Medium-term Management Plan for FY Design October Osaka Gas Co., Ltd

Transcription

1 Medium-term Management Plan for FY Design 2008 October 2005 Osaka Gas Co., Ltd 1 1

2 I. Outline of Design 2008 Management information is available on Osaka Gas websites. Financial reports, annual reports and road show materials can be accessed and downloaded at the following URL. Disclaimer Certain statements contained herein are forward looking statements, strategy and plans, which reflect our judgment based on the information so far available. Actual results may differ materially from those discussed in such statements. Among the factors that could cause actual results to differ materially are: economic trend in Japan, sharp fluctuations in exchange rate and oil prices and extraordinary weather conditions. 2 2

3 Group Management Principles Value Creation Management Value creation management (increasing value for stakeholders) Customers Shareholders Society Corporate Social Responsibility (CSR) Employees 3 The Osaka Gas Group, while placing the highest priority on maximizing its value for customers, will pursue the basic philosophy of value creation management ; that is, we will increase value to all our stakeholders, including customers, shareholders, society and employees, through fair and transparent business activities (see Appendix 1). We acknowledge that a balanced pursuit of value in these four categories through the promotion of value creation management is equivalent of fulfilling corporate social responsibility (CSR). 3

4 Framework of Design 2008 Developing into multi-energy supplier Increasing profitability of gas business Maximizing group strength Innovative solutions to meet customer needs Improving services safety Pursuing higher management efficiency Aggressive investment for growth, optimizing asset portfolio Business environment Low-growth economy Demographic changes: population decrease Higher expectations for better corporate performance Higher emphasis on corporate social responsibilities Stronger environmental awareness Changes in regulatory framework for gas and electricity businesses 4 The period covered by the plan (FY ) will see further evolution and transformation for the Osaka Gas Group, after celebrating its 100th anniversary, as the company builds the foundation for continued growth in the next 100 years. From the viewpoint of corporate management, we expect this to be a tough period. In an era of intense competition, we will need to make focused investments for growth to establish the basis of a multi-energy supply business, such as the construction of the Senboku Natural Gas Power Plant. However, as we offer innovative solutions tailored to our customers, improve services and assure safety, we will win the competition by achieving an even higher efficiency in corporate management and increase the profitability of gas business. We will also establish our identity as a multi-energy supplier by enhancing our group strength through an aggressive investment-for-growth strategy and optimization of the group s asset portfolio. The Osaka Gas Group, after transforming itself during this period into a strong corporate group, will then reap the fruits of the earlier investments for growth, with the start of a major-scale electricity retail business in FY2010 using large electric power generation facilities, for example. Thus, the Osaka Gas Group will enter into an era of continued growth in the second century of its operations. 4

5 Management Policies in Design 2008 Increasing profitability of gas business Addressing customers needs with Technological and engineering solutions developed over the years Comfortable, convenient, safe and energy-efficient gas appliance systems Easy-to-use rate schedules Products/services including electricity, LPG, security service and internet service, combined with innovative solutions Strategic gas pipeline construction: Shiga line, Mie-Shiga line Developing into a multi-energy supplier Develop electricity business into a second core business Geographic expansion at home and abroad throughout entire value chain: from upstream to downstream energy businesses Maximizing group strength Aggressive investment for growth in growing markets where we have advantages, select and focus to pursue efficient group operations for optimizing asset portfolio 5 Concerning the gas business, which is the core of its energy business, Osaka Gas, with its group companies and external business partners, will address a variety of customers needs with (1) proposals for solutions supported by technological and engineering prowess developed over the years; (2) comfortable, convenient, safe and energy-efficient gas systems; (3) easy-to-use rate schedules; (4) a wide range of products, including electricity, LPG, security service and internet service, combined with a high ability to provide services and propose innovative solutions; and (5) thorough utilization of infrastructure assets including pipeline networks. Thus, we will survive the population decrease in the Kansai area and intense competition in the energy sector, and achieve continuous growth of gas sales. 5

