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Q2 2012 Earnings Call

July 27, 2012 8:00 am ET


Paul Malcolmson - Director of Investor and Government Relations

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Thomas A. Kloet - Chief Executive Officer, President, Director, Ex-Officio Member of Finance & Audit Committee, Ex-Officio Member of Public Venture Market Committee, Ex-Officio Member of Governance Committee and Ex-Officio Member of Human Resources Committee

Michael S. Ptasznik - Group Head Chief Financial Officer, Senior Vice President and Chairman of Treasury Committee


John Reucassel - BMO Capital Markets Canada

Jeff Fenwick - Cormark Securities Inc., Research Division

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division



Good morning. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2012 Analyst Conference Call for TMX Group. [Operator Instructions]

Thank you, and I'll now introduce and turn the call over to Mr. Paul Malcolmson. You may begin your conference, sir.

Paul Malcolmson

Thank you, Tracy, and good morning. Thank you, everyone, for joining us today for the second quarter 2012 conference call for TMX Group. As you know, we announced our second quarter results this morning. A copy of the press release is available on our website,, under Investor Relations.

Today, we have with us Tom Kloet, our Chief Executive Officer; and Michael Ptasznik, our Chief Financial Officer. Following opening remarks from Tom and Michael, we'll have a question-and-answer session.

Before we begin, I want to remind you that certain statements made on the call today may be considered forward-looking. And I would refer you to the risk factors that are contained in today's press release and reports filed by TMX Group with regulatory authorities. Now I'd like to turn the call over to Tom.

Thomas A. Kloet

Thank you, Paul, and good morning, everyone. Thank you for joining our conference call to discuss TMX Group's second quarter earnings. Like the first quarter of 2012, we continue to operate our business against the backdrop of continued global economic and financial instability. These macroeconomic conditions have impacted the cash markets portions of our business. And our experience parallels most of our peers in this business. However, our diversification strategy, which now has its operating markets and services in multiple asset classes, somewhat offset this cash markets declines. On balance, our portfolio of assets continue to perform well under these conditions, and our prospects for future growth remains strong once the global economic stabilizes and turns more fully towards growth.

There were a number of significant one-time items this quarter. While I'm going to leave it to Michael to walk you through them in detail, I did want to comment briefly on some of them before I discuss our second quarter operational performance and provide an update on the Maple offer.

During the second quarter, we incurred $54.4 million of costs related to the Maple transaction and the proposed merger with the London Stock Exchange Group. Now these discharges include a $29 million fee to LSEG and $23.4 million of success fees paid to our financial advisors, both payable when Maple takes up the shares. Put simply, these are the costs associated with successfully reaching the finish line with Maple, which we expect to do on July 31.

The Maple transaction delivers value to shareholders while positioning TMX Group for future growth. The second onetime item relates to NGX's acquisition of net throughput in 2009 to enter the physical crude oil space. Now as you may recall, TMX Group acquired a call option to acquire NTP in 2007. And then there's the terms of that agreement, the former shareholders of NTP have the ability to put their shares to us. As required under IFRS, we have performed an impairment test on NTP's intangible assets at the end of the second quarter. And it was determined that previously forecasted revenue would not be achieved. As a result, we recorded a non-cash impairment charge of $44.6 million.

The main factors contributing to the impairment was a limited acceptance of NGX's clearing services in crude oil space, worsened by a weak demand in the United States and Canada. We are disappointed with the results, but we have mitigated the overall impact to TMX Group by virtue of the success of our Shorcan Energy trading business, which is provide the voice brokerage facilitation that the market prefers at this time. We will continue to work to regain NGX's crude oil market share and increase trading and clearing activity.

On the positive side, as a result of the continued growth in BOX volumes and its success in the U.S. options market, we record a reversal of an impairment charge recorded when we converted to IFRS. Therefore, we recorded a gain of $13.4 million related to this reversal.

Turning now to TMX Group's second quarter operational performance, as I noted earlier, our operating statistics in Q2 2012 continue to reflect the impact of global economic uncertainty. It has been a difficult market, to be sure.

At the end of the second quarter of 2012, the S&P/TSX Composite Index was down 13% compared to the end of the second quarter of 2011. The S&P/TSX Venture Composite was down 37%. While the Canadian economy and our company are both fundamentally very strong, it is clear that the global situation is having an impact on both investor and public company confidence. Total equity capital raised on Toronto Stock Exchange and TSX Venture Exchange during the second quarter was approximately $11 billion.

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