• Net income increase of 54% compared with Q2, 2003
• Diluted earnings per share of 73 cents versus 48 cents in Q2, 2003
• Quarterly dividend increased from $0.25 to $0.33 per common share
TORONTO – TSX Group Inc. [TSX:X] announced results for the second quarter ended June 30, 2004. The company also declared a quarterly dividend of $0.33 per common share.
Revenues were $74.3 million for the second quarter of 2004, up 41% as compared to $52.8 million for the same period in 2003,mainly due to increased listing and trading revenue. Net income was $24.9 million, or 74 cents per common share (73 cents on a diluted basis) for the second quarter of 2004, representing an increase of 54% over $16.2 million, or 48 cents per common share (on both a basic and diluted basis), for the second quarter of 2003, largely attributable to the higher revenue, somewhat offset by an increase in expenses.
“We are very pleased with the strong financial performance this quarter. As is evident from our listings results, we continue to see a number of diverse offerings coming to market,” said Barbara Stymiest, Chief Executive Officer of TSX Group Inc. “Our results this quarter also reflect the strength of our strategy to extend our pre-eminent domestic position through diversification with investments such as NGX and innovative initiatives that include CNX Marketlink.” continued Ms. Stymiest.
Commenting specifically on TSX Group’s financial performance, Michael Ptasznik, Chief Financial Officer, said “Investors and issuers continued to be very active in the second quarter, especially when compared with Q2 of last year, which was significantly impacted by geopolitical events. Continued market activity is reflected in our financial results as we saw sequential growth in listing and market data revenue, somewhat offset by a sequential decline in trading revenue, for Q2 compared with Q1 of this year. This activity combined with prudent cost control allowed us to deliver bottom line performance that was in line with the first quarter of this year.”
Quarter Ended June 30, 2004 compared to Quarter Ended June 30, 2003
Revenue
Listing revenue of $33.5 million in the second quarter of 2004 increased by $12.5 million, or 60%, compared with $21.0 million in the second quarter of 2003. Increased financing activity in the second quarter of 2004 compared with the same period in 2003 was the primary reason for the increase in listing revenue. In terms of new equity financing, the $8.1 billion ($3.7 billion from initial public offerings and $4.4 billion from secondary offerings) raised on Toronto Stock Exchange and TSX Venture Exchange during the second quarter of 2004 was 13% higher than the $7.2 billion ($2.2 billion from initial public offerings and $5.0 billion from secondary offerings) raised during the same period in 2003. There were 59 new issuers listed on Toronto Stock Exchange in the second quarter of 2004, including 35 initial public offerings and 17 graduates from TSX Venture Exchange. This compares with 22 new issuers listed, including 13 initial public offerings and 8 graduates in the second quarter of 2003. During the second quarter of 2004, there were 28 new listings on TSX Venture Exchange compared with 18 new listings in the second quarter of 2003.
The increase in listing revenue on Toronto Stock Exchange also resulted from a change in the listing fee structure. For 2004, the fee structure was modified so that initial and additional fees are based on the value, rather than the number, of securities to be listed, subject to minimum and maximum fees. In addition, the maximum fees for both initial and additional listings were increased for 2004. The 2004 fee structure for sustaining fees is the same as 2003, and is based on market capitalization of listed issuers at the end of the prior year. The revenue from sustaining fees increased in the second quarter of 2004, reflecting overall higher market capitalization of issuers at December 31, 2003 compared with December 31, 2002.
Trading and related revenue of $23.3 million in the second quarter of 2004 increased by $7.2 million, or 45%, compared with $16.1 million in the second quarter of 2003. The total value of securities traded on Toronto Stock Exchange and TSX Venture Exchange was $201.5 billion in the second quarter of 2004, an increase of 33% from the $151.6 billion in value traded for the second quarter of 2003. The number of transactions increased by 35% from 7.4 million in the second quarter of 2003 to 10.0 million in the second quarter of 2004. In addition, for the second quarter of 2004, revenues of $2.3 million from the Natural Gas Exchange (“NGX”), acquired by TSX Group on March 1, 2004, have also been included in trading and related revenue. In the second quarter of 2004, 1.7 million terajoules in natural gas contracts were traded on NGX, a 42% increase over 1.2 million terajoules traded in the second quarter of 2003.
Market data revenue of $14.5 million in the second quarter of 2004 increased by $1.5 million, or 12%, compared with $13.0 million in the second quarter of 2003. The increase in revenue reflects a higher number of usage based quotes during the second quarter of 2004 compared with 2003 resulting from increased retail activity, sales of premium products that display the full order book and the revenue from CNX Marketlink, a joint undertaking established by Canada NewsWire in the fourth quarter of 2003 and endorsed by TSX Group. The revenue growth was somewhat offset by the impact of certain users transitioning to a model under which the fees for usage based quotes are capped. We expect that this will continue to impact revenues in the second half of 2004 as other users transition to this model. The 103,200 professional and equivalent real-time data subscriptions at the end of the second quarter of 2004 were higher by approximately 3%, when compared to the end of the second quarter of 2003.
