TMX Group Limited Reports Results for the Fourth Quarter 2014

• Revenue of $182.7 million, up 1% from Q4/13
• Diluted earnings per share of 76 cents in Q4/14, versus 77 cents per share in Q4/13
• Adjusted diluted earnings per share of 93 cents in Q4/14, versus 96 cents per share in Q4/13
• Adjusted diluted earnings per share of 93 cents excludes:
  • 13 cents per share of amortization of intangibles related to acquisitions
  • 4 cents per share charge related to Maple transaction and integration costs

TORONTO, Feb. 3, 2015 /CNW/ - TMX Group Limited [TSX:X] ("TMX Group") today announced results for the fourth quarter ended December 31, 2014.

Commenting on 2014 and looking ahead, Lou Eccleston, Chief Executive Officer of TMX Group, said:

"While operating in a challenging environment in terms of low volatility and declining commodity prices, our strong portfolio of businesses achieved revenue growth of 2% and realized growth in income from operations of 8% in 2014.  As we enter 2015, I look forward to the next stage in the history of TMX Group.  We are currently engaged in a comprehensive review of our portfolio of assets to establish the pillars of our go-forward strategy.  The focus will be on our clients and developing products and services that create competitive advantages for them, while differentiating TMX.  All of this involves a process grounded in market focus with a rigorous prioritization of investments to execute what is necessary to achieve our vision of leadership in capital markets here in Canada and around the world."

Michael Ptasznik, Chief Financial Officer of TMX Group, said:

"In the fourth quarter we experienced revenue growth on both a year over year and sequential basis.  There was growth in cash, Canadian derivatives and energy markets trading revenue somewhat offset by lower BOX and issuer services revenue.  In addition, there was a significant increase in Razor Risk revenue over the same periods.  Our total operating expenses increased due to the costs required to support the growth in Razor's revenue, as well as continued investment in new initiatives such as the restructuring of our equities market offerings."

 

SUMMARY OF FINANCIAL INFORMATION

Net income attributable to TMX Group shareholders

Net income attributable to TMX Group shareholders for Q4/14 was $41.1 million, or 76 cents per common share on a basic and diluted basis, compared with net income of $41.4 million, or 77 cents per common share on a basic and diluted basis, for Q4/13.  There were significantly higher costs related to initiatives to enhance our equities trading offerings, and to support the growth in Razor Risk Technologies Limited's (Razor Risk) revenue.  The increase in operating expenses were partially offset by slightly higher revenue, an increase in net income from equity accounted investees and lower net financing costs.

Non-IFRS Financial Measures

Adjusted earnings per share and adjusted diluted earnings per share provided for the quarter and year ended December 31, 2014 are not International Financial Reporting Standards (IFRS) measures and do not have standardized meanings prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other companies.  We present adjusted earnings per share and adjusted diluted earnings per share to indicate operating performance exclusive of a number of adjustments that are not indicative of underlying business performance. These adjustments include credit facility refinancing expenses, non-cash impairment charges related to BOX Market LLC (BOX) (net of NCI) and other assets, the sale of PC-Bond and related income tax expense, the increase in deferred income tax liabilities resulting from the change in British Columbia (B.C.) corporate income tax rate, Maple Transaction and integration costs, and the amortization of intangibles related to acquisitions.  Management uses these measures to assess our financial performance, including our ability to generate cash, exclusive of these costs, and to enable comparability across periods.

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¹ Earnings per share information is based on net income attributable to TMX Group shareholders.
² See discussion under the heading Non-IFRS Financial Measures.

Adjusted Earnings per Share³ Reconciliation for Q4/14 and Q4/13

The following is a reconciliation of earnings per share to adjusted earnings per share³:

The decrease in adjusted earnings per share³ to 93 cents in Q4/14 from 96 cents in Q4/13 reflects increased operating expenses, partially offset by higher revenue, an increase in net income from equity accounted investees and lower net financing costs.

THREE MONTHS ENDED DECEMBER 31, 2014 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 2013

Revenue

Revenue was $182.7 million in Q4/14, up $2.0 million, or 1%, from revenue of $180.7 million in Q4/13.  There was an increase in cash, Canadian derivatives and energy markets trading revenue as well as a significant increase in Razor Risk revenue, as milestones were achieved with one customer, in Q4/14 compared with Q4/13.  The increases were offset by lower revenue from issuer services, lower trading revenue from BOX and a decrease in revenue from the discontinuation of The Canadian Depository for Securities Limited (CDS) services largely relating to the administration of System for Electronic Document Analysis and Retrieval (SEDAR), the System for Electronic Disclosure by Insiders (SEDI), and the National Registration Database (NRD) effective January 31, 2014.

