Design Your Energy A Better Tomorrow OSAKA GAS GROUP Placing top priority on its customers, the Osaka Gas Group pursues “Value Creation Management” as its guiding principle to enhance value for all its stakeholders including shareholders, society and employees, through fair and transparent busi- ness activities. The brand slogan encapsulating this management principle of the Osaka Gas Group is “Design Your Energy—A Better Tomorrow.” Design for us connotes cre- ativity and uniqueness. Apart from the literal meaning, Energy also expresses the vitality and dynamism of the customers we support. The slogan’s central message is the Group’s pledge to be a vanguard in creating Value for new value and to stand behind its customers in Customers contributing to their comfortable lifestyles and busi- ness prosperity. Our mission behind this slogan is to always improve the high quality of the services Value for Value Creation Value for Shareholders Management Society we provide. Value for Employees Contents 2 4 6 Osaka Gas Group Consolidated The Year in Review Summary Financial Highlights 8 10 To Our Stakeholders Interview with the President 16 Special Feature Frontrunner in Social Change Supply Expand Optimize 24 40 43 Osaka Gas Group’s Businesses Technological Intellectual Property Development of Activities of 26 Domestic Energy Businesses the Osaka Gas Group the Osaka Gas Group 34 International Energy Businesses Along the Energy Value Chain 38 Environment and Non-Energy Businesses 44 48 Corporate 48 Consolidated Financial Highlights Governance 50 Management’s Discussion and Analysis 56 Consolidated Balance Sheets 45 58 Consolidated Statements of Income Directors and 59 Consolidated Statement of Corporate Auditors Comprehensive Income 60 Consolidated Statements of Changes in Net Assets 46 62 Consolidated Statements of Cash Flows CSR Initiatives of 63 Notes to Consolidated Financial Statements the Osaka Gas Group 75 Independent Auditors’ Report 76 Osaka Gas Group Organization 77 Major Consolidated Subsidiaries 78 Osaka Gas Group History 79 Company Data Editorial Policy Definition of Terms In this annual report, “fiscal 2011” refers to “the fiscal year ended March 31, 2011,” and other fiscal years are referred to in a corresponding manner. Company Names Except where specially noted otherwise, “Osaka Gas” and “the Company” refer to “Osaka Gas Co., Ltd.,” and “the Osaka Gas Group” and “the Group” indicate the Company, its consolidated subsidiaries, and affiliates. Note on Heat Unit Value Unless otherwise stated, gas sales volume is shown at the unit value of 45MJ/m3. Forward-looking Statements Statements contained in this report with respect to the Osaka Gas Group’s plans, strategies and beliefs that are not historical facts are forward-looking statements about the future perfor- mance of the Osaka Gas Group which are based on management’s assumptions and beliefs in light of the information currently available to it. