TO OUR SHAREHOLDERS

President and Representative Director

Tsuyoshi Okamoto

With our nation engaged in a process of restoration in theaftermath of the Great East Japan Earthquake, the Tokyo
Gas Group’s social mission — the supply of energy to theTokyo metropolitan area — has assumed extreme importance. The need for natural gas, which is in stable supplyand environmentally friendly, is now greater than ever. In
this context, we will place heightened emphasis on our “integrated energy business, with natural gas at its core,” which
we have been promoting for some time. By so doing, wewill meet the expectations of society, our customers, shareholders, and all other stakeholders to the maximum extent.

TOKYO GAS ANNUAL REPORT 2011

Fiscal 2010 in Review

4

Increased gas sales

The Great East Japan Earthquake, which struck on March 11, 2011, caused no major

volume boosts

damage to the Group’s equipment and facilities. Although supply was temporarilyrevenue; earnings

suspended to around 30,000 customers in part of our city gas supply area (aroundsignificantly higher,Hitachi City, Ibaraki Prefecture), for the most part, the situation was restored to nor-buoyed by lower

mal within a week.

depreciation ofIn fiscal 2010, consolidated net sales amounted to ¥1,535.2 billion, up 8.4% frompension actuarial

the previous fiscal year, and the gas sales volume rose 7.9%, to 14,745 million m3.

differences

The main factors contributing to these increases were growth in demand for hot
water and heating due to a cool springtime, higher demand for air conditioning during
an extremely hot summer, and additional demand for power generation at our newly
operational Ohgishima Power Station. Also contributing to revenue growth was anTO OUR SHAREHOLDERS

increase in gas unit prices under the gas rate adjustment system triggered by rising
raw materials prices.
Operating income increased 43.7%, to ¥122.4 billion. A key factor boosting earnings
was a ¥51.9 billion year-on-year improvement in depreciation of pension actuarial differences. By contrast, there was a ¥34.9 billion decline in net inflows by the parent company, stemming from the slide time lag, the time taken to translate increased raw
materials costs into gas unit prices.
Although incurring extraordinary losses of ¥3.2 billion due to the Great East Japan
Earthquake, the Group benefited from a ¥39.7 billion gain on the sale of land in Toyosu.
Consequently, after deducting income taxes, net income surged 77.5%, to ¥95.4 billion.
Our shareholder return policy is to maintain a total payout ratio of 60%, meaning thatthe sum of dividends paid and share buybacks should equal at least 60% of net income.
Under this policy and in light of our performance, we declared annual cash dividends of¥9.00 per share, unchanged from the previous fiscal year. During the period underreview, we decided to make share repurchases totaling ¥34.0 billion.
Outlook for Fiscal 2011
Income forecast toIn the year ahead, we do not expect seasonal temperature-related factors to boost rev-

decline due toenue, as happened in the year under review. On a consolidated basis, therefore, therising raw

Group forecasts a 0.8% year-on-year dip in gas sales volume, to 14,626 million m3.

materials costs

Nevertheless, we forecast a 11.1% increase in net sales, to ¥1,705.0 billion, owing toincreases in gas unit prices stemming from an expected year-on-year jump in crude oilprices, which determine LNG prices, of around US$30 per barrel.
We forecast a 49.5% fall in operating income, to ¥61.0 billion. There are two main factors behind this estimate: a projected ¥18.1 billion decline due to a worsening slide timelag by the parent company accompanying rising raw materials costs; and a ¥7.5 billion
decrease in net inflows from incidental income, such as sales of LNG and electricpower. These factors are based on a projected average crude oil price of US$111.2 perbarrel and an average exchange rate for the year of ¥80.4 per U.S. dollar. Our forecast
also assumes a ¥22.6 billion increase in personnel expenses on higher costs from pension actuarial differences. Due also to the absence of income generated in the previous
fiscal year—the gain on the sale of land in Toyosu—we forecast a 61.2% decline in net
income, to ¥37.0 billion.