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³ See discussion under the heading Non-IFRS Financial Measures.
⁴ Earnings per share information is based on net income attributable to TMX Group shareholders.

Issuer Services Revenue 

• Initial listing fee revenue in Q4/14 decreased compared with Q3/14 reflecting a decline in the number of corporate listing transactions billed on Toronto Stock Exchange (TSX) and a lower number of new issuers listed on TSX Venture Exchange (TSXV).
• Additional listing fee revenue in Q4/14 decreased compared with Q4/13 reflecting a significant overall decline in the number of listing transactions billed on TSX.
• The decrease in sustaining listing fees was partially due to a decline in the total number of issuers. While there was an overall increase in the market capitalization for issuers listed on TSX at December 31, 2013 compared with December 31, 2012, a number of issuers had reached the maximum fee; therefore, there was no incremental revenue. The decrease was also due to a decline in the market capitalization of issuers listed on TSXV at December 31, 2013 compared to December 31, 2012.

Trading, clearing, depository and related revenue

Cash Markets

• The increase in cash markets trading and clearing revenue reflected the impact of a 16% increase in overall volume of securities traded on our equities marketplaces (38.6 billion securities in Q4/14 versus 33.4 billion securities in Q4/13). The impact from an increase in the volume of securities traded on TSX, TMX Select and Alpha was partially offset by the impact from a decrease in volume of securities traded on TSXV and an unfavourable customer and product mix on TSX. For Q4/14 our combined domestic equities trading market share⁵ was 74% compared with 77% in Q4/13. In addition, revenue from Shorcan Brokers Limited was lower in Q4/14 compared with Q4/13, reflecting unfavourable product mix partially offset by higher volumes.
• CDS clearing revenue, net of rebates of $2.1 million, decreased in Q4/14 compared with Q4/13. In Q4/14, CDS processed 129.6 million exchange trades (83.9 million in Q4/13) and 5.6 million non-exchange/OTC trades (5.2 million in Q4/13). While there was an increase in trades processed, the positive impact was more than offset by an increase in rebates as $1.3 million of rebates previously netted against CDS depository revenue have been netted against CDS clearing revenue (see below).

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⁵ Source: Investment Industry Regulatory Organization of Canada (IIROC)

CDS Depository

• CDS depository revenue, net of rebates, for Q4/14 was $12.8 million compared with $11.6 million for Q4/13.  In Q4/14, CDS held a daily average of approximately 319,000 equities positions (approximately  328,000 in Q4/13) with an average of 283.9 billion shares (273.2 billion shares in Q4/13) and a daily average of approximately 175,000 debt positions (approximately 180,000 in Q4/13) with an average par value of $2.5 trillion on deposit ($2.4 trillion in Q4/13). The increase in revenue was due to now netting $1.3 million of rebates (that were previously netted against CDS depository revenue) against CDS clearing revenue (see above).

Derivatives Markets

• The decrease in derivatives markets revenue was driven by a decline in revenue from BOX due to lower average fees as a result of the price reduction implemented in March 2014, partially offset by a 10% increase in BOX trading volume (23.1 million contracts traded in Q4/14 versus 21.0 million contracts traded in Q4/13) and the positive impact of the appreciation of the U.S. dollar against the Canadian dollar in Q4/14 compared with Q4/13.
• The decrease in derivatives markets revenue was partially offset by an increase in trading and clearing revenue from MX, reflecting higher volumes. Volumes increased by 23% on MX (19.5 million contracts traded in Q4/14 versus 15.8 million contracts traded in Q4/13). Open interest was up 19% at December 31, 2014 compared with December 31, 2013.

Energy Markets

• The increase in energy markets revenue was mainly a result of higher natural gas volumes. There was a 12% increase in total energy volume NGX total energy volume includes trading and clearing in natural gas, crude oil and electricity in Q4/14 compared with Q4/13 (3.27 million terajoules in Q4/14 compared with 2.92 million terajoules in Q4/13). The volume increase was mainly due to volatility in some of the markets served by NGX. There was also an increase in revenue from Shorcan Energy Brokers Inc. (Shorcan Energy Brokers) in Q4/14 compared with Q4/13.
• The appreciation of the U.S. dollar against the Canadian dollar in Q4/14 compared with Q4/13 had a positive impact on the revenue of NGX and Shorcan Energy Brokers.

