Latvijas Gaze

Quarterly Report • Nov 27, 2009

"Latvijas Gāze" Joint Stock Company

Unaudited Financial Report of 9 months of 2009

Prepared according to the Requirements of International Financial Reporting Standards

Riga, 2009

Contents

Information on the company3
Report on activity of the "Latvijas Gāze" JSC in the 9 months of the year 2009 4
Shares and shareholders5
Balance sheet 8
Consolidated income statement – by function of expense 9
Consolidated statement of recognized income and expense 9
Cash flow statement 10
Changes in equity capital11
Notes to the financial statements12

Information on the company

Name of the Company	JSC Latvijas Gāze
Legal status of the Company	Joint Stock Company
Registration number, place and date of registration	000300064 Riga, March 25, 1991
	Reregistered in Commercial Register December 20, 2004 with common registration No 40003000642
Address	Aristīda Briāna street 6 Riga, LV-1001 Latvia
Names of major shareholders	E.ON Ruhrgas International AG (47.2%) Gazprom JSC (34.0%) Itera Latvija LLC (16.0%)
Names and positions of the Board members	Adrians Dāvis – Chairman of the Board Aleksandrs Mihejevs (Александр Михеев) – Member of the Board, Deputy Chairman of the Board Jörg Tumat – Member of the Board, Deputy Chairman of the Board Anda Ulpe – Member of the Board Gints Freibergs – Member of the Board
Names and positions of the Council members	From July 3, 2009 Kiril Seleznov (Кирилл Селезнев) – Chairman of the Council Juris Savickis – Deputy Chairman of the Council Achim Saul – Deputy Chairman of the Council Joachim Hockertz – Member of the Council Mario Nullmeier – Member of the Council Uwe Fip – Member of the Council Heinz Watzka – Member of the Council Jelena Karpel (Елена Карпель) – Member of the Council Aleksandr Krasnenkov (Александр Красненков) – Member of the Council Vlada Rusakova (Влада Русакова) – Member of the Council Igor Nazarov (Игорь Назаров) – Member of the Council
	Untill July 3, 2009 Kiril Seleznov (Кирилл Селезнев) – Chairman of the Council Juris Savickis – Deputy Chairman of the Council Achim Saul – Deputy Chairman of the Council Eike Benke – Member of the Council Uwe Fip – Member of the Council Marcus Anton Söhrich – Member of the Council Heinz Watzka – Member of the Council Jelena Karpel (Елена Карпель) – Member of the Council Aleksandr Krasnenkov (Александр Красненков) – Member of the Council Vlada Rusakova (Влада Русакова) – Member of the Council
Financial period	Igor Nazarov (Игорь Назаров) – Member of the Council 1 January – 30 September 2009

Report on activity of the "Latvijas Gāze" JSC in the 9 months of the year 2009

Financial activity

In 9 months of the year 2009, "Latvijas Gāze" Joint Stock Company (hereinafter – LG) sold to consumers 977,6 million nm³ of natural gas. In comparison to the respective period of 2008, the natural gas sales have decreased by 13,2 %.

The decrease of natural gas consumption in 9 months of 2009 has been caused by the temperature as well by more economical use of resources and decisions made by natural gas consumers to decrease business activities because of global financial crisis and decreasing growth pace of national economy of Latvia.

The gas injection season at the Inčukalns UGS was commenced on May 14, 2009 and completed on October 7, 2009. At commencement of natural gas injection, the reserves of active gas at the Inčukans UGS were 860,3 million nm³ . Over the season 2009, 1 214,4 million nm³ of natural gas were injected into the Inčukalns UGS, reaching the active gas volume of 2 074,7 million nm³ at the end of the injection season

In 9 months of 2009, consumers were sold natural gas and provided services for LVL 238,1 million, which is by 12,5 % more than in the respective period of 2008.

LG completed 9 months of 2009 with a profit of LVL 5,8 million.

Within the framework of the capital investment programme, LVL 9,88 million were utilized in 9 months of 2009. The funds of investment were mostly used for modernization of technological equipment and construction of new gas pipelines.

