Hiccups for TNS’ Billion Pound Baby
TNS has released full year results for 2006, showing revenue almost flat at £1,004.2m (up 0.5% from £999m in 2005). However the firm, whose US custom business has been restructuring since reporting problems a year ago, said results in other divisions were good.
The global group’s board expressed confidence that US custom was ‘on track for progressive recovery in 2007’, and increased its dividend to 4.6p (2005: 4.0p) despite most financial indicators falling. Statutory results show profit before tax down 30.1% from £99.8m to £74.4m. Adjusted operating profit was down 8.0% to £99.5m (margin down from 10.8% to 9.9%), adjusted profit before tax down 9.4% to £84.5m and adjusted earnings per share down 7.3% to 12.7p.
Underlying revenue growth for the whole group is 2.5%, rising to 5% - around the industry average - if the US custom division is excluded, and net debt was reduced to £278.5m (2005 £295.4m) with £34.8m spent during the year on share buyback. The firm says the underlying revenue growth was hidden by the net effect of acquisitions and disposals, reducing reported revenue growth by 1.7%, and by foreign exchange movements (-0.3%).
According to CEO David Lowden, the year saw ‘very good growth in the emerging markets and across our syndicated services, with steady growth in our European custom business but a disappointing performance in US custom.’ He continues: ‘The changes that we have made in 2006 place us in a strong position for the future... The group saw an improvement in revenue growth in the fourth quarter of 2006 and, while early in the year, levels of new business activity going into 2007 are good.’
One strategy which has evolved during 2006 is that of focus on increasing ‘share of wallet’ with thirteen key global accounts, an initiative headed by new MD Pedro Ros who joined the board around a year ago. TNS says that in 2006, these Global Partnership Accounts represented 15% of custom revenues, growing 7.5%. It aims for 20% in three years’ time.
Revenue from data collected online is now over 20% of all data collection in custom research and increased by over 13% in the last year. The group ‘aims to increase this to more than 40% in the longer term’. The group also says that last year saw a doubling in the level of data processing and production undertaken in its offshore centre in India and adds ‘we see the potential to increase off-shoring to India and other lower cost centres by four times.’
Outlook for 2007
The company is modestly upbeat for 2007: ‘We have taken significant strides in turning round our US custom business and expect 2007 to be a year of rebuilding as we continue working to make that business successful again. Across the rest of the group, we will continue to execute aggressively against our strategy. Overall, the group expects to achieve improvement in both underlying revenue growth and operating margin in 2007.’
The company expects another c.£4m in restructuring costs in 2007, to add to £17.8 million in 2006.
Regional revenue performance
The group performed well in France, Russia, and Southern and Eastern Europe, with Germany and the UK ‘softer’.
Underlying revenue in the Americas declined by 4.7% per cent for the year, due to the
underperformance of the US custom business. TNS says US custom ‘met revised expectations’ in the second half of the year with the new management team making good progress. Latin America meanwhile performed strongly.
Underlying revenue growth in Asia Pacific was strong at 15.9%.
Sector revenue performance
Underlying revenue in the Consumer sector suffered from continued challenging market conditions in consumer custom research in the developed markets of Western Europe, and underperformance in the US. With good growth in TNS Media Intelligence and a strong performance in iTRAM, the Media sector overall grew strongly. Business Services continued to perform well, with Financial Services prominent. Disappointing US figures meant a 3.6% decline in the Technology sector despite ‘exceptional’ performance in Asia Pacific. Healthcare was the pick of the bunch with growth above ten per cent.
Full results, figures and definitions are on TNS’ web site at www.tns-global.com .