| Tue 24 Mar 2009, 17:45 | | DLG - Dialogue Group Holdings Limited - Audited Results For The Year Ended |
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DLG
DLG
DLG - Dialogue Group Holdings Limited - Audited Results For The Year Ended
31 December 2008
Dialogue Group Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/039219/06)
JSE code: DLG ISIN: ZAE000083820
("the company" or "the group")
Enquiries
Dialogue Group Holdings
Peter Watt 083 659 3646
De Kock Communications
Ben de Kock 021 422 2690
076 390 7725
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Consolidated income statement
Audited Restated1
Year ended Year ended
R`000 31 Dec 2008 31 Dec 2007
Revenue 370 337 230 646
Cost of sales (196 223) (151 888)
Gross profit 174 114 78 758
Operating expenses excluding depreciation,
amortisation and impairment (178 176) (54 372)
Depreciation and amortisation (25 858) (4 240)
Impairment of goodwill and
investment (refer commentary) (30 182) -
Other income 2 270 1 165
Operating (loss) / profit for the period (57 832) 21 311
Finance income 8 999 3 284
Finance expenses (5 125) (1 050)
Share of profit from joint venture 3 136 -
(Loss) / profit before tax (50 822) 23 545
Income tax expense (3 145) (2 408)
(Loss) / profit for the period (53 967) 21 138
Attributable to
- Minority shareholders 4 385 5 095
- Equity holders of the group (58 352) 16 043
(Loss) / profit for the period (53 967) 21 138
Headline (loss) / earnings calculation
Net (loss) / profit attributable to equity
holders of the company (58 352) 16 043
Adjusted for
- Impairment 30 182 -
- Gain on loan expunged - (261)
Headline (loss) / earnings (28 170) 15 781
Number of shares (`000)
- Total 299 075 210 000
- Weighted in issue 291 151 210 000
- Fully diluted 291 151 306 896
Headline (loss) / earnings per share (cents)
- Weighted in issue (9.7) 7.5
- Fully diluted (9.7) 5.1
(Loss) / earnings per share (cents)
- Weighted in issue (20.0) 7.6
- Fully diluted (20.0) 5.2
Consolidated balance sheet
Audited Restated1
As at As at
R`000 31 Dec 2008 31 Dec 2007
Assets
Non current assets 168 070 153 848
Property, plant and equipment 75 367 50 598
Intangible assets 48 294 51 676
Other non-current receivables 3 425 -
Deferred tax asset 11 213 4 494
Investment in unlisted company - 47 081
Investment in joint venture 29 771 -
Current assets 93 165 83 390
Taxation 986 1 686
Loan to related parties 2 886 -
Trade and other receivables 45 786 56 345
Inventories 1 358 -
Cash and cash equivalents 42 149 25 358
Total assets 261 235 237 238
Equity and liabilities
Capital and reserves 158 678 99 668
Share capital 1 251 360
Share premium 167 778 31 886
Share option reserve 1 023 1 079
Vendor share issue reserve - 23 750
Foreign exchange translation reserve - -
(Accumulated loss) / Retained earnings (29 915) 28 438
Attributable to equity holders of the group 140 137 85 512
Minority interest 18 541 14 156
Non current liabilities 9 198 8 828
Long term liabilities 9 198 8 828
Deferred tax - -
Current liabilities 93 359 128 742
Short term liabilities 9 881 56 001
Provisions 6 072 303
Other current liability - 311
Trade and other payables 69 855 57 974
Minority shareholders for dividend - 529
Taxation 1 744 6 768
Bank overdraft 5 807 6 856
Total equity and liabilities 261 235 237 238
Net asset value per share (cents) 46.9 40.7
Net tangible asset value per share (cents) 30.7 16.1
Consolidated cash flow statement
Audited Restated1
Year ended Year ended
R`000 31 Dec 2008 31 Dec 2007
Cash flow from operating activities 5 606 8 258
Cash flows from investing activities (42 829) (107 102)
Cash flows from financing activities 55 063 72 423
Net increase / (decrease) in cash
and cash equivalents 17 840 (26 421)
Cash and cash equivalents at
beginning of year 18 502 44 923
Cash and cash equivalents at end of year 36 342 18 502
Consolidated statement of changes in equity
Audited Restated1
Year ended Year ended
R`000 31 Dec 2008 31 Dec 2007
Opening Equity 99 668 48 046
Issue of shares (note 2) 137 052 -
Share options issued (56) 979
Share issue expenses (269) (1 773)
Vendor share issue reserve (note 1) (23 750) 23 750
Net (loss) / profit for the year (58 352) 16 043
Minority interest 4 385 12 624
Closing Equity 158 678 99 668
Segment information
Audited Restated1
Year ended Year ended
R`000 31 Dec 2008 31 Dec 2007
Business segments
Segment revenue
Contact centre 142 483 182 068
Business continuity 143 229 10 568
Staffing 84 625 38 010
Total revenue 370 337 230 646
Segment result
Contact centre (36 611) 15 783
Business continuity 21 679 4 241
Staffing (8 759) 1 981
Unallocated (Head Office) (34 247) (694)
Intergroup eliminations 106 -
Operating (loss) / profit for the year (57 832) 21 311
Segment assets
Contact centre 39 015 69 118
Business continuity 133 630 95 398
Staffing 19 866 23 985
Unallocated (Head Office) 127 193 117 115