Information services revenue

• The decrease in information services revenue was primarily due to lower revenue recoveries related to under-reported usage of real-time quotes in prior periods and lower index licensing revenue. During Q4/13, there were various revenue recoveries of approximately $2.8 million.
• The decrease in information services revenue was partially offset by the positive impact of the appreciation of the U.S. dollar against the Canadian dollar in Q4/14 compared with Q4/13 and new wireless revenue from the acquisition of the microwave network business of Strike Technologies (acquired October 31, 2014).
• There was 1% increase in the average number of professional market data subscriptions for TSX and TSXV products (116,102 professional market data subscriptions in Q4/14 compared with 114,437 in Q4/13). Given the reduction in pricing for non-professional subscriptions on TSXV effective January 1, 2014, our non-professional subscriptions are no longer priced at a level equivalent with what professional subscribers pay across our marketplaces. As such, effective Q1/14, we discontinued including professional-equivalent (non-professional) subscription statistics in the subscription data that we provide. There were other pricing changes effective January 1, 2014 that partially offset the impact of the pricing reduction for the non-professional subscribers to TSXV data.
• The average number of MX professional market data subscriptions for Q4/14 decreased 1% from Q4/13 (19,191 MX professional market data subscriptions in Q4/14 compared with 19,452 in Q4/13).

Technology services and other revenue

• The increase in technology services and other revenue was primarily due to significantly higher Razor Risk revenue, as milestones were achieved with one customer, and higher foreign exchange gains on U.S. dollar denominated balances in Q4/14 compared to Q4/13.
• These increases more than offset the decrease in revenue from the discontinuation of CDS services largely relating to the administration of SEDAR, SEDI and NRD. These operations were transitioned to a new service provider on January 13, 2014; the CDS agreement ended on January 31, 2014.

Operating Expenses

Operating expenses in Q4/14 were $115.7 million up $6.3 million or 6%, from $109.4 million in Q4/13 reflecting increased costs related to initiatives to enhance our equities trading offerings and to support the growth in Razor Risk's revenue.  These increases were partially offset by the elimination of operating expenses resulting from the termination of the agreement with Canadian securities regulators to provide SEDAR, SEDI and NRD services, which ended January 31, 2014.  In addition, there was a decrease in costs related to the reversal of a $2.5 million commodity tax provision taken in 2011, which was more than offset by a charge of approximately $1.2 million relating to consolidation of facilities, a charge of approximately 1.2 million for the accelerated amortization of assets primarily relating to the restructuring of our equities trading offering, and approximately $0.7 million due to recording a future obligation related to retiring assets.

Compensation and benefits

• Compensation and benefits costs increased due to initiatives and to support the growth in Razor Risk's revenue. There was also lower capitalization of costs associated with technology initiatives as well as higher costs associated with annual salary increases.
• These increases in expenses were partially offset by lower overall employee performance incentive plan costs, lower organizational transition costs and the elimination of operating expenses resulting from the termination of the agreement with Canadian securities regulators to provide SEDAR, SEDI and NRD services. This agreement ended January 31, 2014.
• There were 1,323 TMX Group employees at December 31, 2014 versus 1,306 employees at December 31, 2013.

Information and trading systems

• Information and trading systems expenses were higher reflecting increased initiative costs to enhance our equities trading offerings and higher operating costs. We also incurred additional costs to support the growth in Razor Risk's revenue, and costs related to the microwave network business of Strike Technologies (acquired October 31, 2014).
• These increases were partially offset by realized cost synergies and elimination of operating expenses resulting from the termination of the SEDAR, SEDI and NRD services agreement with Canadian securities regulators on January 31, 2014.

General and administration

• General and Administration costs were lower primarily due to the reversal of a 2011 commodity tax provision of $2.5 million, lower costs related to BOX and reduced direct costs related to other issuer services revenue.
• These were partially offset by higher occupancy costs (including a charge of approximately $1.2 million in Q4/14 relating to consolidation of facilities), bad debts expense, initiative spending and professional fees.

Depreciation and amortization 

• Depreciation and amortization costs reflect a reduction in depreciation and amortization relating to assets that were fully depreciated or written-down by the end of Q4/14 (including BOX assets).
• The decrease was largely offset by the accelerated amortization of assets in Q4/14 of approximately $1.2 million relating to the restructuring of our equities trading offering. In addition, this expense increased by approximately $0.7 million in Q4/14 due to recording a future obligation related to retiring assets.
• The Depreciation and amortization costs of $18.0 million included $9.1 million ($8.8 million, net of NCI) related to amortization of intangibles related to acquisitions (13 cents per basic and diluted share).

