TMX Group Limited Reports Results for the First Quarter 2016

  • Diluted earnings per share of 85 cents in Q1/16 compared with earnings per share of 78 cents in Q1/15
  • Adjusted diluted earnings per share of $1.00 in Q1/16, compared with 99 cents per share in Q1/15
  • Adjusted diluted earnings per share of $1.00 in Q1/16 excludes 13 cents per share of amortization of intangibles related to acquisitions and 2 cents per share for strategic re-alignment expenses
  • Revenue of $177.7 million in Q1/16 compared with $185.3 million in Q1/15

 

TORONTO, May 9, 2016 /CNW/ - TMX Group Limited [TSX:X] ("TMX Group") today announced results for the first quarter ended March 31, 2016.

Commenting on Q1/16 and looking ahead, Lou Eccleston, Chief Executive Officer of TMX Group, said:

"We turned in a solid performance in the first quarter and are particularly excited about the progress we are making in pursuit of innovative market and client solutions throughout our business - a cornerstone of our strategy.  The first months of 2016 have been marked by advances we are making, in collaboration with a wide spectrum of stakeholders, to push the evolution of our industry. In addition, we are making continual improvements to achieve the level of operational and service excellence that will serve as the foundation of the future of TMX Group."

Commenting on operating performance in Q1/16, Michael Ptasznik, Chief Financial Officer of TMX Group, said:

"Income from operations increased by 4% over last year, partially due to lower operating expenses in Q1/16 reflecting the benefits of the organizational re-alignment during 2015 as well as lower strategic re-alignment costs.  The positive year over year impact from lower operating expenses in Q1/16 was somewhat offset by lower revenue, in part reflecting foreign exchange losses compared with significant foreign exchange gains in Q1/15.  While we will continue to work to reduce costs, there may be incremental operating and strategic re-alignment expenses compared with Q1/16 as we continue to implement our strategy."

SUMMARY OF FINANCIAL INFORMATION

Three Months Ended March 31, 2016 Compared with Three Months Ended March 31, 2015

The information below reflects the financial statements of TMX Group for the quarter ended March 31, 2016 (Q1/16) compared with the quarter ended March 31, 2015 (Q1/15).







(in millions of dollars, except per share amounts)


Q1/16

Q1/15

$ increase /
(decrease)

% increase /
(decrease)







Revenue


$177.7

$185.3

$(7.6)

(4)%







Operating expenses before strategic re-alignment






expenses


106.7

111.3

(4.6)

(4)%

Income from operations before strategic re-alignment






expenses1


71.0

74.0

(3.0)

(4)%







Strategic re-alignment expenses


1.3

6.7

(5.4)

(81)%







Income from operations


69.7

67.3

2.4

4%







Net income attributable to TMX Group shareholders


46.3

42.6

3.7

9%







Earnings per share2







Basic                                                                      


0.85

0.78

0.07

9%


Diluted


0.85

0.78

0.07

9%

Adjusted earnings per share3,4







Basic


1.00

0.99

0.01

1%


Diluted


1.00

0.99

0.01

1%







Cash flows from operating activities


56.0

49.7

6.3

13%

 

Net income attributable to TMX Group shareholders

Net income attributable to TMX Group shareholders in Q1/16 was $46.3 million, or 85 cents per common share on a basic and diluted basis, compared with net income of $42.6 million, or 78 cents per common share on a basic and diluted basis, for Q1/15.  The increase in net income in Q1/16  reflected lower operating expenses, including lower strategic re-alignment expenses.  The increase was partially offset by foreign exchange gains on translating net monetary assets denominated in non-Canadian currencies in Q1/15. 

___________________________

1 See discussion under the heading Additional IFRS Measures.

2 Earnings per share information is based on net income attributable to TMX Group shareholders.

3 See discussion under the heading Non-IFRS Financial Measures.

4 Strategic re-alignment expenses were not excluded from adjusted earnings per share until Q2/15. These expenses of $0.08 for Q1/15 have now been excluded from adjusted earnings per share to enable comparison with Q1/16 (see Strategic re-alignment expenses).

