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VNG Annual Report 2009: VNG - strong growth against stiff competition

Record net income and sales volume for natural gas importer / internationalization and business diversification pay dividends / employee numbers rise

(PresseBox) (Leipzig, ) In the 2009 financial year, VNG - Verbundnetz Gas Aktiengesellschaft (VNG) recorded record net income and sales volume figures. Despite the global economic crisis which has affected Europe and especially Germany, the Leipzig natural gas importer has continued its expansion. "We used our solid financial starting point to continually develop our potential for growth and to ensure successful, sustainable development. We believe that there is sufficient potential to continue this approach in the future," said Prof. e.h. Dr.-Ing. Klaus-Ewald Holst, Chairman of the Executive Board of VNG, at the company's annual press conference in Leipzig.

Twelfth sales record in succession

2009 brought VNG net income of 169.9 million euros, representing a rise of more than 20 % over 2008 (140.8 million euros). This figure significantly exceeded the previous record of 155 million euros reported for 2006. In 2009, VNG sold 183 billion kWh of natural gas, representing a yearonyear rise of 6.8 percent compared with 2008. This means that VNG succeeded in boosting its sales volume for the twelfth year in succession. VNG has maintained its position as the thirdlargest natural gas importer in Germany and is one of the top ten in Europe. "This is all the more remarkable since VNG was able not only to maintain its position but also to expand its business, despite the fall in European natural gas demand and growing competition," stressed Executive Board Chairman Holst. In a yearonyear comparison, VNG only recorded a fall in sales revenues, which were down about 700 million euros to 4.8 billion euros. This was due to severe fluctuations in the price of natural gas, which had, like oil and coal, reached record levels in 2008 and then fell significantly in 2009.

Significant growth in foreign markets

The internationalization of VNG's business, which was initiated at an early stage, and the expansion of the company's sales offices in western Germany, proved to be additional mainstays of the company's activities in the economic crisis. The strategy of placing VNG on a broad footing has paid dividends.

New sales channels more than compensated for the foreseeable falls in sales on traditional markets in eastern Germany caused by tougher competition and lower sales to industrial customers as a result of the economic situation. For the first time in the history of VNG, the share of foreign business exceeded ten percent, reaching 11 percent in 2009, compared with nine percent in 2008. Especially activities on the Polish and Italian markets had been a key element in this development. VNG has also grasped the opportunities offered by the spot and futures markets. Shortterm trading now accounts for some 12 percent of VNG's gas sales.

Diversification of natural gas procurement

VNG has also stepped up its natural gas procurement activities on spot and futures markets. In the 2009 financial year, the share of shortterm trading in gas procurement doubled to 22 percent, about the same level as gas purchased from Norwegian or German sources. Russia remains the most important supplier, with a share of 35 percent. " In 2009, procurement markets demonstrated considerable dynamism, a factor we were able to put to good use," said Dr. Holst, adding: "The art is to harmonise natural gas procurement and sale. We can only offer our customers competitive conditions in combination with our service portfolio if we succeed in purchasing the right quantities at the right time at favourable conditions."

A major step towards own production

In 2009, VNG took a major step forward in its efforts to develop its own sources. VNG has been represented by its own affiliate in Norway since 2006. Last year, Endeavour Energy Norge AS was acquired and merged with the existing VNG Norge AS. Via this affiliate, VNG currently holds shares in 25 licences, including licences in two producing fields. VNG Norge has also succeeded in making the transition from licensee to operator.

VNG intends to meet up to 10 percent of gas sales from its own sources by 2017.

Biomethane supplements the portfolio

VNG has also continued its biomethane production, purchasing and sales activities. Biomethane is a fuel with outstanding environmental properties. It is produced solely from renewable raw materials and organic waste and can therefore contribute to more sustainable energy supplies in Germany. However, Dr. Holst believes that there are some obstacles: "Unfortunately, the current statutory provisions, particularly in the Renewable Energy Heating Act and the Gas Network Access Ordinance, severely impair the competitiveness of biomethane." He said that appropriate incentives would need to be offered.

Growing workforce - shareholders benefit from the company's success

The growth of VNG AG is reflected by rising employee numbers. The workforce of the parent company rose by ten percent to 697 in 2009. In accordance with the resolution adopted by the shareholders at the general meeting on May 18, 2010, the shareholders will also benefit appropriately. The total dividend payment for 2009 is to be 105 million euros. The increase of 9.4 percent is less than the rise in profit, allowing the company sufficient funds for future investments. For the ten localauthority shareholders, which have a total stake of 25.79 percent in VNG, the dividend is an important budget item in view of the increasingly difficult financial position of many towns and communities.

A positive outlook

Dr. Holst: "In 2009, we not only faced up to competition but actively used competition to make attractive offers for the benefit of our customers and our company." In future too, the Chairman of the Executive Board of VNG, whose designated successor Dr. Karsten Heuchert is to succeed him in September this year, sees considerable market potential both for natural gas and for VNG. "Despite the great plans for renewable energies, natural gas will remain important for secure energy supplies. It must regain its position as the energy source of choice. For this purpose, we will need to continually develop the portfolio we offer to customers and to repeatedly stress the undisputed energy, economic and ecological benefits of our product." Holst believes that VNG is especially wellpositioned, with its commitment to futureoriented decentralized energy supplies with compact and micro-CHP plants and to the young biomethane market.

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