Driver Grp Regulatory News (DRV)

2 June 2015

DRIVER GROUP PLC

("Driver" or "the Group")

Half Yearly Report

For the six months ended 31 March 2015

· Revenue up by 8% to £21.1m (2014: £19.6m)

· 4 months revenues from initiate acquisition in December 2014 and in line with management expectations

· Americas, Europe & UK Region revenue growth and profits in line with management's expectations

· Africa, Asia and Middle East Region reports loss due to short term reduced revenue, increased overhead in the period establishing business support functions and creation of critical mass of fee earners

· Subsequent to implementation of business support functions in Africa, Asia & Middle East a review of the existing senior management team, business development philosophy and operations resulted in a restructuring and reduction in the overhead to 91% of that in the prior year; the benefits of which will be seen in the second half of the year and beyond

· Underlying* loss before tax of £0.49m (2014: profit from continuing operations of £1.4m). Reported loss before tax of £2.1m (2014: profit of £1.3m)

· Proposed dividend per share maintained at 0.6p (2014: 0.6p)

· Growth & Strategic Plan in place through to 2018

· Headcount increased by 30% to 461

· Average fee rates increased by 22% largely from Africa, Oman, UAE and UK

· Utilisation levels reduced by 2 percentage points to 73% due to Project Services business in UK plus Netherlands, Singapore, Oman and UAE

· Acquisition of initiate completed, integrated and operating in line with expectations

· Africa, Asia and Middle East Region positioned for growth

- Leadership and business support and development functions recruited

- Technical staff recruited in advance of anticipated opportunities to enable efficient delivery of client needs across the Region

- revenue increases in Africa, Malaysia, Hong Kong and UAE in the period

- Subsequent post reporting period restructuring reduces ongoing overhead back to below prior year levels

- Post reporting period monthly revenues up on current and prior years

· MHPM Driver operations in Canada profitable in first six months of trading

· DriverTrett UK significant growth in revenue, profits, utilisation and rates

· Post reporting period opened office in Paris

Underlying figures are stated before the share-based payment costs and amortisation of intangible assets and exceptional items (note 7).

Steve Norris, Chairman of Driver Group, said:

"The first half of financial year 2014/2015 has been a period of investment and change for the Group, as we recognised the need to transition from the delivery of one growth strategy to the implementation of our new plan to take the business forward."

Enquiries:

INTRODUCTION

This is my first Statement as Chairman of Driver reporting on the Group's performance for the half year to March 2015. It has been a period of investment and change for the Group as we recognised the need to transition from the delivery of one growth strategy to the implementation of our new plan to take the business forward.

The business is now structured under three Chief Operating Officers leading Africa / Asia / Middle East, Americas / Europe / UK and initiate.

Our medium term plan required early investment in leadership and business support together with recruitment of technical staff to increase our critical mass particularly in Africa, Asia & Middle East Region and so be better able to react to the needs of our multi-national clients on large construction and engineering projects. This cost has been substantially incurred in this reporting period without the benefit of the anticipated revenue returns that should be seen going forward. Some assignments also started later than envisaged and other existing commissions closed early; this particularly affected performance in the Middle East, Singapore and Hong Kong.

Following the implementation of our plan to increase the business support functions in Africa, Asia & Middle East we undertook a review of the way the business would function going forward and the structure best suited to position ourselves for growth. This resulted in a restructuring of the business in this Region particularly at senior management level which was enacted at the end of this reporting period, incurring substantial costs. In taking this action we have now reduced the overhead in the Region to below that of the previous year and the benefit of that reduction will be felt in the second half of the current financial year and thereafter. Our growth strategy over the next three years is very much predicated on the volume of construction and engineering work across this part of the world and ensuring we have the capability to serve multi-national companies based throughout the Region. We have a new leadership team and new philosophy for growth in place and are looking to develop the initiate business here. Given this, in May, our CEO relocated to this Region in order to ensure he and the Board can efficiently and effectively support the COO and his team in implementing the plans we have in place.

Americas, Europe & UK is trading in line with management expectations with strong growth in revenues and profits coming from our core operations in DriverTrett in the UK. We began trading in Canada with our commercial joint venture partner (MHPM) and this business reported profits in the half year. Post this reporting period, we opened an office and began to trade in Paris.

