SOURCE: Climate Exchange PLC

April 19, 2007 02:04 ET

Climate Exchange Plc announces Preliminary results for the year ending 31st December 2006

Isle of Man, UK -- (MARKET WIRE) -- April 19, 2007 --Press release

For immediate release

19 April 2007



                   Climate Exchange Plc


      Preliminary results for the year ending 31st December 2006

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 2006.

Operational Highlights

-  Transition from an investment company to the owner and operator of the
world's leading environmental financial instruments exchanges

-  Successful placing of approximately 10% of the share capital with Goldman
Sachs

-  Chicago Climate Futures Exchange (CCFE) average daily volume increased to
3,332 tons (2005 : 95 tons)

-  European Climate Exchange (ECX) average daily volumes increased by 233%
to 1.78 million tonnes

-  ECX open interest increased by 331%

-  ECX membership increased to 71 members (2005 : 54)

-  Chicago Climate Exchange (CCX) average daily volumes increased by 610% to
10.3 million tonnes

-  CCX membership increased to 238 (2005:131)


Unaudited Pro-Forma Financial Highlights for the year ended 31 December 2006


-  Pro-forma operating loss reduced by 30% to GBP4.7 million
from GBP6.6 million (2005)

-  Cash balances were GBP13.6 million at 31 December 2006
compared with GBP13.2 million at 31 December 2005


Audited IFRS loss before tax GBP10,509,069 (2005 : profit of GBP1,453,715)


2007

-  CCX volumes in the first quarter of 2007 were 70,334 contracts

-  CCFE volumes in the first quarter of 2007 were 31,636 contracts

-  ECX volumes in the first quarter of 2007 were 198,923 contracts

-  Plans for Share Premium Reduction announced to allow flexibility to
return capital to shareholders once the Group makes profits

Richard Sandor, Chairman, said: "We achieved significant operational progress in 2006 and to see membership growing in not only the US and EU but beyond has been a particular highlight. I believe that this international growth is set to continue and will be achieved through expansion into new industrial and emerging territories and through the development of new specialist products. The benefits of exchange trading, particularly in product innovation and flexibility, are proving attractive in comparison with over the counter trading ("OTC") and this has been, and will continue to be, a factor in our substantial volume growth."

Neil Eckert, Chief Executive, said: "Year on year progress in volumes and membership on both ECX and CCX has been excellent and the first quarter of 2007 has seen this trend continue as our initial unaudited indications are that, for the first time, we have booked a small profit at the operating level. We are encouraged by the global political climate, by the growing impetus for change, by the rapidly growing volumes and membership levels on the exchanges. We are presented with an extraordinary business opportunity."


                                    --ENDS--



Contacts

Climate Exchange Plc
Neil Eckert, CEO,                              0207 382 7801
Helene Crook, Head of Investor Relations       0207 382 7807

Haggie Financial
David Haggie / Peter Rigby / Alexandra Parry   0207 417 8989

There will be a presentation to analysts at 10.00am today and a press briefing at 11.30am both of which will be held at Haggie Financial's office at Roman House, Wood Street, EC2Y 5BA.

A link to the webcast of this morning's analysts presentation will be available this afternoon on our website www.climateexchange.com

There will also be a conference call this afternoon at 1.00 p.m. Attending from Climate Exchange will be Richard Sandor, Chairman, Neil Eckert, CEO and Matthew Whittell, CFO. You are invited to call in to speak to the team or to listen in. To access the call:

Dial:  +44 (0) 1452 562626
Conference ID:  6180200
Call title:  The Climate Exchange Conference Call

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. The two main businesses are the Chicago Climate Exchange (CCX) which operates a voluntary but legally binding cap and trade system including an exchange for CO2 emissions as well as SOx and NOx contracts in the US and internationally, and the European Climate Exchange (ECX) which operates an exchange focussed on compliance certificates for the mandatory European Emissions Trading Scheme.

