European Energy Exchange AG (EEX) has managed to continue its strategy for European growth successfully during the business year 2007. On the basis of the considerably increased number of trading participants, transaction volumes which have risen further as well as of the very satisfactory clearing business of its subsidiary, European Commodity Clearing AG (ECC), the Leipzig-based company has once again recorded increases in both revenue and sales during the year under review. The clear decline in the transaction fees on the Derivatives Market for Power in the course of a shift from derivatives trading towards OTC clearing was more than compensated by the strongly revitalised Spot Market and the excellent OTC clearing business.
In 2007, the sales revenue of EEX rose by approximately 5 percent to a total of EUR 39.8 million compared with EUR 37.8 million during the previous year. At the same time, the operative result (EBITDA) rose to EUR 16.4 million and the annual profit increased to EUR 8.3 million as against EUR 5.6 million during the previous year. During the year under review equity increased from EUR 34.4 million to EUR 42.7 million. Power once again proved to be the mainstay of revenue during the year under review. During the reporting period the return on sales across all products and markets amounted to 33 percent (result from ordinary activities EUR 13.3 million, sales revenue EUR 39.8 million). This means the profit on sales increased by almost ten percentage points compared with the previous year (2006: result from ordinary activities: EUR 9.2 million, sales revenue EUR 37.8 million, profit on sales 24 percent).
During the reporting period the number of trading participants increased to 191, up from 158 during the previous year – which corresponds to a gain of more than 20 percent.
“Simultaneous growth in several dimensions – i.e. the continuous development of regions, products and new market segments once again constituted the basis for our development in 2007“, Dr. Hans-Bernd Menzel, CEO of European Energy Exchange AG, explains. “In addition to the stepped-up expansion of our European commitment – first and foremost through partnerships and strategic alliances – an essential focus of our operative work was the reinforcement of our organisational and customer processes. In this context, a higher distribution alignment with a clear focus on effective customer relationship management as well as the further adjustment of the EEX trading systems to international user standards were at the centre of attention,” Mr. Menzel explains and makes reference to the product co-operation with Eurex in the field of CO2 trading, which was concluded in October, and to the integration of the power trading and clearing activities with the French Powernext, which was adopted in December last year, as well as the letter of intent signed with the Belgian Belpex and, finally, a memorandum of understanding with the Scandinavian power exchange Nordpool Spot, which has been presented and is ready for signing.
Development of trading largely positive
Across all products, the development of trading was positive. However, the trading volumes on the Derivatives Market for Power have displayed a strong decline since the beginning of the year. The measures already initiated to counteract this trend could not take effect until the end of the year 2007 in order to effect a tangible overall turn-around of this trend. The expansion of customer relationship management, the connection to the international trading system Trayport as well as a viable customer management are now taking effect and have already slowed down the downside trend on the Derivatives Market for Power during the first quarter of the current year.
The trading volumes on the Power Spot Market, which was spun off into an independent subsidiary - EEX Power Spot GmbH – retroactively as of 1 January 2007, increased by 39 percent to 124 TWh during the year under review (2006: 89 TWh) during the reporting period. In this context, auction trading for the market area of Germany and Austria accounted for a total of 117 TWh, which corresponds to a share of approx. 19 percent in the total consumption in these countries. This, in turn, corresponds to a volume increase of 33 percent compared with the previous year (2006: 88 TWh), which resulted both from classical optimisation trading and increased volumes of physical settlement of Derivatives Market contracts. During the business year 2007 intraday trading made a contribution of in total 1.4 TWh (2006: 0.1 TWh since the launch in September 2006) to the Spot Market volume.
During the business year 2007, the volume of the Derivatives Market for Power increased by approx. 10 percent to 1,150 TWh up from 1,044 TWh during the year 2006. In this process, the strong shift of volumes from exchange trading (189 TWh, 2006: 389 TWh, –51 %) towards OTC clearing (961 TWh, 2006: 656 TWh, +46 %) which could be observed had a negative impact on the earnings situation.
During the year under review, 5.0 million tonnes were traded on the CO2 Spot Market, corresponding to a decrease of 43 percent compared with the previous year (2006: 8.8 million tonnes). This has to be attributed to the slide in prices in this market segment at the end of the first trading period. The endeavours made on the CO2 Derivatives Market for a revitalization of trading displayed the first successes in 2007. The total of 17.7 million tonnes means that the trading volume of 2.9 million tonnes generated during the previous year has more than sixfold. This trend is to be continued through the product co-operation between EEX AG and Eurex Frankfurt AG, which was launched in December 2007. During the 2nd quarter of 2008 a considerable increase in sales is also expected for the CO2 Spot Market on account of the new trading period in the framework of the European emission trading system EU-ETS.
With the aim to establish natural gas trading as further pillar in addition to power and emissions trading EEX launched exchange trading in natural gas in July 2007. On the Spot Market, the trading volume (BEB and E.ON GT market areas) amounted to 404,670 MWh. Until the end of the year, 3,697,920 MWh of natural gas were traded on the Derivatives Market (BEB and E.ON GT market areas). This new market is showing a satisfactory development.
However, resources for the planned measures for the development of the Derivatives Market for Coal, which was launched in 2006, could not be made available during the business year 2007. As a consequence of this, only few activities were discernible on this market, which is also reflected in a trading volume of just 246,000 tonnes.
Open interest stable on a high level
The open interest on the Derivatives Market for Power, i.e. the total of the open positions on the Derivatives Markets, constitutes an essential indicator for the sustained trust which the market participants place in EEX and its clearing subsidiary, ECC AG. On the last day of trading during the previous year it amounted to 271 TWh and has since remained almost unchanged compared with the previous year (2006: 278 TWh). In the course of the year, peak values of more than 330 TWh could be achieved. The high level of the open interest is proof of the enormous amount of confidence which the market participants have in EEX as a trading platform and the security of the settlement processes via the clearing house.
2008 Focus on partnerships and clearing
The business year 2008 will be characterized first and foremost by the speedy expansion of European growth through partnerships in trading and clearing business – primarily through the co-operation with Powernext and the integration of further new partners. The assumption of the respective clearing business by the group’s own clearing house, ECC, constitutes an essential basis for all co-operation negotiations. In this context, European Energy Exchange AG (EEX) will increasingly evolve into a holding company for energy exchanges, special purpose entities in the field of energy trading and clearing.
The business results achieved by EEX show that the company operates in a commercially sound and successful manner. As regards products, however, the existing strong dependency on the commodity of power needs to be reduced and the markets for emission allowances and natural gas established as further strategic cornerstones in the medium term. In particular, the co-operation with Eurex Frankfurt AG, which is still very new, should also make a contribution to this development, in the framework of which e.g. the launch of new products for the increasingly globalised emission trading markets is planned for the year 2008. Moreover, the expansion of the new product segments in the European natural gas market will also be promoted further during the coming years.
Against the backdrop of the high investment requirements connected with the action package, EEX expects to generate a result on the level of the previous year for the current business year.
