Press release
For immediate release
12 March 2009
Climate Exchange plc
Preliminary results for the year ended 31 December 2008
2.6 times growth in volumes in 2008 - and still growing fast
Climate Exchange plc (the "Group" or the "Company"), the world's
leading specialist exchange for trading emissions and environmental
products, announces its preliminary results for the year ending 31
December 2008.
Unaudited Pro-Forma Financial Highlights for the year ended 31
December 2008
. Pro-forma pre-tax profit of GBP2.8 million (2007: GBP0.85 million)
. Revenues from core businesses up 67 % to GBP22.7 million (2007: GBP1
3.6 million)
. Core business operating profit GBP6.3 million (2007: GBP3.4 million)
. Cash balances including short term investments GBP12.4 million at 31
December 2008 compared with GBP13.7 million at 31 December 2007 and
no external borrowings
. IFRS loss before tax GBP2.5 million (2007: GBP8.3 million)
Strategic Highlights
. Election of President Obama - U.S. now poised to commit to
mandatory cap and trade
. Triple digit growth in the European business during the
first Kyoto year - EUAs firmly embedded as global carbon benchmark
. Successful launch of CER futures and options
. Open interest more than doubled in a year
. ECX Spot trading to start March 2009
. Triple digit growth in U.S. based trading - successful product
launches and growing diversity
. International developments in China, Canada and Australia
. Growing interest and new contracts launched in IFEX
Operational Highlights
. European Climate Exchange (ECX) annual volume increased 170% to
2.81 billion tonnes
. ECX open interest finished the year at 356 million tonnes, more
than double the previous year
. ECX membership increased to 95 members, despite high levels of
consolidation throughout the markets (2007 : 80)
. Chicago Climate Futures Exchange (CCFE) average daily volume
increased by 70 % to 1,899 contracts in 2008 from 1,117 contracts
in 2007
. Chicago Climate Exchange (CCX) average daily volumes increased by
202% to 2,761 contracts in 2008 from 913 contracts in 2007
. CCX membership increased to 470 (2007: 401)
Richard Sandor, Chairman of Climate Exchange plc, said: "Our company
continues to blaze new trails while growing the business. The growth in
both volumes and revenue has been outstanding and the first two months
of 2009 have been even more auspicious. The success of RGGI futures and
options and the launch of the "when issued" U.S. Allowance futures and
options has positioned the company to emerge as the leader in any
mandatory program in the United States, which appears to be more likely
than ever."
Neil Eckert, Chief Executive of Climate Exchange plc, said: "2008 was
another exciting year for our business both in terms of continued
growth in volume of contracts traded and the launch of successful new
contracts. We especially look forward to the launch of the Spot
contract in Europe on 13 March 2009, which will be another important
development in our business."
--ENDS--
There will be a live audio cast today of our Preliminary Results for
the year to 31 December 2008 at 1.00 p.m. GMT/9.00 a.m. EST. Event
title 'Climate Exchange plc Preliminary Results Presentation'
To attend the audio cast, please go to our website at
www.climateexchange.com and follow instructions at 'Events &
Presentations' or direct by going to
http://www.investorcalendar.com/IC/CEPage.asp?ID=141731
To dial into the conference call please use one of the following
numbers
UK Regular number 0208 609 0582
UK Toll Free number 0800 358 7034
US Toll Free number +1 866 388 1925
Contacts
Climate Exchange plc
Neil Eckert, CEO, 0207 382 7801
Matthew Whittell, CFO 0207 382 7802
Helene Crook, Investor Relations 0207 382 7807
Haggie Financial
David Haggie / Alexandra Parry 0207 417 8989
Cenkos Securities plc 0207 397 8980
Ivonne Cantu / Nicholas Wells
Notes to Editors:
About Climate Exchange plc
Climate Exchange plc is a holding company whose subsidiaries are
principally engaged in owning, operating and developing exchanges to
facilitate trading in environmental financial instruments including
emissions reduction credits in both voluntary and mandatory markets.
