| Mon 3 Mar 2008, 11:05 | | DLG - Dialogue - Audited results for the year ende |
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DLG
DLG
DLG - Dialogue - Audited results for the year ended 31 December 2007
Dialogue Group Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/039219/06)
JSE code: DLG & ISIN: ZAE000083820
("Dialogue" or "the company" or "the Group")
Jason Drew, chief executive, commented:
Dialogue Group Holdings is a specialist provider of outsourced services to the
call-centre industry. We provide staff to in house operations, fully outsourced
call centres as well as disaster recovery and business continuity solutions to
international, local and government clients.
The 2007 financial year was a period of rapid growth in our core business whilst
preparing it for future growth by further investing in our infrastructure and
people. At the same time, we have achieved our aim of broadening our client
offering through a number of acquisitions in outsourced call centre services.
Through these acquisitions we are both strengthening links with existing clients
and achieving economies of scale. We consequently expect the 2008 financial year
to be a period of very strong growth not only locally but also internationally
where the economic uncertainty has prompted strong new interest in the cost-
saving benefits of outsourcing to South Africa.
Enquiries:
Dialogue Group Holdings
Marc Spendlove 083 700 5253
De Kock Communications 021 422 2690
Ben de Kock 076 390 7725
Operating environment
NCA and credit slowdown
The competitive environment in which the business process outsourcing (BPO)
sector operates locally was impaired by the economic slowdown with consumers
struggling against rising inflation, higher interest payments and escalating
fuel prices. The introduction of the National Credit Act (NCA) in June last year
slowed down the granting of credit significantly. That, combined with the higher
cost of credit, impacted negatively on the success of local outbound campaigns
in particular. The Group is actively moving its business from outbound sales
contracts to larger inbound programmes where we have considerable intellectual
property and proven experience.
Unlike the situation overseas, outsourcing is still not widely accepted as a
business best practice in South Africa, but this is rapidly changing in
corporates and in government. The majority of call centre operations are
currently in-house and growing rapidly. We expect that some of this existing and
future capacity will be outsourced as has been the case internationally.
Preferential procurement
The year also saw renewed focus by local businesses on preferential procurement.
Our new BEE partnership, (see "BEE compliance" elsewhere in this announcement),
puts us in a very favourable position going forward.
Voice and data costs
Internationally voice and data costs continued to drop while locally they
remained high. As these prices drop towards international levels it will make
the value proposition of South Africa even more attractive compared to
competitor countries such as India and the Philippines.
Government`s subsidy scheme
During the review period, the government introduced a generous subsidy system
which will benefit the industry. For overseas companies keen to take advantage
of it, the requirements are demanding - they have to enter into a three-year
contract with a local operator involving a minimum of 100 seats/200 employees.
We are actively engaging with clients, prospects and government to ensure that
in 2008 we derive benefit from it.
Comment on the results
Income statement
Revenue from call-centre business increased by 63% compared to the previous
year. New subsidiaries added another R37 million to income.
Gross margin from call centre business dropped from 43% to 32% due to the effect
of a tighter credit environment (rising interest rates and the impact of the
NCA) on outbound business, investment in training and learnerships. The margin
on international business was stable and revenue from overseas clients increased
by 191% compared to the previous year.
Acquisition costs not capitalised in terms of IFRS, head office expansion costs,
increased investment in capacity in Johannesburg and overhead training costs to
deliver the learnerships, increased operating expenses for the call-centre
business by 25%. New acquisitions accounts for 49% of the increase in operating
expenses.
Profit for the year increased by 35%, demonstrating strong growth by the Group
while the increase in earnings at 13% was lower than expected.
Balance sheet
The total asset value of the Group increased significantly, mainly due to the
acquisitions of CallForce Direct and ContinuitySA.
Cash at year-end was down due to the delay in the completion of the BEE share
issue. This caused a corresponding increase in short-term liabilities as the
group utilised bridging finance to conclude the transaction with ContinuitySA.
Debtor`s days for the call-centre business remained reasonable at 51 days,
slightly up from the 48 days in the previous year.
Current liabilities include deferred revenue for the disaster recovery business,
contributing 145% of the increase in short-term liabilities when compared to
2006.
Operational review
The Group achieved rapid growth in its core operations during the review period
despite a general reduction in business confidence. It made a concerted effort
to broaden its client base both locally and overseas, and to increase its volume
of longer-term inbound contracts while reducing its exposure to outbound
contracts, which comprises a large element of the outsourcing business currently
available locally. Sales-driven campaigns witnessed an increase in costs since
the introduction of the NCA, combined with the decline in consumer take-up.
