Black-empowered specialised outsourcing group Paracon Holdings on Monday reported that it would be acquiring a complementary business unit within the next few weeks.

Speaking at the company’s interim results presentation in Johannesburg, CEO Mark Jurgens said that the acquisition was an indication that Paracon was looking at the long-term viability of the market.

Jurgens stated that although Paracon was paying more for the new business unit than the current market was trading at, he was confident that the acquisition would add “dramatic” value to the business, specifically in the public services sector.

For the six months ended March 31, Paracon reported headline earnings of 8c a share, compared with the 10,1c a share in the comparable period of 2008.

Attributable profit for the period dropped to R26,3-million, compared with the R37,8-million recorded over the 2008 corresponding period.

Paracon’s India-based associate Nihilent delivered a below par performance for the year. While Nihilent continued to record operating profits, its contribution to Paracon’s bottom line was hit by foreign exchange volatility that returned a R2,1-million loss from a R3-million profit contribution in the comparative period.

Paracon CFO Mireille Levenstein pointed out that Nihilent was an associate of the company and that its results had no impact on the group’s cash flow or operations.

She added that headline earnings were impacted by higher secondary tax on companies (STC) charges than in the comparative period, when Paracon had paid part of its dividend as a capital distribution that did not incur any STC.

While headline earnings per share was down to 8c a share, Levenstein explained a meaningful year-on-year comparative would be headline earnings a share adjusted to exclude the increased STC charges and the impact of Nihilent’s disappointing performance.

Adjusted headline earnings a share for the period of 9,7c was on a par with the adjusted headline earnings a share of 9,8c for the comparative period, she stated.

Jurgens said that permanent placement had gone down to between 30% and 35% in the period under review, which also impacted negatively on the bottom line figures.

This was the main cause for the reduction in group earnings, down 7% to R40,4-million. Fewer high margin permanent placements, in turn, brought down the group profit margin to 8,7% from 9,3% for the previous year.

However, the group’s vendor-on-premise offering, which provides a full onsite solution for information and communication technology (ICT) resourcing at clients’ offices, boosted the contracting business. 

“Contracting solutions continue to generate sustainable annuity revenue and profit streams for the resourcing division, which is the key contributor to top and bottom line growth for the group,” Jurgens said.

He noted that clients were now taking longer to decide on placements. “A year ago, clients would have taken anyone to fill the positions, but now they are being a bit more selective and they are looking for more specific skills.”

However, he stated that clients could not hold off employing new staff or new product development for much longer.

Jurgens said that the company was taking a conservative outlook for the remainder of the financial year to September 2009, as he anticipated continued challenging trading conditions. But, he was positive that the group would be able to maintain its performance in the downcycle and that it would be able to capitalise on an economic upturn in the future. 

“The cost of our services is scalable, leaving a relatively low fixed-cost base and operating infrastructure. In addition, our operations generate high levels of annuity income, which in turn supports our fixed-cost base.”