Its three main businesses are the European Climate Exchange (ECX) which
operates the leading derivatives exchange focused on compliance
certificates for the mandatory European Emissions TradingScheme, Chicago
Climate Exchange (CCX) which operates a voluntary but
contractually binding cap and trade system for greenhouse gas emissions
in the U.S., and the Chicago Climate Futures Exchange (CCFE) the
leading U.S. regulated environmental products exchange whose contracts
include mandatory U.S. emissions such as SO2 , NOx and RGGI CO2.
www.climateexchange.com
About European Climate Exchange
The European Climate Exchange (ECX) manages product development and
marketing of Carbon Financial Instruments (CFI) futures and options
contracts on CO2 EU allowances (EUAs) traded under the EU Emissions
Trading Scheme and Certified Emission Reductions (CERs) issued under
the Kyoto Protocol.
ECX CFI contracts are listed and traded on the ICE Futures electronic
platform, offering a central marketplace for emissions trading
in Europe with standard contracts and clearing guarantees. ECX/ ICE
Futures is the most liquid, pan-European Exchange for carbon emissions
trading. More than 90 businesses have signed up for membership to trade
ECX products. In addition, several thousand ICE clients can access the
market via banks and brokers.
www.ecx.eu
About Chicago Climate Exchange, Inc. and Chicago Climate Futures
Exchange
Chicago Climate Exchange (CCX) is a financial services business whose
objectives are to apply financial innovation and incentives to advance
social, environmental and economic goals. CCX is the world's first and
North America's only contractually binding rules-based greenhouse gas
emissions allowance trading system, as well as the world's only global
system for emissions trading based on all six greenhouse gases. CCX
members are leaders in greenhouse gas management and represent all
sectors of the global economy, as well as public sector innovators.
Greenhouse gas emission reductions achieved through CCX are the only
reductions in North America being achieved through a legally binding
compliance regime. Independent third party verification is provided by
FINRA. For a full list of CCX members, daily prices and other Exchange
information please see the CCX website.
The Chicago Climate Futures Exchange (CCFE), a wholly owned subsidiary
of the Chicago Climate Exchange, is a CFTC designated contract market
which offers standardized and cleared futures contracts on emission
allowances and other environmental products. Clearing services are
provided by The Clearing Corporation. Market surveillance services are
provided by the National Futures Association, the industry wide,
self-regulatory organization for the U.S. futures industry.
www.chicagoclimateexchange.com
www.ccfe.com
EXECUTIVE CHAIRMAN'S STATEMENT "Do not go where the path may lead, go
instead where there is no path and leave a trail"
- Ralph Waldo Emerson
It gives me great pleasure to report on another outstanding year for
the Climate Exchange plc group of companies as evidenced
by continuing volume growth in Europe as well as the significant
developments in prospect for U.S. mandatory carbon markets following
the presidential election.
Your Company continues to blaze new trails. This has been a year where
we made great strides in solidifying our positions in Europe and
the U.S. through growth in membership and the launch of new products in
both mandatory and voluntary markets. We are now active in every major
established emissions trading regime around the world. Our most
successful new contracts launched in 2008 were futures and options on
Certified Emission Reductions (CERs) on the European Climate Exchange
(ECX). These contracts have special significance as they have the
potential to be a linking mechanism among various national systems. In
the U.S., the Chicago Climate Futures Exchange (CCFE) successfully
launched a Regional Greenhouse Gas Initiative (RGGI) futures and
options contract - the first mandatory greenhouse gas cap and trade
program in the country. ECX and CCFE have captured 87% and 99% market
shares in these contracts, respectively. And more recently, we now have
a presence in another emerging U.S. emissions
market, California, with the launch of futures on California Climate
Action Registry. Market interest has also led us to launch the first
tool for directly hedging exposure under a potential
mandatory U.S. greenhouse gas trading program, a "when issued" Carbon
Financial Instrument (CFI-US).