The board also actively pursued its decision to extend the Group`s call-centre
offering. On 1 September 2007 Dialogue acquired a 51% stake in Callforce Direct,
a call-centre recruitment specialist servicing the in-house needs of major blue-
chip businesses, many of which are existing Group clients. In the four months
since the acquisition this business has grown its head count and client base,
and has expanded its operations from its Johannesburg base, opening new offices
in Cape Town and Durban.
On 1 December 2007 Dialogue made a strategic investment in ContinuitySA by
acquiring a 51% stake in South Africa`s largest business continuity and disaster
recovery specialist with over 2 000 office and call centre recovery seats. The
adoption of international best practice, as contained in Basel II and the King
Report, means top local and international companies are increasingly focussed on
business continuity and disaster recovery. With South Africa`s energy crisis,
the ability to safeguard data and ensure continued business operation is vital.
The acquisition also offers excellent cross-selling opportunities with existing
Dialogue clients. ContinuitySA has successfully established its model in
Botswana and is exploring other opportunities on the continent, adding further
value to clients operating in Africa, in parallel with the Group`s own plans to
expand its operations further north.
In December 2007 the company announced the acquisition of a 50% stake in Sibize
International, which operates in the fast-growing public sector contact centre
market. Sibize services provincial and national government departments in all 11
official South African languages. Just after year-end the Group announced it had
commenced negotiations to acquire Verge Management Services (Pty) Limited which
holds the remaining 50% of Sibize.
Black Economic Empowerment (BEE)
Dialogue has always had strong BEE credentials through its resolute focus on
employment equity and training.
It was reported at the half-year that MSG Afrika Investment Group (MSG)
purchased 7% of Dialogue Group Holdings. MSG is a black owned investment holding
company with interests in radio, pay TV, outdoor media, print and advertising.
A further 1% was bought by Tlhalefang Placements CC, a black-owned human
resources company active in the contact centre industry and with whom the Group
earlier established a joint venture, Interaction, to service the substantial MTN
contract from Durban.
In November 2007, a deal was agreed with a black-owned consortium, led by MSG
Afrika and including Tlhalefang, that increases Dialogue`s direct black
shareholding to over 30%. The R113, 3 million raised by the transaction will be
used to finance recent acquisitions as well as others still in the pipeline.
With both strong black ownership and employment equity credentials the company
is extremely well placed for future growth with government and corporate clients
who are increasingly focused on preferential procurement.
Prospects and outlook
Demand for call centre services remains extremely strong both locally and from
international clients wishing to outsource to South Africa. The group now has a
range of services to offer into this market. The integration of the acquired
business has progressed extremely well and cross-selling of services to common
clients has already happened. These acquisitions give the business the
increased scale and range of services it needs to cement its position as a
leading provider of outsourced call-centre services. We expect to extend the
Group`s business into Africa following our existing clients and servicing their
call-centre needs in countries in which they operate in Africa.
Economic downturns internationally tend to benefit the BPO industry as they
refocus the attention of business on the cost-effective option outsourcing
offers. We therefore intend to focus our attention on the UK and US markets
under the guidance of Richard Britt, an outsourcing specialist who joins the
Group from North America as managing director of our outsourced call centre
business in March. We expect 2008 to see further strong growth in turnover and
profitability in all our businesses.
Corporate governance
The Group is committed to the principles embodied in the Code of Corporate
Practice and Conduct in the King Report 2002 ("the Code"). The Group complies
with the significant requirements incorporated in the Code and in the Listings
Requirements of the JSE Limited.
Directorate
As advised in our SENS announcements, Duncan Miller resigned from the Board
effective 31 December 2007 and Adele Cloete was appointed as an executive
director with affect from 1 January 2008.
Dividend
In line with the current dividend policy to reinvest profits to fund future
growth and development, no dividend has been declared for the year.
Auditors` opinion
The results have been audited by BDO Spencer Stewart (Cape Town) Inc, and their
unqualified audit opinion is available for inspection at the company`s
registered office.
Basis of preparation
The consolidated annual financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), its interpretations
adopted by the International Accounting Standards Board ("IASB") and the
requirements of the South African Companies Act. There has been no change to
the Group`s accounting policies for the year.
