- H1 revenues down 18%, PBT down 31%
- Profit fall not as bad as feared
- Costs cut for £17.5m profit benefit in H2
London interdealer broker Tullett Prebon is to further cut back its headcount after revenues and profits declined badly in the first six months of the year due to depressed levels of market volatility.
Revenues tumbled 18.1% at the top line, or by 15% at constant exchange rates, to £360.3m and adjusted profit before tax by 31% to £43.2m as underlying operating margin contracted to 14.0% from 16.2% due to rising regulatory costs. However, this was better than analysts had been expecting.
After taking the prudent line of expecting market conditions to remain difficult, the FTSE 250 group has revealed plans to further reduce headcount and other fixed costs to cut annual fixed costs by over £40m, which is expected to produce a £17.5m operating profit benefit in the second half and an annual affect of double that amount.
It calculates the cost of these actions at £42m, of which £18m are non-cash charges relating to the write down of employment contract payments made in advance, which will be charged as an exceptional item in the 2014 accounts.
Chief Executive Terry Smith said: "Market conditions remained challenging throughout the first half as the overall level of activity in the financial markets remained subdued."
Europe and the Middle East endured the largest regional decline in revenues, falling 18% at constant exchange rates, while the Americas, at half the size, suffered a 13% fall. The smaller Asia Pacific arm saw sales fall 4%.
Smith bemoaned the challenging environment on "widespread tranquillity in the markets we serve, the introduction of regulatory reforms in many of those markets, and the structural pressures on many of our clients".
He was optimistic the group was in a good position to capitalise when volatility returned: "We have taken action to strengthen the business to seek to ensure that we are in a position to take advantage of further opportunities to develop the business and to benefit when market conditions improve."
The planned acquisition of PVM Oil Associates remains subject to regulatory clearance and has yet to complete.
Analyst Gary Greenwood at Shore Cap said the results were "pretty dismal" but profits were better than expectations due to cost cutting.
He believed the PVM addition will enhance profitability, but the benefit to earnings will be neutralised by new share issuance.
"The key risk to our 'sell' stance would be a bid for the company by a rival, with the probability of this happening having increased, we think, following the share price fall and the announcement that Terry Smith will be shortly stepping down from his role as Chief Executive."
Shares in Tullet were up 1.75% to 243.19p at 09:20 on Tuesday.