Norcon (LON:NCON), the provider of services to telecoms network operators, reported this morning that it secured “important new beachheads” into key expansion markets during the first half of this year.

The firm, which announced interim results today, said that progress made in winning new clients in H2 2010 continued into the first half of 2011, and that efforts to diversify the business into new geographies have been successful – generating new business for the company in South East Asia, Europe and Central Asia.

These new contracts do not initially generate individually large volumes of revenue. But they are in line with the firm’s policy of taking on small initial contracts that require highly-qualified personnel with a view to growing revenues by demonstrating to clients the added value to their operations of Norcon’s presence.

Norcon said that it had also been successful in renewing key contracts in core Middle Eastern markets, as well as renewing and extending important client relationships in Indonesia and Abu Dhabi.

Norcon said that as well as making progress in diversifying its list of clients, its longer-term clients are actively considering the impacts of new technologies in the telecoms space, such as 4G, LTE and NGN (Next Generation Networks), and they are looking at further investments in these technologies. The firm said this market dynamic has enabled it to improve its first-half revenue performance year on year.

As far as figures for the first half are concerned, the firm improved its H1 revenue to US$35.9 million (H1 2010: US$34.2 million) in spite of difficult economic conditions around the world. The firm’s gross margin declined from 19 per cent to 18 per cent, which reflected the impact of starting up new contracts and pre-tax profits came in at US$2.4 million (H1 2010: US$2.8 million).

Net cash at the firm was US$1.1 million at June 30, compared with US$5 million a year earlier, although Norcon said that net cash improved by more than US$7 million since the end of June.

“Our ongoing contracts and high levels of client retention have given us a solid base on which to successfully expand our activities into new clients and territories in this first half of 2011,” said Trond Tostrup, Norcon’s chairman. “Whilst many of our new contract wins are currently small in volume terms, they represent important new beachheads for us into key expansion markets and have the potential to grow into larger long term relationships over time. We have good visibility through the fourth quarter of 2011 and we look forward to another profitable outcome for the year as a whole whilst remaining focused for the long term on developing and diversifying our business.”

Communications specialist Norcon (LON:NCON) says the firm remains positive about 2011 after what it described as a challenging year.

Pre-tax profit for the year to December 31 fell to US$6.7mln from US$10.7 million, though this was in line with revised management guidance. Revenues were US$68.6mln (2009:US$78.2mln).

The firm put the reductions down to contracts with new clients being slower to emerge, mainly due to M&A activities amongst telecom operators, delays to projects coupled with unusual end of service costs and aborted acquisition activities.

Norcon, which provides project management, outsourcing and consulting services to major telecommunications groups, also confirmed this morning its policy of paying out half its net income in dividends.

Cash at year-end stood at US$12.1mln.

The firm's chairman Trond Tostrup said: "We have worked diligently to conclude a profitable outturn to the year.

"Our core client relationships have been maintained and in some cases strengthened and we also continue to make progress in expanding our presence in core target markets such as the Middle East, Africa and South East Asia.

"At the same time, we remain optimistic about the long term prospects in our target markets around the world given the fundamental demand drivers in those markets."

He added that, as the company had stated in a trading update in December 2010, a number of challenges had affected the financial performance.

"Our efforts to further expand geographically and into new end-markets have continued in to the start of 2011 and will be our focus throughout the year ahead.

"We are seeing some of the delayed projects advance and further opportunities emerging with new clients to support our 2011 expectations and longer term growth ambitions.

"While Norcon has not in 2010 been able to achieve growth, we have demonstrated the inherent stability of our business in core markets and that of our client relationships."

Operationally, the company had made gains in core markets and in defined future growth areas and important renewals had been secured or were underway in middle eastern markets where demand was strong, added Norcon.

FinnCap's Mark Paddon has upped the broker's pretax profit forecast for the current year by 10 percent and reiterated the 65 pence price target.

Although the revenue and profit figures were lower year-on year, they came in above finnCap's expectations.  The broker also highlighted Norcon's relatively upbeat outlook on growth opportunites highlighting discussion on 4G deployments in Scandinavia, opportunities to further extend into the Southeast Asia and African regions and some opportunities for new projects in the defence sector.

Following today's results, Paddon is now looking at a pretax profit of US$7.2 million on revenue of US$70 million for the 2011 financial year.

"The low relative valuation (7.9x 2011 P/E and 6.3% yield) in our view reflects the client concentration. However, as the company increasingly gains traction in its customer and market diversification strategy, we would expect the stock to be re-rated. We retain our 65p target price," the analyst added.