Intergroup eliminations (58 469) (69 210)
Total result 261 235 236 407
Segment liabilities
Contact centre 43 073 37 446
Business continuity 81 964 51 880
Staffing 11 874 15 811
Unallocated (Head Office) 939 83 375
Intergroup eliminations (35 293) (28 023)
Total liabilities 102 557 160 489
Commitments
Capital Expenditure contracted 2 174 14 348
Capital Expenditure authorised but
not contracted 19 891 25 000
Non-cancellable operating lease rentals 201 800 130 214
- Less than one year 30 876 21 511
- Between one and five years 123 248 77 555
- More than five years 47 676 31 148
Note 1
Prior-period error
The initial recognition of a financial liability for the full settlement
price of the available-for-sale investment in Sibize purchased in December
2007 was inappropriate. 50% of the purchase price constituted an equity
instrument as it was to be paid by issuing a fixed number of shares. It was
therefore also incorrectly recognised at amortised cost. The following
comparatives in the balance sheet as at 31 December 2007 were therefore
restated:
- An increase in the investment in Sibize of R0.8 million to R47.1 million
(reported in 2007: R46.3 million)
- A decrease in the short-term liabilities of R22.9 million to R56.0
million (reported in 2007: R78.9 million)
- The creation of a vendor share issue reserve of R23.8 million (reported
in 2007: nil)
This error had no effect on the income statement in the prior year (both
before and after tax) and consequently earnings per share remain the same
as previously reported.
Note 2
Issue of shares
On 11 January 2008, 70 373 832 shares were issued at R1.61 per share; on 27
February 2008, 11 220 471 shares were issued at R1.27 per share; on 11
April 2008, 7 480 315 shares were issued at R1.27 per share; total
consideration therefore R137.052 million
Comment on the results
In broadening its business process outsourcing (BPO) value proposition, the
group more than trebled in size over the past two years as a result of four
acquisitions. Management focus shifted from operating a single call-centre
business to collaborating across five businesses. However, slow response to
market changes resulted in the original Dialogue call-centre business
reporting an operating loss for the year under review while the other
individual businesses continued to produce operating profits. Growth in
some areas was restricted by the economic slowdown. Future emphasis will be
on business development and aggressive cost reduction to create a leaner
operation and restore overall profitability as soon as possible.
Operational review
The group consists of five businesses: three call-centre operations
(Dialogue, Sibize and Interaction), a business continuity and disaster
recovery operation (ContinuitySA) and a specialist recruitment company for
the call-centre industry (CallForce).
Dialogue
Historically this business was dependent on a large number of clients in
the financial services industry. The introduction of the National Credit
Act (NCA) in 2007, compounded by slowing consumer credit demand, resulted
in the reduction of its client base. Management`s reaction was slow to
obtain new clients, provide new services and significantly reduce overheads
to counter the financial effect of the reduction in revenue. The company
has now embarked on extensive restructuring and new business development
initiatives. Benefits of improved operating effectiveness, headcount
reduction and the expectation of additional bandwidth in the second half of
2009 provide renewed opportunities to market its inbound and outbound
services abroad.
Interaction
Interaction has for the past two years successfully managed the bulk of the
pre-paid call-centre for one of South Africa`s largest mobile network
providers and contributed to its client winning the coveted Orange Index
award for best customer service in the South African telecommunications
industry again.
Sibize
This business specialises in servicing the public sector in Gauteng and is
pursuing opportunities to duplicate its model for other government
departments in South Africa.
ContinuitySA
There is a growing awareness by corporates of the risks associated with
business interruption; consequently demand for the services offered by
ContinuitySA is growing. As a result revenue increased substantially during
the year. Capacity was increased through the acquisition of the South
African operation of SunGard Availability Services (Pty) Limited, which has
since been merged with that of ContinuitySA. ContinuitySA continued to
expand into Africa with the launch of a new site in Mozambique and a joint
venture agreement in Mauritius with local vendors. Consultancy work was
undertaken in several countries in Africa and the Middle East, which is
generating significant opportunities for establishing new sites in those
countries.