Business services revenue of $2.1 million in the second quarter of 2004 decreased by $0.1 million, or 5%, compared with $2.2 million in the second quarter of 2003. The decrease is primarily related to a change in the pricing 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 Group, paid TSX Group $1.8 million in the second quarter of 2004 for technology related services as compared to $2.0 million in the second quarter of 2003.
Expenses
Compensation and benefits costs of $18.1 million for the second quarter of 2004 increased by $1.2 million, or 7%, from $16.9 million in the second quarter of 2003. The change is primarily attributable to the inclusion of a full quarter of costs pertaining to NGX employees. The number of employees at June 30, 2004 was 556, including 24 NGX employees, compared with 526 at June 30, 2003.
Information and trading systems costs of $3.7 million for the second quarter of 2004 decreased by $0.3 million, or 8%, from $4.0 million in the second quarter of 2003. The decrease is primarily attributable to savings from lower lease and maintenance costs as operational efficiencies were realized.
General and administrative costs of $9.1 million increased by $1.0 million, or 12%, from $8.1 million in the second quarter of 2003. The increase is primarily attributable to the inclusion of NGX expenses for the second quarter of 2004. TSX Group paid RS $0.7 million for regulation services in the second quarter of 2004 as compared to $0.9 million in the second quarter of 2003. The decrease related to RS sharing cost savings with TSX Group.
Amortization of $3.2 million for the second quarter of 2004 increased by $0.5 million, or 19%, from $2.7 million in the second quarter of 2003 primarily reflecting $0.4 million of amortization of the tangible and intangible assets associated with the acquisition of NGX.
Loss from Investment in Affiliate of $0.3 million represents TSX Group’s approximate 45% share of CanDeal.ca Inc.’s (“CanDeal”) loss for the second quarter of 2004, as it continues through start-up, which is unchanged from a loss of $0.3 million in the second quarter of 2003.
Investment Income was nil in the second quarter of 2004, compared with $4.9 million in the second quarter of 2003. While interest income was earned on investments, there was a reduction in the value of our short-term bond and mortgage investments. The decrease was also attributable to a lower amount of cash available for investment during the second quarter of 2004 following the payment of a special dividend of $168.7 million on December 31, 2003.
Income Taxes were $15.0 million for the second quarter of 2004, compared to $9.5 million in the second quarter of 2003. The effective tax rate increased from approximately 37% in the second quarter of 2003 to approximately 38% in the second quarter of 2004.
Six Months Ended June 30, 2004 compared to Six Months Ended June 30, 2003
For the six months ended June 30, 2004, revenues were $148.7 million, an increase of $41.8 million, or 39%, from $106.9 million for the same period in 2003 due to increases in the three primary revenue streams, being listing, trading and market data. Net income was $50.7 million, or $1.50 per common share ($1.48 on a diluted basis), compared to net income of $30.6 million, or 91 cents per common share (90 cents on a diluted basis) for the same period in 2003, representing an increase of 66%. The 2004 results reflect higher revenue that was partially offset by an increase in expenses.
Revenue
Listing revenue of $64.8 million in the first half of 2004 increased by $22.4 million, or 53%, compared with $42.4 million in the first half of 2003. Increased financing activity in the first half of 2004 compared with the same period in 2003 was the primary reason for the increase in listing revenue. In terms of new equity financing, the $18.0 billion ($7.7 billion from initial public offerings and $10.3 billion from secondary offerings) that was raised on Toronto Stock Exchange and TSX Venture Exchange during the first half of 2004 was 71% higher than the $10.5 billion ($2.8 billion from initial public offerings and $7.7 billion from secondary offerings) raised during the same period in 2003. There were 98 new issuers listed on Toronto Stock Exchange in the first half of 2004, including 55 initial public offerings and 30 graduates from TSX Venture Exchange. This compares with 48 new issuers listed, including 20 initial public offerings and 22 graduates in the first half of 2003. During the first half of 2004, there were 68 new listings on TSX Venture Exchange compared with 31 new listings in the first half of 2003.
The increase in listing revenue on Toronto Stock Exchange also resulted from the previously discussed change in listing fee structure. The revenue from sustaining fees also increased in the first half of 2004, reflecting overall higher market capitalization of issuers at December 31, 2003 compared with December 31, 2002.
