Taking Stock: Norcon results reflect global pressures
Network specialist Norcon emerges from a tough year eyeing up new markets.
It may not be a household name, but network specialist Norcon is seen by many as a good litmus test for the state of the communications sector. Given that impression, the company’s recent financial performance was scrutinised with added vigilance by analysts working in the sector. Headquartered in Cyprus, with its favourable tax regime, Norcon offers consultancy services to companies and government institutions wanting to install, upgrade and operate various telephone networks. The company has operated predominantly in the Middle East, Far East, Africa, Asia, and the Americas, with some activity in Europe. Recently its focus has been in the Middle East, with its core market in Saudi Arabia.
Even though the results were picked over, they provided little indication about the general state of the sector. Following a profit warning earlier this year, it was no great surprise when the company announced that it had achieved its lowered financial expectations in early April. It cited key long-term relationships as the backbone for its resilient performance in difficult trading conditions.
The company managed to post pre-tax profits of $5.4m, down $1.3m from the previous year, against revenues of $66.6m that fell $2m. The decline was attributed to a shortfall in new business, increased cost of sales, and higher finance expenses, as flagged at the time of its February profit warning.
With a tough year behind it, the group is looking to increase the emphasis on geographical expansion and the development of new services as part of its long-term diversification strategy.
Chief financial officer Marne Martin defended the company’s trading. “Our performance during the past 12 months has been profitable, albeit at a lower level than in the prior year, although we achieved a stronger net asset position at the year end,” she said. “The decrease in revenue was primarily due to a shortfall in new business. The gross margin for 2011 was 16 per cent for the year, due to increased cost of sales proportionally related to increased competition and start-up expenses in the new projects in Saudi Arabia as well as the other territories.”
Martin explained that profit before tax of $5.4m for 2011 compared to the 2010 figure of $6.7m was due to lower gross margin and higher expenses, notably exchange rate losses. Profit after tax was $3.5m for 2011 compared to $4.3m for 2010.
Chairman Trond Tostrup argued that 2011 had been a difficult year for global business. Delivering a profit at all should be taken as encouraging, he said.
“These challenges mask the positive momentum that has carried through in our business operations this year,” Tostrup said. “We have strengthened our team, creating the position of chief operating officer. We have also continued to renew our mandates with our closest, most long-standing customers while making early in-roads into new markets and geographies.”
Chief executive officer Arnold Rorholt said: “In 2012, Norcon will increase emphasis on geographical expansion and the development of new services, thus speeding up the implementation of its long-term diversification strategy.
He confirmed that Norcon had recently signed a major contract for 2012, and was in the final stages of negotiating other substantial contracts. He pointed to the Middle East and particularly Saudi Arabia as a region that held encouraging prospects for the coming years.
“As the telecom industry continues to invest in new technology, currently the roll-out of LTE and FTTH networks which we have developed as a core expertise, we have been able to secure business with new clients outside our core region in 2011.”
Networks data drives Gulf 4G migration
There are good reasons why Saudi Arabia is an attractive market for telecoms consultants. It is one of the largest mobile markets in the Gulf region, and with current 3G networks incapable of handling the growth in mobile data traffic, operators are expected to migrate to 4G technologies such as LTE.
Analyst firm Frost & Sullivan reports that there are 51.6 million mobile subscribers in Saudi Arabia with a penetration of 186 per cent (i.e. nearly twice as many accounts as there are people). These mobile consumers have a strong demand for data services, prompting operators to progressively upgrade their networks to offer high-speed data services.
This surge in use of mobile broadband is attributed to the proliferation of smartphones and smart devices along with social networking and blogging tools and the users’ need for seamless mobility and being connected to Internet at all times.
The United Arab Emirates also has a highly saturated mobile market. “UAE has dynamic subscriber demographics due to a large expatriate population,” said a Frost ICT analyst. “The market has a large youth population which is driving the demand. Also, with high disposable income, the penetration of smartphones, laptops and tablets PCs is high.”
Frost & Sullivan’s report ‘LTE Outlook for India, Saudi Arabia and the UAE’ was published in September 2011.
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