Norcon FY held back by delayed new business - CFO Marne Martin

Norcon (LON:NCON) shares have had a particularly volatile day, with investors feeling the kind of trading swings usually associated with miners and oil explorers rather than a big dividend paying telecoms firm.

The company provides project management, outsourcing and consulting services to major telecommunications groups.

Early in the session the stock slumped almost 30 percent on AIM, as investors punished Norcon after it revealed that it would not meet its ambitious growth expectations for the current year to end-December 2010.

However as the trading session progressed the initial knee-jerk reaction softened somewhat. 

Late in Friday’s trading, Norcon shares had recovered much of the early losses and were last trading at 56.5 pence per share, down 12.4 percent.

This morning Norcon warned investors that new business wins have slowed and it has incurred higher than expected costs.

Updating investors on the year to date, Norcon said that turnover in the second half is quite similar to the first. However contracts with new clients have been slower than it had anticipated. 

Norcon said that whilst it remains profitable, pre-tax profit for the full year is now expected to be considerably lower than expected.

Speaking with Proactive Investors Norcon chief financial officer, Marne Martin stressed that 2010’s numbers are still quite good.

Martin acknowledged that 2010 has not lived up to stronger growth that Norcon achieved in recent years. Although she explained how the major telecom groups have taken a more cyclical approach to their investment in new projects.

“2009 was unique,” Martin said

“This has turned out to be a bit of an off year, but the numbers are still quite good.”

She stressed that the problem was largely to do with timing and it was entirely relating to new business.

With major operators taking longer to approve new projects, larger deals that management had hoped to complete were delayed, and many are yet to complete.

One particular deal was pencilled in earlier in the year until the client became involved in M&A activity, which effectively put all its new projects on the back-burner.

Ultimately this could prove to be a positive for Norcon as it could it end up working with a much larger organisation with more opportunities post-merger.

Crucially Martin reiterated that Norcon’s core business remains strong.

Martin described the core business as sticky and resilient. She pointed out the exceptionally high renewal rate among existing contracts, with virtually 100 percent of the contracts being renewed on expiry.

Norcon is still backing its generous dividend policy - which is one of the stock's main attractions for investors.

It recently paid its first interim dividend and it is still committed to pay-out at least 50 percent of net income, which is consistent with previous years.

"The long term demand for our services remains robust,” chief executive Arnold Rørholt said.

“We continue to experience longer lead times and competition for contracts. These circumstances reduce visibility on new contract wins with new clients, while visibility and retention with our existing clients remain very high.”

He adds: “we remain optimistic on our prospect for organic growth looking ahead. We expect the core business in 2011 to be broadly comparable to 2010."