Norcon Plc Interview Transcript with Arnold Rorholt, CEO.

Harry:    Hello, this is Harry Norman for Proactive Investors and welcome to another Proactive audio interview. Today is the 28th April 2010 and I am talking with Arnold Rørholt Chief Executive of Norcon Plc. Listed on the AIM Market support services sector.  Stock ticker NCON.  Share price 75 pence.  Market cap £32.92m.  Web address www.norconplc.com.
Arnold, thank you very much for joining us for this interview.

Arnold:    It's a pleasure.

Please give investors a brief introduction to Norcon and the services the company provides.

Norcon's main business is project management and outsourcing.  Our main clients are large multi-national telecom operators and government agencies.
We have a Norwegian heritage, coming out of Norway since 1957.  And now the bulk of our business is outside of Norway.
But we have recently re-established an office in Norway in order to deal with the roll out of new technology in the Scandinavian countries, the so-called 4G technology, which is an evolution of the existing mobile technology.
The Nordic countries have tended to be pioneers when it comes to rolling out new technology and that it also the case now.  So we see a good potential in starting in the Nordic countries and then eventually this technology will be rolled out worldwide.

Norcon claims to have a 90% client retention rate.  How does the company manage to achieve and maintain this?

Well as I mentioned, we do outsourcing so we have a large number of our engineers outsourced into our clients organisations.  They are deeply embedded within their organisations working integrated with the clients.
At the same time we do project management, as I mentioned.  And in the telecom business everything is dynamic which means there is a constant flow of new projects to be rolled out, new technology to be rolled out.
And once we are in the clients offices of course we tend to do many projects simultaneously for the clients and they tend to roll over.  And of course we have very competent staff, so this is how we manage to maintain those rates.

In 2008 the Saudi Telecom Company contributed 79% of Norcon's revenues and Norcon said it was planning to diversify the company's geographical sales mix.What progress has been made with geographical diversification Arnold?

We have been working for Saudi Telecom Company, previously a government agency, since 1959.
It has through all the years been an important client to Norcon.  And we expect that situation to continue going ahead.
But on the other side it is important for us to diversify.  And we are focussing now on diversifying into new geographical areas.  Doing exactly the same as we've always been doing, project management and outsourcing.
We are presenting in discussions both in South East Asia and in Africa on fairly substantial new projects.
Given success with these negotiations we will see the Saudi Telecom part of the business being reduced considerably over the next one to two years.

Is Norcon currently interested in joint ventures and acquisitions Arnold?

We have established joint ventures in some territories.  We find joint ventures to be a very efficient way of growing into new geographical areas.
We team up with partners that have the strong local investments.  And we supply them our competencies and our systems.  So that has worked quite well for us in several situations.
We have been analysing also a lot of acquisitions.  We have found some companies that may be of interest.  We looked further at this.  At the moment we haven't accelerated this for two reasons.
One because our strong organic growth.  And two because we feel that the value of our shares is undervalued and it might not be optimal for the existing investors that we do a large transaction at this point in time.

Norcon recently announced it's annual results for the year ending 31 December 2009 which included a 16% revenue growth to US$78.2m and net profits increasing by 20% to US$7.7m. Would you like to talk investors through the key points of these results?

The key is of course our continued strong presence in Saudi Arabia together with the fact that we've been growing outside of Saudi Arabia.
We are presently doing, and did throughout 2009, a large roll out project which we managed in Kuwait.  We are also working in Indonesia.  So this have given us a revenue growth of 16%.
The increase in the net profits to 20% is mainly due to technical tax reasons.  Normally the growth of net profit would be similar to our revenue growth but there are from year to year some tax differences.
That means that it could be a little higher and it could be a little lower.  But we always try to maintain a 10% net margin after tax.

The day after Norcon announced its annual results the company raised approximately £4.5m before expenses to grow the company.  What can you say about Norcon's financial situation going forward Arnold?

Well of course the £4.5m has given us a very sound financial situation.
We see that growing outside of Saudi is more expensive than growing inside of Saudi.  It's always more expensive to venture into new markets.
So we feel that the $4.5m that we've got in gives us a very comfortable buffer in order to continue to grow organically.  It will not finance any major acquisitions but it certainly can also help us finance expenses related to joint ventures.

What is the current yield on Norcon's dividend and do you plan to maintain the dividend Arnold?

The current yield on Norcon's dividend with the existing share price is around 8%.  When we did the IPO in 2008 we committed to paying a dividend of at least 50% of net profits after tax.
We have done so since 2008.  We are paying the second dividend payment in July for 2009 in July this year.  And of course going ahead we will continue with the 50% net after tax, at least for the foreseeable future.

What can investors expect from Norcon over the next 12 to 18 months?

Investors can expect to see growth outside of Saudi, growth outside of the Middle East, some growth into other Middle Eastern countries than Saudi Arabia, and the growth into South East Asia and Africa.
All of this of course is organic growth, new clients or existing clients that we do new projects for.  And then I think within the next 12 to 18 months investors can expect to see an acquisition.
We have analysed many companies.  We haven't found an ideal company but we haven't been pushing this issue so hard as we might otherwise have done.
There are two main reasons for that.  One is our strong organic growth.  We are really focussed on managing that growth while maintaining net margins after tax, so approximately 10%.
And the other is the fact that we deem our shares to be undervalued for the time being.  At present prices we believe it's not optimal for our shareholders that we do at least not a large acquisition because the dilution effect of that would be much stronger than had we had what we believe is the more reasonable share price.

Who are Norcon's significant shareholders and how supportive are they Arnold?

As I mentioned previously, the company was established in 1957.  The entrepreneur of the company passed away six years ago.
His family took over his shares.  They are presently the largest shareholders, slightly below 50% of the shares of the company.
The second largest shareholder is a previous CEO who holds slightly more than 13%.
These two entities committed prior to the IPO to except the dilution to below 50% because we have an ultimate goal of seeing a free float in the company which is in that area.
And of course we needed to have this commitment when we did the IPO in order to be certain that they would be supportive, as they have been all along.
So they continue to support the company and they have shown their commitment to the company through accepting the dilution that they have accepted.  And we expect them to remain very supportive shareholders going ahead.
And of course we have now a group of institutional investors that we are very pleased with.  And we experience that we have the full support of all our shareholders in what we are doing.
We make certain to maintain investor contact and investor relations.  We have a CFO who is stationed in London for that purpose.
So we try to make certain that we take care of investors and that we can continue to give them a satisfactory return.