In 2019, EEX Group cemented its position as a global commodity exchange and achieved a new record result. Peter Reitz, EEX CEO, revisits 2019 – a very successful year.
Dear Shareholders, Partners and Friends,
2019 was a year where we achieved many milestones and one that I will look back on with particular pride. In terms of performance, we reached yet another record year, increasing our revenue by 14% to Euro 304.2 million, which in turn has increased our Earnings Before Tax (EBT) to Euro 98.0 million – another record for EEX Group.
Volume-wise, the vast majority of our portfolio has achieved significant increases, with many business segments recording double and in some cases, triple-digit growth. In addition to the significant increases in our power and natural gas markets in Europe, I’m particularly encouraged by the growth in our North American power and environmental business as well as the huge gains achieved in our freight volumes.
2019 was also the year that EEX Group cemented its position as a Global Commodity Exchange.
The transition from a “European Energy Exchange” to a “Global Commodity Exchange” has been a long held ambition for us as a group, and one that we have worked for many years to make a reality. Today, I’m very happy to say that EEX Group is operational across the three major time zones with successful exchange and clearing businesses in America, Europe and Asia. As a business, it’s fair to say that we really are #GoingGlobal.
Furthermore, in 2019, EEX Group embarked on a series of important strategic initiatives which I’m confident will lay solid foundations for further global growth as we move into 2020 and beyond.
In June 2019, we extended our Power Derivatives offering to 20 European markets with the launch of futures contracts for Serbia, Slovenia and Bulgaria. Through these new products, we are able to offer our market participants additional trading opportunities and hedging tools for the rapidly developing CSEE markets and I am very encouraged by the volumes achieved in these markets throughout the year.
In September 2019, we unveiled our plans to merge the gas business and the registry activities, as operated by Powernext, into EEX from the 1st January onwards. The number one aim of this project has always been about putting the customer first. Through the integration, customers are able to trade all products at one single market place, thereby benefiting through access to a much larger portfolio, which includes natural gas, power and emission allowances as well as other products, further increasing trading opportunities and a growing liquidity pool. Of course, the process of merging two companies into one requires major effort and I would like to thank the fantastic teams at both Powernext and EEX for their collaborative approach – it’s a great example of what a team can achieve when we join forces as a Group.
In November, we announced that EEX Group had successfully reached an agreement with U.S. based Nasdaq Futures, Inc. (NFX) to acquire their commodities business, which included the portfolio of open interest in NFX contracts for U.S. Power, U.S. Natural Gas, Crude Oil, Ferrous Metals and Dry Bulk Freight. This was certainly a landmark deal for EEX Group, which not only supports our global expansion strategy, but also expands our position in the U.S. energy markets and seaborne commodities sector. By gaining a stronger foothold in global freight markets, it opens the opportunity to promote our channels via EEX Asia and to further develop our EEX Group business in Asia.
Sadly we also have to report that in early 2019, we lost one of the founding fathers of EEX and a true champion of EEX Group with the unexpected passing of our long-standing Supervisory Board Chairman, Dr Jürgen Kroneberg. A dear friend and a wonderful human being, Jürgen is missed every day but the valuable lessons he taught us all remain, and I know that he would be enormously proud of how far we have come as a group.
Of course, the 2019 results and the progress we have made throughout the year would not have been possible without the continued dedication, tenacity and hard work of the excellent team here at EEX Group. Personally and also on behalf of the entire Management Board, I would like to say a very big thank you to every employee for continuing to strive for excellence every single day.
Finally, I would also like to take the opportunity to personally thank you, our customers and partners, for your belief in us. Your trust is the reason we continue to achieve more every year and I know that with your continued support we will continue to grow and create further milestones in this new decade.
Leipzig, April 2020
On behalf of the Management Board
Nodal has achieved tremendous growth as part of the EEX Group family.
2019 was a record year of power trading for Nodal Exchange with over 1,850 TWh traded. This represents a 79% growth rate over 2018. Nodal Exchange continues to improve its strong position in the North American monthly power futures markets, achieving a record 45% market share of open interest as of year-end.
Compared to the previous year month, December 2019 was Nodal Exchange’s 17th consecutive month of record calendar month trading volume in power futures.
We are very proud of the growth and success that we have experienced in the U.S. power markets to date and expect to continue to grow our position in these markets, but Nodal Exchange also has broader aspirations.
Product diversification was a strong focus for Nodal Exchange in 2019. Nodal introduced seven new Henry Hub natural gas contracts in September. These contracts represented a significant expansion of Nodal Exchange’s natural gas product suite and the first natural gas options contracts to be offered by Nodal Exchange.