6 Ensuring Continued Growth of Gas Sales Million m3 800 Gas sales increase compared with FY Influence of Kyoto Protocol 120 Whole sale Effect of higher Industrial 255 temperature in prior year Residential135 Commercial, public, medical '06.3/E '07.3 '08.3 '09.3 Increase by 0.5 billion m3 between FY06.3 and FY09.3 Annual average growth rate=2.1% 6 By firmly competing against electricity in the residential market and cultivating the demand for gas in the commercial and industrial markets, we will increase the gas sales by volume from 8.28 billion m3 (forecast) in FY2006 to 8.78 billion m3 in FY2009, an increase by 0.5 billion m3. 6

7 Residential Gas Sales Annual sales, 1,000 units Sales plan of major appliances for residential use Floor-heating system Residential co-generation Bath room heater and drier Mist sauna included '05.3/R '06.3/E '07.3/E '08.3/E '09.3/E 41 7 Mainly through promoting the sales of ECOWILL (gas cogeneration system for residential houses) that excel in environmental performance, economy and comfort, a bathroom heater-dryer system with mist sauna that offers comfort possible only with gas, NOOK (gas hot water floor heating system) and other gas appliances, combined with active recommendation of comfortable, convenient and safe products and services like IRUSU (home security service) that were developed through the combined expertise of group companies, we will deliver the good life and higher satisfaction to more customers. 7

8 Non-residential Gas Sales CGS: Co-generation (MW) 1,800 1,600 1,400 1,200 1, Cumulative installed capacity at each year-end CGS within service area (left axis) 1,400 1,290 3, , ,510 3,470 CGS outside our area (left axis) 320 Gas Air-conditioner (thousand RT) 1,620 3, ,710 Air-conditioner (right axis) 3, ,800 3,700 3,600 3,500 3,400 3,300 3,200 3,100 3,000 0 '05.3/R '06.3/E '07.3/E '08.3/E '09.3/E 2,900 8 We will continuously grow our energy business by differentiating ourselves with our history-proven natural gas utilization technologies, as well as by pursuing the Only One Business Model, which will provide each customer with the optimum energy solution combining multi-energy supply (natural gas, electricity, LNG, etc.), the ECOWAVE energy service with advanced financial management technologies and an energy management service with IT-intensive remote monitoring systems. With cogeneration systems, we will develop new appliances to reduce the cost and raise the efficiency of electric power generation. With air conditioning systems, we will promote the use of gas heat pumps equipped with an electric power generator, aiming to integrate air conditioning and electric power generation as well as to reduce energy costs borne by the customer. With heating systems, we will promote environment-friendly use of natural gas, taking advantage of unique technologies and engineering prowess that we have developed over many years in areas such as natural gas combustion technologies tailored to manufacturing processes and the Only One Burner systems tailored to specific needs in different industries and business styles. 8

9 Reducing Fixed Gas Cost Fixed cost per 1m3 gas sold FY05.3= '05.3/R Cost reduction: 6% 86 '09.3/E (persons) 7,500 7,000 6,500 6,000 5,500 Increased gas sales: 8% 5,000 4,500 4,000 3,500 3,000 Number of employees non-consolidated 7,274 1,925 Those on loan included 5,349 '05.3/R 6,750 1,850 4,900 '09.3/E 9 The number of Osaka Gas employees (including those temporarily assigned to affiliated companies) will be reduced from 7,235 at the end of FY2006 (presumed) to 6,750 at the end of FY2009, a reduction of about 500. The fixed cost (labor costs + overhead costs + capital costs, etc.) per gas sales of 1 m3 in FY2009 will be reduced by 14% from the level in FY2005. To achieve this, we will reduce costs through measures such as: personnel reduction and labor cost reduction; capital investment reduction; cost reduction through improving the productivity of periodical safety inspection, rate accounting and other tasks; reduction of gas meter delivery cost by supply chain management; and reduction of information system maintenance/management costs. 9

