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PCN
PCN
PCN - Paracon Holdings Limited - Unaudited interim results for the six months
ended 31 March 2009
Paracon Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1997/008181/06)
Share code: PCN ISIN: ZAE000029674
("Paracon" or "the Group")
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 MARCH 2009
("the period")
CONDENSED GROUP INCOME STATEMENT
For the six months ended 31 March 2009
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
% 2009 2008 2008
change R`000 R`000 R`000
Turnover 6 464 473 438 735 916 348
Earnings before (7) 40 374 43 357 85 483
interest,
taxation,
depreciation and
amortisation
(EBITDA)
EBITDA margin 8,7% 9,9% 9,3%
Depreciation 876 555 1 305
Amortisation of 198 198 395
trademark
Operating profit (8) 39 300 42 604 83 783
Investment income 4 518 6 613 12 609
Share of (1 579) 3 810 7 719
(losses)/profits
from associates
Profit before (20) 42 239 53 027 104 111
taxation
Taxation - Normal 12 231 13 333 26 385
Taxation -
Secondary Taxation
on
Companies ("STC") 3 643 1 868 6 763
Attributable (30) 26 365 37 826 70 963
profit
Earnings per
ordinary share
(cents)
- Headline (21) 8,0 10,1 19,0
earnings
- Adjusted (1) 9,7 9,8 19,3
headline earnings
(see note 1 below)
- Basic earnings (21) 8,0 10,1 19,0
Note 1 - Adjusted
headline earnings
per share
reconciliation
Adjusted HEPS
excludes the
impact of the STC
charges and the
results from
Nihilent.
Attributable 26 365 37 826 70 963
profit
Adjusted for: 5 757 (1 131) 1 100
STC 3 643 1 868 6 763
Share of 2 114 (2 999) (5 663)
losses/(profits)
from Nihilent
Adjusted earnings 32 122 36 695 72 063
Weighted average 331 524 374 214 372 601
number of ordinary
shares in issue
(`000)
Number of ordinary 331 096 373 094 331 868
shares in issue -
net of treasury
shares (`000)
GROUP BALANCE SHEET
As at 31 March 2009
Unaudited Unaudited Audited
31 March 31 March 30 September
2009 2008 2008
R`000 R`000 R`000
ASSETS
Non-current assets 143 410 137 127 146 494
Property, plant and 5 644 2 770 5 936
equipment
Intangible assets 107 841 105 207 107 927
Investment in associates 29 638 28 224 32 133
Other investments 287 - -
Deferred taxation - 926 498
Current assets 129 963 184 307 149 974
Trade and other 71 340 76 755 68 465
receivables
Cash and cash equivalents 58 623 107 552 81 509
Total assets 273 373 321 434 296 468
EQUITY AND LIABILITIES
Equity capital and 204 062 239 299 215 296
reserves
Current liabilities 69 311 82 135 81 172
Trade and other payables 61 112 66 194 68 790
Deferred taxation 231 - -
Taxation 7 968 15 941 12 382
Total equity and 273 373 321 434 296 468
liabilities
Net asset value per share 61,6 64,1 64,9
(cents)
Net tangible asset value 29,1 35,9 32,4
per share (cents)
CONDENSED GROUP CASH FLOW STATEMENT
For the six months ended 31 March 2009
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
2009 2008 2008
R`000 R`000 R`000
Cash flows from operating 14 779 45 416 83 346
activities
Cash generated from 29 821 47 018 100 031
operations
Investment income 4 518 6 613 12 609
Taxation paid (19 560) (8 215) (29 294)
Cash flows from investing (66) (11 305) (18 140)
activities
Cash flows from financing (37 599) (41 857) (98 995)
activities
Shares repurchased (1 179) (4 663) (61 685)
Dividend paid (36 420) (18 597) (18 655)
Cash distribution to - (18 597) (18 655)
shareholders
Net decrease in cash and (22 886) (7 746) (33 789)
cash equivalents
Cash and cash equivalents 81 509 115 298 115 298
at the beginning of year
Cash and cash equivalents 58 623 107 552 81 509
at the end of period
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2009
Ordinary Non-
share capital distribu-
and Treasury table
premium shares reserves
R`000 R`000 R`000
Balance at 1 October 17 157 (24 494) 730
2007
Issue of shares 2 892 - -
Capital distribution (20 101) 1 446 -
Dividends paid - - -
Transfer 1 309 27 -
Share repurchase and (36) 22 384 -
cancellation
Purchase of treasury (7) (12 394) -
shares
Profit for the year - - -
Balance at 1 October 1 214 (13 031) 730
2008
Dividends paid - - -
Purchase of treasury - (1 179) -
shares
