CFO's message

TOKYO GAS INTEGRATED REPORT 2020

Tokyo Gas is committed tofollowing its basic financial policy
and accomplishing the MediumTerm Management PlanSenior Management Executive Officer, CFO

Hayakawa Koki

Basic Financial Strategy Policy
Working to increase corporate value throughconstructive dialogue
One year has passed since I became the chief financial
officer (CFO). In that time, I have had many discussions witha large number of investors. As I am in a position partly
responsible for management, I keep in mind that inconstructive dialog with investors it is essential to closely
communicate views of our Group and make themunderstood, and to listen to investors and incorporating
their views into decision-making.
We announced management vision Compass 2030 in
November 2019. It envisions what we wish to be in 2030 bybackcasting from 2050, not by extrapolating from current
trends. Among the points in the plan, many people weresurprised that a city gas operator launched an effort toachieve Net-Zero CO2. We understand that this is part ofour responsibility to seriously address climate change, oneof the ESG challenges. As an LNG pioneer, we have worked
on carbon reduction by popularizing the use of natural gas
in the past half century. The vision manifested our stance ofworking on the utilization of renewable energy and on thedecarbonization of gas as a source of energy, to leadsocietal trends in the next half century.

1

Continue to maintaincompetitive shareholder returns(total payout ratio of 60%)

2

Steadily implement growthinvestments, with consideration
given to investment efficiency
and awareness of achieving an
8% ROE

3

Maintain sound financial base,as a basis for stablemanagement and securing thetrust and confidence ofstakeholders

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CFO's message

Appropriating cash flow created for the future togrowth investments
In March 2020, we announced the FY2020 - 2022 MediumTerm Management Plan. The impact of the current
COVID-19 outbreak on the world economy and the changes
in social and economic systems after the end of thepandemic cannot be foreseen currently, but we believe thatthe course of action that we have determined for themedium- and long-term future will not change and we willtake steady steps forward towards the accomplishment ofthe plan. Also, our basic financial policy will continuously
aim to distribute the operating cash flow to ensure
adequate and stable returns for shareholders, investments
for growth and the maintenance of sound financial standing
in a balanced manner.
The new Medium-Term Management Plan defined thesum of operating profits and equity method income as a
key goal indicator (KGI) and set a goal of 140 billion yen forfiscal 2022. With regard to capital efficiency, it set targets
of around 8% in ROE and around 4% in ROA, and forsafety, a target D/E ratio of around 0.9 was set.
While carrying out cost reforms and expanding sales tocreate cash flow and ensure a balance between efficiency,
soundness and shareholder returns, we will implement
growth investments to solidify our foundation for future
growth and enlargement.
Specifically, we are planning to make investments,
including capital investment and financing, worth 1 trillion
yen within the three-year period. Fiscal 2020 marks an end
to our investment in pipelines and LNG terminals in the gas
business. In the future, we will appropriate a large portion
to overseas businesses and promising areas such as
renewable energy and new services.
Returning the management results toshareholders in an appropriate and timely manner
We will return the cash flow created to shareholders properly
and in a timely manner, as we have done in the past.

TOKYO GAS INTEGRATED REPORT 2020

We set a total payout rate target of approximately 60% in
the Challenge 2020 Vision announced in 2011, and we havesteadily implemented dividend payments. When weannounced management vision Compass 2030 last year, we
did not refer to shareholder return. This was because we did
not find it appropriate to present the conventional policy,
including the shareholder return policy, in the vision, whichindicates our desired future shape, rather than crunching ofnumbers. Instead, we presented our shareholder policy in the
new Medium-Term Management Plan together with thespecific income and expenditure plan or appropriation of cash
flow to growth investments and others. In the process of
formulating the Medium-Term Management Plan, we assessed
our capacity to create cash flow, financial capabilities, ratingsand others, we believed that we would be able to properly
provide returns to shareholders and to make growthinvestments in the following three years and decided tomaintain our dividend policy with its 60% total payout ratio,reflecting the ratio of dividends and treasury share acquisitions
to consolidated profit.
While maintaining stable dividend payments, we will
increase them according to our growth in overall considerationof medium- and long-term profits.
For fiscal 2019, we posted a huge extraordinary loss in theoverseas business. This resulted in a total payout ratio of 60%
with the total dividend payments only. For the first time since
we announced our policy of attaining a total payout ratio of60% in 2006, we failed to repurchase treasury shares. We on
the management team take this seriously. As of the end ofApril we had not produced earnings forecasts for fiscal 2020
due to the difficulty of estimating the impact of the COVID-19
outbreak. However, we announced that we were planning tocontinue paying annual dividends of 60 yen per share so as toclarify our Group’s stance on shareholder returns.
We will continue to listen to shareholders and investors
and strive for greater corporate value through constructive
communication. We respectfully ask for your continued
support and understanding.

Capital Expenditures and Gas and Electricity Sales Volume
Capital expenditures (LH)
Gas sales volume (billion m3)
Electricity power sales volume (billion kWh)(¥ billion)

300

17.7

225
20.6

150

75

0
2000.32005.32010.32020.3Chiba-Kashima Line, Hitachi LNG
Terminal, Ibaraki-Tochigi Line, etc.

Ohgishima LNG Terminal,Keihin Line, etc.

1 Non-consolidated basis up to fiscal 1998; consolidated basis from fiscal 1999
2 Gas sales volumes from fiscal 2011 onwards are on a 2020 Vision basis, including the gas
volume used in-house under tolling arrangement and the LNG sales volume.

Shareholder Returns(¥ billion)

Share repurchases

80

Dividends

Total payout ratio

60.9% 61.4% 60.7% 60.0% 60.8% 60.1% 60.7% 60.2% 60.3% 61.0%

60

61.7

58.1

67.3

65.1
58.2

50.9

40

36.0

34.0

33.8

24.0

32.3

28.3

24.1

23.3

20.0

26.4

7.0

5.0

20

45.1

41.0

40.0

25.7

25.1

24.4

26.3

25.3

25.1

26.9

26.4

0
2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3 2019.3 2020.3

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