CallForce
CallForce`s temporary staff placement business was affected by the economic
slowdown as financial services clients aligned their temporary staff needs
with lower volume requirements. CallForce was, however, able to conclude
several new client contracts and a number of renewals during the year. The
company has also secured the rights to provide the call-centre industry
with ShadowMatch, a proven recruitment assessment tool.
Comments on the audited abridged financial statements
Due to the changes in the composition of the group, the overall results are
not directly comparable with those of the prior year and is hence analysed
per segment to enhance comparability.
Income statement
Second half performance was significantly worse than the first half due to:
- A deteriorating trading performance by the Dialogue call-centre business.
- Impairment of the investments in Sibize and CallForce
- Correction of the gain in respect of the settlement of the financial
liability. As indicated in the notes to the abridged financial statement,
the financial liability resulting from the acquisition of Sibize was
restated as an equity instrument and no gain is recognised upon settlement
- Reversal of income in the second half of the year due to client queries
in Sibize and Interaction.
Revenue of R370.4 million (2007: R230.6 million) is 61% higher than 2007,
as the effects of the newly acquired businesses are seen for a full year in
2008.
- In the call-centre segment, revenue decreased by 22% from R182.1 million
to R142.5 million, as average monthly seat utilisation reduced
significantly.
- In the staffing segment, revenue of R84.6 million (2007: R38.0 million)
is not comparable to the prior year as only four months` revenue was
included in the 2007 financial accounts. Headcount reductions in the
financial services sector due to the economic downturn resulted in lower
revenue on a comparable basis.
- In the business continuity segment, revenue of R143.2 million (2007:
R10.6 million) is not comparable to the prior year as only one month`s
revenue was included in the 2007 financial period.
The improvement in gross margin to 47% (2007: 34%) is due to different
structures of the group compared to the prior year. Higher margins in the
business continuity segment offset deteriorating gross margin in the call-
centre segment.
Operating costs excluding depreciation, amortization and impairments,
increased to R178.2 million (2007: R54.4 million) as the effects of the
newly acquired businesses are seen for a full year.
The cash-generating units of ContinuitySA, Sibize and CallForce were
independently valued at 31 December 2008 using strict valuation guidelines
required under International Financial Reporting Standards (IFRS) which do
not necessarily relate to valuation models used at acquisition. These
valuations showed lower recoverable amounts for Sibize and CallForce and
consequently impairment losses of R30.2 million (Sibize, R20.8 million and
CallForce, R9.4 million) were recognised against the carrying amount of
investments and goodwill.
The difference between the standard tax rate and the effective tax rate is
mainly as a result of the tax deduction available on completion of 166
registered learnerships and non-recognition of the deferred tax asset of
R11.4 million that would arise on the assessed loss in Dialogue. It was
considered prudent not to recognize the deferred tax asset until Dialogue
returns to profitability.
Losses in the call-centre segment eroded profits made in other segments and
resulted in an unsatisfactory performance by the group as a whole.
Fully diluted earnings per share are the same as weighted average earnings
per share as options not "in-the-money" are not dilutive.
Balance sheet
The increase in property, plant and equipment of R24.8 million is primarily
due to acquisitions. The prior year "Investment in unlisted companies" has
been reclassified as "Investment in joint ventures" because an agreement
that resulted in joint control was in force at 31 December 2008. This
investment has been impaired by R20.8 million. Debtors` days at 47 days
(2007: 51 days) improved slightly from the previous year, and are within an
acceptable range.
Non-current liabilities comprise mainly finance leases on property, plant
and equipment within ContinuitySA. The loan from Investec Bank was repaid
on 11 January 2008 from the proceeds of the BEE share issue.
Business combination
On 13 June 2008 ContinuitySA acquired the entire shareholding in
ContinuityAfrica (Pty) Ltd (previously known as SunGard Availability
Services (Pty) Ltd).
The aggregate amounts recognised at fair value at the acquisition date for
the acquiree`s assets and liabilities were:
R million
Total assets 38.2
Total liabilities (27.1)
Net assets 11.1
Goodwill 6.7
Total purchase price (cash consideration) 17.8
Cash of acquiree on acquisition 3.1
Cash flow in acquisition 14.7
Profit included in the group since acquisition 1.0
Profit that would have been included in the group had the
acquisition been made at the beginning of the year 1.1
Statement of compliance
The consolidated financial statements have been prepared in accordance with
IFRS, its interpretations adopted by the International Accounting Standards
Board (IASB) and the requirements of the South African Companies Act. The
annual financial statements have been prepared on the historical cost
basis, except for the measurement of certain financial instruments at fair
value.
