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DLG
DLG
DLG - Dialogue Group Holdings Limited - Unaudited interim results for the six
months ended 30 June 2008
DIALOGUE GROUP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 2005/039219/06)
Share Code: DLG ISIN: ZAE000083820
("Dialogue" or "the company")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
Key information
* Revenue grows by 176%
* Gross margin reaches 45% up from 35% in 2007
* Operating profit increases by 74%
* Headline earnings up 11% to R6,6 million
Introduction
Following the acquisition of three business process outsourcing businesses in
the second half of 2007, Dialogue Group Holdings is a very different company
from a year ago, with turnover having more than doubled. It now owns an interest
in three call-centre businesses; South Africa`s biggest business continuity and
disaster recovery operation; and a specialist recruitment company that supplies
qualified staff for the in-house call-centre industry. These acquisitions were
in line with our stated objective to grow the group`s business process
outsourcing (BPO) activities to service the needs of a broad spectrum of
international and local clients. The first six months of the new financial year
were of necessity a time of intensive consolidation as we worked to establish a
new group operating platform. Much of the time of board members and top
management was spent creating the synergies and infrastructure required to
function efficiently as a group. A major priority was also to strengthen the
management teams of the individual subsidiaries. Eight director-level
appointments, including two new managing directors, were made. With some work
still to be done in the second half of the year, the group now has much of the
governance protocols and the experienced staff in place to start delivering on
its strategy in 2009.
Business environment
The economic downturn which hit South Africa as part of a global phenomenon is
having a material effect on our clients as it is in every other area of
business. While starting to curb inflation, successive interest rate increases
considerably added to bond- and debt-servicing costs. Business confidence of our
customers dropped to the lowest level in a decade. In an environment in which
consumers focused on essentials to make ends meet, outbound sales campaigns, a
mainstay of the local call-centre industry, failed to deliver the required
returns and became increasingly unprofitable. However, these depressed economic
conditions also created opportunities for the BPO sector. Companies needing to
reduce overhead costs, more readily consider outsourcing as a cost-effective
option while debt management and collection also offer considerable
possibilities.
Comments on the results
Due to the changes in the composition of the group the results are not
strictly comparable with those of the corresponding period.
Income statement
Revenue
Revenue more than doubled, as the demand for the group`s services increased
significantly during the period. It includes an exceptionally high R9,1
million of consultancy revenue. This is expected to be lower in the second
half of the year.
Within the contact centre businesses, average seat utilisation of 1 410 (2007
full year: 1 309) increased revenue substantially. Average headcount in
CallForce at 902 (2007: 1123) is down as a result of headcount reductions
in financial services contracts.
Gross margin
Business continuity, with its different cost structures, contributed more than
40% to the gross margin of the group. In the staffing and contact centre
businesses, higher-than-expected staff attrition and rising staff costs reduced
margins overall by 6% compared to the corresponding period.
Other income
The group recognised a financial liability at 31 December 2007 with regard to
the purchase of 50% of Sibize International at amortised cost. The liability
was partly settled through the issue of shares in 2008. This resulted in a
once-off gain of R4,1 million after tax (and hence included in the calculation
of headline earnings per share).
Operating costs
The group`s aggressive restructuring of its businesses temporarily increased
the overall cost base, particularly in the contact centre and staffing areas.
The level of these fixed costs are currently disproportionate to the revenue
in these businesses and are not expected to level off toward the end of the
year.
Tax
The tax rate is improved by the completion of 274 learnership agreements during
the period, resulting in the maximum allowance permissible under Section 12H of
the Income Tax Act. This is similar to our position at year-end.
Balance sheet
Assets
The increase in non-current assets since December 2007 is mostly as a result
of the purchase of property, plant and equipment and software as part of the
expansion of the group`s operations.
Accounts receivable increased substantially during the period, mainly as a
result of longer-paying cycles by both government and other corporate clients.
The long term receivable on the balance sheet relates to those assets of
Sibize International Calling where ownership will revert back to the client
at the end of the contract term.
The increase in goodwill since December 2007 relate to the recognition of the
joint control in Sibize International Calling with effect from 1 January 2008.