The meeting of shareholders of July 3, 2009 passed a resolution on the net profit of 2008 (LVL 19,928 million), determining that the unavailable share of the profit is LVL 1,770 million while the distributable share of profit LVL 18,158 million shall be used as follows – LVL 15,162 million or LVL 0,38 per share shall be paid to shareholders in dividends, setting July 21, 2009 as the date of calculation of dividends and July 28, 2009 as the date of payment of dividends, whereas LVL 2,996 million shall be included in the reserves stipulated by the Articles of Association.

At the Council meeting of LG of July 3, 2009 for a period of three years the new Council of the LG was elected and the Board of the Company was re-elected.

Shares and shareholders

1) Composition of shareholders¹ of LG as on December 31, 2008:

Shareholder	31.12.2008.	31.12.2007.
"E.ON Ruhrgas International" AG	47.2 %	47.2 %
"Gazprom" OJSC	34.0 %	34.0 %
"Itera Latvija" Ltd	16.0 %	16.0 %
Others	2.8 %	2.8 %
TOTAL	100,0 %	100,0 %

2) Distribution of holdings according to holding groups as on December 31, 2008:

3) List of shareholders with special control rights as on December 31, 2008:

Members of the Board		Number of shares
Chairman of the Board	Adrians Dāvis	417
Deputy Chairman of the Board	Jörg Tumat M.A.	500
Deputy Chairman of the Board	Alexander Mihejev	417
Member of the Board	Anda Ulpe	729
Member of the Board	Gints Freibergs	416

	Members of the Council	Number of shares
Chairman of the Council	Kirill Seleznev	0
Vice-chairman of the Council	Achim Saul	0
Vice-chairman of the Council	Juris Savickis	0
Members of the Council:	Eike Benke	0
	Uwe Fip	0
	Marcus Anton Söhrich	0
	Heinz Watzka	0
	Yelena Karpel	0
	Alexander Krasnenkov	0
	Vlada Rusakova	0
	Igor Nazarov	0

Since February 15, 1999, the shares of LG are quoted at the NASDAQ OMX Riga, and its share trade code since August 1, 2004 is GZE1R. The shares of LG were quoted in the Official list of the

1 Shareholders owning not les than 5% of capital

NASDAQ OMX Riga and the General list of the Baltic Stock Exchange till July 31, 2008. Pursuant to the resolution passed on June 25, 2008 by the Board of the JSC "NASDAQ OMX Riga", due to the insufficient number of quotable LG shares available in free public trading, the shares of LG were shifted to the Second list of the Baltic Stock Exchange and the NASDAQ OMX Riga as from August 1, 2008.

The capitalization value of LG on the 30 September 2009 reached LVL 199,50 million – by 16,7 % less than on the 30 September 2008 when capitalization value was LVL 239,40 million. By share market capitalization LG took the 2nd place among companies quoted in Latvia and the 8th place at the Baltic Stock Exchange.

4) Share price of LG as on September 30, 2009 and previous period

	9 months 2009	9 months 2008
Shares price (LVL):
Highest	6.00	8.20
Lowest	3.32	6.00
Avarage	4.23	7.06
Last	5.00	6.00
Number of shares	48 608	37 383
Turnover (mio LVL)	0.206	0.264
Capitalization (mio LVL)	199.500	239.400

Source: NASDAQ OMX Riga

The shares of LG are included in the following index baskets – OMX Baltic, OMX Riga, OMX Baltic Energy.

OMX Baltic

An index of all shares, a Baltic-wide index. Its basket is comprised of the shares of the Official and the Secon list of the Baltic exchanges. The index reflects the actual situation and changes in the Baltic market overall.

OMX Riga

An index of all shares, a local index. Its basket is comprised of the shares of the Official and the Second list of the NASDAQ OMX Riga. The index reflects the actual situation and changes in the NASDAQ OMX Riga.