10 Strategy to Develop Non-gas Business Growth of electricity business Geographic expansion of energy business Upstream business Expansion of natural gas business Growth through maximum synergy with energy business Contributing to consolidated profit by seeking inflow of cash from outside the group Liquid Gas Group (LPG retail) Nissho LP Gas Group (LPG business) Urbanex Group (real estate) OGIS-RI Group (IT) Osaka Gas Chemicals Group (materials) 10 In the international LNG market, the supply and demand situation is expected to remain tight. Therefore, for securing the stable supplies and lowering raw material procurement costs, as well as for increasing the profit using our accumulated networking know-how, we will actively seek to enter upstream businesses. With regard to gas and oil production businesses, we will prepare for the commercial operation of the Greater Sunrise Gas Field and other fields the interests of which we have already acquired. We will also continue to seek high grade investment opportunities such as participation in LNG projects and the recent acquisition of a share of Idemitsu Snorre Oil Development Co., Ltd. This will contribute to supply stability, to natural hedging through a balance between upstream and downstream businesses, and to consolidated profit. We will increase the number of our LNG vessels from three to five in FY2009, and to six in FY2010. By increasing the company-owned transportation capacity in this way, we will reduce transportation costs. Concurrently, we will expand our transportation and trading businesses. 10

11 Developing Electricity Business 3,500 3,000 2,500 2,000 1,500 1, Power procurement portfolio: surplus power from customers co-generation systems, Japan Electric Power Exchange, our own power sources (MW) 2, Cumulative capacity of power plants and sales plan of electricity Domestic electricity sales (retail+wholesale, right axis) 1,120 Overseas IPP (left axis, MW) 2,600 1,200 1,200 3,500 3,000 1, ,200 Senboku power plant (1,100MW) start up 1,200 6,300 1,200 1,800 1,800 Company-owned domestic capacity (left axis, MW) '05.3/R '06.3/E '07.3/E '08.3/E '09.3/E '10.3/E '11.3/E (GWh/year) 9,000 8,500 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Prior to the startup of the Senboku Natural Gas Power Plant (1,100MW, to start operation in April 2009), we will procure electric power by purchasing surplus power from customers cogeneration systems (power exporting cogeneration systems), using the Japan Electric Power Exchange that opened in April 2005, and using our own power sources, thus building a competitive power supply portfolio. Furthermore, we will start a major-scale deployment of electricity retail businesses tailored to customers needs, utilizing the customer sales networks built up through our gas business. The scale of our electricity business as a whole around 2010 is envisaged as follows: our own generation capacity, including the capacity of the company-owned domestic IPPs, will be about 1,800MW (about 3,000MW including the capacity of overseas IPPs), and annual electricity sales in the domestic market will be about 8.5 billion kwh, yielding an ordinary profit of 10 billion yen. 11

12 Strategies for Developing Non-energy Businesses 1,400 1,200 1, Sales plan of major non-energy businesses 100 million yen, before consolidation adjustment OG Sports Osaka Gas Security Service Osaka Gas Chemicals Group OGIS-RI Group '05.3/R '06.3/E '07.3 '08.3 ' The two strategic business companies, Osaka Gas Information System Research Institute Co., Ltd. (OGIS-RI) and Osaka Gas Chemicals Co., Ltd., will pursue the information business and advanced material business respectively to accelerate growth; the two companies will undertake strategic investment-for-growth programs including M&A (e.g. the purchase of Japan EnviroChemicals by Osaka Gas Chemicals). Furthermore, we will pursue the fitness club business and security service business as candidate strategic businesses for driving the growth of our business (in selected areas). 12

13 Pursuit of Aggressive Investment-forgrowth Strategy Main investment fields: Those contributing to growth of domestic energy business in the mid to long term Domestic electricity business, trunk-lines, LNG tankers Those contributing quickly to consolidated profit Overseas IPP, upstream business Promising non-energy business included Investment judgment by profitability assessment based on NPV, risk assessment, and others Raising efficiency in operations of group assets 13 There are three basic policies about the investments for growth: (1) The investments shall accord with the two management policies of the expansion of multienergy supply business and selective and concentrated investments in non-energy businesses. (2) Among the fields that have promising market potential, investments shall be made in those fields where the Osaka Gas Group has advantages. (3) The investments shall produce high returns as quickly as possible, contributing to the consolidated profit of the Osaka Gas Group. Major targets are: (1) Investments that will contribute to the growth of our domestic energy business in the mid to long term; and (2) Investments that will contribute quickly to the consolidated profit. The investments that will contribute to the growth of our domestic energy business in the mid to long term include those in domestic electric power business, those in main pipelines, those in the geographic expansion of natural gas business, and those in LNG vessels. Such investments will expand the scope of the core energy business of the Osaka Gas Group. The investments that will contribute quickly to the consolidated profit include those in overseas IPPs and upstream interests, the purpose of which is to increase income. At the same time, we will actively invest in promising non-energy businesses, with greater focus on selected assets. 13

