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During the first half of the year 2006, European Energy Exchange AG (EEX) has considerably increased the speed of its growth. During the first six months of the current year, the Leipzig-based energy exchange managed to achieve considerable increases both in the trade volumes and in the sales revenue compared with the values achieved during the previous year and to improve the earnings situation sustainably. “From today’s perspective we have a particularly strong volume growth, an especially positive drive in terms of results, the highest increase in the number of trading participants and the highest degree of internationalisation among all the energy exchanges in Europe – in as far as this is publicly known”, Dr. Hans-Bernd Menzel, chairman of the management board of European Energy Exchange AG, outlines the position of his company within the European comparison.
At EUR 20.50 million, the sales revenue during the first half of the year 2006 was more than 88 per cent higher than during the same period of time during the preceding year, when EEX first managed to report a figure for a half year in the two digit million range for the first time ever at EUR 10.85 million. The Derivatives Market for power has clearly made the biggest contribution to this new record and this means it continues to be the mainstay of turnover within the revenue structure of EEX. But the revenue from the Spot Market on power also managed to gain ground once again, even if the percentage of growth was not as high as during the previous year.
At EUR 2.82 million the revenue from the Spot Market transactions in power were approx. 25 per cent above the corresponding result achieved during the previous year at EUR 2.25 million. At the same time, the revenue achieved from Derivatives Market transactions rose to EUR 15.72 million and, hence, exceeded the results achieved during the previous year at EUR 7.16 million by approx. 120 per cent. This means the revenues from the Derivatives Market in power on the exchange rose by approx. 95 per cent to EUR 9.65 million compared with an amount of EUR 4.94 million achieved during the first half of 2005. During the period specified, the revenue from OTC trades on the Derivatives Market for power increased by as much as 173 per cent to EUR 6.07 million compared with a total of EUR 2.22 million achieved during the previous period. With regard to the other revenues (licensing, training and consulting fees as well as other services) an attractive growth rate was achieved with a plus to the amount of 26 per cent to EUR 1.78 million compared with a total of EUR 1.41 million achieved during the corresponding period in the previous year. However, trading in CO2 emission allowances and coal only contributed minor shares to the development of revenues.
Development of the trading volume determined by the Derivatives Market for power
During the period under review, a trading volume of in total 599 TWh was achieved compared with 279 TWh during the first half of the year 2005. This means the Derivatives Market volume in power trading has more than doubled with an increase of approx. 133 per cent from 239 TWh during the previous year to 556 TWh. At the same time, the Spot Market volume for power increased by 8 per cent to 43 TWh compared to a total of 40 TWh in the period under review during the previous year. ”The increase on the Spot Market for power which is reflected on the revenue side to the amount of 25 per cent is largely due to an increase of the revenue which had become necessary on account of the new EU regulations regarding sales tax”, Iris Weidinger, Director of Finance and Controlling, explains.
“Whereas we have seen strong gains in volume on the CO2 Spot Market at the beginning of the year, the development of volumes on the Derivatives Market proceeded on a rather low level throughout the entire six months“, Mr. Menzel explains but in this connection also points to the fact that the European CO2 market has not been tackled to the full extent of its possibilities so far and that coal trading on the exchange, which was only started by EEX on 2 May of this year, is still in its infancy throughout Europe – as had been expected. In total, 4.77 million CO2 emission allowances were traded on the Spot Market and 1.28 million units were traded on the Derivatives Market during the first six months of the current year. During the second half of the year 2005, a trading volume of 2.25 million CO2 emission allowances was achieved on the Spot Market; derivatives trading, which only commenced on 4 October of last year, generated a trading volume to the amount of 0.45 million CO2 emission allowances. The Derivatives Market for coal which was started in May of this year gained some momentum after a somewhat muted start and has now exceeded a trading volume of 1 million t. The positive development of the open interest is an encouraging sign.
During the period under review the number of trading participants has increased by 14 per cent to 147 trading participants from by now 19 countries compared with 129 trading participants from 16 countries as of 30 June 2005. In this context, 9 per cent more trading participants were licensed for trading on the Spot Market, whereas 25 per cent more trading participants were licensed for trading on the Derivatives Market. The number of participants in OTC clearing increased by 70 per cent, the number of the general clearing members increased by 30 per cent. In particular, the considerable increase in the number of British trading participants, whose number increased from 14 at the beginning of the year during the first half of the year 2005 to 20 during the period under review, has to be mentioned.
