Revenues were $67.3 million for the fourth quarter of 2003, up 29% as compared with $52.1 million for the fourth quarter of 2002, reflecting increased revenue in virtually all areas of the business. Net income increased by 108% over the fourth quarter of 2002 to $26.9 million, or 80 cents per common share (79 cents on a diluted basis), largely due to higher revenue and lower income taxes. The lower income tax expense was primarily driven by a positive adjustment to the value of the corporation's future tax asset, which resulted from an increase in the Ontario corporate tax rate. The adjustment resulted in earnings of 26 cents per common share (25 cents on a diluted basis) and there is no related cash impact. Excluding the impact of the tax adjustment of $8.7 million, net income increased by 41% over the fourth quarter of 2002 to $18.3 million, or 54 cents per common share (on a basic and diluted basis).
"We are extremely pleased with these results and our many accomplishments in 2003," said Barbara Stymiest, Chief Executive Officer of TSX Group Inc. "We navigated through some difficult market conditions in the first half of 2003, continued to introduce new products and services for customers, and moved to a more optimal capital structure at the end of the year by distributing a special cash dividend to our shareholders," added Ms. Stymiest.
Commenting on TSX Group's financial results, Michael Ptasznik, Chief Financial Officer, said "We are pleased to be able to report record revenues for the fourth quarter as market conditions and investor confidence continue to improve. Strong top line growth, coupled with significant operating leverage, allowed us to deliver very positive bottom line results for our shareholders."
Revenue for the Fourth Quarter
Listing revenue of $29.7 million in the fourth quarter of 2003 increased by $10.4 million, or 54%, compared with $19.3 million in the fourth quarter of 2002. This improvement was primarily due to robust additional financing activity and an increase in new listings. In terms of new equity financing, $10.4 billion was raised on both exchanges during the fourth quarter of 2003 compared with $5.7 billion during the same period in 2002. There were 27 initial public offerings on the Toronto Stock Exchange during the fourth quarter of 2003 compared with 20 initial public offerings in the fourth quarter of 2002, and 10 issuers graduated from TSX Venture Exchange to the Toronto Stock Exchange during the fourth quarter of 2003, the same number as for the comparable quarter in 2002. During the fourth quarter of 2003, there were 26 new issuers listed on TSX Venture Exchange compared with 21 new issuers listed in the fourth quarter of 2002. The improvement in listing revenue also reflected an increase in listing fees during the first quarter of 2003 in conjunction with new services and enhancements for customers.
Trading and related revenue of $21.2 million in the fourth quarter of 2003 increased by $4.5 million, or 27%, compared with $16.7 million in the fourth quarter of 2002. The total value of securities traded on the Toronto Stock Exchange and TSX Venture Exchange during the fourth quarter of 2003 was $188.4 billion, a 25% increase over the $150.8 billion in value traded during the fourth quarter of 2002. The number of transactions increased by 44% from 7.0 million in the fourth quarter of 2002 to 10.1 million in the fourth quarter of 2003.
Market data revenue of $14.0 million in the fourth quarter of 2003 increased by $0.7 million, or 5%, compared with $13.3 million in the fourth quarter of 2002. Real time data fees are primarily driven by the number of data subscriptions and therefore are related to industry employment. The 102,000 professional real-time data subscriptions at the end of the fourth quarter of 2003 is higher by approximately 1%, when compared to the end of the fourth quarter of 2002.
Business services revenue of $2.2 million in the fourth quarter decreased by $0.3 million, or 12%, compared with $2.5 million in the fourth quarter of 2002. The decrease related to a change in the pricing structure for services provided to one customer, reflecting savings from migrating that customer to a lower cost technology solution.
Expenses for the Fourth Quarter
Compensation and benefits costs of $21.8 million for the fourth quarter of 2003 increased by $6.0 million, or 38%, from $15.8 million in the fourth quarter of 2002. The increase is primarily attributable to an accrual of additional long term compensation expense related to both stock options and share appreciation rights. In light of the special dividend of $5.00 per common share paid on December 31, 2003, the Board of Directors approved a special cash payment of $5.00 per stock option to each option holder. Cash payments of up to $3.5 million will be made by the end of 2006, essentially in line with the period over which the stock options vest. The related expense was recorded in the fourth quarter of 2003. During the fourth quarter of 2003 a program was established to effectively hedge long-term compensation expense related to share price appreciation. The number of employees at December 31, 2003 was 524 compared with 535 at December 31, 2002.
