Demand for IT Skills Lifts South Africa’s Paracon results

Mergers, Acquisitions and Financial Results

IT services and solutions provider Paracon announced a 6% increase in six-month turnover to the end of March and said it has the capacity to withstand the worst of the economic downturn that has already gripped some listed companies.

The group, which also earns the greater part of its income from placement of IT contract and permanent staff, said that with demand for IT services and skills expected to continue to be high, it was expecting business volumes to remain high. And despite the general slowdown in economic activity, it would even consider possible acquisitions.

While admitting the next few months would be challenging, CEO Mark Jurgens said Paracon's business was solid, it was generating cash and was well-positioned to emerge from the downturn even stronger to face new opportunities.

"As one of SA's leading specialist-generalist ICT (information and communication technology) resource providers for the private sector and government, Paracon remains well placed to take advantage of an upturn in demand," he said. "Overall the market is definitely tighter than previously," he said. "However, demand for ICT skills remains strong despite the economic downturn. In addition specific specialist ICT skills are still desperately needed but are not readily available in SA."

In his review for the interim period, Jurgens said group turnover increased to R464,5m, up from R438,7m in the comparative period, while earnings before interest, tax, depreciation and amortisation (Ebitda) fell 7% to R40,4m from R43,4m, mainly as a result of the lower contributions from its business solutions division.

The group achieved headline earnings of R26,4m, which translated into headline earnings and basic earnings per share of 8c, down from 10,1c previously, mainly because of the poor performance of its Indian associate, Nihilent Technologies.

Paracon Resources, which places both contract and permanent staff, contributed 87% of the group's turnover for the period.

He said Paracon's core competence -- the contracting business -- had 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 , which focuses on the placement of high-end financial services candidates, performed below expectations," Jurgens said. Overall this division's turnover increased 8% to R403,8m from R373,8m, and the decrease in permanent placement income affected Ebitda margins, with the division achieving Ebitda of R45,2m which was similar to the R45,1m recorded in the comparative period last year.

He also said Paracon's clients had become conservative in recruiting staff and were reluctant to increase their staff complement in light of the tight economic conditions, he said. Jurgen admitted being disappointed with the performance of its two associate companies, Nihilent Technologies and Mondial IT Solutions.

In particular, he said Nihilent suffered from weak trading conditions and although it managed to make an operating profit, it suffered from foreign exchange losses mainly as a result of volatile foreign exchange movements. While in the previous interim period the Indian company contributed R3m to group earnings, this time round it recorded a loss of R2,1m, hence the lower headline earnings and earnings per share.

Business Day