We have also expanded the franchise of environmental and
sustainability-based products that reinforce our mandate as the premier
exchange for all types of climate-related contracts. We have launched a
futures contract on the Dow Jones Sustainability Index, marking a
partnership with Dow Jones Indexes of which we are very proud. Also,
the Insurance Futures Exchange (IFEX) has seen increased market
interest, with two new contracts being offered this year. The
international highlight of 2008 is the completion of the agreement for
CCX to become a founding investor in China of the Tianjin Climate
Exchange (TCX), China's first integrated exchange for trading of
environmental financial instruments. China's use of markets to attain
environmental objectives has the potential to be a transformational
event in the environmental world. TCX has been granted a provincial
license by the Ministry of the Environment and Ministry of Finance of
the People's Republic of China to trade SO2, Energy Intensity and COD
(water quality).
2008 was a remarkable year in many regards but will probably be
remembered for the state of financial turmoil that occurred during the
third and fourth quarters and still persists today. Climate Exchange
plc is virtually unique in the exchange space in that throughout this
turmoil we have continued to post month on month record volumes
culminating with February 2009 setting new daily, weekly and monthly
records for our Group. The Climate Exchange brand continues to grow.
European Climate Exchange
Volumes on ECX have been exceptionally strong. The membership base of
clearing members, industrials and financial players that have access to
the ECX market has not only expanded but also diversified
beyond Europe. The latter contributes to our objective of becoming the
premier brand in environmental markets worldwide.
Chicago Climate Exchange
In 2008, CCX membership increased to 470 from 401 in 2007. CCX Members
represent 17% of the Dow Jones Industrials, 11% of the Fortune 100, and
20% of the largest CO2 emitting utilities in the US. CCX total baseline
is approximately 600 million metric tonnes of CO2 equivalent, making it
larger than Germany in terms of emissions under a cap. New member
highlights for 2008 include a cross-section of industry ranging from
utilities such as Mirant, Dynegy and CLECO to pharmaceuticals (Abbott
Laboratories) and manufacturers (Bosch). These events continue to
secure our leadership in cap and trade in what might become the largest
carbon market in the world.
Chicago Climate Futures Exchange
CCFE exhibited tremendous growth in 2008 despite the fact that the
Federal Court's ruling on the Clean Air Interstate Rules (CAIR)
adversely affected SO2 and NOx emission trading. Fortunately, the
outlook for 2009 is again positive as CAIR was reinstated in December
2008.
In November 2008, CCFE launched its CFI-US Allowance Futures Contract
(CFI-US). The contract offers the first tool for directly hedging
exposure to possible future U.S. carbon allowance prices, as well as
whether and when a U.S. federal greenhouse gas emission reduction
mandate is established.
The CFI-US calls for delivery of greenhouse gas emission allowances
that would be usable for compliance under a mandatory
federal U.S. cap and trade program. Delivery of other specified
mandatory CO2 allowances would be required if a U.S. federal mandatory
program is not enacted when contracts expire in 2013 and later. A
diverse group of industrial and financial players were involved in the
opening day of CCFE CFI-US futures transactions. This was a bold an
innovative step by your Company. It has already begun to inform the
debate in the U.S. on a mandatory cap and trade program.
Public Policy Developments
The work and progress of the CCX is well-known to many of the leading
members of the Congress and the current Administration. We have
intensified our educational outreach in Washington given the growing
interest from members of the U.S. Congress on impending cap and trade
legislation. CCX has met with the offices of over two dozen of the most
active and prestigious Members of the House and the Senate currently
involved in discussions to draft cap and trade bills, including
briefings to members of important Congressional committees and their
staff (e.g. Energy and Commerce, Agriculture). As the new
Administration takes office, we are also in the process of briefing
incoming members of the Executive Branch who will be directly involved
in climate change policy from both a domestic and international angle.