Information and trading system costs of $4.4 million for the fourth quarter of 2003 increased by $0.2 million, or 5%, from $ 4.2 million in the fourth quarter of 2002. The increase was primarily related to technology investments targeted at maintaining our best in class system availability, which was 100% for 2003.
General and administrative costs of $10.1 million for the fourth quarter of 2003 decreased by $0.7 million, or 6%, from $10.8 million in the fourth quarter of 2002. The decrease is primarily attributable to a rationalization of office space as well as a reduction in discretionary spending.
Amortization of $2.9 million for the fourth quarter of 2003 decreased by $0.5 million, from $3.4 million in the fourth quarter of 2002, reflecting a lower asset base.
Loss from Investment in Affiliate represents TSX Group's 45% share of CanDeal.ca Inc.'s loss for the fourth quarter of 2003. The loss of $0.4 million increased by $0.3 million from $0.1 million in the fourth quarter of 2002 primarily due to higher marketing expenses and administrative costs incurred as the business expanded.
Investment Income of $1.7 million in the fourth quarter of 2003 decreased by $1.5 million, or 47%, compared with $3.2 million in the fourth quarter of 2002. The decline was largely attributable to less favourable returns on short term bond and mortgage investments during the fourth quarter of 2003 compared with the same period in 2002.
Income Taxes of $2.5 million for the fourth quarter of 2003, decreased by $5.5 million, compared with $8.0 million in the fourth quarter of 2002 primarily due to an adjustment of $8.7 million in the value of the future tax asset. In December, 2003, the Ontario government enacted legislation to increase the provincial corporate income tax rate from 12.5% to 14.0% effective January 1, 2004. As a result of this change in the provincial corporate tax rate, the value of the future tax asset was increased. This adjustment effectively reversed the $7.4 million write-down in the value of the future tax asset recorded in the second quarter of 2001 made at the time that the former Ontario government announced a reduction in the corporate income tax rate. There is no cash impact related to this adjustment.
Year 2003 Results
For the year 2003, revenues were $233.7 million, an increase of $17.8 million, or 8%, from $215.9 million in revenues for 2002 primarily due to an increase in both listing as well as trading and related revenue. Net income was $76.4 million, or $2.26 per common share ($2.25 on a diluted basis), compared with net income of $53.8 million, or $1.59 (on a basic and diluted basis) per common share for the 2002, representing an increase of 42%. These results reflect increased revenues, the achievement of operational efficiencies, a reduction in discretionary spending and lower income taxes primarily related to an adjustment in the value of the future tax asset. Excluding the impact of this tax adjustment, net income was $67.7 million, or $2.00 per common share ($1.99 on a diluted basis), up 26% over 2002.
Liquidity and Capital Resources
Cash, investments and marketable securities were $117.6 million at December 31, 2003, a decrease of $117.4 million from $235.0 million at the end of 2002. Cash generated from operating activities was $82.0 million for 2003. There were $192.0 million in dividend payments during 2003 including a special dividend of $168.8 million, or $5.00 per common share, paid on December 31, 2003. Capital expenditures were $7.1 million in 2003, and related primarily to the renovation of TSX Broadcast & Conference Centre in the second quarter of 2003.
Cash Flow from Operating Activities of $82.0 million for the year 2003 was primarily driven by $87.6 million of net income excluding amortization, somewhat offset by changes in working capital.
Dividends
The Board of Directors of TSX Group Inc. declared a quarterly dividend of $0.25 on each outstanding common share of the company, payable on March 31, 2004 to shareholders of record at the close of business on February 27, 2004. The increase in the quarterly dividend from $0.18 to $0.25 per share reflects the company's previously stated intention of providing shareholders with regular and growing dividends that take into account cash flow generated as well as the yields of comparable publicly traded stock exchanges and other Canadian financial institutions.
Outlook
Commenting on TSX Group's outlook, Ms. Stymiest said: "We continue to remain confident in our goal of long-term annual earnings per share growth in the 10 to 12 percent range although, as we saw in 2003, growth rates will vary on both a quarterly and annual basis. As market conditions continue to improve, we will invest in the many opportunities available for enhancing our core business, diversifying and extending our pre-eminent position in the Canadian marketplace as well as 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 financial statements and recommended they be approved by the Board of Directors. Following review by the full Board, the financial statements and the contents of this press release were approved.
Click here for the TSX Group consolidated balance sheets.
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