Norcon hits lowered expectatons

Norcon, the global communications network specialist which posted a profit warning in February, managed to hit lowered expectations with its full year results.

The firm, which said it was able to put in a resilient performance in a difficult year as a result of its long-term relations with key customers, generated a pre-tax profit of $5.4m (2010: $6.7m) on revenues of $66.6m (2010: $68.6m). 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.

Basic earnings per share fell from 9.10c to 7.27c. Diluted earnings per share, which reflect changes in the number of shares in issue were 8.72 cents in 2010.

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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.

"The group retains a strong balance sheet and is initiating a strategic

programme to strengthen technical and sales resource in various sectors

and geographies which should result in improved growth prospects and a

broadening of its customer, sector and geographic revenue base," house broker finnCap noted.

The fruits of the company's investments are not expected to make much difference to the top line until 2013, and will put a dent in 2012 profits.

"We are confident that opportunities exist for Norcon to continue to grow organically over the longer term given the new contracts and investments in our core market, as well as the increased pace of international diversification," said Chief Executive Officer Arnold Rrholt. "We look forward with confidence to the years ahead and the contributions our new efforts will bring to the company," Rrholt added.

finnCap has taken the view that "the 2011 year-end accrued income balance could potentially result in an equivalent reduction to the customer's budget for Norcon services in 2012 and have therefore set a conservative revenue forecast of $55m, 90% of which is already visible.

"Assuming consistent gross margins and an increase in operating expenses to

account for the new hires, we expect a PBT [profit before tax] of £3.0m for 2012," finnCap analyst Mark Paddon added.

The company did not pay an interim dividend in respect of 2011 but does intend to pay a final dividend of $1m; that's in total, not per share. The company indicated that the payment represents "a yield of 5% at the current share price", so based on last night's closing price of 26p and a US exchange rate of $1.5935, that suggests a dividend payment of 2.07155 cents a share, although using the number of shares in issue figure provided by the company, the dividend works out at 2.049146 cents a share. Hpuse broker finnCap has gone with a figure of 2.0 cents.

In the future, the company proposes to pay out a dividend of at least 25% of net income going forward. The statement gave no indication whether shareholders would be required to do this calculation for themselves based on published earnings per share figures ...

The board will in addition consider special dividends each year on a case by case basis. It also intends to pay an interim dividend in the coming years.

Cash at the end of the year increased from $11.99m to $12.46m.

The share price leapt 17.31% to 30.50p.

NR