14 Capital and Financial Policies Profitability and growth index: SVA, profit level, EPS, ROE Stability index: over 40% of consolidated shareholders equity ratio, consolidated D/E ratio of approximately 1 Acquisition of treasury stocks: flexibly executed in case of insufficient investments for growth and sufficient cash flow for improving EPS and ROE Shareholders equity ratio (%) Shareholders equity ratio and D/E ratio (consolidated) Shareholders equity ratio (left axis) D/E ratio (right axis) '03.3 '04.3 '05.3/R '06.3/E '09.3 D/E ratio With capital and financial policies, we will seek a balance in the three aspects of profitability, growth potential and financial health. Our target concerning our responsibility to stockholders, mainly in terms of profitability and growth potential, is to maintain satisfactory levels of SVA, profit, earning per stock (EPS), return on equity (ROE), as well as a stable dividend level. On the other hand, from the viewpoint of financial health (e.g. maintaining a high financial rating of the company), we will seek a balance concerning the SVA, free cash flow, debt with interest and so on, and continuously achieve the following criteria of financial health: (1) a consolidated equity capital ratio of at least 40%; and (2) consolidated D/E ratio (debt with interest divided by equity capital) of approximately 1. The acquisition of treasury stocks will continue with a view to improving the EPS and ROE, but it will be done with flexibility under the premise that investments for growth have been made and that there is sufficient cash flow. 14

15 Planned Use of FCF in FY FCF=cash flow from operating activities capital expenditure. Investments for growth 256 billion Usage Dividends Domestic electricity business: 68 LNG tankers: 32 Overseas IPP, Upstream, M&A of non-energy business: Trunk-lines, geographic expansion: 23.5 Procurement Consolidated FCF: 158 New loans and others Billion yen The free cash flow (i.e. investment for growth) will be used over the three years of FY as follows: 15

16 Profit from Non-gas Businesses 500 Profit before depreciation of goodwill, consolidation adjustment, and tax (100 million yen) 400 Non-energy Wide-area energy business, other energy businesses Upstream LPG Overseas IPPs Domestic IPPs FY05.3/R FY06.3/E Domestic electricity FY09.3/E 16 16

17 Value Creation Management: Summary Gas business continues to provide stable revenue source Multi-energy business and promising non-energy business as drivers for sustainable growth Forming a cycle for growth through use of profits made during the planned term for investment for future growth Main management targets (consolidated) 100 million yen FY05.3/R FY06.3/E FY09.3/E SVA Operating profit 959 1,040 1,020 Ordinary profit 974 1,000 1,000 Net income after tax EPS (yen/stock) ROE 9.9% 10.8% 8.7% SVA (Shareholders value added) = NOPAT Invested capital * WACC, WACC=3.1% 17 Osaka Gas will remain an energy utility company whose main product is natural gas and for which the gas business is the main source of profit. In view of the sluggish economic growth in the Kansai area, the decreasing population, and intensifying competition with rival companies, however, an over-dependence on the gas business within the service area as the core business could hamper future growth. To enable Osaka Gas to achieve continuous growth, we will rapidly develop ourselves into a multienergy supplier by enhancing new core businesses with a full-scale development of electricity business and a geographic expansion of energy business, while expanding profitable non-energy businesses and continuing to strengthen the competitiveness of our gas business. To achieve this, DESIGN 2008 envisages new investments for growth of 256 billion yen, which, when coupled with returns from the investments for growth made in the past, will produce consolidated ordinary profit of 100 billion yen. By achieving this profit target, we will curb an increase in interest-bearing debts, maintain the financial health, and secure financial resources for further investments for growth. By harvesting the fruits of these investments and plowing them back for future growth, the Osaka Gas Group will grow continuously throughout its second hundred years. 17

18 II. References 18 18

19 Strengthening Supply Infrastructure Demand High pressure stations Existing middle pressure lines Existing supply area Nagahama Mie-Shiga Line 2010 Lake Biwa Hikone Shiga Line 2007 Kusatsu Yokaichi Line Started supply in 2004 (60 million m3/day) Yokkaichi power plant (Chubu EPCO) 19 19