Trading and related revenue of $49.5 million in the first half of 2004 increased by $17.0 million, or 52%, compared with $32.5 million in the first half of 2003. The total value of securities traded on Toronto Stock Exchange and TSX Venture Exchange was $448.8 billion in the first half of 2004, an increase of 49% from the $300.4 billion in value traded for the first half of 2003. The number of transactions increased by 54% from 14.6 million in the first half of 2003 to 22.5 million in the first half of 2004. In addition, revenues of $3.6 million from NGX for the period from March 1, 2004 to June 30, 2004 have also been included in trading and related revenue. In the period from March 1, 2004 to June 30, 2004, 2.4 million terajoules in natural gas contracts were traded on NGX, a 41% increase over 1.7 million terajoules traded in this four month period during 2003.
Market data revenue of $29.0 million in the first half of 2004 increased by $2.7 million, or 10%, compared with $26.3 million in the first half of 2003. The increase in revenue reflects a higher number of usage based quotes during the first half of 2004 compared with 2003 resulting from increased retail activity, sales of premium products that display the full order book and the revenue from CNX Marketlink, a joint undertaking established by Canada NewsWire in the fourth quarter of 2003 and endorsed by TSX Group.
Business services revenue of $4.3 million in the first half of 2004 decreased by $0.3 million, or 7%, compared with $4.6 million in the first half of 2003. The decrease is primarily related to a change in the pricing for technology services provided to RS, as previously discussed.
Expenses
Compensation and benefits costs of $37.1 million for the first half of 2004 increased by $2.0 million, or 6%, from $35.1 million in the first half of 2003. The change is attributable to the inclusion of costs pertaining to NGX employees for the period from March 1, 2004 to June 30, 2004 and salary increases.
Information and trading systems costs of $7.5 million for the first half of 2004 decreased by $1.2 million, or 14%, from $8.7 million in the first half of 2003. The decrease is primarily attributable to savings from lower lease and maintenance costs as operational efficiencies were realized.
General and administrative costs of $18.7 million increased by $4.0 million, or 27%, from $14.7 million in the first half of 2003. The increase is attributable to higher expenses related to product and brand marketing, business development as well as higher occupancy costs compared with the first half of 2003. In addition, NGX expenses were included for the four month period ended June 30, 2004. TSX Group paid RS $1.6 million for regulation services in the first half of 2004 as compared to $1.9 million in the first half of 2003. The decrease related to RS sharing cost savings with TSX Group.
Amortization of $6.0 million for the first half of 2004 increased by $0.5 million, from $5.5 million in the first half of 2003 primarily reflecting $0.6 million of amortization of the tangible and intangible assets associated with the acquisition of NGX.
Loss from Investment in Affiliate of $0.7 million represents TSX Group’s approximate 45% share of CanDeal’s loss for the first half of 2004, an increase of $0.2 million from a loss of $0.5 million in the first half of 2003 as it continues through start-up.
Investment Income of $2.0 million in the first half of 2004 decreased by $3.7 million, or 65%, compared with $5.7 million in the same period of 2003. While interest income was earned on investments, there was a reduction in the value of our short-term bond and mortgage investments. The decrease was also attributable to a lower amount of cash available for investment during the first half of 2004 following the payment of a special dividend of $168.7 million on December 31, 2003.
Income Taxes were $30.0 million for the first half of 2004, compared to $17.5 million in the first half of 2003. The effective tax rate increased from approximately 36% in the first half of 2003 to approximately 37% in the first half of 2004.
Liquidity and Capital Resources
Cash and marketable securities were $147.6 million at June 30, 2004, an increase of $30.0 million, compared to $117.6 million at December 31, 2003. Cash generated from operations of $76.5 million for the first half of 2004 was partially offset by two quarterly dividends of $0.25 per common share, or $16.9 million in aggregate. In addition, on March 1, 2004, there was a net cash outflow of approximately $27.2 million for the acquisition of NGX, as described in Cash Flow used in Investing Activities.
NGX Collateral Arrangements and Clearing Backstop Fund: As part of its clearing operations, NGX becomes the counterparty to each transaction, thereby guaranteeing the fulfillment of every contract that is executed on its electronic trading platform. To manage the risks associated with its clearing activities, NGX is fully collateralized and maintains a $30.0 million clearing backstop fund. TSX Group is the guarantor of this fund, and has pledged $30.0 million of investments and marketable securities related to its obligations as a guarantor.
NGX requires each counterparty (the “Contracting Party”) to provide collateral in the form of cash or letters of credit based on the magnitude of its unsettled contractual obligations, which may be accessed in the event of default by a Contracting Party. The collateral provided in the form of cash (“the cash collateral deposits”) is segregated in individually designated bank accounts held at a major Canadian chartered bank by NGX which acts as trustee for these funds. The cash collateral deposits, together with letters of credit provided by all the Contracting Parties, exceed all of the outstanding credit exposure, as determined by NGX, for all its unsettled contractual obligations at any point in time.