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Osaka Gas Group’s actual results, performance or achievements to differ materially from the expectations expressed herein. OSAKA GAS Annual Report 2011 1 0 500 1000 Km 50° Osaka Gas Group Summary Business Summary 45° The Osaka Gas Group’s Natural Gas Supply Area The Osaka Gas Group’s China Number of Natural Gas Ratio of Nominal GDP Customers At the end of March 2011 40° 7.04 million 2008 1988 Surpassed 5 million Kansai Korea Japan 1971 Surpassed 15.8% 3 million 35° Natural Gas Service Area of the Osaka Gas Group 1958 Surpassed 1 million Source: “Prefectural Accounts,” Economic and Social Research Institute, Cabinet Established 1920 1940 1960 1980 2000 2011 Office, Government of Japan in 1897 30° Mie-Shiga Line Kinki Trunk Line: Shiga Line 25° Himeji-Okayama Line Kinki Trunk Line: No. 2 West Line Kinki Trunk Line: No. 3 West Line Kinki Trunk Line: Keiji Line Kinki Trunk Line: No. 2 West Line Himeji LNG Terminal Kinki Trunk Line: Kinki Trunk Line: Amagasaki Line No. 1 East Line 20°N Kinki Trunk Line: Bay Line Kinki Trunk Line: 120°E 125° 130° 135° 140° 145° No. 2 East Line150° Semboku LNG Terminal I Semboku LNG Terminal II Equidistant conic projection Trunk line (installed) Trunk line (under construction) Major pipeline (installed) LNG terminal + power plant Service area of the Osaka Gas Group Refer to page 27 for details on business area. 2 OSAKA GAS Annual Report 2011 Business Summary Gas Sales Volume Market Share in Japan Gas Sales Volumes of Osaka Gas (FY2010) (Non-Consolidated) (Million m3) Osaka Gas Group Summary 10,000 8,448 8,528 27% 8,000 7,580 35% 33,837 million m3 6,203 2% 6,000 11% 4,474 4,000 国内第2位 2,000 Tokyo Gas 大阪ガス Osaka Gas Osaka Gas Toho Gas 24% 24% 0 Saibu Gas 91.3 96.3 01.3 06.3 11.3 Other Residential Industrial 3 3 Note: In this graph 1 m = 41.8605 MJ/m . Commercial, public and medical Wholesale Source: Japan Gas Association “Gas Sales Volumes” Business Environment Energy conversion of petroleum-based fuels to natural gas, or the so-called natural gas shift, was articulated in the Strategic Energy Plan of Japan, which the Cabinet approved in June 2010. Demand for natural gas, with its envi- ronmentally superior characteristics, is expected to increase more than ever going forward. Demand for Natural Gas Final Energy Consumption Japanese Final Energy Consumption by Energy Source (2008) by Energy Source (Estimate) 1.2% (%) 100 16.0% 9.8% 10.6% 80 25.4% 9.6% 11.9% 17.2% Global Japan 60 Natural Gas 41.6% 53.2% 12.0% 40 20 Natural Gas Natural Gas 15.5% 9.6% 0 2008 2020 2035 Coal Power Coal Power Coal Power Oil Other Oil Other Oil Other Natural Gas Natural Gas Natural Gas Sources: IEA “World Energy Outlook 2010” Source: Ministry of Economy, Trade and Industry and Energy Data Modeling Center “Comprehensive Energy Statistics” and other sources. Forecasts are those of the Institute of Energy Economics, Japan. OSAKA GAS Annual Report 2011 3 Consolidated Financial Highlights Osaka Gas Co., Ltd. and Consolidated Subsidiaries Thousands of Millions of yen U.S. dollars Change 2007/3 2008/3 2009/3 2010/3 2011/3 2011/3 11/10 Financial Data Operating revenues ¥1,174,456 ¥1,238,145 ¥1,326,785 ¥1,096,628 ¥1,187,142 $14,277,113 8.3% Operating income 93,729 75,611 66,932 91,140 88,584 1,065,351 –2.8% Net income 52,929 40,283 36,041 48,384 45,968 552,832 –5.0% Capital expenditure 95,267 111,087 106,087 98,246 69,600 837,041 –29.2% Depreciation 84,031 95,253 86,549 95,402 97,569 1,173,409 2.3% Total assets 1,405,682 1,467,934 1,452,457 1,483,895 1,437,297 17,285,592 –3.1% Equity 668,887 648,592 612,566 666,689 664,959 7,997,101 –0.3% Interest-bearing debt 487,827 566,441 573,483 539,081 532,493 6,404,004 –1.2% Cash Flows Cash flows