TNS Reports First Full Results Post-NFO

TNS has announced its results for the year ended 31 December 2004, the first full year since the acquisition of NFO WorldGroup, Inc. (NFO) in July 2003. Revenue increased 17.4% to £945.3m and underlying revenue up 4.1%. Operating profit is up 28% to £102.0m while operating margin increased 0.9% to 10.8%.

Adjusted profit before tax was up from £64.9m to £84.6m. The full year dividend was raised by 17% and net debt reduced to £335.1m (2003 £367.7m). The group announced the signing of a new £500m debt facility at significantly lower interest rates, via a syndicate of ten banks, replacing the acquisition-based facilities put in place in 2003. Adjusted earnings per share including joint ventures, before goodwill charges and exceptional items, were up 2.5p to 12.7p.

Referring to the NFO absorption, Chief Executive Mike Kirkham said TNS had passed 'a significant milestone by successfully completing the largest integration of its kind in the market information industry'. Targeted cost synergies of £15 million in 2004 were successfully delivered. This will rise to £20 million on an annualised basis in 2005. Among the cost synergies, Kirkham cites the closure of 17 telephone call centres and a substantial increase in the capacity of the group's IT support, data processing and software development offshoring facility in Hyderabad.

Turnover excluding joint ventures was £928.6m (2003 £789.5m). Integration costs incurred in the year were £9.8m (2003 £9.0m). No further integration costs are expected in respect of the acquisition of NFO in 2005. Capital expenditure for 2004 was £24.5m (2003 £18.3m), the main category being IT.

The board is recommending a final dividend of 2.4p (2003 2.05p), giving a 16.7 per cent increase in total dividend for the year of 3.5p (2003 3.0p). The dividend will be paid on 6 July 2005 to shareholders on the register on 27 May 2005. Goodwill charges in 2004 amounted to £27.8m (2003 £23.9m), reflecting the full year of amortisation of goodwill arising from the acquisition of NFO.

'There remain some uncertainties in the global economy' said Kirkham, 'but, assuming favourable economic conditions, we expect that the demand for market information worldwide will continue to improve steadily. We believe the market will grow by around 4% in 2005, and expect TNS will grow ahead of that'.

Kirkham says 2004 was 'a year of gradual improvement in the demand for market information worldwide'. Syndicated and continuous services continued to grow steadily with custom research growth patchier. 'Asia Pacific remains the fastest growing region in which we operate. It was the first of our regions to complete the integration process. We now have the area's largest custom business outside Japan and are well positioned to take advantage of the positive trends in the market'.

'Looking at our globally managed sectors, we have been quick to respond to changes in these specialist markets and more initiatives are planned in 2005. In our syndicated consumer panels business, Worldpanel, we have announced a wide range of developments across a number of countries. We will increase sample size for nine existing panels, including UK, which will rise to 20,000 homes by the end of 2005 and to 25,000 in 2006. We will introduce nine new panel services, including a new national panel in China. We have already launched a new household panel in Mexico'.

'The group aims to achieve margin improvement of around 50 basis points in 2005 ... assuming favourable economic conditions... we expect that the demand for market information worldwide will grow by around 4% in 2005, and expect TNS will grow ahead of that'.

Results by region

Regional turnover performance
	Year to 31 December		Change
	2004	2003	Reported	Underlying
	£m	£m	%	%
UK	158.2	143.0	10.6	(0.1)
France	135.1	128.5	5.1	0.9
Rest of Europe	324.5	256.8	26.4	7.1
Europe	617.8	528.3	16.9	3.8
Americas	241.4	206.8	16.7	2.6
Asia Pacific	86.1	70.1	22.8	10.8
Total	945.3	805.2	17.4	4.1

There were a number of factors limiting growth in Europe. One was the withdrawal of the BASES licence previously held by NFO, which affected underlying revenue growth in France by 180 basis points and in the UK by 110 basis points. In the non-consumer sectors of the UK custom business, disruption associated with the integration meant that new business wins fell below expectations: TNS says it is addressing this, partly through an increase in business development activity, with particular focus on key accounts.

Overall performance in the UK was broadly flat, while underlying growth in France was 0.9%, in line with expectations. In the Rest of Europe underlying growth was strong, at 7.1%, boosted by an excellent performance in Germany, especially in Consumer, Healthcare and Automotive sectors.

Asia Pacific continues buoyant, fuelled by economic conditions - underlying growth for TNS here was 10.8%. This was the first part of the TNS network to complete the integration process and it won a significant number of pan-regional accounts. China and Korea were especially strong.

 

Results by Sector

Sector turnover performance
	Year to 31 December		Change
	2004	2003	Reported	Underlying
	£m	£m	%	%
Consumer	330.0	270.5	22.0	5.5
Media	176.4	169.5	4.1	4.5
Business Services	133.0	113.1	17.6	(0.8)
Technology	104.9	91.0	15.3	4.9
Healthcare	80.7	63.2	27.7	5.6
Other activities	120.3	97.9	22.9	4.0
Total	945.3	805.2	17.4	4.1

Kirkham says the demand for research in the Consumer sector is expected to remain robust and grow ahead of the market in 2005. 'The strength of our innovation in both Media Intelligence and TV and Radio Audience Measurement should help our Media sector also to grow well. A resumption of growth is expected in Business Services, albeit at a modest level. Cautious levels of commitment in corporate IT spend and the competitive nature of the US healthcare market will have some effect on Technology and Healthcare. Reasonable rates of growth are anticipated in both sectors in 2005'.

Worldpanel grew strongly, especially in Asia Pacific where there were a significant number of new client wins. The French panel expanded from 8,000 to 12,000 households. Consumer customised delivered a robust performance for the year, particularly in the US, which benefited from the strength of the access panel. As expected, growth in the second half of the year was slower than in the first, as a result of the loss of the BASES licence in Europe. Overall, the Consumer sector achieved underlying growth of 5.5% for the year.

Media Intelligence benefited from the effects of improving advertising and public relations markets in 2004, with the UK, France, Spain and Russia all showing strong performance for monitoring services. TV and Radio Audience Measurement also performed well, with growth in developing markets such as China as well as new developments in established markets, including the UK. Overall, the Media sector grew by 4.5% in 2004.

Business Services continues to stabilise slowly, with the gradual pick up in corporate earnings and the b2b market, especially in the more mature areas, such as the UK and US. However, the sector as a whole declined by 0.8% for the year, not helped by the one-off impact of losing third party business previously conducted for competitors on the US access panel.

The Technology sector grew by 4.9%, ahead of the overall market in 2004 and especially strong in Germany. Healthcare grew by 5.6%, benefiting from its first full year of operation as a globally managed sector, and again was particularly strong in Germany, balancing a weaker performance in the US.

The Polling & Social sector had a strong year, with growth driven by elections in markets including the US, Spain, Germany, Korea and Philippines. The winning of the four-year contract with the European Commission for the Standard Eurobarometer, the largest public opinion survey in the world, should ensure this area stays strong.

The Automotive sector was helped by the acquisition early in 2004 of Area, the market leader in Spain, and by the growth in new car registrations in emerging markets, such as China.

TNS is online at www.tns-global.com

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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