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Introduction

ManagementMessage

How We Create Value

Compass2030
Vision and Strategy

Invisible
Assets

TCFD

Corporate
GovernanceBusinessOverview

Financial Data

CFO’s message

Tokyo Gas will make necessary
investments while ensuring a threeway balance of asset efficiency,
financial soundness,and shareholder return

Using my business experience inperforming the duties of CFO
Since I joined Tokyo Gas, I have acquired a wide
range of work experience in the Residential
Services, Energy Solutions, Gas Rates andSchemes, and Electric Power Systems businesses
before becoming the Chief Financial Officer. Now
being in the top financial position, I believe thatmy understanding of cash flow and the left sideof the balance sheet (the asset side) from thebusiness perspective I have become accustomed
to is my great strength, and I intend to make useof it as CFO.
The business results of Tokyo Gas for fiscal
2020 (ended March 31, 2021) were greatly
affected by factors that may be one-off, such as
the impact of the COVID-19 pandemic, thesoaring LNG prices, and prices in the wholesale
power trading market. Apart from these, themain differences from the expected amounts in
the Medium-Term Management Plan (“Mid-termPlan”) were the difference in the anticipatedrange of oil prices and exchange rates in overseas
business and the difference in business profits of
the Solutions and other business areas. In thelatter case, additional profits through M&A andother activities are anticipated in the Mid-termPlan. We will continue to consider M&A
opportunities during the remaining two years ofthe plan.
At present, the Tokyo Gas Group isimplementing a growth strategy throughinvestment, which tends to cause capitalefficiency to decline temporarily. In order toManaging Executive Officer and CFO

SATO Hirofumi

Tokyo Gas Integrated Report 2021
16

prevent this, we will focus on the profit
contribution to be made within a short time inmaking investments. Up to now, we have“accelerated” investment, but I think we will
gradually shift into a cruise speed as we enter aphase of “control” with application of discipline
and with an upper limit.

Continuing growth investment
toward 2030 and further
investment aimed at Net-Zero CO2
We plan to make investments worth 1 trillion yen
within the three-year in the Mid-term Plan.
Investment in the first year amounted toapproximately 330 billion yen, which is roughly inline with the plan. We are expecting the shalebusiness in North America to generate operating
income of several billion yen per year within theMid-Term plan period. The photovoltaic power
generation business also in North America ispoised to gradually increase profits from themoment when financing costs drop. The
domestic biomass business is expected tocontribute to operating profit relatively early.
Since it is a business involving a renewableenergy source in Japan, a synergy with existing
businesses is anticipated. We have also invested
in gas distribution companies in Asia, and overall,
we believe that we have made balanced
investments in various growth areas. We will
inform you of progress and outcome of theseinvestments going forward.
In order to achieve our target profit level of
200 billion yen as stated in Compass2030, wemust continue investment in new areas and at

Back To Contents

Introduction

Management
Message

How We Create Value

Compass2030
Vision and Strategy

Invisible
AssetsCorporateGovernance

TCFD

BusinessOverview

Financial Data

CFO’s message

the same time make gas, electricity, and otherexisting businesses generate profits and support
the company. In the past few years, the effects ofliberalization and the deterioration in the market
environment have led to a significant downturnin the return of our existing businesses, and weintend to enhance the efficiency and profitability ofthese businesses, and to improve ROA and ROE.
In the meantime, we will put more efforts ininvestment toward decarbonization, which
however would not necessarily result in an early
return. It would be a long way off for theinvestment in offshore wind power and hydrogenrelated fields to be profitable and drive growth.
In order to make further investment aimed at
Net-Zero CO2, in addition to the growthinvestment toward 2030, the balance between
asset efficiency and financial soundness will be
crucially important. Regarding financial
soundness, some of our invested businesses
involve various risks in threatening returns, andhaving sufficient capital is important from theviewpoint of risk management. Moreover, acertain amount of equity capital will be
indispensable to continue investment over a longperiod of time. We hope that our investors will
understand this.

Making use of sustainability
finance
In 2020, we issued the first green bond in the gasindustry. We received a lot of inquiries frominvestors, and I felt that this type of bond had astrong advantage in terms of conditions for theissuer. As the concept of transition to achieve theCapital expendituresand sales volume ofgas and electricity

sustainable development becomes increasingly
important toward 2030, I believe we need to raise
funds by such means as transition bonds. However,transition financing is in its early days in Japan, andinvestors tend to have diverse opinions andexpectations. We will calmly judge the benefits,taking into account the fact that the use of thetransition bonds shall be necessarily limited.

Capital expenditures (LH)
Gas sales volume (billion m3)(¥ billion)

300
17.6
24.8

225

Electricity power sales
volume (billion kWh)
*1 Non-consolidated basis up tofiscal 1998; consolidated basis
from fiscal 1999
*2 Gas sales volumes from fiscal
2011 onwards are the combined
volume from sales and in-houseuse (including LNG sales volume
and city bas gas volume usedin-house under tollingarrangement).

Reviewing cash allocation, while
being mindful of financial
soundness
When we began the current shareholder return
policy of committing to a total payout ratio of
60% to shareholders, the improved capitalefficiency was a challenge and the acquisition
and retirement of treasury stock wasindispensable. In addition, until now, we had
been able to leverage our investments. However,as I stated earlier, we need to be mindful offinancial soundness. Moreover, we are now at apoint for fundamentally reviewing cash allocation
so as to accelerate efforts toward Net-Zero CO2.
We thereby announced last fall that we will
review our shareholder return policy. As we have
not yet reached a final conclusion, I have to ask
you to wait a little longer for official
announcement to be made.
We will continue listening to the opinions of ourstakeholders, adhere to our basic financial policies,
and work toward improving corporate value. I
appreciate for your understanding and support.

1507502000.3

2005.3

Ohgishima LNG Terminal,Keihin Line, etc.

Shareholder return(¥ billion)

80

2010.32020.3Chiba-Kashima Line, Hitachi LNG Terminal,Ibaraki-Tochigi Line, etc.

61.4% 60.7% 60.0% 60.8% 60.1% 60.7% 60.2% 60.3% 61.0% 60.1%

Share repurchases
Dividends
Total payout ratio

61.7

60

67.3

65.1
58.2

50.9
36.0

40

45.1

41.0

40.0
33.8

24.0

32.3
28.3

20

26.4

7.0

5.0

23.3

20.0

25.7

25.1

24.4

26.3

25.3

25.1

26.9

26.4

29.7
3.3

26.40
2012.3 2013.3 2014.3 2015.3 2016.3 2017.3

Tokyo Gas Integrated Report 2021
17

2018.3 2019.3 2020.3 2021.3