TO OUR SHAREHOLDERS AND INVESTORS

President Mitsunori Torihara

Fiscal 2008 in Review:
A Year of Dramatic Changes

crude oil price underwent dramatic—from January to March 2009, theand extremely unusual—fluctuations,amount by which gas rates wereFiscal 2008 (the year ended March

posting a record high of $147.27 peradjusted to reflect increased resource2009) was marked by unprecedented

barrel in July and subsequently falling

costs under the gas rate adjustmentchanges in the Company’s operating

to the $30 dollar level in December.

system was reduced by ¥4.2 billion, andenvironment. Due to the global

As the price of LNG, the resource forthat amount will be recovered throughrecession that began with the finan-city gas, is basically linked to the priceadjustments to rates in fiscal 2009.)

cial crisis in the United States in theof crude oil, these fluctuations had aAlso, the gas rate adjustment systemfall 2008, Japan’s economy under-major effect on our revenues andwas itself revised, and a new systemwent a significant slowdown during

expenditures. In the second half of thewas implemented in May 2009. Under

the year, and there are still no clear

fiscal year, the LNG price began to

the new system, gas rates are reviewed

signs of a recovery. As a result,appreciate, favorably impacting oureach month and changes in resource

demand for city gas, which supports

performance. However, the time lag

prices are reflected more promptly inindustrial activities, declined mainly

under the gas rate adjustment system

the rates. In the same way, the gas rate

due to lower utilization rates at

had an adverse effect on our perfor-adjustment system for large-volume

plants. Year on year, gas sales volumemance in the fiscal year.

customers was reviewed from February

in the industrial sector was down

2009. The timing of the gas resource

about 2% for the full fiscal year andgas rate adjustment system, total net

price shift was advanced, and conse-down more than 10% in the second

sales increased 11.6% from the previous

quently the risk that the changes in thehalf of the fiscal year, when theyear, to ¥1,660.1 billion. Nonetheless,gas resource price would affect income

economic recession became more

operating income and net income bothwas reduced.

apparent. Total gas sales volume,declined, with operating income down

including that for the residential, com-6.9%, to ¥65.2 billion, and net income

mercial and other sectors, declined

decreasing 1.8%, to ¥41.7 billion.

year on year for six consecutive

Against the background of thesemonths from October 2008, and it

dramatic fluctuations in LNG prices, indeclined 1.9% for the full fiscal year.

response to requests from the govern-Moreover, the dramatic fluctua-08

Due to higher unit prices under thement, we implemented special mea-

tions in crude oil prices were a major

sures to mitigate changes in gas rates ininfluence on our operations. The WTI

the residential sector. (For the periodMajor Management Indicators in Medium-Term Management PlanTEPOperating Cash Flow(¥ billion)

ROE / ROA(%)

20

Fiscal 2007 ¥184.9 billion

815

Fiscal 2008 ¥182.7 billion

61045

Fiscal 2009 – 2013
Total ¥1,060.0 billion

0–5
FY070820FY130708

Outlook

13Outlook

TEP (Tokyo Gas Economic Profit) =net operating profit after tax prior to interest payments –cost of capital (invested capital x WACC)
WACC Fiscal 2007 results: 3.6%
WACC Fiscal 2008 results: 3.4%
WACC Fiscal 2013 outlook: 3.8%

ROEROAROE = net income / total shareholders’ equity(average of positions at start and endof fiscal year)
ROA = net income / total assets (average ofpositions at start and end of fiscal year)

Preparing a Foundation
for Long-Term Growth

add value for customers. In addition, theas well as the ”evolution and advance-

integrated energy business is also ament of the integrated energy busi-

Even in this difficult operating envi-

long-term strategy for the development

ness strategy.”ronment, we are steadily implement-of operations in a wider supply area,

ing a variety of initiatives for future

centered on the region extending for aenvironmental change that we consid-growth. As a Group providing energy

200-km radius around Tokyo. In fiscal

ered was the growth in social demands

to society, we continually make long-2008, we steadily implemented key

for environmental conservation. The

term forecasts regarding future

initiatives targeting growth in integrated

first commitment period of the Kyotodemand and move forward with theenergy operations, such as the expan-

Protocol came into effect in 2008, andestablishment of a sound supply

sion of LNG upstream and transport

discussions regarding the post-Kyoto

system. We are also working aggres-operations, the expansion of pipeline

framework are underway in the ap-

sively with the development ofsystems, the construction of large-scaleproach to COP15, the U.N. climate

technologies related to sophisticatedpower generation facilities, the en-conference, which will be held inenergy usage to ensure that we canhancement of energy service operations,