Consolidated Income Statement
Audited Audited
Year Year
ended ended
31 December 31 December
2007 2006
R`000 R`000
Revenue 230,646 121,255
Cost of sales (151,888) (69,158)
Gross profit 78,758 52,097
Operating expenses excluding depreciation (54,564) (31,455)
Depreciation (4,048) (2,014)
Other income 1,165 1,340
Operating profit for the period 21,311 19,968
Finance income 3,284 2,196
Finance expenses (1,050) (17)
Profit before tax 23,545 22,147
Income tax expense (2,408) (6,466)
Profit for the period 21,138 15,681
Attributable to
- Minority shareholders 5,095 1,532
- Equity holders of the Group 16,043 14,149
Profit for the period 21,138 15,681
Headline Earnings calculation
Net profit attributable to equity holders of the company
16,043 14,149
Adjusted for
- Gain on loan expunged (305) (178)
Headline Earnings 15,738 13,971
Number of shares (`000)
- Total 210,000 210,000
- Weighted in issue 210,000 184,877
- Fully Diluted 299,232 184,877
Headline Earnings Per Share (cents)
- Weighted in issue 7.5 7.6
- Fully Diluted 5.3 7.6
Earnings Per Share (cents)
- Weighted in issue 7.6 7.7
- Fully Diluted 5.4 7.7
Dialogue Group Holdings Limited
Consolidated Balance Sheet
Audited Audited
at at
31 December 31 December
2007 2006
R`000 R`000
Assets
Non current assets 165,310 5,338
Property, plant and equipment 50,598 4,646
Goodwill 57,485 -
Intangibles 6,483
Investments 46,250 -
Deferred tax asset 4,494 692
Current assets 85,189 61,001
Trade and other receivables 66,687 16,077
Cash and cash equivalents 18,502 44,924
Total assets 250,499 66,339
Equity and liabilities
Capital and reserves 88,210 48,046
Share capital 2,100 360
Share premium 30,146 33,659
Share option reserve 1,079 101
Revaluation reserve - 63
Retained earnings 29,041 12,331
Attributable to equity holders of the Group
62,365 46,514
Minority interest 25,845 1,532
Non current liabilities 14,290 -
Long term liabilities 14,290 -
Current liabilities 147,999 18,293
Long term liabilities 73,459 -
Other current liability 311 641
Trade and other payables 73,029 17,055
Shareholders for dividend 529 -
Taxation 672 597
Total equity and liabilities 250,499 66,339
Net asset value per share (cents) 29.7 22.1
Net tangible asset value per share (cents) 0.8 22.1
Dialogue Group Holdings Limited
Consolidated Cash Flow Statement
Audited Audited
at at
31 December 31 December
2007 2006
R`000 R`000
Cash flow from operating activities 12,128 15,571
Cash flows from investing activities (107,102) (2,472)
Cash flows from financing activities 68,552 26,738
Net increase in cash and cash equivalents (26,422) 39,837
Cash and cash equivalents at beginning of year
44,924 5,087
Cash and cash equivalents at end of year 18,502 44,924
Consolidated statement of changes in equity
Audited Audited
at at
31 December 31 December
2007 2006
R`000 R`000
Opening Equity 48,046 (147)
Issue of shares 1,740 34,999
Share option reserve 978 101
Share issue expenses (2,847) (2,588)
Movement in revaluation reserve (63) 0
Net profit for the period 16,043 14,149
Minorities 24,313 1,532
Closing Equity 88,210 48,046
Commitments
Non cancellable operating lease rental:
- Less than one year 21,511 8,752
- Between one and five years 77,555 29,845
- More than five years 31,148 20,560
130,214 59,157
By order of the Board
J J Drew P S Oosthuizen
Chief executive Financial director
3 March 2008
Directors: S J H Rodger (chairman)*, J J Drew (CEO), P S Oosthuizen, R K
Mangena*, Adele Cloete, G Mkhari#*
* Non-executive # independent British
Registered office: Dialogue House, Rua Vasco da Gama, Foreshore, Cape Town (P O
Box 8355, Rogge Bay 8012)
Company secretary: S H Rodger FCIS BL, DialogueHouse, Rua Vasco da Gama,
Foreshore, Cape Town (P O Box 8355, Rogge Bay 8012)
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, Ground
floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown 2107)
Designated advisor: Bridge Capital Advisors (Pty) Limited, 27 Fricker Road,
Illovo Boulevard, Illovo 2196 (P O Box 651010, Benmore, 2010)
Date: 03/03/2008 11:05:01 Produced by the JSE SENS Department.
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