FY2011 Forecast(Years ended March 31)
Gas sales volume (million m , 45MJ)
Net sales
Operating expenses
Operating income
Ordinary income
Net income
Slide time lag effect (non-consolidated basis)
Amortization of actuarial differences (non-consolidated basis)
JCC ($/bbl)
Exchange rate (¥/$)
3The forecast figures for fiscal 2011 are as of June 30, 2011.

FY2010FY2011

14,745
1,535.2
1,412.7
122.4
121.5
95.4
–29.2
+19.9
84.14
85.74

14,626
1,705.0
1,644.0
61.0
58.0
37.0
–47.3
–2.7
111.24
80.43

TOKYO GAS ANNUAL REPORT 2011

Billions of yen (except otherwise stated)5

TO OUR SHAREHOLDERS

With respect to our outlook for fiscal 2011, we remain uncertain about the full impactof the earthquake. On one hand, for example, demand for city gas will decline due tolower utilization of capacity at factories and offices forced to reduce electricity use as aresult of tightening power supply-demand pressures. On the other hand, demand fornatural gas should rise on the back of increased use of natural gas for power generationand greater deployment of cogeneration systems. Accordingly, we will revise our forecasts in a flexible manner as soon as we are able to make quantitative evaluations.
* The forecast figures for fiscal 2011 are as of June 30, 2011.

Progress Report on Medium-Term Management Plan
Steady progress in

The Tokyo Gas Group is making good progress with several strategies outlined in its

establishing a multi-Medium-Term Management Plan FY2009–2013. In power generation, the Group’s cen-energy supply

tral strategic business, we commenced operations at the Ohgishima Power Station insystem andJuly 2010 and increased our total power generation capacity to 1,300 MW. We also

upgrading coremade steady progress with the Chiba-Kashima Line, the gas pipeline we are building

infrastructurewith the aim of tapping new demand in the Kanto region, which covers a 200-kilometerradius around Tokyo. Our plan to supply gas through the pipeline is on track to start inMarch 2012. Turning to our “ENE-FARM” residential-use cogeneration systems, which
are now in their third year of sales, we planned further cost reductions and space savings in introducing a new model in April 2011. We are working to expand sales via Tokyo
Gas LIFEVAL, a community-based marketing system introduced in September 2009.
In the aftermath of the Great East Japan Earthquake, two Tokyo Gas commitments—
the stable and safe supply of energy, and our rigorous, customer-driven approach tohighlighting the benefits of natural gas — are gaining in importance. Emphasizing thesecore themes, we will strengthen our LNG procurement capability, upgrade our infrastructural foundations, address the energy-saving needs of customers, promote theintroduction of dispersed energy systems, and build smart energy networks.
“Shared Value” and “Shareholder Value”

Raising shareholder

Revised in June 2010, the Japanese government’s Basic Energy Plan will need to bevalue by maximizing

reviewed once again due to the Great East Japan Earthquake. Given that a reassess-the Group’s value

ment of nuclear power generation is inevitable, the need for natural gas — which excels

to society

in terms of environmental friendliness, economy, stability of supply, and convenience—
will certainly rise. For some time, the Tokyo Gas Group has been promoting itself as anintegrated energy business with natural gas at its core. Continuing along this path willtake on increasing relevance.
The stable supply of energy forms the basis for customer living standards and social
progress. As a supplier of energy to the Tokyo metropolitan area, our vital mission
remains that of supplying energy in a safe and stable manner and thereby contributing
to society’s advancement. In this regard, progress made in regional communities andTOKYO GAS ANNUAL REPORT 2011society is inextricably linked with that made by the Group; they are one and the same.

6Accordingly, I am convinced that sharing and maximizing the Group’s value to society
will ultimately lead to increased shareholder value.
July 2011
President and Representative Director Tsuyoshi Okamoto