Revenues were $59.4 million for the third quarter of 2003, up 5% as compared with $56.6 million for the same period in 2002, primarily due to increased listing and trading revenue and offset somewhat by reduced market data revenue for the same period. Net income increased by 43% over the third quarter of 2002 to $18.9 million, or 56 cents per common share (on a basic and diluted basis), largely due to higher revenue, lower expenses and a lower effective tax rate.
"We are extremely pleased with our financial performance for the third quarter," said Barbara Stymiest, Chief Executive Officer of TSX Group Inc. "At the beginning of the quarter we saw some very positive signs including a significant increase in listing activity. As we progressed through the quarter, market activity gained momentum as evidenced in the record volume of 5.7 billion shares traded on the Toronto Stock Exchange during September," added Ms. Stymiest.
Commenting on TSX Group's financial results, Michael Ptasznik, Chief Financial Officer, said "Once again we were able to demonstrate the advantage of having a largely fixed cost structure and the positive operating leverage that can be realized. While we continue to be prudent in controlling our expenses we will also make the necessary investments to bring new products and services to market for our customers."
Revenue
Listing revenue of $26.1 million in the third quarter of 2003 increased by $5.9 million, or 29%, compared with $20.2 million in the third quarter of 2002. This improvement was primarily due to additional financing activity and an increase in new listings. This change 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 $18.2 million in the third quarter of 2003 increased by $2.3 million, or 15%, compared with $15.9 million in the third quarter of 2002. The total value of securities traded on the Toronto Stock Exchange and TSX Venture Exchange was $166.4 billion in the third quarter of 2003, an 18% increase over the $141.4 billion in value traded during the third quarter of 2002. The number of transactions increased by 32% from 6.3 million in the third quarter of 2002 to 8.3 million in the third quarter of 2003.
Market data revenue of $12.3 million in the third quarter of 2003 decreased by $5.5 million, or 31%, compared with $17.8 million in the third quarter of 2002. The third quarter of 2002 included $5.2 million of revenue recovered when it was determined that a market data subscriber had under-reported usage of real-time quotes from July 2000 to June 2002. Excluding the impact of the $5.2 million revenue recovery, market data revenue for the third quarter of 2003 decreased by about 2% compared with the same period in 2002. Real time data fees are primarily driven by the number of data subscriptions and therefore are directly related to industry employment. The 96,757 professional real-time data subscriptions at the end of the third quarter of 2003 is lower by approximately 7%, when compared to the end of the third quarter of 2002, primarily due to employment reductions in the U.S. financial services sector. The impact of these reductions was somewhat offset by a price increase implemented in August, 2002.
Business services revenue of $2.3 million in the third quarter was essentially unchanged from the third quarter of 2002.
Expenses
Compensation and benefits costs of $16.3 million for the third quarter of 2003 decreased by $1.5 million, or 8%, from $17.8 million in the third quarter of 2002. The decrease was primarily attributable to a lower accrual for short term compensation incentives and lower costs related to organizational changes in the third quarter of 2003 as compared with the same period in 2002. The number of employees at September 30, 2003 was 523 compared with 527 at September 30, 2002.
Information and trading systems costs of $4.1 million for the third quarter of 2003 decreased by $1.2 million, or 23%, from $5.3 million in the third quarter of 2002. The decrease was primarily due to the savings from lower lease and maintenance costs as operational efficiencies continue to be achieved.
General and administrative costs of $8.5 million decreased by $1.4 million, or 15%, from $9.9 million in the third quarter of 2002. In the third quarter of 2002, a lease provision in the amount of $2.1 million was recorded relating to the contraction of office space in Toronto. Excluding the impact of this $2.1 million provision, general and administrative costs increased by about 8% compared with the same period in 2002. This increase is primarily attributable to additional initiative spending and higher insurance costs during the third quarter of 2003 as compared with the same period in 2002.
Amortization of $2.9 million for the third quarter of 2003 decreased by $1.9 million, from $4.8 million in the third quarter of 2002, reflecting a lower asset base. Amortization expense for the third quarter of 2002 included a $1.5 million write-down of leasehold improvements relating to the contraction and renovation of space in Toronto.
Loss from Investment in Affiliate of $0.3 million represents TSX Group's 45% share of CanDeal.ca Inc.'s loss for the third quarter of 2003, an improvement of $0.2 million from the third quarter of 2002.
Investment Income of $2.7 million in the third quarter of 2003 decreased by $1.2 million, or 30%, compared with $3.9 million in the third quarter of 2002. The decline was largely attributable to less favourable returns on short term bond and mortgage investments during the third quarter of 2003 compared with the same period in 2002.
