TMX Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript

TMX Group (TMXGF.PK)

Q4 2011 Earnings Call

February 08, 2012 8:00 am ET

Executives

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 - Chief Financial Officer, Senior Vice President and Chairman of Treasury Committee

Analysts

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

John Reucassel - BMO Capital Markets Canada

Jeff Fenwick - Cormark Securities Inc., Research Division

Presentation

Operator

Good morning, my name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the TMX Group Fourth Quarter 2011 Analyst Conference Call. [Operator Instructions] Paul Malcolmson, Director of Investor Relations, you may begin your conference.

Paul Malcolmson

Thank you, Melissa, and good morning. Thank you everyone for joining us today for the Fourth Quarter 2011 Conference Call for TMX Group. As you know, we announced our fourth quarter 2009 and full year results this morning. A copy of the press release is available on our website, tmx.com, under Investor Relations.

This morning, 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 will 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'll refer you to the risk factors outlined in today's press release and the reports filed by TMX Group with regulatory authorities.

Now I'd like to turn the call over to Tom.

Thomas A. Kloet

Good morning, and thank you, everybody, for joining today's call. It is perhaps an understatement to say that 2011 was an exceptionally active year for our company. Mergers, acquisitions, technology initiatives, regulatory changes, international expansion, new products and services and much more made it a very interesting year for TMX Group. Results for the year as a whole were very positive and we are pleased that we delivered strong revenue growth and an 11% increase in our adjusted earnings per share for the year. The fourth quarter, however, was challenging and it is clear that the growing global economic uncertainty weighed on our financial results.

I'll spend the next few minutes on our operational performance for the year and the quarter, then I'll provide a brief update on the Maple Group offer. I'll then turn it over to Mike who will discuss our financial results in depth with you.

I'll start with our equities business area. Total equity capital raised on Toronto Stock Exchange and TSX Venture Exchange during 2011 was $51 billion, which represents a 5% decrease compared to last year. However, we were pleased to see that the number of graduates from TSX Venture Exchange to the senior board was up 18% in 2011 compared to 2010. This is an important measure of success of our unique exchange system. We also celebrated the fact that our equity exchanges listed more companies than any other exchange in the world during 2011.

Looking at the full year in terms of trading, combined equity trading volumes were down 2% in 2011 compared to 2010. At Montréal Exchange, the volatility created by global market uncertainty drove strong volumes in our risk management products. MX volume was up 40% in 2011 and open interest was up 26%. NGX trading and clearing volumes, which reflect the low price and volatility of natural gas, ended 2011 down 7% compared to 2010.

Looking specifically at the fourth quarter now, NGX's volumes in Q4 2011 were 26% ahead of the prior quarter and 2% ahead of the fourth quarter 2010, which is positive. We were very pleased to see that compared to the fourth quarter of 2010. Montréal Exchange trading volume was up 23% in Q4 2011 and open interest was up 26%. During the fourth quarter, MX once again set a number of trading records.

In equity listing and trading however, we did feel the impact from the more pronounced global economic uncertainty during the fourth quarter of 2011. While equity capital raised on Toronto Stock Exchange and TSX Venture Exchange was up 9% compared to the prior quarter, it was down dramatically compared to the fourth quarter of 2010. And while combined equity trading volumes during the fourth quarter of 2011 were slightly higher compared to the third quarter, volumes were down significantly compared to the fourth quarter of 2010, particularly on venture where economic concerns tend to have a more immediate and deeper effect.

It is important for you to note that the decline in trading volumes during the fourth quarter of 2011 was not unique to TMX Group Markets. According to IROC, total volume traded in Canada during the fourth quarter of 2011 was down 25% compared to the fourth quarter of 2010. However, the same report showed the TMX Group's total Canadian market share increased in the fourth quarter of 2011 compared to the previous quarter, and it took a nice 6% jump up in December to 71%.

Before I turn to our business initiatives during the quarter, I want to speak to one driver of our increased expenses. Our long-term incentive plan, which is designed to align management's compensation with shareholders' interests, is calculated based on the TMX Group's share price. The 2011 LTIP payout was based on restricted share units price on December 31, 2008. We realize that almost 90% total shareholder returns since that time, so the cost of 2011 LTIP compensation reflects the enhanced value of our stock over the past 3 years. Our employees' good work contributed to the share price appreciation, and we are proud to have a very talented team that we have.

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