Earnings situation improved
On the sound basis of its core business, EEX managed to improve its earnings situation during the first half of the year. “This is the aim for which we worked but there have also been additional effects“, Mr. Menzel explains. At EUR 5.76 million the result before interest and taxes (EBIT) has almost tripled as of 30 June 2006 compared with the result achieved during the previous year to the amount of EUR 2.06 million; at EUR 7.32 million as of 30 June 2006 the EBITDA was already almost on the level for the entire year 2005 for which an EBITDA of EUR 7.56 million was reported. This positive development once again underlines the healthy operative core business of EEX but also the fact that the steps taken as well as the investments made in particular in connection with the demerger of the EEX clearing activities into the independent subsidiary of European Commodity Clearing AG have taken effect.
Total year on target so far
“Even though the business development so far is strongly shaped by our power products, it has shown that the path towards becoming a European energy exchange aligned as multi-product exchange as a one-stop shop which we pursue is correct“, the head of the management board of EEX points out the direction to be further pursued by his company. In addition to the expansion of the clearing subsidiary of European Commodity Clearing AG (ECC) into a European clearing house, EEX needs to reinforce its current strategic position in a forward-looking manner. “We are commercially successful – however, this is shaped by power alone. We have an excellent infrastructure; however, the potential has not really been used to the full capacity. We are extremely efficient in terms of our human resources; but, on the other hand, systematic promotion of the market is not possible on account of this“, Mr. Menzel indicates the weaknesses. Hence, the further expansion of the strengths while reducing the weaknesses at the same time is the motto for the further expansion.
In the power trading segment, EEX will further strengthen its position by means of the extended coverage of the time lime (intra-day, day and week futures). In emission trading access for new customers is to be facilitated first of all in the framework of a correction of strategy. Plans to that end include the elimination of the annual fee for clients exclusively trading in CO2 as well as a considerable reduction of the transaction fees for everyone.
Coal, which is used in 40 per cent of the power generation worldwide according to the World Coal Institute, is experiencing a renaissance. “The initiative by EEX to enter into this segment early on and to participate in the development of this market which will be strategic in the long run, is welcomed by numerous trading participants“, Mr. Menzel underlines and adds: “Though the volumes are still low, the open interest is increasing and our competitors are copying our products“. On 18 August, the open interest on the Derivatives Market for coal amounted to more than 1.2 million t and it is still increasing. Independent analyses show that this market is just at the starting line. The discussion regarding the integration of transport and physical delivery is just beginning. The conclusion drawn by Mr. Menzel’s: an increased discussion with market participants regarding a possible further development of the products.
As before, the chances for gas trading on the exchange are seen as critical since long-term agreements and the high number of market areas severely restrict liquidity. However, EEX will make an active contribution to the development of the gas market in Germany. A co-operation with the Federal Network Agency is already under way and support by the Steering Committee on the Supervisory Board of EEX is ensured. “We have begun a project dealing with a combined market model for the Spot and the Derivatives Market“, Mr. Menzel illustrates and explains: “At the moment, we are carrying out a comprehensive market survey and working groups are being established. Exchange readiness is planned for the spring of 2007 and the so-called member readiness is planned until the commencement of the gas business year 2007/ 2008.“
The key to success: Getting to know the clients better and establishing loyalty
European Energy Exchange sees an improved proximity to its clients than has been the case so far as an essential key for its further success. In the framework of systematic Customer Relationship Management, the presence in the most important European trading centres is to be strengthened, the expansion of the current working groups is to be pressed ahead and the establishment of an advisory board for the clearing house is to be implemented. Moreover, EEX is planning a sustainable expansion of the existing information offer as well as an expansion of the press workshop also to foreign trading centres. And finally, the reduction of barriers to entry is to be effected by means of measures such as the elimination of the licensing fee, flexible structuring of the annual fee depending on the desired partial markets and products as well as a further increase of the security of investment in the field of the infrastructure.
Forecast 2006: Considerably above the results of the previous year
EEX will speedily develop and implement its market structure further. The decisions required to that end will be taken during the next meetings of the exchange council and of the supervisory board. Against the backdrop of the plans described, which will require considerable effects and the positive effects of which on the business of EEX should take effect during the next business year, as well as of the directly tangible lapse of one-off or special effects, EEX expects a result which is considerably above the result achieved during the previous business year for the entire year 2006.