International Developments
CLE has continued to make progress in establishing Climate Exchange as
the leader in the design and development of emissions markets
worldwide. In China, the China National Petroleum Corporation Asset
Management Company, Ltd. (CNPC-AM), Tianjin Property Rights Exchange
(TPRE) and CCX announced in September the opening of TCX. As a joint
venture between CNPC-AM, the City of Tianjin and CCX, TCX intends to
establish China as a pre-eminent center for environmental finance and
the application of market-based mechanisms to environmental management
and natural resource protection. In December 2008, TCX and Hong Kong
Exchanges and Clearing Limited (HKEx) entered into discussions on
possible avenues for cooperation in environmental emissions markets.
Montreal Climate Exchange (MCEx) a joint venture between CCX and the
Montreal Exchange was launched in May 2008. MCEx will serve the needs
of the evolving Canadian emissions markets as policy guidelines
continue to develop. In Australia, we have a 25% investment in enVex,
which addresses the emerging Australian emissions markets.
Outlook for 2009
President Obama has clearly stated his intention to implement
a nationwide market-based cap and trade system and legislation is
currently being discussed in the U.S. House of Representatives. The new
Administration has also given clear signals that it intends to have
the U.S. re-engage in the international climate change negotiation
process particularly in light of the upcoming U.N. conference
in Copenhagen in December 2009. Leading legislators involved in the
discussion have indicated that a bill is likely to emerge out of
Committee in the summer this year.
Climate Exchange continues to apply financial innovation and incentives
to advance environmental and economic goals. In the absence of national
or local regulations, we design and implement emissions trading systems
which have, in many instances, anticipated public policy. When a
regulatory framework already exists, we operationalize the law through
the use of a regulated and transparent platform which provides price
discovery and a low-cost hedging mechanism.
Despite the current financial turmoil, we believe the outlook for
emissions trading markets and other forms of market-based solutions to
environmental problems continues to be positive. Companies, governments
and the public sector increasingly see the value of these instruments
as a price-discovery mechanism for carbon and to help them and society
achieve emissions control at the lowest possible cost.
In conclusion, 2008 has solidified Climate Exchange's status as the
leader among environmental exchanges in the world. Its success is
ultimately due to our members and customers. Your management team in
both Europe and North America has been outstanding and we are delighted
to have welcomed Satish Nandapurkar as president of CCX in Chicago. On
a personal note, special thanks are due to Neil Eckert the CEO of
Climate Exchange plc. And of course my greatest debt of gratitude goes
to my fellow shareholders who have been so supportive in helping us
achieve our financial objectives and personal dreams.
Richard L. Sandor
Executive Chairman
12 March 2009
OPERATING AND FINANCIAL REVIEW
We continue to drive growth in the group businesses. In addition to
our three core businesses of ECX in Europe and CCX and CCFE in North
America, we have a growing portfolio of international partnerships and
investments which we manage as an international segment. Our core
businesses are wholly owned subsidiaries of the Group while strategy
and local regulation typically mean our international businesses are
owned jointly with other local partners.
In Europe, the ECX business, managed by Patrick Birley, is strongly
focused on the development of growth in trading volumes. The 2008
volume performance speaks for itself. A major benefit of our strategic
relationship with ICE in Europe is that growth can be sustained without
significantly adding to our minimal headcount of five at ECX.
The U.S. business, headed by Satish Nandapurkar, has a significantly
greater staffing requirement owing to the business model of
CCX where to date we have traded in the absence of federal regulation.
This means we have to design and maintain our proprietary emissions
reduction system, a significant task by itself, and also sell the
concept and its commercial and environmental benefits to potential and
current members. At the same time, this model gives us two additional
revenue lines, being membership dues and offset registration fees.
We also have a thriving futures business in Chicago whose main ongoing
source of income will be trading volumes. CCFE is our CTFC regulated
derivatives exchange in the U.S. and trades an extensive range of
contracts which include CCX carbon futures, SOx and NOx futures,
catastrophe insurance futures together with various fledgling
environmental equity options and other related commodities. The total
headcount in the U.S. is 49. In the medium term, we expect the U.S. to
be our largest growth market.
