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PCN
PCN
PCN - Paracon Holdings Limited - Unaudited interim results for the six months
ended 31 March 2011
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 2011
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2011
Unaudited Unaudited Audited
31 March 31 March 30 September
2011 2010 2010
R`000 R`000 R`000
ASSETS
Non-current assets 201 585 172 539 178 185
Property, plant and equipment 6 756 5 338 5 946
Intangible assets 156 418 137 659 137 605
Investment in associates 38 411 28 975 33 775
Deferred taxation - 567 859
Current assets 153 039 146 133 165 349
Trade and other receivables 103 223 85 557 78 614
Cash and cash equivalents 49 816 60 576 86 735
Total assets 354 624 318 672 343 534
EQUITY AND LIABILITIES
Equity capital and reserves 267 695 232 051 263 467
Deferred taxation 947 - -
Current liabilities 85 982 86 621 80 067
Trade and other payables 81 801 80 217 79 271
Taxation 4 181 6 404 796
Total equity and liabilities 354 624 318 672 343 534
Net asset value per share 77,5 69,1 78,5
(cents)
Net tangible asset value per 31,0 28,1 37,5
share (cents)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2011
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
% 2011 2010 2010
change R`000 R`000 R`000
Revenue 22 589 263 484 582 1 021 219
Earnings before 17 44 341 37 827 71 918
interest, taxation,
depreciation,
amortisation and other
expense
EBITDA margin (before 7,5% 7,8% 7,0%
`other` expense)
Other expense - bonuses (2 947) - -
in lieu of share
incentive scheme
Earnings before 41 394 37 827 71 918
interest, taxation,
depreciation and
amortisation ("EBITDA")
Depreciation (1 396) (995) (2 086)
Amortisation of (198) (198) (395)
trademarks
Operating profit 9 39 800 36 634 69 437
Profit on sale of 671 - -
investment
Investment income (28) 1 962 2 727 4 609
Share of profits from 178 4 636 1 667 6 466
associates
Profit before taxation 15 47 069 41 028 80 512
Taxation - Normal (10 934) (11 067) (19 407)
Taxation - Secondary Tax (3 361) (3 265) (3 275)
on Companies
Total comprehensive 23 32 774 26 696 57 830
income for the period
Total comprehensive
income attributable to:
- Equity holders of the 29 704 26 696 57 730
parent
- Non-controlling 3 070 - 100
interest
23 32 774 26 696 57 830
Earnings per ordinary
share (cents)
- Basic earnings 10 8,8 8,0 17,2
- Headline earnings 8 8,6 8,0 17,2
Reconciliation between
comprehensive income
attributable to equity
holders of the parent
and headline earnings
Total comprehensive 29 704 26 696 57 730
income attributable to
equity holders of the
parent
Less: Profit on sale of (671) - -
investment
Headline earnings 29 033 26 696 57 730
Weighted average number 337 094 335 688 335 688
of ordinary shares in
issue (`000)
Number of ordinary 336 005 335 688 335 688
shares in issue - net of
treasury shares (`000)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 March 2011
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
% 2011 2010 2010
change R`000 R`000 R`000
CASH FLOWS FROM (33) 17 120 25 417 53 283
OPERATING ACTIVITIES
Cash generated from 42 066 37 826 71 918
operations before
working capital changes
Working capital changes (15 232) (3 877) 2 403
Cash generated from (21) 26 834 33 949 74 321
operations
Investment income 1 962 2 727 4 609
Taxation paid (11 676) (11 259) (25 647)
CASH FLOWS FROM (12 734) (4 840) (6 496)
INVESTING ACTIVITIES
CASH FLOWS FROM (41 305) (33 569) (33 620)
FINANCING ACTIVITIES
Shares repurchased (7 691) - -
Net dividends paid (33 614) (33 569) (33 620)
NET (DECREASE)/INCREASE (36 919) (12 992) 13 167
IN CASH AND CASH
EQUIVALENTS
Cash and cash 86 735 73 568 73 568
equivalents at the
beginning of period
Cash and cash 49 816 60 576 86 735
equivalents at the end
of period
CONDENSED CONSOLIDATED SEGMENTAL REPORT
for the six months ended 31 March 2011
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 March 31 March 30 September
% 2011 2010 2010
change R`000 R`000 R`000
Revenue
Paracon Resourcing 14 470 969 413 083 864 026
Business Solutions 65 118 294 71 499 157 193
22 589 263 484 582 1 021 219
EBITDA before `other`
expense
Paracon Resourcing 1 41 938 41 392 81 070
