Operating Performance in Fiscal 2012: A Three-Minute Overview

Before Analyzing the Figures[ Factors That Affect Our Earnings ]Gross profits in the gas business are determined by the increase in gas sales volume (volume difference) and the gap between the sellingand purchase prices (price difference).

Gas Sales Volume

Gas Rate Adjustment System and Slide Time Lag

The Company’s net sales depend on sales of city gas, which

To increase the transparency of gas rates and encourage

account for around 70% of the Company’s total. Therefore,

providers to be clear about their efforts to achieve higher busi-changes in selling volume directly impact net sales. Factors thatness efficiencies, the gas rate adjustment system was introduced.

have a major effect on selling volume are temperature andThrough this system, average raw material prices over a three-economic and other fluctuations.

month period according to trade statistics are compared to theraw material cost that is used as the standard (standard average[ Temperature ]raw material cost), and the gas rates are adjusted using a defined

Demand in the residential sector stems mainly from demand for hot

calculation method based on the differences. Under this system,

water and indoor heating, so selling volume declines when winters

the impact of changes in raw material costs on a gas company’s

are warm, resulting in lower sales and income. In the commercial

earnings is essentially neutral. However, a time lag of up to fivesector, gas is used mainly for air conditioning, so cool summers andmonths (called a slide time lag) exists between the payment ofwarm winters cause gas sales volume to decrease, reducing sales

raw material costs and the reflection of such changes in gas rates.

and income.

Consequently, fluctuations in crude oil prices and exchange rates
may result in the under-recovery or over-recovery of raw material[ Economic and Other Trends ]costs if this lag cuts across a fiscal year, thereby affecting income.

Economic and other trends affect business in the industrial andcommercial sectors. In the industrial sector, plant utilization rates fallwhen economic conditions are sluggish, reducing sales volumes. Inthe commercial sector, meanwhile, lackluster economic performance

How the Slide Time Lag in Rates Works
The average raw material price over the past three months is calculated every month,and then reflected in the gas rate three months later. (Example: The average raw
material cost for January through March is reflected in the June gas rate.)can, for example, lower hotel utilization rates, and commercial
All Japan LNG pricefacilities may shorten hours of operation, lowering sales volume.

Raw Materials
Raw material costs account for a substantial portion of theAverage resource prices reflectedin gas rate

Underrecovery

Overrecovery

Company’s operating expenses. These costs tend to fluctuate inline with gas sales volumes
andbeaffectedby changes in crude
格価平本
日全GNL均格価rates.
料原均平用適金料スガ
oil prices and exchange

FY N

FY N+1[ Crude Oil Prices ]The price of LNG, which is the raw material of city gas, is linked to thePension Actuarial Differences

crude oil price. Therefore, fluctuations in the crude oil price may affect

Actuarial differences arise from differences between expectedresource prices.

and actual investment returns on pension assets, as well as on[ Exchange Rates ]度年 1+Ndifferences between expected and actual retirement benefits.

度年 N

These costs are written off as a lump sum in the fiscal year

LNG purchase contracts are denominated in U.S. dollars. Accord-following the year in which they arise and are posted as operating

ingly, yen appreciation against the U.S. dollar causes raw material

expenses. Accordingly, major actuarial differences can have acosts to decline on a yen basis. Conversely, yen depreciation against

substantial impact on revenues and expenses in the following

the U.S. dollar pushes raw material costs upward.

fiscal year.

Liquefied natural gas (LNG): LNG is produced by cooling gas (natural gas) composed primarily of methane (CH4) down to around minus
162°C, thereby liquefying the gas. Liquefaction reduces the volume down to 1/600 that of the gas, allowing large amounts to be transported
by tanker.

2Tokyo Gas

Annual Report 2013

Performance

Major Initiatives

Results in fiscal 2012:

Reducing Resource Costs and Expanding
Overseas Operations‌Increases in both sales and income

Up 1.3%Gas Sales Volume: 	Gas sales volume rose 200 million m year on year, or 1.3%, to15,390 million m3, following a substantial increase in industrial
demand centered on demand for power generation applications.
3Up 9.2%

Net Sales: 	Net sales increased ¥161.4 billion, or 9.2%, to ¥1,915.6 billion, due
to higher gas sales volume, a rise in city gas sales that resulted fromthe gas rate adjustment system, and favorable sales of electricity.

Up 120.7%

Net Income: 	Net income was up ¥55.6 billion, or 120.7%, to ¥101.6 billion,following higher operating income due to increases that resulted fromthe slide time lag effect as well as improvements in the balances ofnon-operating and extraordinary items.

March 2013
Acquired first upstream interests in the U.S.
through participation in a shale gas development joint venturein the Barnett basin
April 2013
Concluded a Heads of Agreement for Sale andPurchase regarding the procurement of natural gas from the Cove
Point LNG Project, the Company’s first long-term agreement
employing a Henry Hub index linked price formula
June 2012
Acquired a 26.66% stake in a natural gas-fired thermal
power plant with generation capacity of 425 MW in Belgium‌Investment
abroad business operating income: Up ¥3.7 billion(—% year on year)

Building a Production and Supply Infrastructure
to Cultivate DemandMarch 2012
Completed the Chiba–Kashima Line in March 2012
followed by the Kashima Waterfront Line in May 2012 andcommenced supply to TEPCO’s Kashima Thermal Power Station, etc‌Captured new demand for 405 million m3 of gas in the Kashima area
July 2012
Began constructing the Hitachi LNG Terminal inHitachi City, Ibaraki Prefecture, to be the Company’s 4th LNG
receiving terminal (scheduled to commence operations in fiscal 2015)
February 2013
Decided plans to accelerate natural gas infrastructure development in Ibaraki, including joint construction of a newpipeline into the Mito area with Tobu Gas, approval of constructionplans for the Koga–Moka Line, and examination of land and submarine routes for the Hitachi–Kashima Line (provisional name)

Providing Diverse Energy Solutions
Shareholder Returns in Fiscal 2012
Dividend payments amounted to ¥25.7 billion and treasury stockwith a total value of ¥36.0 billion was acquired. The total payout
ratio—60.7% of net income—remained above 60%. Dividends
were raised to ¥10 per share, up ¥1 per share from theprevious fiscal year’s ¥9 per share.

October 2012
Decided on construction of a third unit at theOhgishima Power Station and commenced construction inNovember 2012
April 2013

Launched new “ENE-FARM” systems‌Electricpower business operating income: Up ¥11.2 billion(+140.7% year on year)

For details, see P.40 Management’s Discussion and Analysis

Summary of Operating Results

Billions of yen

Fiscal 2012

Fiscal 2011

Change%+1.3

Gas sales volume (Million m3, 45MJ/m3)

15,39015,190+200

Net sales

1,915.6

1,754.2+161.4+9.2

Operating expenses

1,770.0

1,677.1+92.9+5.5

Operating income

145.6

77.0

+68.6

+88.9

Ordinary income

147.4

75.6+71.8+95.0

Net income

101.6

46.0

+55.6

+120.7

Economic Frame

Pension Investment (non-consolidated)
JCC($/bbl)Exchange rate(¥/$)

Averagetemperature (ºC)

Fiscal 2012

113.9

82.9

16.7

Fiscal 2011

114.2

79.1

16.4

Investment yield(costs deducted)

Discount rateYear-end assets(Billions of yen)

Fiscal 2012

6.10%

1.4%

276.0

Fiscal 2011

5.13%

1.7%

254.0

Fiscal 2010

2.70%

2.0%

235.0

Tokyo Gas

Annual Report 20133