
1,740

1,158
2,967
1,637

3,583

2,493

5,889
14,2934,800
13,057

11,514
2,564
2,893
16,971
55,688

11,6191,829
4,364
17,813
111,546

6,610
9,120
15,7303,403
3,049
6,452

2,408
2,408
69,01025,271(10,305)
14,96654,044910
53,134

3,213
3,213
114,784
31,527
7,957
39,48475,300312
74,987

Non-operating income
Interest income
Dividend income
Rent income
Share of profit of entities accounted
for using equity method
Miscellaneous income
Total non-operating income
Non-operating expenses
Interest expenses
Balance on commissioned construction
Miscellaneous expenses
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of investment securities
Total extraordinary income
Extraordinary lossesImpairment loss
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

Liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities
Net defined benefit liability
Provision for gas holder repairs
Provision for safety measures
Provision for appliance warranties
Provision for point card certificates
Asset retirement obligations
Other non current liabilities
Total non-current liabilities
Current liabilities
Current portion of non-current liabilities
Notes and accounts payable - trade
Short-term loans payable
Income taxes payable
Other current liabilities
Total current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares

Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated othercomprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

141,844
1,898
936,635(3,642)
1,076,736

27,16630,282(990)
36,3994,845(251)
33,206(3,945)67,42259,291

11,309
1,112,807
2,230,269

12,405
1,148,433
2,334,721(¥ million)
2016.4.1 - 2017.3.31
Profit before minority interests
Other comprehensive income
Valuation difference on availablefor-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit
plans, net of tax
Share of other comprehensive
income of entities accounted forusing equity method
Total other comprehensive income
Comprehensive income
Breakdown of comprehensive incomeComprehensive income
attributable to owners of parent
Comprehensive income attributable tonon-controlling interests2017.4.1 - 2018.3.31

54,04475,300

870

3,145

1,360
(6,470)666(3,537)22,875(8,784)(1,844)407

16,791
70,835(8,101)
67,19869,91966,856915

341

Financial data

Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on availablefor-sale securities
Deferred gains or losses on hedges

141,844
1,883
893,436(3,087)
1,034,076

Consolidated Statements ofComprehensive Income

Invisible assets

294,998
358,680
11,30373,161
3,107
3,115
9,984
835
13,20061,572829,959

392,680
64,370

Corporate governance314,997
326,752
11,29973,5243,262
4,711
10,298
11,97531,650788,474

410,125
66,708Business overview

Total assets

Supply and sales expenses

Overall image after
full deregulation

Notes and accounts receivable - trade128,331
216,234
22,18815
2,494
12,41745,454
10,39656,897(884)
493,547
2,334,721

1,777,344
1,203,991
573,353

Selling, general and administrative expenses

Gain on sales of non-current assets

132,626
194,240
24,0972,317
12,466
40,763
9,050
54,259(374)
469,447
2,230,269

1,587,085
1,051,885
535,200

GPS2020

182,443
Long-term loans receivable
28,128Net defined benefit asset
24
Deferred tax assets
40,127
Other investments and other assets
39,100Allowance for doubtful accounts(367)
Total investments and other assets
289,456
Total non-current assets
1,760,821
Investment securities

2017.4.1 - 2018.3.31

Message

Other facilities

235,152
539,840
53,623416,142316
147,074
1,392,149

2016.4.1 - 2017.3.31

Introduction

Consolidated Balance Sheet

58

TOKYO GAS ANNUAL REPORT 2018

Factors Affecting Revenues
and Expenses

Financial data
Consolidated Statements of Cash Flows(¥ million)
2016.4.1- 2017.3.31

2017.4.1 - 2018.3.31

Cash flows from operating activities
Profit before income taxes

69,010114,784

Depreciation

160,871

161,093

Impairment loss

2,408

3,213

Amortization of long-term prepaid expenses

3,433

4,248

Loss on retirement of property, plant and equipment

2,047

1,845

Loss (gain) on sales of non-current assets(6,555)(3,397)

