Dialogue to refocus on core business

Once the contact centre industry darling, the Dialogue Group now has to refocus by heavily canvassing for new customers to make up for the losses in its core business, says chairman Peter Watt.

The Dialogue Group must also decide what to do with its 50/50 joint venture in Sibize, the contact centre operation that specialises in government-related business, for which the group overpaid for to the tune of R47.1 million, an increase of R800 000 from the 2007 statement.

Yesterday the AltX-listed outsourcing company posted an apparently healthy surge in overall revenue of R370.377 million from a previous year's R230.646 million, a rise of 61% for the year ended 31 December. Gross profit surged 121%, from R78.758 million to R174.114 million.

However, the segmental analysis shows a gloomier picture, with its call centre business falling 22% to R142.483 million from R182.068 million. This was offset by the business continuity division seeing a surge from R10 million to R143.229 million, and revenue from its staffing division rising from R38.10 million to R84.625 million.

Watt says the Dialogue Group's good revenue increases are on the back of acquisitions and that management had taken its eye off ensuring organic growth for its call centre business was maintained.

“The majority of the business for the contact centres was based in the heavily traded domestic financial services sector. The promulgation of the National Credit Act impacted on this business and slowed it, and yet no plan was put in place to make up for that,” he says.

Frost & Sullivan analyst Spiwe Chimera says: “The impact of the financial crisis on the financial services industry, which dominates the South African contact centre markets, impacted on Dialogue's call centre earnings. This is because the financial sector has cut down on mega deals in outsourcing.”

Frost & Sullivan expects the crisis may have a positive side for Dialogue, as companies in developed countries are looking at outsourcing now more than ever in an effort to save costs. However, the size per deal is likely to be much smaller.

Watt says the group is in discussions with overseas companies to gain business for its 600-seat Cape Town centre, but if only 300 of those seats were allocated to new business, “then the company will be back in the money”.

The Sibize deal was a factor that contributed directly to former CEO Jason Drew's resignation last year. Watt says the purchase was a bad business decision and was made without fully understanding the Sibize business.

“We definitely overpaid for the 50% we bought. Now we are in discussions with the other party about whether to purchase the other 50% and there is no way we want to pay the same price. The problem with a 50/50 joint venture is that both parties must put equal amounts into the business. Problems arise when one of the parties is either unable or unwilling to do so,” he says.

Drew serves as a non-executive director and Watt says his future in this position will be decided at the next annual general meeting.

“Jason [Drew] has not been obstructive in any way and is being very cooperative, so we have left this decision up to the shareholders,” Watt says.

International business prospects hold the most hope for the Dialogue Group's core business. Watt says he is encouraged by news that SA is seen as a haven of stability compared to some of its traditional rivals in the contact centre industry, such as India.

However, international research firm Gartner says getting that business will be tougher than ever. It expects prices on infrastructure outsourcing services to drop by 5% to 20% on new deals over the next two years. The pressure on pricing is due to the economy and competition among the global outsourcing players.

"Regardless of the relative strength of outsourcing during a recession, many clients are reporting intense discussion with their vendors and renegotiation of contracts for terms and conditions, service level agreements, fees, volumes and low-cost offshore delivery locations," says Claudio Da Rold, Gartner VP. "These items are under scrutiny to identify satisfactory concessions to further reduce the cost of services on a case-by-case basis."

Frost & Sullivan also points out that Dialogue may start to feel the pressure of holding several companies, including contact centres (Interaction Call Centre), contact centre recruitment services (Call Force Direct) and business continuity providers (Sunguard and ContinuitySA). These were acquired through several mergers and acquisitions over the last two years.

“It is now a case of converting these into sustainable, profitable operations,” says Chimera. “Frost & Sullivan wonders whether the group may not be overburdened by all these acquisitions and will wait to see whether it has resources to make sure each of them is profitable.”

Dialogue's share price was last seen at 11c, down from yesterday's close of 15c.