www.climateexchange.com

CCX

CCX began greenhouse gas emissions allowance trading in 2003 and is the world's first and North America's only legally 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. CCX Members commit to reduce their greenhouse emissions a minimum of 4% below annual average of 1998-2001 by 2006 and 6% by 2010, depending on membership Phase. Reductions achieved through CCX are the only reductions in North America being achieved through a legally binding compliance regime, with price transparency and independent third party verification provided by NASD. The Chairman and CEO of CCX is economist and financial innovator Dr. Richard L. Sandor, who was named a Hero of the Planet by Time magazine for his work in founding CCX. For a full list of CCX members, daily prices and other program information, see www.chicagoclimateexchange.com. CCX is a wholly owned subsidiary of Climate Exchange Plc, a public stock company listed on the AIM Market of the London Stock Exchange. Climate Exchange Plc also owns the European Climate Exchange, Europe's leading CO2 emissions exchange.

www.chicagoclimatex.com

CCFE

Chicago Climate Futures 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 and market surveillance services are provided by the National Futures Association. CCFE is a wholly owned subsidiary of Chicago Climate Exchange Inc.

ECX

ECX manages the product development and marketing for ECX Carbon Financial Instruments (ECX CFIs), listed and admitted to trading on the ICE Futures electronic platform.

ECX/ICE Futures is the most liquid, pan-European platform for carbon emissions trading, attracting over 80% of the exchange-traded volume in the market. ECX emissions futures contracts are standardized and all trades are cleared by LCH. Clearnet.

More than 72 leading businesses, including global companies such as ABN AMRO, Barclays, BP, Calyon, E.ON UK, Fortis, Goldman Sachs, Morgan Stanley and Shell have signed up for membership to trade ECX products. In addition, several hundred clients can access the market daily via banks and brokers.

www.ecxeurope.com/index_flash.php

Climate Exchange plc

Chairman's Statement

2006 was an exciting and important year for Climate Exchange Plc. We have succeeded in positioning the Group at the centre of the rapidly growing market for traded financial instruments designed to deliver global environmental policy objectives. Our strategy has focused on developing our most exciting opportunities. Building on our initial investment, in September 2006, we successfully acquired 100% of the share capital of the Chicago Climate Exchange in the US, and the European Climate Exchange based in Amsterdam. We have made "Climate Exchange" into a brand with international recognition in diverse political and regulatory environments. We also took advantage of market opportunities to dispose of our other investments to further focus our business.

As a consequence, our Company is a fundamentally different entity from a year ago. Last year, we reported as an investment company with minority holdings in a range of businesses focused on climate change mitigation. Today we own and operate the world's leading exchanges specialising in trading environmental financial instruments. We were delighted to garner the support of Goldman Sachs who purchased approximately 10% of the Company's share capital in connection with the acquisition and remains one of our significant investors.

The operating results for both of our exchange subsidiaries demonstrate the rationale for this strategic direction, and we have maintained this momentum into the first quarter of 2007 for which our initial unaudited indications are that, for the first time, we have booked a small profit at the operating level. The unaudited pro-forma operating results for the Group show that our revenues increased to GBP4.1 million from GBP0.8 million (2005) excluding an inter-company management fee and our pro-forma loss before tax was reduced to GBP5.6 million from GBP6.9 million (2005) excluding payments due to our former investment advisor and the accounting expense of our share option plans. The expense of our option plans, which is not a cash cost, needs explanation. These plans were explained in detail in our EGM notice dated 13 December 2006 and were approved at the EGM on 29 December 2006. The Board had approved a new option plan at the time of the acquisition and placing on 19 September 2006. The then share price and the strike price of the options were 330p. As there were insufficient unissued shares to satisfy the requirements of the option plans, we had to agree the plans subject to EGM approval. The plans were approved on 29 December 2006 by which time the share price had increased markedly by 57% and accounting standards require that this increase is reported as an expense over the expected life of the plans. The Board has also determined to carry out a Share Premium Reduction. This will have the effect of cancelling out the negative distributable reserves and will give the company the flexibility to return capital to shareholders in the absence of other uses once the Company is generating profits.

