FINANCIAL HIGHLIGHTS FOR Q4 2007 vs. Q4 2006 - Revenues of $19.6 million in Q4, a slight increase from the previous year - Strong contribution to earnings from BOX, due to 75% volume increase - Operating expenses, excluding other items, up 5%, reflecting spending for growth initiatives - Adjusted net earnings of $7.0 million, up from $6.5 million; net earnings of $6.3 million compared to $7.5 million - Adjusted diluted earnings per share of $0.23, unchanged from Q4 2006; diluted earnings per share of $0.21 compared to $0.27 - Strong financial position with cash balance of $126.7 million at quarter end CORPORATE HIGHLIGHTS FOR 2007 - Landmark agreement to combine with TSX Group Inc. to create integrated exchange group - Strategic agreement to increase ownership in BOX to 53.2% securing position in the fast-growing U.S. option industry - MX achieved overall volume growth of 5% - BOX volume up 38% - Progress towards launch of trading in environmental products NOTE TO EDITORS: ALL REFERENCES TO EARNINGS PER SHARE HAVE BEEN RESTATED TO REFLECT THE THREE-FOR-ONE STOCK SPLIT THAT THE EXCHANGE EFFECTED ON MARCH 15, 2007. ALL DOLLAR AMOUNTS IN THIS PRESS RELEASE ARE STATED IN CANADIAN DOLLARS.
MONTREAL, Feb. 11 /CNW Telbec/ - Montreal Exchange Inc. (MX) (TSX: MXX) announced today financial results for fourth quarter and the full-year ended December 31, 2007.
Revenues for the fourth quarter 2007 were $19.6 million compared to $19.5 million for the same period of 2006. Net earnings amounted to $6.3 million, compared to $7.5 million in the fourth quarter 2006. Adjusted net earnings(1), which exclude other items, adjustments to income tax expenses and unrealized gains on foreign exchange, amounted to $7.0 million or $0.23 per diluted share in the fourth quarter 2007 compared with $6.5 million or $0.23 per diluted share for the same period 2006.
Revenues for the full-year 2007 increased to $83.0 million, up 5% from 2006, reflecting overall growth in trading volumes. Net earnings for 2007 increased 4% to $25.7 million. Adjusted net earnings were $29.5 million or $0.98 per diluted share for 2007, up $4.7 million or $0.07 per diluted share, compared to 2006. Adjusted net earnings and adjusted diluted earnings per share for 2007 were up 19% and 8%, respectively.
"This has been an historic year in the corporate development of the Montreal Exchange," said Luc Bertrand, MX President and Chief Executive Officer, "starting with the listing of our shares and culminating in our agreement to combine with the TSX Group. Furthermore, we have continued to strengthen and expand our derivatives business, including an agreement to increase our ownership position in the Boston Options Exchange (BOX)."
"Fourth quarter and full-year financial results for 2007 were influenced by the difficult liquidity conditions that prevailed in the Canadian short-term interest rate market during the second half of 2007," added Mr. Bertrand. "Despite this challenge, the Montreal Exchange once again drew strength from its diversified product line and sources of revenue. While adverse market conditions had an impact on trading in our short-term interest product, we saw strong annual volume growth in longer term interest rates products, index and equity derivatives. In the US options business, the Boston Options Exchange registered an exceptional increase in trading activity during the fourth quarter and strong growth through the year. We continue to be enthusiastic about the growth potential of the derivatives markets and the future of MX as part of the new TMX Group," concluded Mr. Bertrand.
Fourth Quarter Results
Revenues for the fourth quarter 2007 were $19.6 million, compared to $19.5 million in the fourth quarter 2006. The slight increase reflects an increase in revenue from information system services, which was largely offset by a decline in transaction and clearing revenues. Average daily trading volume decreased by 8% to 152,458 contracts. We experienced strong growth in equity derivatives, with trading volumes in index derivatives growing 22% and trading in equity options increasing 12%. However, difficult conditions in the Canadian short-term interest rate market and generally weak financial liquidity impacted our interest rate products, with our short-term contract, the BAX, declining 30% and our 10-year government of Canada bond futures contract, the CGB, decreasing 8%.
Expenses for the quarter increased $2.2 million to reach $14.2 million, compared to the same period of 2006. This amount includes other items totalling $2.3 million, which relate to the planned combination with the TSX Group. Excluding other items in both periods, expenses increased 5% compared to the fourth quarter 2006, mainly reflecting spending for growth initiatives at MX, CAREX and BOX.
