TNS shares plunge on warning of US price war

The stock closed down 15 per cent, having been down by more than a fifth hours earlier, after TNS told the City that margins had fallen and it would have to spend money on reorganising the business. TNS, the world's second-biggest market research company, said that in the US, new market entrants were selling "Custom" research services at a significant discount.

The Custom business involves bespoke data collection for clients, for instance on customer satisfaction or reaction to a new product. But, after the rise of data collection via the internet, costs have fallen and new players have rushed into the sector. David Lowden, group chief executive since January, said: "The performance of our US custom business in the first half has been unacceptable and this has held back an otherwise good performance, with the rest of the group achieving underlying revenue growth of almost 6 per cent in the first half. The US was the drag."

Underlying group revenue growth was limited to 3 per cent in the first half, with a 1 per cent drop in margins.

TNS said it would stop offering services in the lower end of the US Custom market,leaving mere data collection behind and focusing on the analysis of that data. The company is to restructure the US business to save £10m a year at a one-off cost of £8m.

Mr Lowden said: "To grow at a faster rate in future, we need to invest in new areas. We have to take costs out, to free up money to do so.

"My first priority on becoming chief executive was to initiate a complete review of the US custom business and one of the first actions was to appoint a new [US] CEO. Under this new leadership in the US, we are taking decisive actions that will lead to an improved performance in 2007."

TNS is also moving to implement similar changes in its non-US business, in order to reform its business before the same competitive pressures hit in these other regions. The company, which operates in some 70 countries, will review the entire non-US business. This will target costs savings of a further £10m, at an additional cost of £10m.

Mr Lowden said: "Other parts of the group continue to perform well. We have the opportunity to build on our strengths and assets by developing innovative services for our clients to accelerate growth and to improve our operating efficiency.

"Our current review is looking at all these areas, with the aim of achieving a more aggressive implementation of our strategy."

Numis Securities, the broker, lowered its full-year profit forecast to £87m, from £102m. TNS insisted that it was confident of bouncing back in 2007, with a return to growth.