 

Non-IFRS Financial Measures

Adjusted earnings per share and adjusted diluted earnings per share provided for the quarters ended March 31, 2016 and March  31, 2015 are non-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 ongoing financial performance from period to period, exclusive of a number of adjustments.  These adjustments include amortization of intangible assets related to acquisitions and strategic re-alignment expenses.  Management uses these measures, and excludes certain items, because it believes doing so results in a more effective analysis of underlying operating and financial performance, including, in some cases, our ability to generate cash.  Excluding these items also enables comparability across periods.  The exclusion of certain items does not imply that they are non-recurring or not useful to investors.

Additional IFRS Measures

Income from operations before strategic re-alignment expenses and income from operations are important indicators of TMX Group's ability to generate liquidity through operating cash flow to fund future working capital needs, service outstanding debts, and fund future capital expenditures. The intent of these performance measures is to provide additional useful information to investors and analysts; however, these measures should not be considered in isolation.

Adjusted Earnings per Share5 Reconciliation for Q1/16 and Q1/15

The following is a reconciliation of earnings per share6 to adjusted earnings per share7:









Q1/16

Q1/158



Basic

Diluted

Basic

Diluted

Earnings per share9


$0.85

$0.85

$0.78

$0.78

Adjustment related to:







Amortization of intangibles related to acquisitions


0.13

0.13

0.13

0.13


Strategic re-alignment expenses


0.02

0.02

0.08

0.08

Adjusted earnings per share10


$1.00

$1.00

$0.99

$0.99

Weighted average number of common shares outstanding


54,392,393

54,398,442

54,322,626

54,365,437

 

Adjusted earnings per share11 increased by 1% from $0.99 in 2015 to $1.00 in 2016.  The increase reflected lower operating expenses, excluding strategic re-alignment expenses in Q1/16 compared with Q1/15.  The increase was largely offset by foreign exchange gains on translating net monetary assets denominated in non-Canadian dollars in Q1/15.

After announcing the re-alignment of the organization around strategic pillars in Q2/15, TMX Group began to report strategic re-alignment expenses incurred to align the business with our new strategy. We also started to adjust for these costs in our presentation of adjusted earnings per share in Q2/15. The strategic re-alignment expenses reported for the six months ended June 30, 2015 included expenses incurred in Q1/15 (and reported in Compensation and benefits and Selling, general and administration expenses in our Q1/15 MD&A and Q1/15 unaudited condensed consolidated interim financial statements). As a result, Q1/15 adjusted earnings per share has been updated from $0.91 to $0.99, reflecting $0.08 of strategic re-alignment expenses incurred in Q1/15.

___________________________

5 See discussion under the heading Non-IFRS Financial Measures.

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.

8 Strategic re-alignment expenses were not excluded from adjusted earnings per share until Q2/15. These expenses of $0.08 for Q1/15 have now been excluded from adjusted earnings per share to enable comparison with Q1/16.

9 Earnings per share information is based on net income attributable to TMX Group shareholders.

10 See discussion under the heading Non-IFRS Financial Measures.

11 See discussion under the heading Non-IFRS Financial Measures.

 

Revenue







(in millions of dollars)


Q1/16

Q1/15

$ increase/
(decrease)

% increase/
(decrease)

Market Insights


$51.3

$53.1

$(1.8)

(3)%

Capital Formation


38.6

43.4

(4.8)

(11)%

Derivatives


31.5

27.0

4.5

17%

Efficient Markets and Market Solutions


58.0

56.0

2.0

4%

Other


(1.7)

5.8

(7.5)

(129)%



$177.7

$185.3

$(7.6)

(4)%

 

Revenue was $177.7 million in Q1/16, down $7.6 million or 4% compared with $185.3 million in Q1/15.  There were increases in Derivatives and Efficient Markets revenue, which were more than offset by declines in Capital Formation, Market Insights, largely driven by Razor Risk and Other revenue.  The overall decline in Other revenue was driven by foreign exchange losses on translating net monetary assets in non-Canadian currencies in Q1/16 compared with foreign exchange gains in Q1/15.  Partially offsetting the revenue declines was a favourable impact from a weaker Canadian dollar relative to other currencies, including the U.S. dollar, in Q1/16 versus Q1/15.  The net unfavourable impact of these two foreign exchange items was approximately $3 million.