Change in accounting policies
These accounting policies and methods of computation are consistent with
those applied in previous years, and published in the 2007 Annual Report,
except for interests in jointly controlled entities, which are accounted
for using the equity method, being the most relevant policy. Previously,
including the interim results at 30 June 2008, it was reported that such
interests are accounted for using proportionate consolidation. As the
group have never had any interest in jointly controlled entities, the
accounting policy should not have been disclosed previously and therefore
prior-period information was not restated for this change in accounting
policy.
Prospects and outlook
The economic slowdown provides new opportunities to the BPO industry as
companies are compelled to reduce their fixed overhead expenditure and
introduce a level of flexibility to their cost structures. To take
advantage of these opportunities the company is committed to regaining
focus within its traditional call-centre operation, marginalised with the
recent acquisition programme of the group. Attention has also been focused
on the need to ensure the correct governance structures are implemented.
The board expects already profitable operations to remain as such in
tougher economic times and that the Dialogue call-centre business will be
set on a new growth curve once losses are stemmed and the positive effects
of a restructured and revitalised business contributes a profit to the
group in the year.
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 Smith (nee Cloete), head of Group Human Resources, joined the
board on 1 January as an executive director. Mr Andile Khumalo joined the
board as non-executive director on 5 March. Mr Peter Watt joined the board
as independent non-executive chairman and Mr Stephen Rodger stepped down as
non-executive chairman on 6 October. In November Mr Jason Drew tendered his
resignation as chief executive but he remains a non-executive director. Mr
Alan Farthing was appointed as an independent non-executive director to the
board on 12 December.
Dividend
No dividend was declared for the year (2007: nil).
Auditors` opinion
The results have been audited by BDO Spencer Steward (Cape) Inc, and their
unqualified audit opinion is available for inspection at the company`s
registered office. Shareholders are advised that the auditors` unqualified
audit opinion contains an emphasis of matter paragraph which states the
following:
"Without qualifying our opinion, we draw attention to the note on going
concern in the Directors` Report, which indicates that Dialogue Group SA
(Proprietary) Limited, a significant wholly-owned subsidiary of Dialogue
Group Holdings Limited, has an accumulated loss of R10.469 million for the
year ended 31 December 2008 (2007: retained income R17.730 million) and as
of that date the company`s total liabilities exceed its total assets by
R17.252 million. Its losses for the current financial period was R28.199
million (2007: profit R8.366 million). In addition, Dialogue Group
Holdings Limited has incurred losses in the current financial period of
R44.374 million (2007: profit R0.617 million). The profits generated in the
business continuity subsidiaries have offset these losses which results in
a consolidated loss attributable to equity shareholders of R58.4 million.
These conditions, along with other matters as set forth in the Directors`
Report, indicate the existence of an uncertainty that may cast doubt on the
ability of Dialogue Group Holdings Limited to continue as a going concern."
Notice of annual general meeting and posting of annual report
Shareholders are hereby advised that the annual report (incorporating the
annual financial statements) of the company for the financial year ended 31
December 2008 will be posted to shareholders in due course. The annual
report will contain the notice and related details of the annual general
meeting of shareholders. A further announcement providing the date, time
and venue of the annual general meeting of shareholders will, in addition,
be released on SENS.
By order of the board
P.A. Watt P.S. Oosthuizen
Non-executive chairman Financial director
24 March 2008
Directorate and administration
P.A. Watt* (Chairman), P.S. Oosthuizen, A.O. Smith (nee Cloete), R.K.
Mangena*, A. Khumalo*, G. Mkhari*, A. Farthing*#, S.J.H. Rodger*#, J.J.
Drew*#
*Non-executive Independent #British
Registered office: 6th floor, Dialogue House, Rua Vasco da Gama, Foreshore,
Cape Town (PO Box 8355, Rogge Bay, 8012)
Company secretary: T. Kretzmann, 6th floor, Dialogue House, Rua Vasco da
Gama, Foreshore, Cape Town (PO 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: PSG Capital (Pty) Ltd, Johannesburg branch, Building 8,
Woodmead Estate, 1 Woodmead Drive, Woodmead, 2191 (PO Box 987, Parklands,
2121)
Date: 24/03/2009 17:45:02 Produced by the JSE SENS Department.
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