Business Solutions 98 16 611 8 387 16 277
Central costs 19 (14 208) (11 952) (25 429)
17 44 341 37 827 71 918
Trade and other
receivables
Paracon Resourcing 75 512 70 798 62 922
Business Solutions 27 711 14 759 15 692
103 223 85 557 78 614
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2011
Non-
Ordinary Ordinary distri-
share share Treasury butable
capital premium shares reserve
R`000 R`000 R`000 R`000
Balance at 1 October 350 881 (9 449) 730
2009
Dividend paid - - - -
Total comprehensive - - - -
income for the period
Balance at 31 March 2010 350 881 (9 449) 730
Acquisition of non- - - - -
controlling interest
Dividend paid - - - -
Total comprehensive - - - -
income for the period
Balance at 30 September 350 881 (9 449) 730
2010
Acquisition of non- - - - -
controlling interest
Dividend paid - - - -
Purchase of treasury - - (7 691) -
shares
Issue of treasury shares - - 9 000 -
Total comprehensive - - - -
income for the period
Balance at 31 March 2011 350 881 (8 140) 730
Attributable
to equity Total
Distri- holders Non- share-
butable of the controlling holders`
reserve parent interest equity
R`000 R`000 R`000 R`000
Balance at 1 October 246 412 238 924 - 238 924
2009
Dividend paid (33 569) (33 569) - (33 569)
Total comprehensive 26 696 26 696 - 26 696
income for the period
Balance at 31 March 2010 239 539 232 051 - 232 051
Acquisition of non- - - 333 333
controlling interest
Dividend paid - - (51) (51)
Total comprehensive 31 034 31 034 100 31 134
income for the period
Balance at 30 September 270 573 263 085 382 263 467
2010
Acquisition of non- - - 3 759 3 759
controlling interest
Dividend paid (33 614) (33 614) - (33 614)
Purchase of treasury - (7 691) - (7 691)
shares
Issue of treasury shares - 9 000 - 9 000
Total comprehensive 29 704 29 704 3 070 32 774
income for the period
Balance at 31 March 2011 266 663 260 484 7 211 267 695
COMMENTARY
Overview
The Board is pleased to report solid results for the six months ended 31 March
2011 ("the period"). The Group`s two divisions, Paracon Resourcing and Business
Solutions, delivered commendable performances for the period ahead of
expectations.
Paracon Resourcing, South Africa`s leading ICT resource provider, continued to
account for the majority of Group revenue and operating profit. The division
posted revenue of R471,0 million, an increase of 14% from the previous period.
The growth in revenue was attributable to contracting services activity,
notwithstanding the impact of a large scale cost-cutting exercise at a leading
financial services client in the second quarter. EBITDA remained flat as a
result of fewer permanent placements which are at higher margins. In difficult
market conditions Paracon Resourcing delivered good results.
The Business Solutions division exceeded expectations for the period, with a
healthy performance from professional services and the project management
businesses. Paracon`s project management brands, `X-Pert` and `all about project
management`, are leading specialists in the market and produced excellent
results during the period. An exercise is currently underway to merge these two
businesses so as to offer Paracon`s clients comprehensive project management
solutions. Boosted by the inclusion of `all about project management`, the
division`s revenue grew by 65% from R71,5 million in the previous period to
R118,3 million.
Pending legislation
Paracon continues to monitor closely, and to participate actively in the
negotiations regarding proposed amendments to the labour broking and other
labour laws in South Africa. Through its membership of the Information
Technology Association, Paracon has representation at BUSA and NEDLAC which have
both been involved in commenting on the draft bills on behalf of organised
business. The controversial aspects in the draft bills are currently being
debated at NEDLAC. It is expected that this debate will continue for the
remainder of 2011 due to the complexity and potentially serious consequences of
the issues at hand. Paracon remains adamant that skilled workers within the
professional sectors should be excluded from the proposed amendments.