December 2009. Climate change

provide high-value-added products

and the establishment of a new fran-countermeasures are becoming moreand services to meet changing

chise system in order to improve theimportant. In this setting, we must

market needs.

services to local communities.

actively respond to the demands ofIn formulating the plan, the first

The Group is aiming to achievewith natural gas at its core. The inte-Background to the Formulationof the New Medium-Term
Management Plangrated energy business is a business

In January 2009, we formulated amodel for realizing optimal energy

medium-term management plan for

usage by customers, and by doing so,

fiscal 2009–2013. This plan targets an

we also aim to develop new demand. To

appropriate response to the economic

those ends, it includes being a multi-

recession discussed above, to fluctua-

energy supplier that provides access totions in the operating environment

gas, electric power, and heat, as well as

stemming from crude oil price move-an energy services provider offering aments, and to changes in the man-variety of one-stop energy solutions thatagement environment going forward,

sustained growth through the establishment of an integrated energy business,

WE ARE STEADILY
IMPLEMENTING A
VARIETY OF INITIATIVESFOR FUTURE GROWTH

09

As an “energy frontier corporate group” with operations centered on natural gas,
we endeavor to realize comfortable lifestyles and environmentally friendly cities,
and strive to ensure continued development while consistently earning the trustof customers, shareholders, and society—In accordance with this management philosophy, we will focus on the evolution
and advancement of the integrated energy business.

customers and society by further

changes in the gas resource procure-forcement of the synergy of All Tokyo

expanding the highly efficient usage ofment environment. The price of LNG isGas.” In this way, the new medium-

natural gas and providing optimal energy

possibly on a rising trend over theterm management plan targets theusage systems that offer high environ-

medium to long term due to such

evolution and advancement of themental value, utilizing renewable energy.

factors as increasing global demand andintegrated energy business.

Change in the structure of energy

the rise of resource nationalism. Accord-demand was another important point iningly, we need to enhance the LNG

the formulation of the plan. In thevalue chain, such as in upstream andindustrial and commercial sectors, wetransport operations, and by doing so,

The Role of Tokyo Gas
in Alleviating Environmental
Problems

expect a short-term decline in demand

we will strengthen our system for theIn terms of growth potential, thedue to the economic recession. How-

stable procurement of cost-competitive

most promising field is the business

ever, given the environmental merits ofLNG over the long term.

related to the reduction of environ-Competition in energy markets

mental burdens. As an “energy

in the Kanto area for gas demand

continues to intensify. Particularly, in thefrontier corporate group” withswitching from oil to natural gas and forresidential sector, electric power compa-operations centered on natural gas,power generation. By expanding

nies are aggressively promoting all-

we have a management philosophy

infrastructure and aggressively develop-

electric houses. In response, we need tothat targets the realization of com-ing potential demand, we expect

bolster our overall competitiveness, notfortable lifestyles and environmentallyindustrial and commercial demand tolimited to our gas price competitiveness,friendly cities. We strive to ensure

become a major source of future

but also technology, product, proposal,

continued development based on thegrowth. In the residential sector, there isand other capabilities that enable us totrust of customers, shareholders, anda trend toward slow growth in energy

respond appropriately to diverse cus-society. In accordance with thisdemand over the long term due totomer needs.

philosophy, we are implementing anatural gas, there is still a large potential

sluggish housing starts, a decrease invariety of initiatives to create higher
environmental value.

the average number of people perchanges in the environment, we willhousehold, the diffusion of energy-

develop our operations with an empha-

saving appliances, and an increase in

sis on the “three E’s”—Eco-friendly

these initiatives is the May 2009 start ofhousing that is more airtight and better(creation of value emphasizing themarketing of the “ENE-FARM” residen-insulated. Our important challenges

environment), Excellent service (im-tial-use fuel cell cogeneration system,

include bolstering sales for the purpose

provement of value for customers), andwhich has been highly anticipated notof expanding new demand in the Kanto

Expansion (rigorous in-depth cultivation

only by the national government butarea, where the population is still

and widening of markets). At the same

also by the housing industry and local

expected to grow, and taking steps totime, we will focus on two initiatives

communities. We have demonstratedsteadily increase demand.

that support the three E’s: ”strengthen-that “ENE-FARM” reduces energy

ing the LNG value chain” and ”rein-consumption by 33% and CO2 emissions

Furthermore, we must respond to10

In consideration of these kinds of

One of the most noteworthy of45% in comparison with conventional

Gas will support alliances among

previously divided among Enesta andsystems. For a typical household—aindustry, government, and academia

Tokyo Gas Customer Service. Now,

detached house with four people—thisand aggressively invest resources inTokyo Gas LIFEVAL provides one-stop

is equivalent to an annual reduction intechnological development based on

customer service for a variety of

CO2 emissions of 1.5 tons (1 kg pera long-term viewpoint.

needs. We have divided our base of

person per day). “ENE-FARM” willapproximately 10 million customers in
the Tokyo metropolitan area into 65

gases, and we will do our utmost toBrand Strength Based on
Relationships of Trustwith Customers

promote its diffusion.