Operating earnings amounted to $5.4 million, compared to $7.6 million in the fourth quarter of 2006. Adjusted operating earnings(1) amounted to $7.7 million, compared to $8.3 million.
The contribution from the Boston Options Exchange (BOX) to MX earnings increased to $0.9 million from $0.4 million due mainly to a significant 75% increase in BOX's average daily trading volume, which reached 618,587 contracts during the fourth quarter 2007 compared with 352,772 contracts for the same period of 2006.
Investment income increased strongly to reach $3.3 million, compared with $0.8 million in the same period of 2006, due mainly to increased cash and cash equivalents and temporary investments balances during the quarter and a $1.6 million unrealized gain on foreign exchange on short-term portfolio investments.
Income taxes increased to $3.3 million from $0.9 million due to an increase in the effective tax rate to 34% in fourth quarter 2007 from 11% in fourth quarter 2006. The higher effective tax rate was due to the following factors: firstly, the effective tax rate on investment income was higher in the fourth quarter 2007; secondly, the reversal of an income tax valuation allowance of $1 million and the application of previously unrecognized tax losses from BOX resulted in a lower effective tax rate in the fourth quarter 2006; and thirdly, MX's contribution from BOX, which is taxed at a higher rate, was higher in the fourth quarter 2007.
Net earnings amounted to $6.3 million, a 16% decrease from $7.5 million in the fourth quarter of 2006. Adjusted net earnings amounted to $7.0 million, compared to $6.5 million in the same quarter of the previous year. The increase in adjusted net earnings was due to significantly higher investment income and improved equity contribution from BOX, partly offset by higher operating costs and increased tax expense.
Full-year 2007 results
Revenue for the year 2007 increased by 5% to reach $83.0 million, due largely to a 5% increase in total trading volume. Trading activity in index derivatives and equity options accounted for most of the growth in volume, at 25% and 9% respectively. However, overall trading activity in interest rate derivates increased by only 1% with a 21% increase in the 10-year government of Canada bond futures contract, the CGB, being largely offset by a 9% decrease in BAX trading volumes.
Expenses for the year were $56.1 million, an increase of $4.5 million or 9% from $51.6 million in 2006. Excluding other items, expenses increased slightly to $49.7 million from $49.5 million.
Operating earnings were $26.9 million in 2007, 3% lower than $27.6 million the previous year. Adjusted operating earnings, which exclude other items, increased 12% to $33.3 million from $29.7 million. The adjusted operating margin improved to 40% from 37% on higher revenues.
Investment income increased to $6.3 million in 2007, compared to $2.6 million the previous year. This was attributable to increased cash and cash equivalents and temporary investments held throughout the year and a $1.6 million unrealized foreign exchange gain on short-term investments.
The contribution from BOX to MX earnings improved to $3.0 million in 2007 compared to $1.7 million in 2006. The increase was due mainly to a 38% increase in BOX's average daily trading volume, which reached 517,121 contracts in 2007 compared with 376,058 contracts in 2006, as well as the accelerated depreciation on technology assets as a result of the introduction of the SOLA(R) platform, which impacted MX share of BOX profits in the amount of $1.1 million.
Income taxes increased to $10.6 million from $6.6 million due the increase in both pre-tax earnings and the effective tax rate at 29% compared to 21% for 2006, as previously explained.
Net earnings amounted to $25.7 million, 4% higher than $24.8 million in 2006. Adjusted net earnings increased 19% to reach $29.5 million in 2007, from $24.8 million the previous year. The adjusted net earnings margin improved from 31% to 36% due to higher revenue, higher investment income and improved equity contribution from BOX, partly offset by higher income taxes.
Recent Developments
MX and TSX Group join forces to create TMX Group
In December 2007, MX and TSX Group announced an agreement to combine their organizations to create TMX Group. TMX Group will list, trade, clear and offer market data for both cash and derivatives markets across multiple asset classes. The combination is expected to create significant value for MX and TSX Group shareholders through TMX's enhanced growth profile and opportunity to realize meaningful synergies. The combination will be effected by way of an amalgamation, requiring the approval of two-thirds of the votes cast by MX shareholders. A special meeting will be held to consider the amalgamation on February 13, 2008. The amalgamation, which is also subject to regulatory approvals, is expected to close in the first part of the second quarter 2008.
