Revenues were $82.1 million for the first quarter of 2005, up 10% as compared with $74.4 million for the first quarter of 2004, reflecting increased revenue in the primary revenue streams, listing, trading and market data. Expenses were $36.8 million for the first quarter of 2005, an increase of 5% from $35.2 million in the first quarter of 2004. The increase was due to higher compensation and benefits costs as well as higher information and trading systems costs, which were somewhat offset by lower general and administrative costs.
Net income was $30.1 million, or 89 cents per common share (88 cents on a diluted basis), for the first quarter of 2005 representing an increase of 17% over $25.8 million, or 76 cents per common share (on both a basic and diluted basis), for the first quarter of 2004.
Richard Nesbitt, Chief Executive Officer of TSX Group Inc. said “We are very pleased with the strength of our quarterly results. We continued to see strong activity in capital and energy markets. This was evident in increased initial listing activity on Toronto Stock Exchange, more value traded and transactions on both of our equity markets, significantly higher market data subscriptions and increased volumes in energy contracts traded.”
Commenting specifically on TSX Group’s financial results, Michael Ptasznik, Chief Financial Officer, said “During the quarter, we focused on realizing operational efficiencies, and continue to look for similar efficiencies across the organization. However, at the same time, we are investing in those areas that will allow us to grow the business and meet the increasing needs of our customers.”
Revenues
Listing revenue of $33.1 million in the first quarter of 2005 increased by $1.8 million, or 6%, compared with $31.3 million in the first quarter of 2004. The increase in revenue was primarily due to higher sustaining fees in the first quarter of 2005 over the corresponding period in 2004, reflecting overall higher market capitalization of issuers at December 31, 2004 compared with December 31, 2003. This improvement was also due to increased revenue from initial listing fees. There were 50 new issuers listed on Toronto Stock Exchange and 35 new issuers listed on TSX Venture Exchange in the first quarter of 2005. This compares with 39 and 40 new issuers listed on Toronto Stock Exchange and TSX Venture Exchange, respectively, in the first quarter of 2004. In terms of total new equity financing, $14.7 billion was raised on Toronto Stock Exchange and TSX Venture Exchange during the first quarter of 2005 compared with $11.0 billion raised during the same period in 2004.
Trading and related revenue of $30.5 million in the first quarter of 2005 increased by $4.3 million, or 16%, compared with $26.2 million in the first quarter of 2004. Revenues of $3.7 million from Natural Gas Exchange (“NGX”) for the first quarter of 2005 have been included in trading and related revenue compared with $1.3 million for the one month following the acquisition of NGX on March 1, 2004. In the first quarter of 2005, 2.0 million terajoules in natural gas and electricity contracts were traded on NGX, a 25% increase over 1.6 million terajoules traded in the first quarter of 2004.
In addition, the total value of securities traded on Toronto Stock Exchange and TSX Venture Exchange during the first quarter of 2005 was $267.5 billion, an 8% increase over the $247.3 billion in value traded during the first quarter of 2004. The number of transactions increased by 9% to 13.6 million in the first quarter of 2005 from 12.5 million in the first quarter of 2004.
Market data revenue of $15.8 million in the first quarter of 2005 increased by $1.4 million, or 10%, compared with $14.4 million in the first quarter of 2004. The increase reflects a higher number of professional and equivalent real-time data subscriptions. The 110,422 professional and equivalent real-time data subscriptions at the end of the first quarter of 2005 were higher by approximately 8%, when compared to 102,693 at the end of the first quarter of 2004, partly reflecting increased sales to U.S. customers. The increase in revenue is also attributable to a price increase, which was effective September 1, 2004, as well as revenue from CNX Marketlink*, a joint initiative launched with CNW Group Ltd. (formerly Canada NewsWire Ltd.) during the fourth quarter of 2003.
The revenue growth was somewhat offset by the impact of certain users converting to an alternate fee model under which the fees for usage based quotes are capped. The growth in market data revenue was also somewhat offset by the negative impact of the appreciation of the Canadian dollar versus the U.S. dollar since the first quarter of 2004.
Business services revenue of $2.1 million in the first quarter of 2005 decreased by $0.1 million, or 5%, compared with $2.2 million in the first quarter of 2004. The decrease is primarily related to a change in the pricing structure for technology services provided to Market Regulation Services Inc. (“RS”), reflecting cost savings from migrating to a lower cost technology solution. RS, which is 50% owned by TSX Inc., paid $1.8 million in the first quarter of 2005 for technology related services as compared to $1.9 million in the first quarter of 2004.
