2017 financial year

Geschäftsbericht der VNG AG 2017
1. March 2018
VNG AG
VNG Group continues gratifying development

Net profit of €71 million exceeds previous year’s figure – earnings power further improved – future-oriented Group strategy “VNG 2030+” being implemented – 2017 and 2018 characterized by major projects

The VNG Group has reported a net profit of €71 million after interest and tax for the 2017 financial year. “We are very pleased to note this generally positive business development, which confirms that the VNG Group was on the right track in 2017. We have further improved our earnings power and also laid the right foundations for the future. We note that our realignment has been successful,” emphasized Ulf Heitmüller, Chairman of the Executive Board of VNG AG, at today’s presentation of the annual financial statements. The consolidated financial statements for 2017 were drawn up in accordance with International Financial Reporting Standards (IFRS) for the first time. The net profit for the previous year, determined on the basis of the German Commercial Code, was about €40 million.

At the level of the group, EBIT in accordance with IFRS reached €104 million. For 2016, an EBIT figure of €84 million was reported in accordance with the German Commercial Code. “In 2017, we successfully completed our full consolidation within the EnBW Group and also accelerated our earnings power improvement programme, with significant results. In view of the many challenges we faced, I am very pleased that we were able to significantly outperform our earnings and financial targets for the entire VNG Group and to achieve operational improvements in a highly competitive market. Our employees made an outstanding contribution to this achievement,” says Bodo Rodestock, Member of the Executive Board responsible for Finance and Human Resources. The sales of the VNG Group, at about €10.3 billion, were considerably higher than in the previous year as a result of a number of factors including an increase in the trading activities of the Group.

VNG Group lays foundations in 2017: shaping a green, digital, gas-based future in line with the “VNG 2030+” strategy

In the consistent implementation of its future-oriented Group strategy “VNG 2030+” the VNG Group is pursuing two main approaches. Firstly, the main focus in the business areas of Exploration & Production, Trading & Sales, Transport, and Storage, continues to be on cost optimization and operational performance. Secondly, the objective is to identify growth opportunities in neighbouring business areas and to exploit them consistently. “In 2017, we took our first key steps in the areas of biogas, digital infrastructure and local solutions. We have already started work on individual projects,” says Ulf Heitmüller. In addition, the VNG Group is participating in start-ups and thus reinforcing new approaches to innovation and cooperation.

Developments in the business areas:
Exploration & Production – focus on development of “Fenja” field

“The main focus of our subsidiary VNG Norge was on the preparation of the field development plan for the “Pil“ find in the Norwegian North Sea, which we made in 2014 and has now been officially renamed “Fenja”. The plan was submitted to the Norwegian Ministry of Petroleum and Energy to schedule in December 2017,” says Hans-Joachim Polk, Member of the Executive Board responsible for Infrastructure and Technology.

VNG Norge, as the operator, holds a 30-percent stake in the development of the “Fenja” field. The objective is to start production from the field by 2021 at the latest and to exploit the field up to 2040 via the Njord A platform. “As part of its “VNG 2030+” strategy, the VNG Group aims to maximize the value of its E&P business. We are also considering the participation of a strategic partner with a view to making VNG Norge a key player on the Norwegian Continental Shelf,” Polk adds.

Trading & Sales – successful performance by wholesale business and retail segment

In 2017, the Trading & Sales business area was able to assert itself successfully in intensive competition with low sales margins and inadequate rewards for structuring and flexibility services. “We succeeded in seamlessly continuing the good operating developments of the previous year and achieved success both in our traditional wholesale business and in retail sales in Germany and other countries. This underlines the fact you are markers that the reorganization of the business area, which has now been completed, has proved itself in practice,” says Ulf Heitmüller.

In the German wholesale sector, the business area continues its approach based on modern midstream excellence. Retail sales also proved to be a key pillar of performance and further customer growth was achieved, together with a moderate increase in customer numbers. At the same time, for regulatory reasons, preparations were made for the spin-off of the wholesale business to VNG Handel & Vertrieb GmbH. VNG Handel & Vertrieb GmbH will commence business operations at the beginning of the second quarter of 2018.

Transport – ONTRAS again achieves stable operating profit

In the Transport business area, ONTRAS Gastransport GmbH, the independent transmission system operator within the VNG Group, once again recorded a stable operating profit in the regulated sector. In order to ensure high levels of reliability and security of supplies in Germany, ONTRAS continues to invest in the expansion and modification of its transmission system, with a total length of 7,000 km and more than 450 networking interconnection points. A major milestone in the further development of the company is its participation in the Europäische Gasanbindungsleitung (EUGAL) pipeline project in October 2017.

Storage – VGS concentrates on economically efficient operational and cost leadership

As the third-largest storage facility operator in Germany, the function of VNG Gasspeicher GmbH (VGS) with its high-performance infrastructure within the VNG Group is to operate and market safe and reliable underground storage facilities in central and Northern Germany. “In the Storage business area, the difficult market environment again remained challenging in 2017 as a result of constantly low seasonal price differences,” says Polk. VGS therefore continues to focus on its economically viable storage facilities. In overall terms, VGS achieved an improvement in the earnings situation in 2017.

The key strategic goal of the Storage business area remains cost leadership in the storage market. “Looking to the future, we see considerable potential for modern storage and transport infrastructure, especially in the field of renewable energies,” says Polk. A major milestone in these efforts was the official inauguration and commissioning of the “Katharina” underground storage facility in Peißen near Bernburg (Saxony-Anhalt) in May 2017.

Outlook for 2018

In 2018, VNG AG, the parent company of the VNG Group, celebrates its 60th anniversary. In future, it will remain the task of the VNG Group on the basis of its core competence in the gas industry to position gas as the ideal partner to renewable energies, paving the way to a decarbonized energy system, to develop additional business areas and to expand its earnings base.

In 2018, the company will continue to consistently pursue further improvements in earnings power, the implementation of its strategy “VNG 2030+” and work on the major projects “Fenja” and EUGAL which started in 2017. “With our many years of experience along the entire gas value stream, our strategy “VNG 2030+” and our gas infrastructure, we consider that the VNG Group is well-positioned to shape a green, digital, gas-based future and look to the future with optimism. Our view is confirmed by the broad support received from our shareholders,” Ulf Heitmüller concludes. For 2018, the VNG Group expects a slight improvement in profits.

VNG Group
The VNG Group with its parent company VNG – Verbundnetz Gas Aktiengesellschaft, headquartered in Leipzig, is a European gas industry group with more than 15 fully consolidated companies in eight countries. The core business of the Group is divided into the four business areas of Exploration & Production, Trading & Sales, Transport, and Storage. The VNG Group employs about 1,200 people and recorded sales of approximately €10.3 billion in 2017.