Increased ownership interest in BOX
In December 2007, the Montreal Exchange announced that it had reached an agreement with the Boston Stock Exchange (BSE), a partner in BOX, to purchase BSE's 21.9% partnership interest in BOX for US$52.5 million in cash. On closing, the Exchange's ownership position in the Boston Options Exchange (BOX) will increase from 31.4% to 53.2%. The acquisition is subject to approval by the U.S. Securities and Exchange Commission (SEC) in addition to other customary closing conditions.
Montreal Climate Exchange ("MCeX")
In October 2007, MX announced that it had filed an application for regulatory approval of market rules designed to govern the trading of MCeX environmental products on its electronic trading platform, SOLA(R), namely futures contracts on Canadian carbon dioxide equivalent units. Trading in carbon futures is expected to start, subject to regulatory approval, in 2008.
Normal course issuer bid
Following MX and TSX Group's announcement in December 2007 concerning an agreement to combine their organizations, the purchase of shares under the normal course issuer bid has been halted. Since the start of the program, a total of 387,500 shares have been repurchased and cancelled, for a total consideration of $12.4 million.
The 2007 Management's Discussion and Analysis is available on the MX website at www.m-x.ca and the SEDAR website at www.sedar.com.
(1): Non-GAAP Performance Measures
Adjusted net earnings, adjusted operating earnings, and ratios using these
measures, including adjusted diluted earnings per share, are financial
measures not recognized by or calculated in accordance with Canadian generally
accepted accounting principles. MX defines adjusted operating earnings as
operating earnings excluding other items which are described in MX's
Management's Discussion and Analysis. Adjusted net earnings is defined as net
earnings excluding other items (net of tax), unrealized gain on foreign
exchange on temporary investments (net of tax), reversal of an income tax
valuation allowance and application of previously unrecognized tax losses from
BOX. For more information, please refer to the Management's Discussion and
Analysis released today.
Forward-Looking Statements
This press release contains forward-looking information within the meaning
of the Quebec Securities Act and the Ontario Securities Act. Forward-looking
information often contains terms such as "believe," "anticipate," "estimate,"
"plan," "expect," "intend," "may," "will" and similar expressions. This
forward-looking information is based on current expectations, estimates,
forecasts and projections about the industry in which we operate, as well as
certain assumptions made by our management. Although we believe that the
expectations and assumptions reflected in the forward-looking information are
reasonable, forward-looking information involves known and unknown risks and
uncertainties and is not a guarantee of future performance. Factors that could
cause actual results to differ materially from those contemplated by this
forward-looking information include, but are not limited to, risks associated
with general market and economic conditions, evolving national and
international competition, credit risks and clearing house risk, reliability
of information systems and regulatory risks. We caution you that this list of
factors is not exhaustive. The forward-looking information in this press
release is subject to the risks identified in our periodic filings with the
Canadian securities regulatory authorities. Given the uncertainty of
forward-looking information, you are cautioned not to place undue reliance on
this information. We disclaim any obligation to update any forward-looking
information, except as may be required by applicable law.
About Montreal Exchange Inc.
The Montreal Exchange (MX) is the Canadian derivatives exchange. The MX
offers trading in Canadian interest rate, index and equity derivatives.
Clearing, settlement and risk management services are provided by an AA rated
clearing house, the Canadian Derivatives Clearing Corporation, fully owned by
the MX. Our integrated trading and clearing services are supported by a
proprietary suite of exchange technologies, known as SOLA(R). The MX also has
interests in: the Boston Options Exchange (BOX), a U.S. automated equity
options market, for which MX is the technical operator; the Canadian Resources
Exchange (CAREX), a new corporation created with NYMEX that is dedicated to
developing the Canadian energy market; and the Montreal Climate Exchange
(MCeX), a joint venture with the Chicago Climate Exchange(R), aiming to
establish the leading market for publicly traded environmental products in
Canada. For more information about the Montreal Exchange, please visit
www.m-x.ca.
Investor / Media Conference Call / Webcast Details
The Montreal Exchange Inc. will hold a conference call to review its
fourth quarter and full-year 2007 results on Monday, February 11th at
4:30 p.m. (Eastern). An investor presentation will be available on the MX
website at www.m-x.ca, in the News section. Those wishing to participate in
the conference call can dial the following:
February 11 Financial analysts' teleconference (followed
at 4:30 p.m. by a question period for the media).
In English: 514 861-2834
1-866-299-8690 (toll-free in North America)
In French: 514 861-4190
(Simultaneous translation) 1-877-677-7769 (toll-free in North America)
Replay:
A replay will be available until Monday,
February 18, 2008. To access the replay,
please dial 514 861-2272 or 1-800-408-3053.