Profit for the period - - -
Balance at 31 March 1 214 (14 210) 730
2009
Total
Distribu- share-
table holders`
reserves equity
R`000 R`000
Balance at 1 October 247 046 240 439
2007
Issue of shares - 2 892
Capital distribution - (18 655)
Dividends paid (18 655) (18 655)
Transfer (1 336) -
Share repurchase and (71 635) (49 287)
cancellation
Purchase of treasury - (12 401)
shares
Profit for the year 70 963 70 963
Balance at 1 October 226 383 215 296
2008
Dividends paid (36 420) (36 420)
Purchase of treasury - (1 179)
shares
Profit for the period 26 365 26 365
Balance at 31 March 216 328 204 062
2009
SEGMENTAL ANALYSIS
For the six months ended 31 March 2009
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
% 2009 2008 2008
change R`000 R`000 R`000
Turnover
Paracon 8 403 831 373 833 782 871
Resourcing
Business (7) 60 642 64 902 133 477
Solutions
6 464 473 438 735 916 348
EBITDA
Paracon - 45 201 45 064 90 938
Resourcing
Business (26) 7 611 10 310 18 454
Solutions
Central costs 4 (12 438) (12 017) (23 909)
(7) 40 374 43 357 85 483
COMMENTARY
Overview
The Group maintained a reasonable performance in the face of the prevailing
tough trading conditions. Paracon`s business model, predicated primarily on
contract resourcing solutions, stands the Group in good stead to withstand the
worst of the economic downturn. Paracon is highly scaleable and cash-generative,
which will continue to prove a valuable asset in overcoming the challenges posed
by the current economic landscape.
Operations
Paracon Resourcing - This division comprises both contracting and permanent
placement income and contributed 87% of the Group`s turnover for the period.
Paracon`s core competence - the contracting business - has remained stable with
strong client demand. However, permanent placements have seen a decline in
demand, in addition to a longer sales lead time as clients curtail their
expenditure. In particular The Personnel Concept (Proprietary) Limited, which
focuses on the placement of high-end financial services candidates, performed
below expectations.
Overall the division`s turnover increased by 8% to R403,8 million from R373,8
million. The decrease in permanent placement income affected EBITDA margins with
the division achieving EBITDA of R45,2 million on a par with the R45,1 million
in the comparative six months to 31 March 2008 ("the comparative period").
Paracon Resourcing continues to be a market leader and to generate sustainable
annuity-based revenue and profit streams. The division`s model of scaleable
staffing solutions has proved robust in the present market conditions.
Business Solutions - Although stable, this division performed slightly below
expectations during the period, contributing R60,6 million, or 13%, to Group
turnover (2008: R65,0 million) and R7,6 million to EBITDA (2008: R10,3 million).
Lower contributions from the professional services and networking operations
accounted for the majority of the decline. In particular, the devaluation of the
Rand during the period reduced income derived from the provision of Indian
skills and has limited the opportunities in this area.
Financial results
Group turnover increased by 6% to R464,5 million from R438,7 million in the
comparative period. EBITDA decreased by 7% to R40,4 million from R43,4 million
mainly as a result of the lower contribution from the Business Solutions
division. The decrease in high margin permanent placements impacted margins
slightly with the EBITDA margin on revenue of 8,7% down from the 9,3% achieved
for the full year ended 30 September 2008.
Investment income decreased in line with expectations to R4,5 million from R6,6
million in the comparative period due to the reduction in interest rates and the
reduced cash balances as a result of the share repurchase at the end of last
year. In terms of the share repurchase 36,3 million shares were repurchased at a
total cost of R54,2 million from Paracon`s BEE partner - WDB Investment Holdings
(Proprietary) Limited - in a strategic BBBEE initiative. The number of shares in
issue, net of treasury shares, accordingly decreased to 331 million.