The European Climate Exchange (ECX) saw its average daily volume increase by 233%, representing more than 80% of the exchange traded volume in Europe. In 2005, a year with only 176 trading days following our April 22 launch, average daily volume was 536,000 tonnes. This increased to 1.78 million tonnes in 2006 (254 trading days). Open interest increased by 331% over the same period. Another sign of healthy progress in a new market is the growth of members. ECX ended the year with 71 members versus 54 in the prior year. ECX pro-forma revenues in 2006 were GBP2.0 million, and pro-forma operating expenses were GBP4.5 million

The Chicago Climate Exchange (CCX) saw its average daily volume increase by 610% over 2005. Total volume in the Carbon Financial Instrument (CFI) for 2005 was l.4 million tonnes, which grew to 10.3 million tonnes in 2006. For the first quarter 2007, average daily volume increased by 167% over the figure for the full year 2006. Our list of members also grew dramatically. We closed 2005 with 131 members which increased to 238 in 2006. Notable additions in 2006 included the first city outside the United States - Melbourne, Australia; the State of Illinois; and key U.S. corporations such as United Technologies, Safeway, Sony Electronics, Eastman Kodak and Intel. In 2007, new members include Cargill and the first utility outside of North America - AGL Energy Ltd.. CCX Group including CCFE below) pro-forma revenues in 2006 were GBP2.8 million and pro-forma operating expenses were GBP5.0 million

The Chicago Climate Futures Exchange (CCFE) witnessed the greatest growth in the Group. In 2005 average daily volume in the Sulphur Financial Instrument (SFI) was 95 short tons. This increased to 3,332 tons in 2006. Open interest grew from zero to 127,225 tons. (Revenues and expenses for CCFE in 2006 are included in the CCX Group figures above.) The number of Trading Privileges held increased from 58 in 2005 to 154 in 2006. The trend continued in the first quarter of 2007 in which the average daily volume increased by 274% over the figure for the full year 2006.. We have sold an additional 22 Trading Privileges at $40,000 each. We have also launched the Nitrogen Financial Instrument (NFI), a futures contract on the NOx SIP Call emission allowances issues by the U.S. Environmental Protection Agency. We have recently launched an option contract on the SFI. We plan to offer a futures market on the WilderHill Clean Energy Index (ECO ETF) during the second quarter of the year and we continually look for opportunities to develop new products.

While our exchange operations have been building on the foundations laid in previous years, the political and regulatory backdrop around the world has shown encouraging trends in increasing alignment of strategies, of strengthening the commitment to cap and trade policy measures to deliver environmental goals and of lengthening the time frame over which policies will operate. All these trends have the potential to work in our favour.

In Europe, where a mandatory emissions trading system (the EU ETS) is in operation, the price behaviour in the pilot phase caused some concern amongst market participants and policy makers both in connection with the overall cap applied and the release of emissions data.. We believe that the pilot phase served a valuable role in building capabilities, activating audit procedures, and providing initial price signals that caused an intense focus on carbon management. It is clear from the pilot phase that the market has continued to provide liquidity, even at times of high price volatility, and that prices, with hindsight, have reacted rationally even if not always in line with initial expectations. Policy makers appear to have paid close attention to the lessons of the pilot phase and the market price for Phase II has diverged significantly from the pilot phase prices. Again we view this as a sign of market maturity.

In the U.S., where CCX operates the only voluntary and contractually binding cap and trade system for emissions reductions, momentum has built significantly. CCX's baseline currently represents approximately 10% of the United States' large stationary source emissions. During the first three completed compliance years, CCX members have reduced emissions by 89 million tonnes below baseline. These are the only reductions monitored and independently verified in a contractually binding system in the world outside of the Kyoto Protocol countries.