Share of net income (loss) of equity accounted investees

• This includes our share of net income from FTSE TMX Global Debt Capital Markets Limited and our 47% share of net income from CanDeal.ca Inc. (CanDeal).
• In Q4/13, FTSE TMX Global Debt Capital Markets Limited recorded a year-to-date adjustment for amortization and taxes which was reflected in our Q4/13 share of net income.

Maple Transaction and integration costs  

• In Q4/14, we incurred higher expenses primarily due to additional costs related to the actuarial assessment of future payments required to integrate post-retirement benefit programs. 

Net finance (income) costs

• The reduction in net finance costs in Q4/14 compared with Q4/13 relates primarily to the refinancing of debt under our credit facility through the issuance of Commercial Paper during Q2/14 and the associated reduction in the effective interest rate as well as the reduced level of debt.

Income tax expense

Net income (loss) attributable to non-controlling interests

• In 2014 and 2013, MX held a 53.8% ownership interest in BOX. The results for BOX are consolidated in our Consolidated Income Statements. Net income attributable to non-controlling interests represents the other BOX members' share of BOX's income or loss for the period
• The decline from Q4/13 to Q4/14 reflected lower revenue from BOX (see Trading, clearing, depository and related revenue - Derivatives Markets).

Summary of Cash Flows

• The decrease in Cash Flows from Operating Activities in Q4/14 compared with Q4/13 reflected a decrease in income from operations (excluding depreciation and amortization) and a decrease in trade and other payables.
• In Q4/14, Cash Flows (used in) Financing Activities was higher than in Q4/13 primarily due to higher net drawings on CDCC's liquidity facility related to REPO transactions and higher interest paid.
• In Q4/14, Cash Flows from (used in) Investing Activities was higher than in Q4/13 reflecting higher costs related to additions to premises and equipment and intangible assets, and a net cash outflow of $14.7 million related the cost of acquisitions (net of cash acquired). The decreases in cash from investing activities were partially offset by an increase in the sale of marketable securities.

YEAR ENDED DECEMBER 31, 2014 COMPARED WITH YEAR ENDED DECEMBER 31, 2013

For a more meaningful discussion of the results of operations for 2014 compared with 2013, please see our TMX Group Limited 2014 Management's Discussion and Analysis (MD&A) that can be accessed through www.sedar.com or our website at www.tmx.com.

Adjusted Earnings per Share⁷ Reconciliation for Year ended December 31, 2014 and Year ended December 31, 2013

The following is a reconciliation of earnings per share to adjusted earnings per share⁷:

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6} Earnings per share information is based on net income attributable to TMX Group shareholders.
⁷ See discussion under the heading Non-IFRS Financial Measures.

FINANCIAL STATEMENTS GOVERNANCE PRACTICE

The Finance & Audit Committee of the Board of Directors of TMX Group reviewed this press release as well as the 2014 audited annual consolidated financial statements and related MD&A, and recommended they be approved by the Board of Directors. Following review by the full Board, the 2014 audited annual consolidated financial statements, MD&A and the contents of this press release were approved.

CONSOLIDATED FINANCIAL STATEMENTS

Our 2014 audited annual consolidated financial statements are prepared in accordance with IFRS and are reported in Canadian dollars. The financial measures included in this press release are derived from financial information prepared in accordance with IFRS, unless otherwise specified. All amounts in the press release are in Canadian dollars unless otherwise noted.

TMX Group has filed its 2014 audited annual consolidated financial statements and MD&A with Canadian securities regulators today, after which time these documents may be accessed through www.sedar.com, or on the TMX Group website at www.tmx.com. We are not incorporating information contained on the website in this press release. In addition, copies of these documents will be available upon request, at no cost, by contacting TMX Group Investor Relations by phone at (416) 947-4277 or by e-mail at [email protected].

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This press release of TMX Group contains "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, assumptions, estimates, projections and other factors that management believes to be relevant as of the date of this press release. Often, but not always, such forward-looking information can be identified by the use of forward-looking words such as "plans", "expects", "is expected", "budget", "scheduled", "targeted", "estimates", "forecasts", "intends", "anticipates", "believes", or variations or the negatives of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved or not be taken, occur or be achieved. Forward-looking information, by its nature, requires us to make assumptions and is subject to significant risks and uncertainties which may give rise to the possibility that our expectations or conclusions will not prove to be accurate and that our assumptions may not be correct.