Total Assets were $873.8 million at June 30, 2004, an increase of $599.2 million from $274.6 million at the end of 2003. The increase is primarily due to the inclusion of energy contract receivables of $536.4 million related to the clearing operations of NGX. As the clearing counterparty to every trade, NGX also carries offsetting liabilities in the form of energy contract payables, which were $535.3 million at June 30, 2004. In addition, $31.6 million was recorded in the first half of 2004 to reflect the goodwill associated with the purchase of NGX as well as the intangible asset, relating to customer relationships.
Shareholders’ Equity was $254.2 million at June 30, 2004, an increase of $36.9 million from $217.3 million at the end of 2003. The increase is attributable to net income of $50.7 million in the first half of 2004, including $0.5 million related to NGX for the four months ended June 30, 2004, proceeds from the exercise of stock options of $2.3 million, somewhat offset by quarterly dividend payments totalling $16.9 million.
At both June 30, 2004 and July 26, 2004, there were 33,859,091 common shares issued and outstanding. There were 2,800,000 common shares originally reserved for issuance under a share option plan of which 109,000 common shares were issued on the exercise of stock options in the first half of 2004. At both June 30, 2004 and July 26, 2004, 802,150 options were outstanding.
Cash Flow from Operating Activities was $32.2 million in the second quarter of 2004, compared with $13.7 million in the second quarter of 2003, representing an increase of $18.5 million. A significant contributor to cash flow in the second quarter of 2004 was $28.0 million of net income excluding amortization ($18.9 million in the second quarter of 2003). In addition, there was an increase of $6.5 million in income taxes payable in the second quarter of 2004 ($0.6 million decrease in the second quarter of 2003).
For the first half of 2004, cash flow from operating activities was $76.5 million compared with $35.2 million for the first half of 2003, representing an increase of $41.3 million. A significant contributor to cash flow in the first half of 2004 was $56.7 million of net income excluding amortization ($36.0 million in the first half of 2003). The billing of listed issuer sustaining fees, which is reflected in the increase in deferred revenue of $23.2 million ($19.7 million increase in the first half of 2003) resulted in an increase in cash. This deferred revenue will be recognized over the balance of 2004. There was also an increase of $6.4 million in income taxes payable in the first half of 2004 ($13.7 million decrease in the first half of 2003).
Cash Flow used in Investing Activities was $20.1 million in the second quarter of 2004, compared with $12.1 million in the second quarter of 2003, representing an increase of $8.0 million. During the second quarter of 2004, $18.3 million was invested in marketable securities ($8.8 million in the second quarter of 2003). Capital expenditures of $1.7 million in the second quarter of 2004 were primarily related to further technology investments targeted at maintaining our best in class systems (capital expenditures of $3.2 million during the second quarter of 2003 were primarily related to the TSX Broadcast and Conference Centre).
For the first half of 2004, cash flow used in investing activities was $50.9 million, compared with $27.7 million in the first half of 2003, representing an increase of $23.2 million. On March 1, 2004, TSX Group acquired NGX at a purchase price of $39.4 million plus $0.8 million of closing costs, less cash held by NGX of $13.0 million at March 1, 2004, for a net cash outflow of approximately $27.2 million. In addition, $19.2 million was invested in marketable securities in the first half of 2004 ($23.5 million in the first half of 2003). Capital expenditures in the first half of 2004 were $4.6 million, compared with $4.2 million in the first half of 2003.
Initial Adoption of Accounting Policy
Employee Future Benefits
In the second quarter of 2004, TSX Group adopted the amendments published by the Canadian Institute of Chartered Accountants for reporting Employee Future Benefits, which is effective for periods ending on or after June 30, 2004. The total net retirement benefit cost was $1.1 million for the second quarter of 2004 ($0.7 million for the second quarter of 2003) and $2.1 million for the first half of 2004 ($2.0 million for the first half of 2003).
Dividends
The Board of Directors of TSX Group Inc. declared a quarterly dividend of $0.33 on each outstanding common share of the company, payable on September 30, 2004 to shareholders of record at the close of business on August 31, 2004. The increase in the quarterly dividend from $0.25 to $0.33 per share reflects the company’s previously stated intention of providing shareholders with regular and growing dividends that take into account the yields of comparable publicly traded 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 we expect to see variation in growth rates on both a quarterly and annual basis. We will continue to be prudent in managing our expenses, and at the same time invest in opportunities as we move forward in implementing our growth strategies. We remain committed to pursuing the many 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 financial statements and Management’s Discussion and Analysis (“MD&A”), 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.
Unaudited Consolidated Financial Statements
TSX Group’s financial statements have been prepared in accordance with Canadian generally accepted accounting principles and are reported in Canadian dollars.
TSX Group expects to file its second quarter 2004 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.
Related Documents:
Consolidated Balance Sheets
TSX Group Inc. - Market Statistics