from operating activities 98,354 134,282 120,691 229,714 126,399 1,520,132 –45.0% Per Share Data (yen and U.S. dollars) Earnings per share (EPS) 23.77 18.27 16.72 22.50 21.62 0.260 –3.9% Book value per share (BPS) 300.61 300.76 284.21 310.39 319.33 3.840 2.9% Dividend 7.00 7.00 7.00 7.00 8.00 0.096 14.3% Key Ratios Equity ratio 47.6% 44.2% 42.2% 44.9% 46.3% Return on assets (ROA) 3.8% 2.8% 2.5% 3.3% 3.1% Return on equity (ROE) 8.1% 6.1% 5.7% 7.6% 6.9% Debt equity ratio (times) 0.73 0.87 0.94 0.81 0.80 Other Gas sales volume (million m3) 8,764 8,917 8,416 8,150 8,560 5.0% Notes: 1. The conversion of Japanese yen into U.S. dollars is based on the exchange rate of 1 USD = 83.15 JPY (spot rate as of March 31, 2011). 2. Equity ratio = equity/total assets (as of the end of the fiscal years ended March 31) 3. Return on assets (ROA) = net income/total assets (average) 4. Return on equity (ROE) = net income/equity (average) 5. Debt equity ratio = interest-bearing debt/equity (as of the end of the fiscal years ended March 31) 6. All figures in the financial data and cash flows are rounded down. Results by Segments (FY2011) 0.9% 14.8% 17.8% 14.0% 5.6% Operating Segment Revenues Income* 47.6% 70.3% 29.1% Gas LPG, electricity and other energies Gas LPG, electricity and other energies International energies Environment and non-energies International energies Environment and non-energies * Operating income + Equity in net income of affiliates 4 OSAKA GAS Annual Report 2011 Operating Revenues Operating Income/ Net Income/ Operating Income Ratio Net Income Ratio (Billions of yen) (Billions of yen) (%) (Billions of yen) (%) 1,500 120 12 60 6 1,326.7 52.9 1,238.1 48.3 1,174.4 1,187.1 93.7 4.5% 45.9 1,096.6 91.1 88.5 8.0% 75.6 40.2 1,000 80 8 40 36.0 4 Consolidated Financial Highlights 66.9 8.3% 7.5% 4.4% 3.9% 6.1% 3.3% 2.7% 5.0% 500 40 4 20 2 0 07.3 08.3 09.3 10.3 11.3 0 07.3 08.3 09.3 10.3 11.3 0 0 07.3 08.3 09.3 10.3 11.3 0 Operating income (left scale) Net income (left scale) Operating income ratio (right scale) Net income ratio (right scale) Return on Assets (ROA)/ Earnings per Share (EPS) Annual Dividends per Share/ Return on Equity (ROE) Payout Ratio (%) (yen) (yen) (%) 10 30 10 50 41.9% 8.1% 7.6% 23.77 38.3% 8.0 22.50 8 8 37.0% 40 6.9% 21.62 7.0 7.0 7.0 7.0 20 18.27 16.72 6 6.1% 6 29.4% 31.1% 30 5.7% 3.8% 4 3.3% 3.1% 4 20 10 2.8% 2 2.5% 2 10 0 07.3 08.3 09.3 10.3 11.3 0 07.3 08.3 09.3 10.3 11.3 0 07.3 08.3 09.3 10.3 11.3 0 ROE Annual dividends per share (left scale) ROA Payout ratio (right scale) Equity Ratio Interest-bearing Debt/ Credit Rating Debt Equity Ratio (As of June 29, 2011) (%) (Billions of yen) (times) Domestic 60 800 0.94 1.00 Credit rating Long-term 0.87 Commercial 0.81 agency bond 47.6% 0.80 Paper 44.2% 44.9% 46.3% 0.73 573.4 42.2% 566.4 600 539.0 532.4 0.75 Ｒ&I AA+ a-1+ 40 487.8 Moody’s 400 0.50 Aa2 — Standard & 20 Poor’s AA– A-1+ 200 0.25 0 07.3 08.3 09.3 10.3 11.3 0 07.3 08.3 09.3 10.3 11.3 0 Interest-bearing debt (left scale) Debt equity ratio (right scale) OSAKA GAS Annual Report 2011 5 The Year in Review Domestic Energy Businesses May 2010 Launched “SOLAMO”—A Gas Water Heating System that Uses Solar Heat Osaka Gas launched sales of “SOLAMO*”, a gas water heating system that also makes use of solar heat, developed jointly with Domestic Energy Businesses Takagi Industrial Co., Ltd.