OMX Baltic Energy

A sector index, a Baltic-wide index, based on the Global Industry Classification Standard (GICS) developed by Morgan Stanley Capital International Inc. (MSCI) in association with Standard & Poor's. The purpose of GICS is to satisfy the investors' need for a more precise, exhaustive and standardized classification of companies. The sector index shows the trends of a sector and enables comparison of similar companies within the sector. The index consists of the shares of the Official and the Second list of the OMX Baltic market, and indexes are calculated for each GICS sector separately.

Source: NASDAQ OMX Riga

Indexes/shares	01.01.2009.	30.09.2009.	Change
OMX Riga	271.29	327.65	20.77%
OMX Baltic GI	190.76	304.62	59.69%
OMX Baltic Energy GI	280.55	393.85	40.38%
LG share price	4.55	5.00	9.89%

Source: NASDAQ OMX Riga

Indexes/shares	01.01.2008.	30.09.2008.	Change
OMX Riga	595.30	386.92	-35.00%
OMX Baltic GI	515.40	324.57	-37.03%
OMX Baltic Energy GI	569.41	388.52	-31.77%
LG share price	7.12	6.00	-15.73%

Balance sheet 30.09.2009. 30.09.2008. 30.09.2009. 30.09.2008. Note LVL'000 LVL'000 EUR'000 EUR'000 ASSETS Non-current assets Property, plant and equipment 314 472 318 502 447 453 453 188 Intangible assets 2 012 1 600 2 863 2 277 Trade receivables 10 11 14 16 Total non-current assets 316 494 320 113 450 330 455 481 Current assets Inventories 1 91 758 150 015 130 559 213 452 Trade receivables 13 040 14 989 18 554 21 327 Current income tax receivable 5 299 4 766 7 540 6 781 Other current assets 39 215 41 448 55 798 58 975 Cash and cash equivalents 27 639 6 420 39 327 9 135 Total current assets 176 951 217 638 251 778 309 670 TOTAL ASSETS 493 445 537 751 702 108 765 151 EQUITY AND LIABILITIES Equity Share capital 39 900 39 900 56 773 56 773 Share premium 14 320 14 320 20 376 20 376 Revaluation reserve 2 186 871 187 097 265 893 266 213 Other reserves 69 540 66 544 98 947 94 684 Retained earnings 3 4 808 (3 080) 6 840 (4 380) Total equity 315 439 304 781 448 829 433 666 Liabilities Non-current liabilities Deferred income tax liabilities 29 915 33 676 42 565 47 917 Accruals for post employment benefits and other employee benefits 4 673 2 500 6 649 3 557 Deferred income 13 594 12 791 19 343 18 200 Total non-current liabilities 48 182 48 967 68 557 69 674 Current liabilities Trade payables 96 787 160 404 137 715 228 233 Corporate income tax payable 2 219 2 323 3 157 3 305 Borrowings - 1 464 - 2 083 Deferred income 5 148 492 7 325 700 Other current liabilities 25 670 19 320 36 525 27 490 Total current liabilities 129 824 184 003 184 722 261 811 Total liabilities 178 006 232 970 253 279 331 485 TOTAL EQUITY AND LIABILITIES 493 445 537 751 702 108 765 151

Consolidated income statement – by function of expense

		30.09.2009.	30.09.2008.	30.09.2009.30.09.2008.
	Note	LVL'000	LVL'000	EUR'000	EUR'000
Sales		238 140	211 668	338 843	301 176
Cost of sales	4	(218 063)	(202 095)	(310 275)	(287 556)
Gross profit		20 077	9 573	28 568	13 620
Administrative expenses	5	(11 057)	(8 048)	(15 733)	(11 450)
Other income	6	1 663	1 595	2 366	2 269
Other expenses	7	(5 200)	(875)	(7 400)	(1 244)
Operating profit		5 483	2 245	7 801	3 195
Finance income	8	2 222	2 134	3 162	3 036
Finance expenses	8	(7)	(61)	(10)	(87)
Finance income, net	8	2 215	2 073	3 152	2 949
Profit before income tax		7 698	4 318	10 953	6 144
Income tax expense		(2 219)	(5 380)	(3 157)	(7 655)
Profit for the period		5 479	(1 062)	7 796	(1 511)
Earnings per share (EPS)		0.137	(0.027)	0.195	(0.038)