Looking ahead, policy signals for the post 2012 period are strong. These include a commitment by the European Union to employ the carbon market as a central tool in achieving a 2020 emissions reduction target of 20% below 1990 levels. The "Stern Report" issued by the United Kingdom government secured major international attention and pointed out the explicit need for investment to mitigate significant potential economic losses worldwide due to climate change. We have also witnessed the first trade in the post Kyoto period, which suggests that some market participants have expectations that markets will play a critical role in the future. In the United States, Congress is considering a number of cap and trade bills, all of which are synergistic with the activities of CCX, and there continues to be significant public interest in taking individual and collective action on climate change. The success of CCFE which has developed our new business line in SOx contracts demonstrates that we are able to move into mandatory markets and capture trading volumes. This evidence supports our view that markets can move over time to capitalise on the economic benefits of on-exchange trading.

As we seek to further the use of market-based mechanisms in support of social and environmental goals, we can be and have been supported by financial grants in research endeavours. We will continue to explore these sources of revenue to finance our research and development.

Whilst the prospects for your company appear to be excellent, we will be dependent on the further penetration of emissions constraints and prices as an ongoing element of the global economy. Expansion of markets and high price volatility for tradable emissions instruments suggest that our role of transparent price discovery and risk transfer will continue to remain critical for the efficiency of the markets.

We are convinced that the momentum is on your Company's side. Scarcity of public goods such as unpolluted air and water will continue. We are convinced that markets remain the best policy tool to deal with these issues. We thank you for your past support and will work to earn your continued support in 2007 and beyond.

Richard Sandor
Chairman
19 April 2007

CHIEF EXECUTIVE'S REVIEW

Group Strategy

Our intention is to generate the world's leading exchanges specialising in trading the asset classes of emissions, water, weather and insurance related products and other environmental asset classes. To achieve this, our immediate strategy to increase shareholder value is:

- to deepen our existing markets, encouraging the move from Over The Counter (OTC) to on-exchange trading and the development of hedging and other financial instruments;

- to engage in the development of new products in our specialist areas; and

- to broaden our geographic reach through expansion into new industrial and emerging territories

Our financial strategy is to operate a classic exchange revenue model deriving fees from trading, membership, marketing information and index licensing which are detailed in the Operating and Financial Review below. Exchanges are scaleable and our cost base can be kept under control as our revenue opportunities expand. We currently have a headcount of 45 and we outsource functions wherever possible. Our opportunities for growth and the areas that will require investment as we expand will be membership, recruitment and marketing, as well as new product research. Our corporate overhead will increase but we will ensure this is always in proportion to the investment opportunity.

Progress Against Our Strategic Goals

CCX is the world's first voluntary and contractually binding emissions exchange. Its membership baseline now stands at some 320 million tones. This represents 10% of the United States' large, stationary sourced emissions output. Put another way, the CCX baseline is larger than Canada's and two and half times larger than either the Regional Greenhouse Gas Initiative (RGGI) or California. Recruitment rates are running at record levels. Offset registration is continuing apace and we continue to develop new methodologies, meet with new project developers and are now closing on significant tonnage of registered offsets where we earn a fee of 12 -15 cents per tonne.

We have begun to recruit on an international basis outside the U.S. and Europe and we now have members in South America, India, China and Australia.

We filed a Designated Contract Market application with the Commodities Futures Trading Commission (CFTC) for CCFE to operate as a futures exchange. This was granted in 2005 and we launched the Sulphur Financial Instrument (SFI), a futures contract on Sulphur Dioxide (SO2) emission allowances issued by the U.S. Environmental Protection Agency ("EPA"). This market has been dominated by over the counter (OTC) trading in the cash market and business started fairly slowly. In 2005, we traded 171 contracts and had nil open interest. In 2006, we traded 28,924 contracts and finished the year with open interest of 5,089 contracts. At the end of the first quarter 2007, we had open interest of 13,183 contracts and have traded 31,365 contracts in this quarter alone. On 23rd February 2007, we launched the Nitrogen Financial Instrument (NFI), a futures contract on Nitrogen Oxide (NOx) emission allowances issued by the EPA. This contract is showing early signs of a good start. The process is beginning whereby we have screen liquidity and can launch products at marginal cost.