About 35% of the power generated in the United States is from natural gas and it has a significant impact on the price of power as natural gas-fuelled power generation is effective in meeting rapid supply and demand changes in the network. Natural gas futures and options are an important complement to the power futures and options listed by Nodal Exchange. Participants benefit from significant capital-efficiency improvements through the cross-margining of power and natural gas using Nodal Exchange contracts. Partially as a result of this expansion, we expect both power and natural gas, which is already a significant market for the EEX Group in Europe, to grow in 2020 and the years ahead.
In late 2018, in cooperation with IncubEx, Nodal introduced its first tranche of North American Environmental contracts, including futures and options on: California Carbon Allowances, Regional Greenhouse Gas Initiative Allowances (RGGI), New Jersey Solar Renewable Energy Certificates, PJM Tri-Qualified Renewable Energy Certificates and eleven other emissions and renewable contracts.
Nodal expanded the environmental product suite in 2019, launching nearly a dozen new futures on Renewable Energy Certificates (RECs) in May.
Within the first two trading days, Nodal recorded the world’s first cleared transactions in Connecticut Class II RECs and District of Columbia Solar RECs which were part of the set of new contracts.
In December, Nodal added three more contracts only available on Nodal Exchange to the environmental suite: Texas Compliance Green-e® Eligible REC Vintage Specific Front Half Futures, Texas Compliance Green-e® Eligible REC Vintage Specific Back Half Futures, and New Jersey Class II REC Futures.
Nodal Exchange has achieved significant growth in environmental futures trading with 6.4% market share and 48,780 lots of open interest at year-end 2019. We believe that these products are complementary to our core business and will allow us to better meet the needs of the markets we serve today, as well as to further grow into new and evolving markets.
In March 2019, Nodal Exchange launched the world’s first financially settled Trucking Freight Futures contracts in collaboration with FreightWaves, the leading provider of freight market news, data and analytics, and DAT, the largest spot freight marketplace in North America. While this nascent market will be slow to take off, we are optimistic about this expansion opportunity in 2020 and beyond.
We are extremely pleased to be a part of the EEX Group family of companies as we believe it has and will continue to enable Nodal to better serve its markets and achieve even greater growth as a result and we are, as always, incredibly grateful for the trust and support of our trading and clearing community, which have enabled us to achieve these outstanding results.
For us, 2019 was a very successful year where we achieved further growth in Europe.
At EEX, our biggest market – European power derivatives – increased by 19% year-on-year which exceeded the previous record year, 2018.
This growth was achieved across all European power future markets, with Germany, Hungary and Spain showing very positive developments. Throughout the year, we continued to complete the shift of liquidity from the “old” German/Austrian Phelix Future to the “new” distinct German and Austrian contracts. The German contract has now been firmly established as the European benchmark contract and I am particularly encouraged to see that the Austrian power market has continued to build liquidity in its own right.
Clients are demanding more trading opportunities, be it an increase in the number of maturities in the curve, new product innovations or adding new countries to the portfolio offering. It is fair to say, that we have been very successful in building liquid power markets which serve these client expectations and in doing so, we have vastly increased our customer base throughout Europe.
Focusing on power derivatives, we have expanded our market offering in recent years and in 2019 we added three new market areas in South-Eastern Europe. Today our trading participants can trade across 20 markets on one single platform, with clearing of all contracts via one clearing house – ECC. However, it is not just about adding markets but also about developing them into liquid trading hubs. These 20 markets are all at different stages of development and it is a great feeling to be able to say that, each year, markets are reaching the next stage of their development, with traders getting access to new liquid trading opportunities. Furthermore, offering so many market areas also opens up the platform to spread the trading of price differentials between two countries in one click.
Expanding our offering into a new market area doesn’t just mean that we list another contract on our system. The EEX Group philosophy has always been that we actively engage with our customers, thereby building up a presence in that market where we literally speak the same language as the customers.
I’m proud to say that our sales teams are able to offer customer support in over 10 languages working across the various EEX Group locations which has proven to be very successful in finding the right solutions for client’s needs.
The recent launch of new products for Bulgaria, Serbia and Slovenia in mid-2019 was accompanied by trader workshops in Sofia, Belgrade and Ljubljana. Workshops such as these, help us to understand the specific market needs in addition to building up a rapport with the local market participants. The ability to connect local partners to our active, international trading community is the key to our success in launching new markets.
Of course, increasing our market distribution is essential when offering services to local markets. Therefore, it was an important milestone in 2019 to connect Mizuho Securities USA LLC as our first Clearing Member in the United States. As a result of this development, clients in North America and further afield are now able to access the flagship EEX products through a local partner.
By offering so many markets, our clients expect us to deliver and to support them when trading on the exchange through a full-service approach.
Clients want to trade a full suite of products on one platform. We are able to answer these needs and offer exciting, new trading opportunities on a regular basis.