Expenses
Compensation and benefits costs of $20.8 million for the first quarter of 2005 increased by $1.8 million, or 9%, from $19.0 million in the first quarter of 2004. The increase is primarily attributable to the inclusion of costs pertaining to NGX employees for a full quarter in 2005 compared with one month in the first quarter of 2004. There were $2.1 million in organizational transition costs during the first quarter of 2005, compared with $1.5 million during the first quarter of 2004. In addition, there were salary increases, which were effective at the beginning of 2005. The number of employees at March 31, 2005 was 530 (including 30 NGX employees) compared with 552 (including 26 NGX employees) at March 31, 2004. The reduction in the number of employees resulted from organizational restructuring designed to increase operational efficiencies.
Information and trading system costs of $4.4 million for the first quarter of 2005 increased by $0.6 million, or 16%, from $3.8 million in the first quarter of 2004. The increase is primarily attributable to higher lease and maintenance expenses, which relate in part to expansion of trading system capacity.
General and administrative costs of $8.5 million for the first quarter of 2005 decreased by $1.1 million, or 11%, from $9.6 million in the first quarter of 2004. The decrease is primarily attributable to decreased spending related to marketing and reduced usage of external contractors, somewhat offset by the inclusion of NGX expenses for a full quarter in 2005, compared with one month in the first quarter of 2004. TSX Group paid RS $1.0 million for regulation services in the first quarter of 2005 as compared to $0.9 million in the first quarter of 2004.
Amortization of $3.1 million for the first quarter of 2005 increased by $0.3 million, or 11%, from the first quarter of 2004, and included $0.3 million related to the amortization of the tangible and intangible assets associated with the acquisition of NGX compared with $0.1 million during the first quarter of 2004 following the acquisition of NGX on March 1, 2004.
Loss from Investment in Affiliate of $0.1 million represents TSX Group’s share of CanDeal.ca Inc.’s (“CanDeal”) loss for the first quarter of 2005 based on TSX Group’s approximate 45% equity interest in CanDeal. The decrease of $0.3 million in the loss from $0.4 million in the first quarter of 2004 reflects a combination of increased revenue and a reduction in operating costs.
Investment Income of $1.6 million for the first quarter of 2005 decreased by $0.4 million, or 20%, compared with $2.0 million in the first quarter of 2004. While interest income was earned on investments, there was a reduction in the value of our short-term bond and mortgage investments.
Income Taxes of $16.7 million for the first quarter of 2005 increased by $1.7 million, compared with $15.0 million in the first quarter of 2004. The effective tax rate decreased from approximately 37% in the first quarter of 2004 to 36% in the first quarter of 2005, partially due to receipt of scientific research and experimental development grants during the first quarter of 2005.
Liquidity and Capital Resources
Cash and marketable securities were $194.7 million at March 31, 2005, an increase of $23.1 million from $171.6 million at December 31, 2004. Cash generated from operations of $35.1 million for the first quarter of 2005 was partially offset by a dividend of $0.40 per common share, or $13.6 million, paid on March 31, 2005.
Total assets were $952.9 million at March 31, 2005, a decrease of $14.5 million from $967.4 million at the end of 2004. The decrease is primarily due to lower energy contract receivables of $558.5 million related to the clearing operations of NGX ($608.4 million at December 31, 2004), offset by increased cash, marketable securities and accounts receivable at March 31, 2005. As the clearing counterparty to every trade, NGX also carries offsetting liabilities in the form of energy contract payables, which were $557.3 million at March 31, 2005 ($607.5 million at December 31, 2004).
Shareholders’ equity was $300.5 million at March 31, 2005, an increase of $19.7 million from $280.8 million at the end of 2004. The increase is primarily attributable to net income of $30.1 million in the first quarter of 2005, offset by the dividend payment of $13.6 million.
At March 31, 2005 there were 33,997,242 common shares issued and outstanding, and 2,552,849 common shares reserved for issuance under TSX Group’s share option plan. During the first quarter of 2005, options to purchase 106,951 common shares were exercised. At March 31, 2005, 672,045 options were outstanding.
At April 25, 2005, there were 33,997,242 common shares issued and outstanding and 672,045 options outstanding under the share option plan.
On January 25, 2005, the Board of Directors proposed a subdivision of TSX Group’s shares on a two-for-one basis, subject to regulatory and shareholder approval.
Cash Flows from Operating Activities were $35.1 million in the first quarter of 2005, compared with $44.3 million in the first quarter of 2004, representing a decrease of $9.2 million. A significant contributor to cash flows in the first quarter of 2005 was $33.3 million of net income before amortization ($28.6 million in the first quarter of 2004). In addition, the billing of listed issuer sustaining fees, which is reflected in the increase in deferred revenue of $37.4 million ($32.4 million increase in the first quarter of 2004) resulted in an increase in both cash and accounts receivable. This deferred revenue will be recognized over the balance of 2005. The increase in accounts receivable and prepaid expenses reduced cash flows from operations by $14.2 million ($9.4 million in the first quarter of 2004). Cash flows were further reduced by the decrease in income taxes payable during the first quarter of 2005 of $16.7 million (zero in the first quarter of 2004).