The general consensus among industrial and financial market participants is that the European Union has successfully established its trading system and that this will go beyond 2012. There is a stated objective of a 20% reduction by 2020 with bankability from the current scheme through to the post 2012 phase. Within Europe we will look to the inclusion of more pollutants and an extension of the industry sectors included in the scheme such as aviation.

At ECX like for like volumes were up 233 % over last year. During the 4th quarter 2006, we launched an option on the EU carbon future. This has yet to become liquid and this is one of our strategic goals for 2007. We also wish to encourage quarterly liquidity in a market that predominantly trades the annual December expiry contract. We especially want to focus on the financial players and also look forward to seeing major banks launch structured products. The number of ECX members has grown to over 75.

Operations

Climate Exchange Plc is now structured as a holding company. We own 100% of the Chicago Climate Exchange Inc (CCX) based in Chicago. CCX operates a voluntary but contractually binding greenhouse gas emission reduction program and provides a centralized marketplace to trade Carbon Financial Instruments. CCX earns its revenues from trading charges, membership fees and registration fees for emission mitigation projects. CCX also owns CCFE, a CFTC designated contract market that offers trading in the Sulfur Financial Instrument and Nitrogen Financial Instrument. These futures contracts are based on SO2 and NOx emission allowances that are required under mandatory emissions programmes in the U.S. CCX employs 34 people in Chicago and New York.

We also own 100% of the European Climate Exchange (ECX). Based in Amsterdam, Netherlands, ECX operates a futures exchange that offers futures and options on the European Carbon Financial Instrument, a contract based on the European Union emission allowances. ECX earns its revenues from trading charges and membership fees. ECX's futures contracts are traded on a platform owned and operated by ICE under a cost and revenue sharing agreement. ECX employs 6 people in Amsterdam and London.

The Company has other subsidiary enterprises, chiefly engaged in the development of new business opportunities and providing marketing and other support services to our exchange businesses.

Outlook

We face an extraordinary opportunity. We have chosen to position ourselves at the nexus of two business sectors that have great potential to deliver value to our shareholders.

- The first is the exchange space where nearly all major public quoted exchanges have experienced surging development in their business coupled with rising share prices

- The second space is that of emissions trading and climate change in general. Again, this is a space that is encountering very high levels of interest both in terms of news flow and from the financial community

Today's tasks in operational terms are to further develop our positioning in Europe, the U.S. and Canada where we already have an agreement with the Montreal Exchange. In product terms, CER markets are truly global and are likely to represent a significant new business opportunity in 2007. Next, since only 10% of the world's carbon emissions trade in a mandatory system, we hope to create the same opportunities in South America, India, China, Asia and the Middle East. Both our business model and our delivery capability are ultimately scaleable.

Our challenge is to maintain a lead market share in both mandatory traded markets such as CO2 in Europe and SOx in the U.S., and to build a strong market position in non mandatory markets. In this regard we have the unique opportunity of being the only exchange to trade in voluntary but contractually binding markets where we are currently experiencing exponential growth. Our view is that mandatory markets will not occur before 2010 in the U.S. and 2013 in India and China. We enjoy first mover advantage and are currently engaged in membership recruitment and trading on a global basis.

Progress during the first quarter of 2007 has continued the rapid growth rates seen at the end of last year. CCX volumes for the quarter were 70,334 contracts, CCFE volumes for the first quarter were 31,636 contracts and ECX volumes for the first quarter were 198,923 contracts.

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