Equity and liabilities
On 18 January 2008, the BEE transaction announced in 2007 was concluded. Part
of the proceeds of the share issue was used to settle the loan of R40 million
from Investec Bank. The shares issued as consideration for the purchase of the
50% interest in Sibize International Calling was recognized at fair value of
R18,5 million. Trade and other payables include R34 million for deferred
revenue.
During the period, there was no significant change to contingent liabilities
or contingent assets or the nature of related-party transactions when compared
to the corresponding period.
Operational review
In light of market conditions, the group took the strategic decision to reduce
to the minimum its exposure to outbound sales in its call-centre businesses to
focus on inbound customer service programmes and debt-collecting activities.
At group level operational structures were improved while corporate governance
protocols were introduced to the three newly acquired subsidiaries of which only
one in the past operated in a listed environment. Significant investments were
made in bolstering senior management throughout the group by extending and
strengthening the range of executive skills and talent in our business.
To facilitate decision-making and strengthening the group`s strategic value
proposition, a new group executive committee has been proposed. In addition
to the chief executive officer, the chief financial officer and the group human
resource director, an extended group executive team would include the managing
directors of the five operating companies.
Dialogue SA
Since March Dialogue SA, the primary call-centre business of the group
targeting private sector clients, has been functioning under a new managing
director with extensive overseas experience. It is shifting its focus from
the private-sector outbound market to the customer-service inbound market,
sustaining short term losses as a result of this shift. A further decision
was taken to pursue business mainly from international clients. This campaign
is being spearheaded by a new chief operating officer, recruited in the United
States for his extensive knowledge of the BPO market in that country.
Considerable investments have also been made in systems, staff and processes
to service a greater number of international clients, depressing profitability
further. The business is being streamlined and members of management redeployed
in areas best suited to their skills.
Sibize International Calling
Management was strengthened with the appointment of a managing director
and human resource director and imminent appointment of a finance director.
During the review period this public-sector call-centre business established
a new operating hub in the Johannesburg CBD to complement the two satellite
sites in Wynberg and Vereeniging. Previously a dedicated business acting
mainly as the interface for the Gauteng Provincial Government between the
public and its own departments, it has since started actively marketing its
services and diversifying its customer base within the public sector. In
addition to the 513 seats it manages for the Gauteng Provincial Government
it now also manages 52 seats on behalf of the Ekhuruleni Metropolitan
Municipality.
Interaction
As in the case of the other subsidiaries, management of this
private-sector call-centre business was also strengthened with the
appointment of a new financial director and a new human resource director
while further appointments are to be made. Interaction was established more
than two years ago when the MTN account to manage and operate its call centre
in Durban was awarded. During the review period a decision was taken to expand
Interaction`s operations and become a standalone business and to accommodate
the needs of additional clients. Where Dialogue SA is focusing on international
clients, Interaction is concentrating on the local market for additional
business.
ContinuitySA
For ContinuitySA, the country`s largest business continuity and disaster
recovery undertaking, the reporting period was a time of strong expansion
both geographically and in size. The company extended its operations to
Mozambique and is in process of concluding a joint venture in Mauritius
to launch a disaster recovery site for its growing financial services
industry. It also negotiated terms for a partnership in Kenya which will
launch operations in due course. In April, ContinuitySA increased capacity
in Midrand by securing additional premises and acquired the operation of
SunGard Availability Services based in Randburg. Together they operate
centres in excess of 3 500 office and call-centre recovery seats in Gauteng,
the Western Cape and Botswana.
CallForce
The downturn in the economy has had a substantial affect on the income
of this specialist recruitment company for the call-centre industry as in a
number of cases major corporate clients froze staff replacements and new
appointments. However, despite the economic downturn, CallForce has secured
preferred supplier status with a number of blue-chip clients which adds to
their already impressive client list. The revenue contribution of these new
clients will only be seen in 2009. During the review period, the newly
established and wholly owned subsidiary, TalentMatch, acquired certain
exclusive rights to Shadowmatch, a system that provides it with a
considerable competitive advantage in the accurate profiling of potential
candidates and matching them to very specific roles and work environments.
