TMX Shows Positive Results Despite LSEG Costs

by Glen Shapiro, LawAndTax-News.com, New York

09 August 2011

TMX Group, the Toronto Stock Exchange operator, has seen a rise in revenue for the first six months of 2011, which comes in spite of the costs incurred by the failure of its merger deal with the LSEG.

TMX released its results for Q2 2011 last week, revealing revenue of CAD169.3m (USD170.7m), which represents a year-on-year increase of 8%. Revenue for the first six months of the year reached CAD344m, up 13% compared with the same period last year.

However, diluted earnings per share fell from CAD0.79 to CAD0.73, which TMX attributes to CAD0.21 per share of LSEG and Maple-related costs. TMX is currently subject to a takeover offer from the Maple banking and pension fund consortium, and recently entered into discussions on the proposals in the wake of the collapse of its preferred deal with the LSEG.

The combined costs caused by the takeover saga have reached CAD20.8m, of which CAD10m represents a fee paid to LSEG upon the deal's termination. Were TMX to move approve Maple's plans for a merger, TMX will have to pay LSEG another CAD29m. Nonetheless, TMX stresses that these costs have been partially offset by higher revenue from issuer services, derivative markets trading and clearing and information services and lower overall operating expenses.

The Group's effective tax rate for Q2 fell slightly, with a tax bill of CAD22.6m compared to CAD25 the previous year, equating to rates of 29% this year and 30% last year. TMX explains this with reference to a decrease in federal and Ontario corporate income tax rates, which it says was somewhat offset by a higher Québec corporate income tax rate that resulted from the expiry on December 31, 2010 of a provincial tax holiday related to the financial sector.

Commenting on the results, CEO Thomas Kloet said: “There have been many significant accomplishments on the operational and financial front to date this year. Among the successes in this past quarter was renewed momentum in our listings business. On a combined basis, new listings on Toronto Stock Exchange and TSX Venture Exchange were up 33% and the value of new equity financings on TSX Venture Exchange increased 84% compared with the second quarter of last year. We are also proud that Toronto Stock Exchange reached over 200 exchange-traded products listed in June."

"We launched the world’s first exchange-traded fund over twenty years ago and remain a leading destination for innovative listed products worldwide. We continue to see strong growth in derivatives as volumes on the Montréal Exchange reached another new quarterly record with 16.3 million contracts traded. In equity trading, we launched TMX Select, an alternative equities trading system in July. Designed to meet evolving trading strategies, Canada's newest ATS offers participants additional execution and liquidity seeking opportunities through a differentiated market and pricing model”, he added.

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