20 Capital Expenditure Plan 1,200 1, (100 million yen) Investment for growth 289 non-consolidated consolidated Investment for maintenance of regular operations FY05.3/R FY06.3/E FY07.3 FY08.3 FY

21 Usage of FCF in Innovation 100 (Billion yen) FCF21.2 Plan Dividends 4.2 Electricity81.0 FCF18.61 Trukline 1.8 Upstream 17.5 Special investment budget 12.0 Results and forecast of 2 nd half of FY06.3 Dividends 41.5 Electricity 32.8 Upstream 38.0 Overseas IPP 31.5 LPG, wind power plant, and others 25.0 M&A of environmental Trunkline17.5 Share buy back 20.0 business

22 Enhanced Development of New Technologies and Products Major Themes for Development in RDE Residential cogeneration (high efficiency ECOWILL, PEFC, SOFC) Higher efficiency in gas engines such as Miller-cycle engine and GHP Electricity-business-related technologies such as micro grid and grid connection technologies Major Themes for Development in IT Support system for marketing against electrification Standardization of systems and facilities for ubiquitous office and energy information service R&D Expenditure (billion yen) Total costs including investments, miscellaneous costs and labor costs '06.3/E '07.3 '08.3 '

23 Growth Strategy for Information Business To exploit OGISRI s strength in 55 object/uml related technologies 54 To expand solution business based on high technical 53 capacities 52 To accelerate business growth in areas such as manufacturing 51 and financial where OGISRI has 50 strength 49 To increase sale in maintenance service, contracted operation 48 and application service which assures long-term stable income 47 Share of OGISRI s sale to non-og entities (%) '06.3/E '09.3/E 23 23

24 Growth Strategy for Advanced Material Business Fine Chemical Business Development and exploitation of fluorene conductors which has superior optical characteristics over competing products Target products include coating materials for liquid crystal display and mobile phone lens Anode Carbon Business Expansion of lithium battery and capacitor materials for mobile phones Environmental Material Business Development of new application of desulfurization catalyst Planned Revenues for OG Chemical Group (billion yen) Total incl. non-consolidated group companies Integration effect of Japan Enviro Chemicals Fine materials Electrode materials Environmental materials Carbon materials chemicals '05.3/R '06.3/E '09.3/E 24 24

25 Organization for Electricity and Upstream Businesses (end of March 06) Osaka Gas Generation, wholesale of electricity to Ennet, supply of fuel gas Gas and Power Investment Holding company, district airconditioning system, Dengen CGS Electricity Gas and Power, Nakayama joint power, Nakayama Nagoya Wholesale of electricity (IPP) Osaka Gas Energy America Investment companiesipp Energy investment company in US Upstream Osaka Gas Energy Europe Energy investment company in Europe Osaka Gas International transport Bizkaia Energia (*) Wholesale of electricity (IPP) Owner of LNG tankers OG Australia, Summit Resources, etc Idemitsu Snorre (*) Universe Gas and Oil (*) Owner of gas and oil fields *=affiliated companies (no-consolidated) 25 25

26 Creation of Value for Society and Employees Alleviating environmental impacts CO2 emission per 1m3 of gas sales CO2 emission per 1kWh of electricity generation Reduction in CO2 emission by installing cogeneration systems, air-conditioning systems Target in FY09.3: 15.4g-CO2/m3 (38% reduction from the FY99.3 level) In FY11.3, 30% reduction from the FY05.3 level Target FY miilion ton-co2 Compliance Compliance with OG Group Code of Conduct Regular meetings of Compliance Committee Strictly implementation of privacy policy Value for employees Personnel management systems orientated to employees performance and their choices 26 To increase our value for society, we will reduce environmental impacts by promoting the use of environment-friendly natural gas in a more sophisticated manner, and will help create social wellbeing by revitalizing communities through our activities. In addition, we will increase the transparency of management through complete compliance with laws and information disclosure. These efforts will be reported in the annual Environmental and Societal Action Reports, and their effectiveness will be raised through such measures as defining environmental targets for each internal business unit and holding regular meetings of the compliance committee. The Osaka Gas Group will increase the value of its employees through its traditional human growth management. By refining its personnel management system characterized by meritocracy and freedom of choice, the Osaka Gas Group will strengthen the individuality and self-motivation of employees, thereby building intangible assets and achieving the growth of individual employees and the company as a whole. 26