The tool significantly mitigates the risk associated with hiring new
employees by highlighting the propensity of candidates to fit the culture
and environment and to ultimately perform, thereby reducing clients`
recruitment costs and risk of attrition. The focus on recruitment into
debt collection call centres is beginning to produce new revenue streams.
Prospects and outlook
Integrating the individual components of the group into effective
interrelated businesses will continue in the second half of the year.
Despite the depressed economic climate management is confident that, with
the strengthening of the structures and streamlining of the policies and
processes in its subsidiaries, and the overall shift in focus to inbound,
long-term business in its call-centre operations, the group will start
delivering results in 2009 justifying its ongoing investment in H2 2008.
Opportunities for the cross-selling and up-selling of our combined services
are considerable, and the penetration by group companies of a number of
targeted corporations has advanced significantly. Developing and delivering
on such opportunities remain a high priority.
As existing clients progressively extend their operations on the African
continent, their need for our services in these new environments also grows.
We are consequently using ContinuitySA with its business continuity and
disaster recovery services as a springboard into Africa. As reported earlier,
we now have a presence outside South Africa in Botswana, Mozambique and
Mauritius and are planning to be operational in Kenya in the second half of
the year. Taking a longer-term view we are also exploring opportunities to
enter additional markets in 2009.
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"). It complies with
the significant requirements incorporated in the Code and in the Listings
Requirements of the JSE Limited.
The board
Mrs Adele Cloete, head of Group Human Resources, joined the board on 3 January
as an executive director. Mr Andile Khumalo joined the board as non-executive
director on 5 March 2008.
Basis of preparation
The consolidated interim financial statements have been prepared in
accordance with IFRS, its interpretations adopted by the International
Accounting Standards Board (IASB), the requirements of the South African
Companies Act and in compliance with the Listings Requirements of the
JSE Limited. The interim financial results have not been audited. The
accounting policies applied in preparing these interim financial statements
are consistent with those applied in the audited annual financial statements
for the year ended 31 December 2007.
Dividend
In line with the current dividend policy to reinvest profits to fund
future growth and development, no dividend has been declared for the
period under review.
By order of the board
JJ Drew PS Oosthuizen
Chief executive Financial director
29 August 2008
Directorate and administration
SJH Rodger (chairman)*#, JJ Drew (chief executive)#, PS Oosthuizen,
AO Cloete, RK Mangena*, A Khumalo*, G Mkhari*
* Non-executive #British
Registered office: 6th floor, Dialogue House, Rua Vasco da Gama, Foreshore,
Cape Town (PO Box 8355, Rogge Bay, 8012)
Company secretary: SH Rodger, 6th floor, Dialogue House, 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 (P O Box 61051,
Marshalltown, 2107)
Designated advisor: PSG Capital (Pty) Ltd, Johannesburg branch, Building 8,
Woodmead Estate, 1 Woodmead Drive, Woodmead, 2191 (P O Box 987, Parklands,
2121)
Consolidated Income
statement
Unaudited Audited
Unaudited
6 months 6 months Year
ended ended ended
30 June 30 June 31
December
2008 2007 2007
R`000 R`000 R`000
Revenue
232,000 83,141 230,646
Cost of sales
(126,845) (53,953) (151,888)
Gross profit
105,155 29,188 78,758
Operating expenses
excluding depreciation (89,460) (23,511) (54,572)
Depreciation
(12,881) (975) (4,040)
Other income
5,859 291 1,165
Operating profit for
the period 8,673 4,993 21,311
Finance income
4,770 2,883 3,284
Finance expenses
(4,311) (8) (1,050)
Profit before tax
9,132 7,868 23,545
Income tax expense
967 (1,105) (2,408)
Profit for the period
10,099 6,763 21,138