For English, enter passcode
3249388(number sign).
For French, enter passcode
3249389(number sign).
This teleconference will be Webcast live and archived for 90 days on the
MX website: www.m-x.ca.
MONTREAL EXCHANGE INC.
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
(unaudited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
December December
31, 31,
2007 2006
-------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 46,648 $ 22,919
Temporary investments 80 023 36,639
Restricted cash 1,650 2,700
Receivables 7,841 7,889
Daily settlements due from clearing members 23,817 6,951
Clearing members' cash margin deposits 492 2,312
Clearing fund cash deposits 22,949 14,807
Prepaid expenses 1,166 1,690
-------------------------------------------------------------------------
184,586 95,907
Long-term investment 10,869 9,302
Capital assets 15,454 12,319
Future income taxes 2,359 2,523
Other assets 1,988 2,643
-------------------------------------------------------------------------
$ 215,256 $ 122,694
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accruals $ 13,848 $ 13,057
Dividends payable - 13,910
Daily settlements due to clearing members 23,817 6,951
Clearing members' cash margin deposits 492 2,312
Clearing fund cash deposits 22,949 14,807
Income taxes payable 1,154 3,343
Debts due within one year and current
portion of obligations under capital leases - 1,072
-------------------------------------------------------------------------
62,260 55,452
Future income taxes 1,606 812
Accrued employee benefits liability 999 713
Shareholders' equity:
Capital stock 139,712 49,258
Contributed surplus 572 434
Retained earnings 12,553 16,991
Accumulated other comprehensive loss (2,446) (966)
-------------------------------------------------------------------------
150,391 65,717
-------------------------------------------------------------------------
$ 215,256 $ 122,694
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EARNINGS
(in thousands of dollars, except
per share amounts and number of shares)
(unaudited)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December December December December
31, 31, 31, 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenues:
Transactions $ 8,911 $ 9,210 $ 39,030 $ 36,422
Clearing and
option exercise 3,112 3,320 13,910 12,989
Information systems
services 3,775 3,243 15,055 15,275
Market data 2,762 2,702 10,963 10,562
Participants 895 852 3,561 3,261
Other 104 218 528 751
-------------------------------------------------------------------------
19,559 19,545 83,047 79,260
Expenses:
Compensation and
benefits 5,735 5,293 24,157 22,061
Occupancy 841 668 3,172 2,667
Computer licences
and maintenance 782 1,346 5,203 6,184
Amortization of
capital assets
and other assets 853 869 3,342 6,398
General and administrative 2,273 2,056 9,134 7,674
Telecommunications 764 669 2,830 2,536
Public affairs 617 359 1,882 1,870
Interest on obligations
under capital
leases and debts
due within one year 2 19 27 154
Other items 2,312 700 6,359 2,071
-------------------------------------------------------------------------
14,179 11,979 56,106 51,615
-------------------------------------------------------------------------
Operating earnings 5,380 7,566 26,941 27,645
Investment income 3,326 759 6,317 2,613
Equity in results of a
company subject to
significant influence 899 443 3,047 1,702
(Loss) resulting from
impact of distri-
butions from BOX - (320) - (551)
-------------------------------------------------------------------------
Earnings before
income taxes 9,605 8,448 36,305 31,409
Income taxes
Current 2,621 2,226 9,452 7,829
Future 692 (1,284) 1,146 (1,251)
-------------------------------------------------------------------------
$ 3,313 $ 942 $ 10,598 $ 6,578
-------------------------------------------------------------------------
Net earnings $ 6,292 $ 7,506 $ 25,707 $ 24,831
-------------------------------------------------------------------------
Basic earnings
per share $ 0.21 $ 0.28 $ 0.86 $ 0.95
Diluted earnings
per share $ 0.21 $ 0.27 $ 0.85 $ 0.91
-------------------------------------------------------------------------
Weighted average number
of shares outstanding
- basic 30,614,528 26,650,758 30,010,105 26,228,286
Weighted average number
of shares outstanding
- diluted 30,655,082 27,741,810 30,244,464 27,436,125
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands od dollars)
(unaudited)
-------------------------------------------------------------------------
Three Twelve
months months
ended ended
December December
31, 31,
2007 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings $ 6,292 $ 25,707
-------------------------------------------------------------------------
Other comprehensive income
Unrealized (loss) on translating
financial statements of a
self-sustaining foreign operation (21) (1,480)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprehensive income $ 6,271 $ 24,227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of dollars)