Operating expenses before strategic re-alignment expenses







(in millions of dollars)


Q1/16

Q1/15

$ increase/
(decrease)

% increase/
(decrease)

Compensation and benefits


$52.5

$57.9

$(5.4)

(9)%

Information and trading systems


18.1

16.7

1.4

8%

Selling, general and administration


20.5

19.2

1.3

7%

Depreciation and amortization


15.6

17.5

(1.9)

(11)%



$106.7

$111.3

$(4.6)

(4)%

 

Operating expenses before strategic re-alignment expenses in Q1/16 were $106.7 million, down $4.6 million or 4%, from $111.3 million in Q1/15.  During Q1/16, there was a reduction in costs related to Razor Risk, lower headcount, long-term employee incentive plan costs and the sale of Equicom (in July 2015).  The decreases in costs were partially offset by higher Information and trading systems costs related to TMX Atrium Wireless, lower capitalization of labour costs in Q1/16 compared with Q1/15 and a non-recurring reduction in costs relating to BOX in Q1/15.  There was also an unfavourable impact from a weaker Canadian dollar relative to other currencies, including the U.S. dollar, in Q1/16 versus Q1/15.  The impact was approximately $2 million.

Strategic re-alignment expenses12 







Q1/16

Q1/1513

(in millions of dollars, except per
share amounts)


Pre-tax Amount

Basic and Diluted
Earnings per
Share Impact
14

Pre-tax Amount

Basic and Diluted
Earnings per
Share Impact15

Severance and related costs


$0.9

$0.01

$4.9

$0.06

Professional and consulting fees






and other charges


0.4

0.01

1.8

0.02

Strategic re-alignment expenses


$1.3

$0.02

$6.7

$0.08

 

We are continuing to build an integrated set of client solutions that will create unique and differentiated advantages for clients and drive profitable growth.  We will continue to work to reduce costs through re-aligning, simplifying and integrating relevant systems, processes, operations and organizational structures.  We expect to incur additional strategic re-alignment expenses through 2016 as we execute on our strategic plan, and there may be incremental operating and strategic re-alignment expenses compared with Q1/16 as we continue to implement our strategy.

_________________________

12 The "Strategic re-alignment expenses" section above contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainties related to such statements.

13 Strategic re-alignment expenses were not excluded from adjusted earnings per share until Q2/15. These expenses of $0.08 for Q1/15 have now been excluded from adjusted earnings per share to enable comparison with Q1/16.

14 Earnings per share information is based on net income attributable to TMX Group shareholders.

15 Earnings per share information is based on net income attributable to TMX Group shareholders.

 

FINANCIAL STATEMENTS GOVERNANCE PRACTICE

The Finance & Audit Committee of the Board of Directors of TMX Group reviewed this press release as well as the Q1/16 financial statements and related Management's Discussion and Analysis (MD&A) and recommended they be approved by the Board of Directors.  Following review by the full Board, the Q1/16 financial statements, MD&A and the contents of this press release were approved.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Our Q1/16 financial statements are prepared in accordance with IFRS as issued by the IASB, are in compliance with IAS 34, Interim Financial Reporting, and are reported in Canadian dollars unless otherwise indicated. Financial measures contained in the MD&A and this press release are based on financial statements prepared in accordance with IFRS, unless otherwise specified and are in Canadian dollars unless otherwise indicated.

ACCESS TO QUARTERLY MATERIALS

TMX Group has filed its Q1/16 financial statements and MD&A with Canadian securities regulators.  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 TMXshareholder@tmx.com.

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 results and 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 other 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), commodities prices, 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 2015 Annual MD&A.

About TMX Group (TSX:X)

TMX Group's key subsidiaries operate cash and derivative markets and clearinghouses for multiple asset classes including equities, fixed income and energy. Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montréal Exchange, Canadian Derivatives Clearing Corporation, NGX, BOX Options Exchange, Shorcan, Shorcan Energy Brokers, AgriClear 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 (Montréal, Calgary and Vancouver), in key U.S. markets (New York, Houston, Boston and Chicago) as well as in London, Beijing, Singapore and Sydney. For more information about TMX Group, visit our website at http://www.tmx.com. Follow TMX Group on Twitter: @TMXGroup.

Teleconference / Audio Webcast

TMX Group will host a teleconference / audio webcast to discuss the financial results for Q1/16.

Time: 8:00 a.m. - 9:00 a.m. EDT on Tuesday May 10, 2016.

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 83031256.

SOURCE TMX Group Limited

For further information: Catherine Kee, Manager, Corporate Communications, TMX Group, 416-814-8834, catherine.kee@tmx.com; Kristine Cheng, Manager, Investor Relations, TMX Group, 416-947-4315, kristine.cheng@tmx.com


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