Cash Flows used in Investing Activities were $26.5 million in the first quarter of 2005 compared with $30.8 million used in investing activities in the first quarter of 2004, representing a decrease of $4.3 million. During the first quarter of 2005, $25.7 million was invested in marketable securities and there were $0.8 million of capital expenditures primarily related to further technology investments targeted at maintaining best in class systems and leasehold improvements associated with TSX Group’s business continuity plan. During the first quarter of 2004, $27.1 million was used in investing activities related to the purchase of NGX, and $0.9 million was invested in marketable securities. In addition, in the first quarter of 2004 there was $2.9 million of capital expenditures related to technology investments and renovation of the TSX Conference Centre.
Outlook
Commenting on TSX Group’s outlook, Mr. Nesbitt said: “We continue to remain confident in the goal of long-term annual earnings per share growth in the 10 to 12 percent range although we expect to see variation in growth rates on both a quarterly and annual basis. We remain committed to pursuing the opportunities that surround us for enhancing our core business, extending our pre-eminent domestic position through diversification and expanding geographically.”
Financial Statements Governance Practice
The Finance & Audit Committee of the Board of Directors of TSX Group Inc. reviewed this press release as well as the first quarter 2005 unaudited consolidated financial statements and Management’s Discussion and Analysis (MD&A) related to these statements, and recommended they be approved by the Board of Directors. Following review by the full Board, the financial statements, MD&A and the contents of this press release were approved.
Consolidated Financial Statements
TSX Group’s financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and are reported in Canadian dollars.
TSX Group expects to file its first quarter 2005 unaudited consolidated financial statements and MD&A with Canadian securities regulators today, after which time the statements and related MD&A may be accessed through www.sedar.com, or on the TSX Group website at www.tsx.com. In addition, copies of these documents will be available upon request, at no cost, by contacting TSX Group Investor Relations by phone at (416) 947-4277 or by e-mail at shareholder@tsx.com.
Non-GAAP Financial Measures
Certain measures used in this press release, specifically net income before amortization, do not have standardized meanings prescribed by Canadian GAAP. These measures therefore are unlikely to be comparable to similar measures presented by other issuers.
Forward-Looking Statements, Risks and Uncertainties
This news release, in particular the section under the heading "Outlook," includes forward-looking statements, which are not historical facts but are based on certain assumptions and reflect TSX Group’s current expectations. The business of TSX Group and these forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of the risk factors that could cause actual results or events to differ materially from current expectations are: levels of market activity that are outside of TSX Group’s control; its cost structure being largely fixed; competition from other marketplaces, including alternative trading systems; new technologies; adverse effect of new business activities; failure to implement its strategy; failure to develop or gain acceptance of new products; dependence of the trading and market data operations on a small number of clients; dependence on the economy of Canada; dependence on information technology; dependence on suppliers for a number of important services; risks of litigation; changes in regulation; and the risks associated with NGX’s clearing operations. A description of the above mentioned items and certain additional risk factors are discussed in TSX Group’s materials, including its 2004 Annual MD&A and Annual Information Form, filed with the securities regulatory authorities in Canada from time to time. The risk factors outlined in the previously mentioned documents are specifically incorporated herein by reference. TSX Group’s business, financial condition, or operating results could be materially adversely affected if any of these risks and uncertainties were to materialize. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
About TSX Group Inc. (TSX-X)
TSX Group operates Canada's two national stock exchanges, Toronto Stock Exchange serving the senior equity market and TSX Venture Exchange serving the public venture equity market as well as Natural Gas Exchange (NGX), a leading North American exchange for the trading and clearing of natural gas and electricity contracts. TSX are the initials attached to the core equity operations of the TSX Group (www.tsx.com): Toronto Stock Exchange, TSX Venture Exchange, TSX Markets, TSX Datalinx, TSX Technologies. TSX Group is headquartered in Toronto and maintains offices in Montreal, Winnipeg, Calgary and Vancouver.
Teleconference / Audio Webcast
TSX Group will host a teleconference / audio webcast to discuss the financial results for first quarter 2005.
Time: 2:30 p.m. – 3:30 p.m. EDT (12:30 p.m. – 1:30 p.m. MDT) on Tuesday, April 26, 2005.
To participants: Please call the following at least 15 minutes prior to the start of the event.
Teleconference Number: 416-640-4127 (Local) or 1-800-796-7558 (Toll Free)
AudioWebcast: www.tsx.com, under Investor Relations
Audio Replay: 416-640-1917 (Local) or 1-877-289-8525 (Toll Free) Pass code for the replay is 21120658#
TSX Group consolidated statements & notes_Q1 2005
*CNX Marketlink is a trade-mark of CNW Group Ltd. and is used under license.