27 III. Reference Materials for Design

28 Economic Data and Management Plan Economic data Results Forecasts Forecasts GDP Growth rate % (y/y) Corporate goods price index y/y New housing starts 10 thousand Long term interest rate (New 10 year government bond) % Exchange Rate yen/$ (Annual average) Crude Oil Price $/bbl (Annual average) Results Forecasts Design2008 one hundred million yen A 05.3 B 06.3 C 09.3 C-A Consolidated Operating Revenues 9,753 10,050 11,090 1,337 Operating Income 959 1,040 1, Ordinary Profit 974 1,000 1, Total Assets 12,175 13,284 15,098 2,923 Debt 6,866 7,593 8,477 1,611 Interest-bearing Debt 4,485 5,285 5,716 1,231 Others 2,381 2,308 2, Equity 5,309 5,691 6,620 1,311 Shareholder's equity 43.6% 42.8% 43.9% 0.3% D/E Ratio* Non-Consolidated Operating Revenues 7,227 7,510 8, Operating Income Ordinary Profit Total Assets 9,815 10,819 12,190 2,375 Debt 5,387 6,104 6,796 1,409 Interest-bearing Debt 3,476 4,272 4,835 1,359 Others 1,911 1,832 1, Equity 4,428 4,715 5, Shareholder's equity 45.1% 43.6% 44.3% -0.8% D/E Ratio* *D/E Ratio Interest-bearing Debt/Equity 28 28

29 Gas Sales Plan, CAPEX Plan etc Number of employees Results Forecasts Design2008 person A 05.3 B 06.3 C 09.3 C-A Consolidated Number of employees* 15,992 16,315 16, Non-Consolidated 5,570 5,525 5, *excludes the loaned and includes part-time workers Capital expenditure Plan Results Forecasts Design2008 one hundred million yen A 05.3 B 06.3 C 07.3 D 08.3 E 09.3 E-A Consolidated Investment for maintenance of regular operations Investment for growth* Total 655 1, ,010 1, Non-Consolidated Investment for maintenance of regular operations Investment for growth* Total Non-consolidated Gas Sales Results Forecasts Design2008 MJ/ 3 A 05.3 B 06.3 C 07.3 D 08.3 E 09.3 E-A E/A Number of meters installed (thousand) 6,697 6,759 6,814 6,866 6, % Number of newly built houses (thousand) Gas Sales per Household (m3/month) % Residential 2,238 2,304 2,344 2,359 2, % Commercial, Public and medical 1,644 1,657 1,698 1,737 1, % Industrial 3,865 3,970 4,060 4,120 4, % Wholesale % Supply for non-regulated customers 3,960 4,202 4,292 4,356 4, % Total volume of Gas Sales (million m3) 8,053 8,277 8,495 8,642 8, % Nabari Kintetsu Gas % Sasayama City Gas % Toyooka Energy % Consolidated Total volume of Gas Sales (million m3) 8,072 8,301 8,519 8,669 8, % 29 29

30 Medium Term Targets by Core Group Consolidated subsidiaries Energy-Business Operating Revenues Ordinary Profit Results Forecasts Design2008 Results Forecasts Design2008 million yen Group companies under business units 115, , ,281 8,350 6,814 19,013 Liquid Gas Group 26,655 28,839 29,784 1,506 1,566 2,019 NIPG Group 79,229 88,860 96,039 1, ,862 Energy-Business Total 220, , ,104 10,866 9,012 22,894 *excludes OG Capital Group Non-Energy Business Operating Revenues Ordinary Profit Results Forecasts Design2008 Results Forecasts Design2008 million yen Urbanex Group 26,257 25,780 30,811 4,903 4,827 5,076 Kinrei 18,241 8, , OGIS Research Institute Group 32,080 35,566 52,134 2,224 2,648 3,692 Osaka Gas Chemicals Group 18,209 34,654 49, ,315 3,725 OG Capital Group 77,364 80,708 95,530 6,740 5,581 7,472 Non-Energy Business Total 172, , ,827 15,430 15,625 19,965 Consolidated subsidiaries Total 393, , ,933 26,297 24,638 42,