Consolidated statement of recognized income and expense

Total recognised income for the year		5 834	(282)	8 301	(401)
Profit for the period		5 479	(1 062)	7 796	(1 511)
Net income recognised directly in equity		355	780	505	1 110
Items net of tax Disposal of revalued property, plant and equipment	2	355	780	505	1 110

Cash flow statement

	30.09.2009. LVL'000	30.09.2008. LVL'000	30.09.2009. EUR'000	30.09.2008. EUR'000
Cash flow from operating activities
Cash generated from operations	49 466	20 173	70 384	28 704
Interest received	2 481	2 169	3 530	3 086
Income tax paid	(3 938)	(6 457)	(5 603)	(9 187)
Net cash generated from operating activities	48 009	15 885	68 311	22 603
Cash flow from investing activities
Purchase of property, plant and equipment	(9 602)	(15 076)	(13 662)	(21 451)
Proceeds from sale of property, plant and	17
equipment		145	24	206
Purchase of intangible assets	(275)	(262)	(391)	(373)
Net cash used in investing activities	(9 860)	(15 193)	(14 029)	(21 618)
Cash flow from financing activities
Repayment of borrowings	(1 788)	(20 030)	(2 544)	(28 500)
Borrowings received	-	1 464	-	2 083
Interest paid	(6)	(61)	(9)	(87)
Dividends paid	(15 162)	(19 950)	(21 574)	(28 386)
Net cash (used in) / generated from financing activities	(16 956)	(38 577)	(24 127)	(54 890)
Net (decrease) / increase in cash and cash equivalents	21 193	(37 885)	30 155	(53 905)
Cash and cash equivalents at the beginning of the year	6 446	44 305	9 172	63 040
Cash and cash equivalents at the end of the year	27 639*	6 420	39 327*	9 135

* The funds will be spent in October 2009 on payment for natural gas injected into Inčukalns UGS for the needs of 2010.

Changes in equity capital

	Share capital	Share premium	Revaluation reserve	Other reserves	Retained earnings	Total
	LVL'000	LVL'000	LVL'000	LVL'000	LVL'000	LVL'000
December 31, 2007	39 900	14 320	187 584	55 416	28 280	325 500
Income in year 2008, total	-	-	(486)	-	(282)	(768)
Transfer to reserves	-	-	-	11 128	(11 128)
Dividends for 2007	-	-	-	-	(19 950)	(19 950)
Rounding	-	-	(1)	-	-	(1)
September 30, 2008	39 900	14 320	187 097	66 544	(3 080)	304 781
December 31, 2008	39 900	14 320	187 060	66 544	17 131	324 955
Income in year 2009, total	-	-	(189)	-	5 834	5 645
Transfer to reserves	-	-	-	2 996	(2 996)	-
Dividends for 2008	-	-	-	-	(15 162)	(15 162)
Rounding	-	-	-	-	1	1
September 30, 2009	39 900	14 320	186 871	69 540	4 808	315 439

	Share capital	Share premium	Revaluation reserve	Other reserves	Retained earnings	Total
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
December 31, 2007	56 773	20 376	266 907	78 850	40 238	463 144
Income in year 2008, total	-	-	(692)	-	(401)	(1 093)
Transfer to reserves	-	-	-	15 833	(15 833)	-
Dividends for 2007	-	-	-	-	(28 386)	(28 386)
Rounding	-	-	(2)	1	2	1
September 30, 2008	56 773	20 376	266 213	94 684	(4 380)	433 666
December 31, 2008	56 773	20 376	266 163	94 684	24 375	462 371
Income in year 2009, total	-	-	(269)	-	8 301	8 032
Transfer to reserves	-	-	-	4 263	(4 263)	-
Dividends for 2008	-	-	-	-	(21 574)	(21 574)
Rounding	-	-	(1)	-	1	-
September 30, 2009	56 773	20 376	265 893	98 947	6 840	448 829