For example, against the backdrop of increased regulation in the energy and commodity markets, in particular financial regulation, EEX Group offers comprehensive regulatory reporting services. Furthermore, the enhancement of our market data services and upgrades to our trading and clearing systems are further examples of our commitment to be the first-choice trading venue of our clients.
In 2019, through the integration of Powernext into EEX, our customers are now able to trade all products (power and natural gas) in one single market place, thereby benefiting from access to a much larger portfolio. We’re confident that our combined power and gas proposition will further boost liquidity and that our clients will appreciate the ability to trade everything on one platform according to one rulebook. These are also the pre-requisites for further expansion, including outside of Europe.
Asia has always played a major role in global trading.
Whether it be the ‘Silk Road’ of ancient times or today’s ‘Belt and Road’ initiative, trade to and from Asia has played a huge role in the global economy for thousands of years. It should come as no surprise then, that in the 21st century, Asia continues to play a vast role in global trading and particularly in commodities.
In 2019, estimates by the FIA show that Asia accounted for 42% of all commodity futures trading worldwide. (Source: fia.org)
Furthermore, Asia as a region is growing... fast. Already 60% of the world’s population live in Asia (4.3 billion inhabitants vs 513 million in Europe) with population growth outstripping both Europe and North America. GDP is also growing far more quickly than in other regions and by 2030, Asia is forecast to generate 40% of global GDP.
Success in Asia has always been fundamental to EEX Group in realising its ambition to become a Global Commodity Exchange. The core principle of the Global Commodity Exchange strategy centres on our customers being able to trade a broad portfolio of commodities in their own region and within their own regulatory jurisdiction. With that in mind, in 2016, EEX Group acquired 100% ownership of Singaporebased Cleartrade Exchange – strategically speaking, this was hugely important for three reasons. Firstly, it expanded our geographical footprint outside of Europe for the first time, secondly, EEX entered a completely new market which was not “energy” related – the Dry Bulk FFA (Freight) market, and lastly, it resulted in the creation of a new team to manage and build the business – the Global Commodities team.
Over the past three years, EEX Group’s Asian business has seen a number of strategic developmental milestones – from the repositioning of Cleartrade Exchange’s value proposition to EEX Group’s clearing house, ECC, being awarded Recognised Clearing House (RCH) status by the Monetary Authority of Singapore (MAS). These series of significant strategic developments culminated in November 2018 with the launch of EEX Asia as the Asian commodities exchange of EEX Group.
EEX Group’s performance in Dry Bulk Freight has also seen significant growth over the past three years and particularly so in 2019, achieving double and triple digit increases in each quarter. Factors that have contributed to this success include a major increase in the member base, improvements in distribution and connectivity, increased position limits and an enhanced product portfolio. As a result of this period of sustained organic growth in addition to the migration of freight open interest from Nasdaq Futures, Inc. (NFX), EEX Group has emerged to become a major player in freight
Building a network of members in Asia and opening up a new channel for clients from across the region into EEX Group is the key objective. In September 2019, an important milestone was achieved in this regard through the completion of a year-long project with DBS Bank in Singapore. DBS is a large investment and retail bank with annual revenues in excess of nine billion Euros and customers across the whole Asia region. The completion of the project allowed immediate access for over 90 new trading participants in the freight market to EEX and ECC, significantly extending our network in Asia. Also in September 2019, we welcomed our first Singaporean NCM, Omegra Shipping, to EEX Group. In December 2019, the addition of Mizuho as an ECC GCM, (although driven primarily from the US), provided further access to Asian clients with Nippon Yusen Kabushiki Kaisha (NYK Shipping) and Jera Trading both taking immediate advantage, registering their first EEX freight trades that month.
As for the future? Increasing our network in Asia by adding new members, trading participants and new routes into EEX and ECC provides the perfect platform on which to offer our more established products to this market.
In 2020, we will take key steps towards our goal of offering the entire product portfolio to our growing Asian customer base. Whether this is speculators from the region looking to trade our most liquid European power contracts; new Asian energy traders taking their first steps in the LNG market; or developing regional energy markets where we can leverage our experience, expertise and established customer network; the opportunity is enormous.
A great example of Asian ambition is our Japan Power project. The Japanese power market is exciting for many reasons. Firstly, the potential for Japan Power is huge. Secondly the appetite for this initiative from the market is very encouraging, but most of all, our Japan Power contracts will be the first bespoke EEX contracts for Asia – a milestone in our Asia strategy and for EEX Group, a true “East meets West” moment.
In terms of EEX Group’s ambition to succeed in Asia: if anything, it increases day by day. Everyone working on an initiative in Asia, whether permanently based there or as part of an ‘Asian’ project, is committed and determined to grow our business in the region and in doing so, generate significant returns for EEX Group. I truly believe that we have a great opportunity to build something very special in Asia and I know that the entire team will continue to work tirelessly to turn that ambition into a reality.