Our close relationships with custom-of these blocks through joint invest-ers, which have been cultivatedment by the Company and the former

sectors, meanwhile, we will develop

throughout our history of more than

Enesta. We expect to complete theenergy services with higher environmen-

120 years, and our brand strength,

establishment of the new system intal value. In addition to cogeneration,

which is represented by the words

October 2009. Through this system,

these services will utilize renewable“security,” “safety,” and “reliability,”

we will further strengthen our rela-energy, including sunlight and solar

will become increasingly important

tionships with customers, counter theheat. In this way, we will make steadysources of competitive advantage inaggressive sales efforts by electric

progress toward the realization of athe years ahead. To fully leverage

power companies to promote a shift

low-carbon society. Also, in regional

these strengths and accurately meetto electricity, and work to achieve

redevelopment projects, Tokyo Gas will

increasingly diverse and sophisticatedsustained increases in the market

strive to build optimal energy systems at

customer needs, we are rebuilding

share earned by gas.

the local community level through theour sales and customer service systemuse of the area-wide, networked energy

with a focus on close links to local

system “Smart Energy Network.” Thesecommunities. Since April 2008, wesystems will allow flexible exchange of

have been steadily establishing newenergy among residences, office

Tokyo Gas LIFEVAL operations.

buildings, and large commercial facili-

Through Tokyo Gas LIFEVAL, we areties, such as hospitals and hotels.

restructuring and integrating the sales

certainly play an important role in
reducing climate change contributing

In the industrial and commercialTo move forward with this type ofand costomer service functions, which

advanced energy usage, it will be

are key points of contact with cus-

necessary to accelerate the develop-tomers. These functions, which

ment of innovative new technologies,

include gas service related construc-such as high-efficiency appliances andtion, sales and maintenance of gas

optimal energy systems that utilize

appliances, meter reading, and peri-renewable energy. Accordingly, Tokyo

odic gas facility safety checks, wereservice blocks, and will establish
Tokyo Gas LIFEVAL operations in eachWE FULLY LEVERAGE
OUR BRAND STRENGTH,
WHICH IS REPRESENTED
BY THE WORDS“SECURITY,” “SAFETY,”
AND “RELIABILITY”

11

All Tokyo Gas Initiatives

strategy in such fields as LNG up-ers through dividends and purchases

To realize sustained growth as astream and transport operations,of treasury stock totaling 60% of net

multi-energy company with naturalenergy services, and power genera-income. In regard to dividends, ourgas at its core, it is essential that wetion. On this foundation, we will draw

priority is to maintain stable dividendleverage All Tokyo Gas synergies, noton the synergies of All Tokyo Gas topayments, with gradual increases over

only limited to Group companies, butwork toward the achievement of thethe long term in line with growth inalso cooperating companies, involved

medium-term management plan.

income. This approach also underscoreswith the LNG value chain, fromour unstinting efforts to steadily

resource procurement to customer

plans, our policy regarding the alloca-implement the initiatives in the medi-sales and service. We also need totion of cash flow is clearly spelled outum-term management plan to achievestrengthen the All Tokyo Gas man-in the current medium-term manage-

sustained growth in the years ahead.

agement foundation by further

ment plan, with priority given toenhancing human resources andinvestment in future growth and thetechnologies. In these endeavors,

provision of returns to shareholders.

we will focus on the newly estab-

For shareholder returns, we remain

lished Tokyo Gas LIFEVAL and ourcommitted to our policy of a total

affiliated companies, which are pillars

payout ratio of 60%. This policy entailsof the integrated energy operations

the provision of a return to sharehold-

Allocation of Cash Flow During
the Period of the Medium-Term
Management Plan

Five year total: about ¥1,070.0 billion*
85% Investment / loan
14% Shareholders’ return
1% Reduction of interest-bearing debt

* Operating cash flow + other cash flow

12

On the other hand, as in past

President Mitsunori Torihara

Capex, Investment, and Loan

Five year total: about ¥900.0 billion
16% Upstream / overseas / LNG fleet
32% Demand development
29% Infrastructure
8% Others
15% Business base

WE WILL DRAW ONTHE SYNERGIES OF ALL
TOKYO GAS TO
WORK TOWARD THE
ACHIEVEMENT OFTHE MEDIUM-TERM
MANAGEMENT PLAN