Financial results
Group revenue increased by 22% to R589,3 million from R484,6 million in the
comparative period. EBITDA before bonuses in lieu of a share incentive scheme
(as detailed in the following paragraph) of R44,3 million was 17% higher than
the comparative period`s R37,8 million.
Paracon`s earnings for the period were affected by the first-time expense
arising from bonus payments made in lieu of a share incentive scheme. As Paracon
has no share incentive scheme in place, cash bonuses were paid to those
employees who would have been recipients in a share scheme. Cash bonuses, as
well as costs incurred in unsuccessfully attempting to implement a share scheme,
amounted to R2,9 million. Headline earnings per share ("HEPS"), excluding those
costs (net of taxation), was up 16% from the comparative period.
India-based associate Nihilent Technologies ("Nihilent"), which delivered a
strong performance for the period, has numerous promising opportunities in the
pipeline. Paracon`s share of the income from associate for the period grew by
178% from R1,7 million to R4,6 million.
Headline earnings of R29,0 million translated into HEPS of 8,6 cents and basic
earnings per share ("EPS") of 8,8 cents, up 8% and 10%, respectively from the
comparative period.
Paracon`s statement of financial position remained solid with no long-term
liabilities, and cash balances of R49,8 million. Cash balances were reduced by
the R33,6 million net dividend paid to shareholders in March 2011.
As a result of earlier settlement of trade payables, cash flows generated from
operations of R26,8 million was 21% lower than the R33,9 million in the
comparative period. Debtors` collections remained efficient with debtors` days
equating to 30 days at 31 March 2011. Cash flows of R41,3 million from financing
activities comprise the net dividend paid of R33,6 million and the R7,7 million
paid for the shares repurchased from a previous director, as set out in the
circular to shareholders dated 20 September 2010.
Transformation
Paracon remains committed to transformation and continues to address all seven
pillars of empowerment under the guidance of the Transformation Committee. The
Group enjoys a 51% majority BEE ownership, has a Level 3 (AA) rating and was
recently ranked in third place in the 2011 Financial Mail/EmpowerDex Survey of
South Africa`s `Best Empowered Listed ICT Companies`.
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. (A dividend of
10 cents per share was paid on 14 March 2011.)
Outlook
Short-term prospects remain difficult to assess as many clients are remaining
extremely cautious with their spending. Paracon`s outlook is prudent as the
Board believes that difficult trading conditions will prevail in the second half
of the year. Notwithstanding this sentiment, the Paracon business is strong,
extremely healthy and well positioned to deliver meaningful returns to
shareholders.
Accounting policies
The accounting policies applied in preparing this report, which are based on
reasonable judgements and estimates, 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
2010. This report has been prepared in compliance with International Accounting
Standards (IAS 34: Interim Financial Reporting), the Companies Act and the
Listings Requirements of JSE Limited.
The interim results have not been reviewed by the Group`s auditors.
Directorate
There have been no changes to the Board during the period.
Subsequent events
The Board is not aware of any material events or circumstances that have
occurred between the end of the reporting period and the date of this report,
which may have a material impact on the Group.
On behalf of the board.
Mark Jurgens Mireille Levenstein
Chief Executive Officer Chief Financial Officer
10 May 2011
Directors:
G Andrews (Chairman)*
M Jurgens (Chief Executive Officer)
M Levenstein (Chief Financial Officer)
Z Malele*
T Mokgosi-Mwantembe*
T Nzimande*
J Ord*
C Stein*
*Non-executive
Independent
Sponsor:
Merchantec Capital
Company secretary:
RJ Wasley
Registered office:
24 Peter Place, Lyme Park, Sandton, 2196
(PO Box 526, Olivedale, 2158)
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Date: 10/05/2011 08:15:01 Produced by the JSE SENS Department.
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