Transaction Network Services: Exchange Funds
IT
Written by John Zorabedian   
Tuesday, 01 April 2008
Transaction Network Services: Exchange Funds - American Executive - RedCoat Publishing
This technical solutions provider for global payments and market transactions is betting on big growth overseas and in the US telecom industry.
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Gantec Corporation
Millions of electronic fund transfers occur in our interconnected economy every day. Want to buy that new phone with your credit card? Zip. And whenever someone makes a purchase with a debit or credit card, or when traders buy and sell stocks in electronic markets, that’s money in the pockets of Transaction Network Services (TNS), with billions of transfers across its networks each year. Zap.

TNS provides network services to payment processors and interconnectivity between networks in the telecommunications and financial markets. With operations in the US, United Kingdom, and 18 other countries around the world, TNS is capturing market share across Europe, North America, and the Asia Pacific region. Last year, it set its sights on significantly expanding its presence in Asia with the purchase of the Australian payment services company Dialect Merchant Services. With Internet commerce continuing to erode traditional sales in retail, TNS expects that business to take off in 2008.

Ray Low, TNS’s president, said investors should be feeling bullish about his company’s prospects—after reporting $325 million in 2007 revenues, the company is projecting revenue growth of $355 million to $363 million this year. “We’re the kind of business no one’s ever heard of, but our networks get used by most people every day,” Low said. “We’re seeing steady growth in transaction volumes, even though retailers might be saying they’re having a bad time.”

After TNS announced its fourth quarter results in early March, the stock ticked down from about $18 a share to $16 a share, but Low said the company’s 2008 outlook is beating analyst expectations for revenues. TNS generated $25 million of free cash in 2007, which it will put toward growing the business and paying down the company’s debt, and Low said the company expects to generate $40 million in free cash in 2008 to put toward expanding the business even further.

Power transfer
Low, who previously ran the TNS international division out of the UK, took over as president in 2006 during a topsy-turvy time for TNS’s leadership. Founder Jack McDonnell, who was also CEO and board chairman for most of the company’s history, wanted to take the NYSE-traded company private, and he made an offer to buy out the company.

The board rejected McDonnell’s offer and asked McDonnell to part ways with the company, Low said. After McDonnell stepped down, the board named the CFO, Henry Graham, the company’s new chief executive moved Low from his native UK to the company’s US headquarters as president in October 2006. “I was asked to come across from the UK to take over the sales, marketing, and product development side of this business,” he said.

The TNS business strategy is to diversify across the payments, financial services, and telecommunications markets, while expanding in new markets internationally. Even while he is banking on solidifying its presence in Europe and America, Low’s international experience should help TNS in the rapidly developing economies of Asia, and he expects upward of 40% of revenues in 2008 to come from abroad. The US, UK, France, Italy, Spain, and Australia will remain the biggest markets for its services, but the growth of financial markets in places like India and Dubai are promising.

“We have financial market connectivity at every major trading city in the world; we provide very fast connections between those sites, and we’re seen as one of the premium providers in that space,” Low said. “Our push in that area is to go off to the more developed parts of the world, where new stock exchanges are coming up, the areas where traders in this country or in London or Paris want to get to.”
In the telecom space, with the major telecommunications companies spending billions to build out infrastructure, TNS can count on solid demand from clients such as Qwest and Comcast in the US. The migration of business processes to the Internet will require more and more connectivity than in the past. “We see that as another big push for us,” Low said.

The company also has implemented a more efficient international tax structure. The company has historically paid most of its taxes in the UK, but it also operates a long-time subsidiary in more tax-friendly Ireland. “We’ve updated TNS’s tax planning strategy to more closely align the company’s tax structure with its business operations, and that will provide us an order of magnitude of cash benefits in 2008,” Low said.

Over the next year, TNS will be working to expand its Internet payments service from Australia into its European markets. “Once we’ve got it right in Europe, we’ll bring it over here to the US,” Low said. “That will be another string to our bow. We know the industry is going to change, and we’re developing our portfolio accordingly.”
 
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