TORONTO – TMX Group Ltd. (TSX:X) plans to cut 100 jobs over the next 12 months as part of its integration of a clearing house and rival exchange it acquired as part of a takeover by a group of Canadian financial services players.
The stock exchange operator’s president and chief executive, Thomas Kloet, announced the job cuts on Friday in a quarterly conference call with analysts.
“Corporate support functions are now in the process of being integrated across the companies which will deliver both operational efficiencies and cost savings,” he said.
TMX Group had about 1,300 employees overall at the end of September, including about 400 that recently joined the Toronto-based company, mostly from the takeover of the Alpha Exchange and CDS Clearing and Depository Services Inc.
Some of the positions being eliminated are currently vacant, but the company declined to quantify how many of the job cuts come from existing employees, though it said affected employees have already been notified.
Kloet said the top priority for TMX Group in the coming months will be combining the operations of the new businesses into the overall organization.
TMX Group acquired Alpha and CDS as part of a larger deal that saw the Maple Group, a consortium of Canadian banks, pension funds and investment firms, become the largest shareholder block at the company, which owns the Toronto Stock Exchange and other financial exchanges.
Two senior executives at Alpha Group resigned about six weeks after it was acquired with Alpha CEO Jos Schmitt and chief listings officer Randee Pavalow departing Oct. 31.
“Ultimately all of the changes we are making are intended to improve execution, enhance efficiency, and allow us to deliver greater value to our customers,” Kloet said.
“Achieving the right organizational structure and cost base will position us to fund the future innovations needed to be the most effective business partner possible for our customers and all our stakeholders.”
In submissions to regulators reviewing whether the Maple takeover of TMX should be allowed, the group argued that a strong Canadian backer would help position the stock exchange operator as a global buyer of other exchanges rather than an acquisition target itself. Prior to the Maple takeover, TMX had been in talks to be acquired by the operators of the London Stock Exchange.
But TMX Group has been hit recently by lower equities trading volumes and a decline in new listings as stock markets are hammered by pessimism on the global economy.
Shareholder Thomas Caldwell said the company’s moves to get a handle on costs fall in step with keeping the bottom line in check.
The TMX Group “has a very good product range,” he said.
“The model is good, the diversity of revenues is good, but you can be the best in the world … but if volumes are sinking underneath you, you have to keep grinding on the cost side.”
TMX released its third-quarter earnings on Friday, the first earnings report since it began restructuring after the Maple Group acquisition. The company posted a $15.3 million profit in the period, or 53 cents per share, attributable to shareholders.
The results compared to a $13.3 million loss in the year-ago period, equal to a loss of $109.79 per share when the company was known as TMX Group Inc.
The drastic difference in per share amounts includes a change in the weighted average of shares outstanding as well as a combination of the results of the former TMX Group Inc. and both of the acquisitions for the last two months of the quarter.
The earnings include 14 cents per share of costs related to the Maple process and 18 cents per share related to the acquisition.
Revenue was $113.4 million over the two months following the reorganization, while for the full three-month quarter before the acquisitions were included in the results, TMX Group Ltd.’s revenue was $162.3 million.
Compared to a year earlier, revenue was down about three per cent from when the original TMX Group Inc. alone generated $167.8 million of revenue.
During the most recent quarter, revenue was hit by lower issuer services, cash market trading, derivatives trading and clearing and technology services, but was largely off by some new sources of revenue related to its recently-acquired businesses.
“It appears that global economic recovery remains fragile, moving at what some would call a ‘glacial’ pace,” Kloet said.
“It is also evident that this situation is having a pronounced impact on companies that are looking to go public, and equity investor confidence. We are finding that company interest is good, however market conditions are most definitely holding some new issuers back.”
Revenue from the Alpha trading business was $3.2 million from the months of August and September while revenue from CDS contributed $14.8 million over the same two months.
National Bank analyst Shubha Khan said that TMX Group will face a difficult climate for at least another year. The economy is expected to grow at a snail’s pace, which should keep companies that are considering a public listing particularly cautious.
Shares in the company fell 28 cents to $48.38 in Friday trading on the Toronto Stock Exchange.