SOFTWARE: It has been a difficult year for Mr Paul Kerley and staff at Norkom, the Dublin-based firm that specialises in developing software to analyse data for companies.

Tipped as a high-flier shortly after it was set up in February 1998, Norkom has attracted $33 million (€37.5 million) funding from some of the Republic's best known entrepreneurs including Mr Denis O'Brien and Mr Fran Rooney, former chief executive of Baltimore Technologies. Even Independent News & Media took a stake in the firm in July 2000, anticipating of a quick payback from an expected initial public offering later in the year.

But within months, the technology sector had changed utterly as corporates held back on IT spending, investors balked at new share issues and Norkom was forced to pull its flotation. Supporting a staff of 200 and haemorrhaging cash from expensive overseas operations, Norkom's faced possible closure for much of 2001.

"It would be ridiculous to suggest that that danger [going bankrupt\] did not exist early last year. . . It was like a tidal wave hitting us," says Mr Kerley. "We were just two-and-a-half weeks from listing and then we saw a number of IPOs which didn't take off. The benchmark we used to pull ours was Altitude, which gave us an indication of the markets."

Altitude Software was a Portugese firm that delayed its public offering on the Amsterdam stock exchange in November 2000 due to weak demand for its shares. It was one of the first firms to delay a proposed flotation in Europe as confidence in the sector imploded.

"We were marching towards a public offering because we saw a threat from US players coming into Europe to compete with us," says Mr Kerley, who admits this is now unlikely because there is a reluctance among investors to fund European expansion for Norkom's US competitors.

The costs of organising the flotation - estimated at about $1.5 million - and the speedy upscaling of operations necessary for a public offering, decimated the firm's finances. Norkom will shortly file annual accounts showing losses of €20 million for the year to March 2001 on revenues of just €9.6 million.

"Our aggressive growth in R&D and spend on marketing and sales staff formed a back drop to our downsizing operation last year," says Mr Kerley. "We made the decision early that things would be difficult for 2001."

In April 2001 Norkom shed 60 of its 200 staff. It also put on hold plans to open offices in Sweden and France as part of a company-wide restructuring programme.

"We needed to demonstrate growth with profitability," says Mr Kerley. "We needed to cut down the time to profit in half."

A year on from this restructuring and Mr Kerley says things have been turned around and Norkom is poised for growth. The firm will report a reduced loss of €5 million for 2002 fiscal year on revenues of €12.5 million.

"In the past six months we've signed deals worth €10 million with a range of clients including Guinness UDV, Canadian Tyre, Wells Fargo and US Cellular," says Mr Kerley.

"We broke even last December and will be profitable in the year to March 2003. . . I'm very sober about this and trying not to get excited. I think the firm can achieve organic growth of 40 per cent per year."

Despite the downturn in high-tech spending since 2001, and a fall-off after September 11th, Norkom has increased revenues by adapting its strategies to tap into operational budgets as well as IT budgets, says Mr Kerley.

"Our technology uses datamining techniques, which enable customers to identify trends in data to search for a range of activities, from potential frauds to predicting which customers would respond to certain campaigns."

Guinness UDV Ireland will use Norkom's core "Alchemist product" to build an information platform that will target areas of its business such as finance, sales, consumer and retail marketing.

Traditionally, this type of intelligent customer relationship software would have been offered to companies in large multimillion euro infrastructure deals. But Norkom is now renting software to clients and is focusing on demonstrating how software can deliver a return on investment to customers, says Mr Kerley.

The rewards from these deals are significant because Norkom owns all the intellectual property on its software and can achieve margins of 99 per cent. The firm may move to protect this intellectual property by applying for patents on some of the mathematical formulae that form the basis for its software.

But this decision will depend on whether the firm believes it is worth defending patents in court and whether it wants to draw attention to its proprietary technology, says Mr Kerley.

Norkom's spend on acquiring and developing intellectual property was a key factor that enabled it to weather the downturn, says Mr Kerley.

The company was also lucky it was cash-rich during the downturn. In October 2000, Goodbody Stockbrokers finalised a $17 million funding round to prepare the company for its listing on the London Stock Exchange. This investment, made by AIB's technology fund and Goodbody's Stockbrokers among others, valued Norkom at $220 million.

But Mr Kerley acknowledges that Norkom shareholders have not been so lucky and will not see a return on their investment anytime soon.

"We \ are out of the woods but we need to build a return on investment for shareholders - that is now the focus of our management team," he says.

Earlier this year management and Mr Kerley sold 16 per cent of Norkom's shares at a discounted rate to existing investors, reducing their stake to 48.27 per cent. All the shareholders participated in the €3 million round, which boosted Trinity Venture Capital's stake to 28.25 per cent, Goodbody Stockbrokers' to 7.69 per cent, Enterprise Ireland's to 3.78 per cent and the non-executive directors to 7.69 per cent.

But the challenge remains to turn these holdings into cash in a depressed technology market.

Mr Kerley says selling the firm to a third party is not an option he favours, therefore this could be a long hard road.

"I would not rule out an IPO for Norkom at all but I don't see it for the short-term, not in the next year or the next 24 months," says Mr Kerley.