Attributable to
- Minority
shareholders 3,528 820 5,095
- Equity holders of
the group 6,571 5,943 16,043
Profit for the period
10,099 6,763 21,138
Headline Earnings
calculation
Net profit attributable
to equity holders of 6,571 5,943 16,043
the company
Adjusted for
- Gain on loan expunged
- - (261)
Headline Earnings
6,571 5,943 15,781
Number of shares (`000)
- Total
299,075 210,000 210,000
- Weighted in issue
247,092 210,000 210,000
- Fully diluted
299,075 210,635 306,896
Headline Earnings per
share (cents)
- Weighted in issue
2.7 2.8 7.5
- Fully diluted
2.2 2.8 5.1
Earnings per share
(cents)
- Weighted in issue
2.7 2.8 7.6
- Fully diluted
2.2 2.8 5.2
Consolidated Balance
sheet
Unaudited Audited
Unaudited
6 months 6 months As at
ended ended
30 June 30 June 31
December
2008 2007 2007
R`000 R`000 R`000
Assets
Non current assets
193,014 5,862 153,018
Property, plant and
equipment 68,061 5,809 50,598
Goodwill
98,452 - 45,193
Intangible assets
6,433 - 6,483
Long term receivable
7,153 - -
Deferred tax asset
12,915 53 4,494
Investment in unlisted
company - - 46,250
Current assets
190,386 64,488 83,390
Taxation
779 513 1,686
Trade and other
receivables 112,025 25,169 56,345
Cash and cash
equivalents 77,582 38,806 25,358
Total assets
383,400 70,350 236,407
Equity and liabilities
Capital and reserves
218,690 54,981 75,918
Share capital
1,251 360 360
Share premium
162,734 33,659 31,886
Share option reserve
1,842 276 1,079
Revaluation reserve
- 63 -
Foreign exchange
translation reserve 170 - -
Retained earnings
35,009 18,271 28,438
Attributable to equity
holders of the group 201,006 52,629 75,918
Minority interest
17,684 2,352 14,156
Non current liabilities
30,066 - 8,828
Long term liabilities
28,209 - 8,828
Deferred tax
1,857 - -
Current liabilities
134,644 15,369 151,661
Short term liabilities
19,930 - 78,920
Provisions
4,905 - 303
Other current liability
- 1,351 311
Trade and other
payables 106,729 14,018 57,974
Minority shareholders
for dividend - - 529
Taxation
3,080 - 6,768
Bank overdraft
- - 6,856
Total equity and
liabilities 383,400 70,350 236,407
Net asset value per
share (cents) 67.2 25.0 24.7
Net tangible asset
value per share (cents) 32.1 25.0 7.9
Consolidated Cash flow statement
Unaudited Audited
Unaudited
6 months 6 months Year
ended ended ended
30 June 30 June 31
December
2008 2007 2007
R`000 R`000 R`000
Cash flow from
operating activities 21,171 (3,978) 12,080
Cash flows from
investing activities (36,229) (2,139) (107,102)
Cash flows from
financing activities 74,137 - 72,423
Net increase in cash
and cash equivalents 59,079 (6,117) (22,600)
Cash and cash
equivalents at 18,502 44,923 44,923
beginning of year
Cash and cash
equivalents at end of 77,582 38,806 22,324
year
Consolidated statement of changes in equity
Unaudited Audited
Unaudited
6 months 6 months Year
ended ended ended
30 June 30 June 31
December
2008 2007 2007
R`000 R`000 R`000
Opening Equity
75,918 48,046 48,046
Issue of shares
131,739 - -
Share options issued
763 172 979
Share issue expenses
- - (1,773)
Foreign exchange
translation 170 - -
Net profit for the year
6,571 5,943 16,043
Minorities
3,528 820 12,624
Closing Equity
218,689 54,981 75,918
Segment information
(note 1)
Business segments
Segment revenue
Contact centre
120,786 83,141 182,068
Business continuity
63,098 - 10,568
Staffing
48,116 - 38,010
Total revenue
232,000 83,141 230,646
Segment result
Contact centre
18 5,473 15,783
Business continuity
8,996 - 4,241
Staffing
81 - 1,981
Unallocated (Head
Office) (423) (480) (694)
Total result
8,673 4,993 21,311
Capital Commitments not provided
for
Contracted 14,348
22,950 -
Authorised but not 25,000
contracted 19,472 -
Notes:
1. Business segments are classified as the primary segment in
terms of IAS14, since the group`s risks and returns are
affected predominantly by the products and services it
produces rather than the fact that it operates in different
geographical areas. This is consistent with the internal
organisational and management structure and the system of
internal financial reporting.
Date: 01/09/2008 08:00:04 Produced by the JSE SENS Department.
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