Notes to the financial statements

	30.09.2009.	30.09.2008.	30.09.2009.	30.09.2008.
	LVL'000	LVL'000	EUR'000	EUR'000
1 INVENTORIES
Materials and spare parts
(at net realisable value)	3 158	4 377	4 493	6 228
Gas and fuel (at cost)	88 600	145 638	126 066	207 224
	91 758	150 015	130 559	213 452
2 REVALUATION RESERVE
At the beginning of the period	187 060	187 583	266 162	266 907
Revaluation of property, plant and
equipment	166	294	236	418
Disposal of revalued property, plant and
equipment	(355)	(780)	(505)	(1 110)
Rounding	-	-	-	(2)
At the end of the period	186 871	187 097	265 893	266 213
3 RETAINED EARNINGS
At the beginning of the period	17 131	28 280	24 375	40 240
Disposal of revalued property, plant and
equipment	355	780	505	1 110
Profit for the period	5 479	(1 062)	7 796	(1 511)
Transfer to reserves	(2 996)	(11 128)	(4 263)	(15 833)
Dividends for previous period	(15 162)	(19 950)	(21 574)	(28 386)
Rounding	1	-	1	-
At the end of the period	4 808	(3 080)	6 840	(4 380)
4 COST OF SALES
Purchase of natural gas	184 999	165 745	263 230	235 834
Salaries	8 972	8 941	12 766	12 722
Social insurance contributions	2 105	2 078	2 995	2 957
Life, health and pension insurance	649	626	923	891
Materials and spare parts	3 419	6 913	4 865	9 836
Depreciation and amortisation	14 745	13 715	20 980	19 515
Other	3 174	4 077	4 516	5 801
	218 063	202 095	310 275	287 556
5 ADMINISTRATIVE EXPENSES
Salaries	2 147	2 414	3 055	3 435
Social insurance contributions	521	489	741	696
Life, health and pension insurance	113	110	161	156
Maintenance and utilities	692	593	985	844
Real estate tax	121	105	172	148
Depreciation and amortisation	449	354	639	504
Bank charges	334	182	475	259
Provisions for impairment of bad
and doubtful debts, net	(42)	(20)	(60)	(28)
Other expenses	6 722	3 821	9 565	5 436

	11 057	8 048	15 733	11 450
6 OTHER INCOME
Penalties from customers	845	432	1 202	614
Profit on sale of fixed assets	395	365	562	519
Provisions for slow moving and obsolete
inventories impairment	29	17	41	25
Other income	394	203	561	288
Net foreign exchange gains	-	578	-	823
	1 663	1 595	2 366	2 269
7 OTHER EXPENSES				137 390
Materials	18	8	26	11
Salaries	97	112	138	159
Social insurance contributions	16	16	23	23
Depreciation and amortisation	75	71	107	101
Sponsorship	400	25	569	35
Loss from sale of fixed assets	608	378	865	538
Loss from increase in exchange rates, net Other expense	678 3 308*	- 265	965 4 707*	- 377
	5 200	875	7 400	1 244
* incl. LVL 3100 (EUR 4411) provisions for operating costs
EXPENSES BY NATURE				189
Purchase of natural gas	184 999	165 745	263 230	235 834
Depreciation and amortisation	15 269	14 140	21 726	20 120
Employee benefit expense (see Note 26)	14 620	14 786	20 802	21 039
Material and spare parts	3 437	6 921	4 891	9 847
Net provisions for impaired receivables	(42)	(20)	(60)	(28)
Other expenses	16 037 234 320	9 446 211 018	22 819 333 408	13 438 300 250
8 FINANCE INCOME, NET				144 135
Finance income
- Interest income	2 222	2 134	3 162	3 036
	2 222	2 134	3 162	3 036
Finance expenses
- Interest expenses	7 7	61 61	10 10	87 87
Finance income, net	2 215	2 073	3 152	2 949