Loss (gain) on sales of investment securities(9,120)(3,042)

Increase (decrease) in net defined benefit liability(3,374)(12,461)

Increase (decrease) in provision forsafety measures

4,245(1,596)

Interest and dividend income(3,080)(4,125)Interest expenses

11,514

11,619

Share of loss (profit) of entities
accounted for using equity method(3,583)(2,493)

Decrease (increase) in notes andaccounts receivable - trade

4,286(20,602)

Decrease (increase) in inventories

3,700(4,948)

Increase (decrease) in notes andaccounts payable - trade17,567(631)

Increase (decrease) in accrued
consumption taxes(4,326)3,000

Decrease (increase) in accounts
receivable - other

1,997

1,265

Net decrease (increase) in leasereceivables

(12)

1,959

Other, net

18,22931,525

Subtotal

269,261

281,258

Interest and dividend income received

14,593

12,295Interest expenses paid

(11,509)(11,502)

Income taxes paid

(33,610)(22,312)Net cash provided by (used in) operating activities

238,734

259,738

Purchase of investment securities(9,922)(47,898)

Proceeds from sales and redemption ofinvestment securities

9,489

5,021

Purchase of property, plant and equipment(165,918)(177,671)

Purchase of intangible assets(29,542)(27,638)

Purchase of long-term prepaid expenses(8,322)(1,653)

Proceeds from sale of non-current assets

7,124

3,799

Payments of long-term loans receivable(6,073)(3,101)

Collection of long-term loans receivable

1,675

2,801

Other, net(3,383)(821)(204,873)(247,162)

Net increase (decrease) in short-term loans payable(6,260)(2,645)

Repayments of lease obligations(1,399)(1,526)

Cash flows from investing activities

Net cash provided by (used in) investing activities
Cash flows from financing activities

22,67060,471

Repayments of long-term loans payable(19,982)(62,065)

Proceeds from issuance of bonds

30,00020,000-2,034

Purchase of treasury shares(41,065)(7,082)

Cash dividends paid

(26,969)(25,187)

Other, net(27,892)(648)

Net cash provided by (used in) financing activities(70,899)(16,651)

(498)

(220)

Net increase (decrease) in cash and cash
equivalents(37,536)(4,294)

Cash and cash equivalents at beginning of period

170,102132,566

Cash and cash equivalents at end of period

132,566

128,271

Effect of exchange rate change on cash
and cash equivalents59

Gas prices are determined using the gas rateadjustment system. Through this system,
average raw material prices over a three-month
period according to trade statistics arecompared with the raw material cost that is usedas the standard (standard average raw materialcost), and the gas rates are adjusted using adefined calculation method based on thedifferences. A time lag of four months onaverage (called a sliding time lag) exists
between the payment of raw material costs andthe reflection of such changes in gas rates.
Consequently, fluctuations in crude oil prices
and exchange rates may result in the underrecovery or over-recovery of raw material costs if
this lag cuts across a fiscal year, thereby
affecting income. Looking at the medium- tolong-term, however, the gas rate adjustment
system has a neutralizing effect on the income
impacts of fluctuations in raw material costs.

Timing of the Standard Average Raw Material
Cost Calculation and Reflection in Gas Rates
Timing of standard average raw material cost calculation
Jan. Feb. Mar. Apr. May. Jun.

Jul.

Aug.

Jul.

Aug.

Sep.

Dec.

Average raw
material price
Average raw
material price
Average raw
material price

Reflection in gas rates Jun.

The average raw material price over the past
three months is calculated every month and thenreflected in the gas rate three months later.

How the Sliding Time Lag in Rates Works
All Japan LNG price

Proceeds from long-term loans payable

Proceeds from share issuance to noncontrolling shareholders

Gas Rate Adjustment System’s Mediumto Long-Term Neutralizing Effect on Crude
Oil Price and Exchange Rate Fluctuations

Average raw material price reflected in gas rateUnder
recoveryFY NOverrecovery

FY N+1