News Column

Tullett Prebon To Cut Fixed Costs As Revenue Drops; Acquires PVM Oil

May 9, 2014

Samuel Agini

LONDON (Alliance News) - Interdealer broker Tullett Prebon PLC Friday said it will take a charge in its accounts in order to cut costs further, as it reported a decline in revenue due to subdued financial markets while also announcing a deal worth up to USD160.0 million to acquire oil-futures broker PVM Oil Associated Ltd.

Revenue in the four months to April amounted to GBP248.0 million, 15% lower than the comparable period a year earlier. Tullett said the decline was less marked - at 12% - on a constant currency basis.

Blaming difficult market conditions, Tullett said it will take "a number of actions" to further reduce headcount and other fixed costs. It expects the measures to reduce annual fixed costs by about GBP20.0 million. However, it estimated the cost of making the cuts will be around the same amount of what will be saved in a year, half of which is expected to be non-cash. Tullett said the cost of making the cuts will be charged as an exceptional item in its 2014 accounts.

The company has been struggling with a number of regulatory changes and low volatility in financial markets.

Activity in the markets is generally higher during periods of volatility. As Tullett makes its revenue from commissions on facilitating and executing customer orders, lower volatility results in lower revenues.

Meanwhile, Tullett's deal to snap up oil securities broker PVM Associated Ltd, which focuses entirely on energy-based financial products, will initially cost the interdealer broker USD112.0 million, which it will fund by issuing new shares. Another payment of up to USD48.0 million has been deferred and depends on whether certain revenue targets are met in the three years after completion. Any deferred payment will be made in shares or cash.

Tullett didn't provide details of the share issuance.

PVM covers over-the-counter swaps, forwards and physical crude oil and refined products, and exchange traded instruments including WTI, Brent and Gasoil futures. The crude oil and products broker's customers include oil companies, independent refiners and producers, government agencies, trading houses, banks, investment funds and corporations.

"The payment of deferred consideration to an individual is linked to their continued service with the business and the deferred consideration amount will therefore be amortised through the income statement over the three years following completion," Tullett said in a statement.

Tullett said the acquisition will increase its scale in the energy sector and give it "a significant presence" in broking crude oil and petroleum products complementing its existing activities in these areas, as well as boost the price data that can be offered to clients.

PVM is being sold by its management and some employees. The senior management of PVM will remain with the company after the acquisition is completed.

For the year ended July 31, PVM reported a USD18.2 million pretax profit on revenue of USD107.5 million. Its gross assets amounted to USD79.2 million.

Tullett Prebon shares were Friday quoted at 295.08 pence, down 6.5%.

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Source: Alliance News

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