Daily Research News Online no. 5889 - US Decline Pegs Back TNS

US Decline Pegs Back TNS

September 4 2006

TNS has announced its unaudited interim results for the six months to 30 June. Unspectacular overall revenue growth of 4.5% (underlying growth 3.0%) reflects a decline in US custom business, while the rest of the group achieved organic revenue growth of almost 6%.

The US custom decline resulted in a fall in adjusted operating margin to 8.7%, despite good margin performance elsewhere in the group. However, the board said it 'remains confident about the future prospects for the group' and accordingly has upped the interim dividend to 1.4p.

CEO David Lowden points to the impact of the decline in US custom business and to recent measures to improve performance: 'In the first half, TNS continued to perform particularly well across its three syndicated services and in Asia Pacific, Latin America and MEA. The group recorded a steady performance in its European custom business but a decline in US custom has held back overall revenue growth and impacted group operating margin, despite good margin performance elsewhere. Excluding US custom, the rest of the group achieved organic revenue growth of almost 6%.' He adds: 'There has been a lot of change in the past six months. We have taken action where required and we are accelerating the implementation of our strategy right across the group.'

Adjusted operating profit was almost unchanged at £41.7m (2005: £41.8m) with profit before tax unchanged at £34.1m. Statutory results, before adjustments for restructuring costs and acquired intangible assets, showed operating profit down 9.2% to £37.6m and Earnings Per Share down 15.2% to 3.9p.

The reorganisation in the US is expected to deliver annualised gross savings estimated at £10 million. The associated one-off cost of around £8 million will be incurred in 2006. TNS has already said that the results of these cost reduction measures are not expected to show through fully until 2007.

A £100m share buyback was announced for the next 18 months. The group's net debt continues to fall and now stands at £287.2m.

The group says its three syndicated services - TNS Worldpanel, TNS Media Intelligence and iTRAM - continue to perform very well, following major investment in recent years. It also reported good progress with a strategic initiative to focus on 13 global partnership accounts, which represent around 14% of its custom revenue, which it says 'should allow us to take an increasing proportion of the research spend among these major multi-nationals, particularly as we improve our processes for delivering multi-country projects.'

Regional revenue performance

[table 1]

Underlying revenue growth for Europe as a whole was 4.3%, representing 'a good performance in a market that remains relatively flat'. In France the figure is 7.5%, reflecting a strong performance across all of the French business, especially TNS Media Intelligence. The firm notes 'some weakness in Germany, where market conditions, especially in the Consumer and Automotive sectors, have been challenging.'

Underlying revenue growth in Asia Pacific was 15.8%, led by good growth for Worldpanel and TNS Media Intelligence and expansion for iTRAM.

Sector revenue performance

Media, Business Services and Healthcare sectors performed well while Consumer and Technology revenues were down.

[table 2]

TNS says the market for consumer custom research 'remains more difficult, especially in the more mature markets of the US and Europe'. Underlying revenue growth in Media was 8.2%, with highlights new contracts for iTRAM in Asia, good progress with commercialisation of digital television measurement in the US, and good growth for TNS Media Intelligence in France, Spain and Russia. Business Services had a weak first half to 2005, with improved performance this year driven by good progress with Financial Services clients in Europe and
Asia Pacific. The Technology sector would have grown 5.6% but for 'client-specific impact' in the US. Healthcare has benefited from multi-country projects and from the use of the group's proprietary Business Solutions, such as Conversion Model and TNS' new Brand Equity Framework.

The group is online at www.tns-global.com .