(unaudited)
-------------------------------------------------------------------------
December December
31, 31,
2007 2006
-------------------------------------------------------------------------
Common shares at beginning of year $ 49,258 $ 45,405
Issuance of common shares
New issuance of common shares 90,866 -
Transaction fees related to
common shares issuance,
net of income taxes of $391 (1,199) -
Stock Option Plan 217 4,026
Repurchase of shares (1,768) -
Variation of shares held in guarantee 2,338 (173)
-------------------------------------------------------------------------
Common shares at end of year 139,712 49,258
-------------------------------------------------------------------------
Contributed surplus at beginning of year 434 825
Stock option expense 163 76
Employee share purchase plan expense 91 76
Stock options exercised and share
purchase plan reimbursements (116) (543)
-------------------------------------------------------------------------
Contributed surplus at end of year 572 434
-------------------------------------------------------------------------
Retained earnings at beginning of year 16,991 16,532
Net earnings 25,707 24,831
Impact of initial adoption of
new accounting standards 571 -
Dividends (20,127) (24,372)
Premium paid on shares repurchased (10,589) -
-------------------------------------------------------------------------
Retained earnings at end of year 12,553 16,991
-------------------------------------------------------------------------
Accumulated other comprehensive
loss at beginning of year (966) (1,790)
Impact of changes in currency
rates on net investment in
self-sustaining foreign operation
and impact resulting from distributions
from company subject to significant influence (1,480) 824
-------------------------------------------------------------------------
Accumulated other comprehensive
loss at end of year (2,446) (966)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shareholders' equity at end of year $ 150,391 $ 65,717
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
(unaudited)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December December December December
31, 31, 31, 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
Cash flows from (used in)
operating activities:
Net earnings $ 6,292 $ 7,506 $ 25,707 $ 24,831
Adjustments for:
Amortization of capital
assets and other assets 853 869 3,342 6,398
Equity in results of a
company subject to
significant influence (899) 108 (3,047) (1,151)
Loss from the
realization of
the cumulative
translation adjustment - (231) - -
Amortization of premium
on investments 271 (19) 46 16
Interest income on
discount investments (826) (206) (1,146) (453)
Future income taxes 692 (1,284) 755 (1,251)
Cost of stock option
plan and employee share
purchase plan 16 19 254 152
Change in fair value
of financial instruments
held for trading (243) - 672 -
Unrealized gain on
foreign exchange (1,621) - (1,621) -
Net change in non-cash
operating assets
and liabilities:
Receivables (265) (162) 48 (1,305)
Prepaid expenses 25 (505) 524 (165)
Accounts payable,
accruals and income
taxes payable 4,425 3,029 (629) 2,188
Accrued employee
benefits liability 58 105 286 303
-------------------------------------------------------------------------
8,778 9,229 25,191 29,563
Cash flows from (used in)
investing activities:
Purchase of capital assets (2,919) (916) (6,873) (4,633)
Decrease (increase) in
other assets (132) (1,118) 241 (2,337)
Sale of capital assets 14 1,319 14 1,319
Purchase of investments (87,059) (51,401) (770,582) (257,437)
Sale of investments 44,104 51,367 730,048 253,812
Distribution from a
company subject to
significant influence - 1,422 - 2,471
-------------------------------------------------------------------------
(45,992) 673 (47,152) (6,805)
Cash flows from (used in)
financing activities:
Restricted cash 40 (1,159) 1,050 (1,159)
Repayment of obligations
under capital leases
and debts (169) (508) (1,072) (3,189)
Share issuance 54 155 92,106 3,310
Shares repurchased - - (12,357) -
Dividends - - (34,037) (23,183)
-------------------------------------------------------------------------
(75) (1,512) 45,690 (24,221)
-------------------------------------------------------------------------
Net increase
(decrease) in
cash and cash
equivalents (27,289) 8,390 23,729 (1,463)
Cash and cash
equivalents,
beginning of year 83,937 22,919 22,919 24,382
-------------------------------------------------------------------------
Cash and cash
equivalents,
end of year 46,648 31,309 46,648 22,919
Temporary investments,
end of year 80,023 36,639 80,023 36,639
-------------------------------------------------------------------------
Cash and cash
equivalents,
and temporary
investments,
end of year $ 126,671 $ 59,558 $ 126,671 $ 59,558
-------------------------------------------------------------------------