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| NZX Annual report on TZ1 | | Feb 15 2008 | |
15th December 2007 | Reported in "NZX Annual result 2007"
TZ1 Business Overview
In December 2007, NZX announced the establishment of TZ1 as a separate company, with initial funding from NZX, and announced a very strong executive team. TZ1's ambitions are global, while retaining a strong New Zealand identity and focus.
Carbon is emerging as a significant globally traded commodity: greenhouse gas emission permits and credits were traded for €40.4 billion in 2007, an increase of 80% on the previous year.
TZ1 will launch its emissions trading platform in 2008, following the passage of both carbon trading and Clearing House legislation, which together support trading of carbon on an exchange in New Zealand.
Strategic Attributes
The New Zealand Emissions Trading Scheme (NZETS), announced by government in Q4 2007, provides a key competitive advantage for New Zealand. As the only domestic emissions trading scheme outside Europe, and the only all-sectors and all-gases Kyoto-linked scheme in the world, the NZETS will help create a market for supply and demand of globally fungible (interchangeable) Kyoto credits.
NZX's knowledge and networks established in this area over the past 18 months, together with its infrastructure and skills, enables TZ1 to seize an early-mover advantage in this fast-growing global market. For NZX, TZ1 provides an opportunity to extend its existing infrastructure (trading, clearing, settlement and data distribution channels) into a growing global market at an early stage.
Financial Attributes
TZ1 is a start-up, and very scalable, business. The business model revolves around a market infrastructure platform with a fixed cost base. NZX will provide TZ1 with corporate services and market operating services for a fixed annual fee. Together this provides TZ1 with a cost-effective fixed operating cost structure – with other expense purely focused on growth outcomes.
The three key business areas are carbon registry, voluntary carbon trading (largely spot), and trading in compliance units (e.g., NZUs and CERs) in both spot and futures markets. As with any other market, volume will result in scalability of returns.
As transacting carbon involves the creation of a new set of products and a broader range of participants, a reasonable lead time to launch and profitability is expected.
There are three broad possible outcomes for the TZ1 business. First, TZ1 establishes a strong global market position, with particular strength in the Asia-Pacific time zone, with the company being very successful as a stand-alone business. Second, TZ1 establishes a competitive domestic Australasian market platform whereby shareholders are rewarded with a moderate return on investment, and the business realises capital value for its shareholders by combining with complementary business. Third, the business does not reach anticipated scale and is excluded from any subsequent consolidation.
2007 Financial Results
There were no separately reported 2007 revenues or costs for TZ1. All development and set-up costs (employees, legal etc.) are included in NZX's operating expenses for 2007.
Future Outlook
The TZ1 team has two key areas of focus for 2008. Firstly, determining its strategy with respect to strategic offshore relationships, cornerstone investors, capital-raising, strategic acquisitions and other business initiatives. Secondly, execution: a successful launch of its trading platform.
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