Income Taxes were $11.3 million for the third quarter of 2003, compared to $8.9 million in the third quarter of 2002. The effective tax rate decline from approximately 40% in the third quarter of 2002 to approximately 37% in the third quarter of 2003 was primarily due to a reduction in the statutory corporate tax rate in Ontario.
Nine Months Ended September 30, 2003
For the nine months ended September 30, 2003, revenues were $166.3 million, an increase of $2.6 million, or 2%, from $163.7 million for the same period in 2002. The increase in listing and business services revenue was somewhat offset by a decline in market data revenue during the same period. Net income was $49.4 million, or $1.46 per common share (on a basic and diluted basis), compared to net income of $40.8 million, or $1.21 (on a basic and diluted basis) per common share for the same period in 2002, representing an increase of 21%. These results reflect the achievement of operational efficiencies, a reduction in discretionary spending and a lower effective tax rate.
Liquidity and Capital Resources
Cash, investments and marketable securities were $267.2 million at September 30, 2003, an increase of $32.2 million, or 14%, over $235.0 million at the end of 2002. Cash generated from operating activities was $55.1 million for the first nine months of 2003. A dividend of $0.15 on each outstanding common share was paid on March 31, 2003, and a dividend of $0.18 on each outstanding common share of the company was paid on each of June 30, 2003, and September 30, 2003, representing total payments of $17.2 million. There were $5.6 million of capital expenditures during the nine months ended September 30, 2003, primarily related to the renovation of the TSX Broadcast & Conference Centre in the second quarter of 2003.
Cash Flow from Operating Activities was $55.1 million for the nine months ended September 30, 2003. A significant contributor to cash flow in the period was $57.8 million of net income excluding amortization. In addition, the billing of listed issuer annual sustaining fees, which is reflected in the increase in deferred revenue of $10.7 million, resulted in an increase in cash. The balance of this deferred revenue will be recognized in the fourth quarter of 2003. Cash flow from operating activities was reduced due to the payment of income taxes, a decrease in accounts payable and accrued liabilities, which in part related to the payment of expenses accrued at year end, and an increase in other assets related to funding the company's defined benefit pension plan. The contributions to this plan of $5.3 million in the first nine months of 2003 combined with further payments of approximately $2.5 million in the fourth quarter of 2003 will result in the defined benefit plan being fully funded.
Dividends
The Board of Directors of TSX Group Inc. declared a quarterly dividend of $0.18 on each outstanding common share of the company, payable on December 31, 2003 to shareholders of record at the close of business on November 28, 2003.
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 the third quarter of 2003, there will be variation in growth rates on both a quarterly and annual basis. We remain prudent in managing our cash and expenses, but will not hesitate to invest in opportunities in line with our growth strategies. We will continue to pursue the many opportunities available for enhancing our core business, extending our pre-eminent position in the Canadian marketplace and expanding geographically."
Financial Statements Governance Practice
The Finance & Audit Committee of the Board of Directors of TSX Group Inc. reviewed the financial statements referred to in this press release 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.
About TSX Group Inc.
TSX are the initials attached to the company's core operations: Toronto Stock Exchange, TSX Venture Exchange, TSX Markets, TSX Datalinx and TSX Technologies. The company operates Canada's two national exchanges serving the senior equity and public venture equity markets. TSX Group Inc. 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 third quarter 2003.
Time: 5:00 p.m. - 6:00 p.m. ET on Tuesday, October 28, 2003.
To participants: Please call the following at least 15 minutes prior to the start of the event.
Teleconference Number: +1 416-640-1907 (Local) or 800-814-4857 (Toll Free)
AudioWebcast: www.tsx.com, under Investor Relations
Audio Replay: +1 416-640-1917 (Local) or +1 877-289-8525 (Toll Free) Pass code for the replay is 21021175#.
Unaudited Consolidated Financial Statements
TSX Group expects to file its unaudited third quarter 2003 consolidated financial statements with Canadian securities regulators this week, after which time the statements may be accessed through www.sedar.com or on the TSX Group website at www.tsx.com. In addition, copies of the filed statements will be available upon request by contacting TSX Group Investor Relations by phone at (416) 947-4277 or by e-mail at shareholder@tsx.com.
Forward-Looking Statements
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. 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 factors that could cause actual results 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 exchanges, ATSs, new technologies and other sources; adverse effect of new business activities; failure to implement its strategy; failure to develop and accept 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 third party suppliers for a number of important services; and changes in regulation. Additional factors are discussed in TSX Group's materials, including its Annual Information Form, filed with the securities regulatory authorities in Canada from time to time. TSX Group disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
