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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