Additional examples of forward-looking information in this press release include, but are not limited to, factors relating to stock, derivatives and energy exchanges and clearing houses and the business, strategic goals and priorities, market condition, pricing, proposed technology and other initiatives, financial condition, operations and prospects of TMX Group which are subject to significant risks and uncertainties. These risks include: competition from other exchanges or marketplaces, including alternative trading systems and new technologies, on a national and international basis; dependence on the economy of Canada; adverse effects on our results caused by global economic uncertainties including changes in business cycles that impact our sector; failure to retain and attract qualified personnel; geopolitical and other factors which could cause business interruption; dependence on information technology; vulnerability of our networks and third party service providers to security risks; failure to implement our strategies; regulatory constraints; constraints imposed by our level of indebtedness; risks of litigation or regulatory proceedings; dependence on adequate numbers of customers; failure to develop, market or gain acceptance of new products; currency risk; adverse effect of new business activities; not being able to meet cash requirements because of our holding company structure and restrictions on paying  dividends; dependence on third party suppliers and service providers; dependence of trading operations on a small number of clients; risks associated with our clearing operations; challenges related to international expansion; restrictions on ownership of TMX Group common shares; inability to protect our intellectual property; adverse effect of a systemic market event on certain of our businesses; risks associated with the credit of customers; cost structures being largely fixed; dependence on market activity that cannot be controlled; the regulatory constraints that apply to the business of TMX Group and its regulated subsidiaries, costs of on exchange clearing and depository services, trading volumes (which could be higher or lower than estimated) and revenues; future levels of revenues being lower than expected or costs being higher than expected.

Forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions in connection with the ability of TMX Group to successfully compete against global and regional marketplaces; business and economic conditions generally; exchange rates (including estimates of the U.S. dollar - Canadian dollar exchange rate), the level of trading and activity on markets, and particularly the level of trading in TMX Group's key products; business development and marketing and sales activity; the continued availability of financing on appropriate terms for future projects; productivity at TMX Group, as well as that of TMX Group's competitors; market competition; research & development activities; the successful introduction and client acceptance of new products; successful introduction of various technology assets and capabilities; the impact on TMX Group and its customers of various regulations; TMX  Group's ongoing relations with its employees; and the extent of any labour, equipment or other disruptions at any of its operations of any significance other than any planned maintenance or similar shutdowns.

While we anticipate that subsequent events and developments may cause our views to change, we have no intention to update this forward-looking information, except as required by applicable securities law. This forward-looking information should not be relied upon as representing our views as of any date subsequent to the date of this press release.  We have attempted to identify important factors that could cause actual actions, events or results to differ materially from those current expectations described in forward-looking information. However, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended and that could cause actual actions, events or results to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. These factors are not intended to represent a complete list of the factors that could affect us. A description of the above-mentioned items is contained under the heading Risks and Uncertainties in the 2014 Annual MD&A.

About TMX Group (TSX:X)

TMX Group's key subsidiaries operate cash and derivative markets and clearing houses for multiple asset classes including equities, fixed income and energy. Toronto Stock Exchange, TSX Venture Exchange, TMX Select, Alpha Group, The Canadian Depository for Securities, Montreal Exchange, Canadian Derivatives Clearing Corporation, Natural Gas Exchange, BOX Options Exchange, Shorcan, Shorcan Energy Brokers, Equicom, and other TMX Group companies provide listing markets, trading markets, clearing facilities, depository services, data products and other services to the global financial community. TMX Group is headquartered in Toronto and operates offices across Canada (Montreal, Calgary and Vancouver), in key U.S. markets (New York, Houston, Boston and Chicago) as well as in London, Beijing and Sydney. For more information about TMX Group, visit our website at www.tmx.com. Follow TMX Group on Twitter at http://twitter.com/tmxgroup.

Teleconference / Audio Webcast

TMX Group will host a teleconference / audio webcast to discuss the financial results for Q4/14.

Time: 8:00 a.m. - 9:00 a.m. ET on Wednesday, February 4, 2015.

To teleconference participants: Please call the following number at least 15 minutes prior to the start of the event.

The audio webcast of the conference call will also be available on TMX Group's website at www.tmx.com, under Investor Relations.

Teleconference Number: 647-427-7450 or 1-888-231-8191

Audio Replay: 416-849-0833 or 1-855-859-2056

The passcode for the replay is 52947160.

TMX GROUP LIMITED
Consolidated Balance Sheets

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Consolidated Income Statements

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Consolidated Statements of Comprehensive Income

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Consolidated Statements of Changes in Equity

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Condensed Consolidated Interim Statements of Changes in Equity

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Consolidated Statements of Cash Flows

SOURCE TMX Group Limited