The third leg of the business is the international arm which include
our joint ventures or minority holdings in a range of
territories. These include MCEx in Canada, TCX in China, enVex
in Australia, and the India Climate Exchange Advisory Board (ICX)
in India. We are engaged in discussions to launch contracts in other
important markets.
European Climate Exchange (ECX)
Volumes
2008 will be remembered as a true turning point for ECX - a year where
we saw a jump-shift in trading activity.
Volumes on ECX have been exceptionally strong with trading levels
nearly three times the same period last year. Full year
volumes increased 170% over 2007. In 2008, ECX captured a 92% market
share of EUA futures and options traded and 87% market share for CERs.
For 2009, we begin the year with 355,505 contracts in open interest in
comparison to 176,386 at the start of 2008. ECX has solidified its
position as the price reference for the largest environmental market in
the world in both EUAs and CERs. The membership base of clearing
members, industrials and financial players that have access to the ECX
market has not only expanded but also diversified beyond Europe.
The volume traded in each month of 2008 exceeded the
highest monthly volume in any of the years since our launch (the
previous highest monthly volume was 126,000 in July 2007, whilst the
lowest volume month in 2008 was March, when 128,000 contracts traded).
The peak volume month was October when we traded 412,000 contracts,
only slightly below the total traded volume for the full year 2006.
Products
The launch of our second key product, CER futures, in March followed a
frustrating period of conflict with our previous clearing provider.
Thankfully the delays in getting to market did not impact on success
and the CER contracts gained immediate traction. The volumes achieved
during the first year of operation make it a notable success as we
achieved a market share of 87% by the year end. The futures were
followed closely by CER options in May 2008 and these too attracted
immediate and significant volumes. The combination of EUA and CER
derivatives on the same platform has given rise to arbitrage
opportunities, with transparent pricing and increasing liquidity across
all products.
Prices
Market prices of both EUA and CER products fell sharply, particularly
in the latter part of 2008. These falls are generally correlated
to price declines in other commodity markets and although the falls
have not impacted volumes, it is a concern that they move the
market price further from the marginal cost of abatement. Volatility
levels in the emissions options are around 60% and these no longer
stand out as particularly high amongst other commodity or financial
derivatives.
Clearing transfer
The transfer of all ECX products to ICE Clear Europe from LCH.Clearnet
was completed without incident in November. The move will hopefully put
ECX, together with our partners ICE, on a more dynamic footing with
respect to future product launches.
The importance of clearing mechanisms has been driven home during the
recent financial turmoil and ECX has been pleased to be able to provide
a platform for activity that might previously have been done
bi-laterally. We are grateful to all those who support our products so
enthusiastically.
Competition
A number of competitive offerings came and went during the year but,
despite this, ECX grew its market share of emissions futures and
options during the period.
In the second half of the year (and most notably in the last quarter)
spot trading in EUAs (and to a lesser extent CERs) picked up
significantly. Following consultation with a broad range of users,
ECX has announced the launch of spot products during Q1 2009. We
believe that these contracts, trading alongside the existing futures,
offer significant benefits to customers.
Current trading
We remain bullish about the opportunity for further growth in trading
activity on ECX. The continued volatility in prices, combined with new
spot products and the ever-growing developments in emissions trading
both from the U.S. and Asia all give good reasons for optimism.
Additionally, as we move towards COP15 in Copenhagen in December we
hope to get greater clarity regarding the post-Kyoto emissions regime
and this is likely to significantly increase the tradability of our
longer-term contracts.
From an internal perspective, in 2009 ECX (together with our partner
ICE) will be aiming to improve the time to market of new products in
order to better meet user requirements. We also hope to start being
able to offer cross margining against other ICE products to assist
members with their capital efficiency, a move that has already started
with coal contracts in March 2009.
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