Norcon: profiting from a strengthening telecoms market

Tomorrow, telecommunications network specialist Norcon (LON:NCON) is due to announce interim results for the six months to June 30.

After 2010 saw the firm’s annual revenue fall by US$9.6 million to US$68.6 million, with pre-tax profits decreasing by US$4 million to US$6.7 million, investors will be looking for evidence that the Cyprus-based company is turning the tide after contracts last year were slower to emerge than first anticipated by the firm.

Norcon joined the Alternative Investment Market in July 2008, just before the financial crisis reached crisis point with the demise of Lehman Brothers. Back then, the firm raised £1.6 million in a placing that valued it at £28.4 million. Today, the company’s share price of 36 pence values the business at around £18 million.

Norcon has been providing services to both private and government clients in the telecoms, information technology and defence sectors for more than 50 years.

The firm is the holding company for Norconsult Telematics. Norconsult’s main activity is providing project management and outsourcing services for operators of telecommunications networks including fixed line and mobile telephone systems and data networks, assisting them with the installation, operation or optimisation of telecommunications systems and to countries seeking advice on regulatory matters, defence systems, equipment and command and control facilities.

Norcon offers technical and commercial services for the planning, deployment, expansion and operation of telecommunication and data network infrastructure and IT or defence systems. The firm also offers services such as market analysis, business plans, design and engineering, planning, project management, and deployment of infrastructure and systems.

The firm says that the technical complexities of telecoms networks (including fixed line and mobile networks), along with their associated data networks, have increased dramatically since Norconsult was formed. Consequently, operators (especially those based in emerging economies) regularly use external consultants to assist them in installing, upgrading and operating their various telephone networks.

In terms of its geographical markets, Norcon (which has worked in every region of the world) is today focused particularly on Saudi Arabia and other parts of the Middle East, where the firm said in the spring that important renewals had been secured or were underway in its markets in the region.

In April Norcon stressed that the unrest seen in parts of the Middle East had not had an impact on the firms operations in the markets where it is present and that it continued to see a strong demand in the region for the services that its provides. Speaking to Proactive Investors last week, the firm’s chief financial officer Marne Martin confirmed this, saying: “Our operations have not been impacted by the unrest and business investment in the Middle East has remained strong throughout.”

Norcon is looking at opportunities to further extend into the South East Asian and African markets, as well as into Scandinavia where the firm has boosted its presence recently. The firm believes that this could involved following its clients as they themselves expand internationally, as Norcon has already done with a key telecoms client in Scandinavia – supporting the client both at home and in projects in its international markets.

This geographical expansion strategy may also involve joint ventures or partnerships, where local partners can complement the firm’s existing consultancy operations. “We are making good progress expanding geographically, and expect to accelerate that in the year to come,” says Martin.

In April, the firm said that relationships with its core customers “remain as strong as ever” with client retention rates remaining well above 90 per cent, which is consistent with previous years.

However, last year Norcon suffered from an issue with contract being slower to emerge than it had anticipated mainly because of merger and acquisition activities among telecom operators with which the firm had previously been in advanced discussions, as well as associated regulatory issues that had caused delays to other potential projects.

But Martin appears confident about the immediate future. “Even though the overall economic conditions remain difficult, the market in telecoms is definitely strengthening again,” says Martin. “People are investing in both technology and capacity.”

Investment in next generation technology by network operators is certainly a driver of business. “We have a number of clients just now beginning their 4G implementations so that will be a trend we can take advantage of,” says Martin. “We are in a unique situation having managed the implementation of all technologies to date, as well as swaps [when operators decide to switch which vendors they source their equipment from].”

Investors will be keeping an eye out for progress on all these fronts tomorrow as well as the company dividend. After its final results were announced in April it confirmed it would pay out 2.36 US cents per share to investors this autumn.