The contribution from associates - India-based Nihilent Technologies
("Nihilent") and South African SAP services provider Mondial IT Solutions - was
disappointing. In particular, Nihilent suffered weak trading conditions in the
period. Although Nihilent managed to post an operating profit, the impact of the
volatility in foreign currency movements during the period resulted in the
inclusion of significant foreign exchange translation losses in Nihilent`s
results. Therefore whereas in the comparative period Nihilent contributed R3,0
million to Paracon`s earnings, in the current period Paracon recorded a loss of
R2,1 million from Nihilent which adversely impacted on headline and basic
earnings per share. As Nihilent is an associate, its performance has no impact
on Paracon`s cash flow or operations.
The Secondary Tax on Companies ("STC") incurred on the dividend paid to
shareholders in the period was substantially higher than the STC incurred in the
comparative period. In the prior period, a portion of the distribution to
shareholders was paid in the form of a capital reduction distribution, in
respect of which no STC was incurred.
Headline earnings of R26,4 million translated into headline earnings per share
("HEPS") and basic earnings per share ("EPS") of 8,0 cents (March 2008: 10,1
cents). A trading update published on 28 April 2009 advised shareholders of
particular circumstances which impacted HEPS and resulted in the decrease in
earnings. If the impact of the STC charges and the results from Nihilent are
excluded, the adjusted HEPS of 9,7 cents are approximately the same as in the
previous period (9,8 cents).
Paracon`s balance sheet remains solid with no long-term liabilities and cash
balances of R58,6 million. Cash balances were reduced by the R36,4 million net
dividend paid to shareholders in March 2009.
Cash flows generated from operations of R29,8 million was lower than the
comparative interim period as a result of significant tax payments and increased
working capital during the past six months. Working capital increased as a
result of a decrease in trade and other payables as well as an increase in
debtors` days from 27 days at the previous year end to 30 days at 31 March 2009.
Notwithstanding the increase, working capital management remains efficient and
is closely controlled. Cash flows from financing activities includes the net
dividend paid of R36,4 million and the R1,2 million spent on share repurchases
in the period.
BEE
Paracon`s broad-based BEE platform has once again been recognised as distinctive
in the industry and the country. The Group was ranked in the Top Five of South
Africa`s Best Empowered Listed ICT Companies in the 2009 Financial
Mail/EmpowerDex survey. Furthermore, Paracon achieved 21st position overall in
South Africa`s Top 200 Listed Companies across all sectors.
Distribution to shareholders
Group policy is to declare an annual dividend or cash distribution to
shareholders at the time of publication of the September year-end financial
results. Therefore no dividend has been declared for the period.
Outlook
The board expects market conditions to remain challenging in the short-term, and
therefore has adopted a conservative view for the remainder of the year to 30
September 2009. Notwithstanding this view, given that Paracon`s business is
solid, scaleable and cash-generative with a large portion of annuity-based
revenue, the directors are confident that Paracon is positioned to emerge
strongly from the downturn. As one of South Africa`s leading specialist-
generalist ICT resource providers for private sector and government, Paracon
remains well placed to take advantage of an upturn in demand. The Group`s excess
cash enables Paracon to assess potential acquisition opportunities that may
arise from market consolidation.
Accounting policies
The accounting policies applied in preparing this report are in accordance with
International Financial Reporting Standards and are consistent with those
applied in the previous audited annual financial statements for the year ended
30 September 2008. This report has been prepared in compliance with
International Accounting Standards (IAS 34: Interim Financial Reporting), the
Companies Act (Act 61 of 1973), as amended and the Listings Requirements of JSE
Limited.
The interim results have not been reviewed by the Group`s auditors.
On behalf of the board.
Mark Jurgens Mireille Levenstein
Chief Executive Officer Chief Financial Officer
11 May 2009
Directors:
G Andrews (Chairman)*; G Bentley; M Jurgens (CEO);
M Levenstein (CFO); Z Malele*; T Mokgosi-Mwantembe*;
T Nzimande*; J Ord*; C Stein*
*Non-executive, Independent
Sponsor:
Merchantec (Proprietary) Limited
Company secretary:
RJ Wasley
Registered office:
24 Peter Place, Lyme Park, Sandton, 2196
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Date: 11/05/2009 11:00:01 Produced by the JSE SENS Department.
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