The integration of initiate into the Group has gone smoothly and given my previous interest in that organisation I am happy to report that the original revenue, profit and operational expectations for the period have been delivered.

FINANCIAL RESULTS

Revenue for the first half of the financial year was £21.1m, an increase of 8% on the first half of 2014 (£19.6m). This includes £2.2m from initiate which was acquired in December 2014 and growth in Americas, Europe & UK of £0.4m offset by reduced revenue in Africa, Asia & Middle East of £1.1m.

The Group reported an underlying* loss before tax of £0.49m (2014: profit £1.4m). After the cost of share options, exceptional items (note 7) and amortisation of intangible assets of £1.6m (2014: £0.1m cost of share options and amortisation of intangible assets) the pre-tax loss for the period was £2.1m (2014: profit of £1.3m).

In September 2014, the Group closed the Houston office and consequently the Americas segment is disclosed as a discontinued operation with a loss, net of tax in the six months to March 2014 of £0.2m.

The Group's effective tax rate from continuing operations is 4% (2014: 14%) reflecting losses incurred which have arisen in overseas operations which enjoy lower tax rates. Underlying loss per share before share option costs, exceptional items and amortisation of intangible assets was 1.4p (2014: earnings per share of 4.5p). After share option costs, exceptional items and amortisation of intangible assets the loss per share was 6.8p (2014: earnings per share 3.3p). Net assets increased to £12.0m (2014: £10.7m).

The Group's cash position remained stable over the period with net borrowings at 31 March 2015 of £1.3m (2014: £1.2m).

Trade and other receivables increased by £1.1m over the first half to £13.9m (30 September 2014: £12.8m); the growth includes £0.9m from initiate. Trade and other payables increased by £2.4m to £8.4m (30 September 2014: £6.0m); £0.9m of this growth was from initiate and a further £0.6m arises from an accrual for deferred consideration on the acquisition.

DIVIDEND

Despite the first half trading results, we expect improved revenues for the second half of the year, and the Board therefore are maintaining the interim dividend for 2015 at 0.6 pence per share (2014: 0.6p) which will be paid on 7 August 2015 to shareholders on the register at the close of business on 10 July 2015.

TRADING PERFORMANCE

We are in the early stages of delivering our new growth plan and in the period we have seen head count increase to 461 (2014: 354) with increases in all regions. These increases have had an impact on utilisation levels which dropped 2 percentage points to 73% but average fee rates increased by 22%.

The acquisition of initiate means that we can now provide project management services to the infrastructure market in the UK and in the medium term to our overseas markets. This reporting period has only seen 4 months of trading which was in line with our expectations maintaining pre acquisition profit levels.

Africa, Asia & Middle East is the region that has undergone significant change in the period and is the cause of the reported losses. There has been an underlying* £1.8m swing in the period as a £1.3m profit in 2014 became a £0.5m loss in 2015. This is broadly caused by a £1.1m reduction in revenue and an increase in overhead as the Company invested in the Region to recruit leadership and business support staff alongside an increase in technical staff as we developed our critical mass across the Region. We believe that there is scope for significant growth in this part of the world but to achieve this there needed to be a step change in the leadership, business support and development functions together with the creation of greater critical mass. In the reporting period we have recruited 6 staff classified as overhead and employed 41 additional fee earners. Post this reporting period and following a full review of the region once the additional team was in position we have reduced some areas of the pre-existing support team and senior management which has had the effect of taking the overhead burden to levels below those of previous years. We will see the benefit of this in the second half of the year and beyond.

In the Africa, Asia & Middle East region, a number of the territories performed as originally expected (Africa. Australia and Malaysia) but there is scope to materially increase revenues in the Middle East, Hong Kong and Singapore. A significant volume of additional revenue can be delivered by the latent capacity we have in the team we now have in place and we do not anticipate having to recruit further in the second half of the year. We are starting to see increases in revenue; Q2 revenue was up 12% on Q1 and current monthly forecasts show revenue at the highest level this year and higher than average prior year levels.

Americas, Europe & UK have performed in line with our expectations. Revenue increased by 4% however the costs of full year bonus payments taken in the period took operating profits down 1.8 percentage points. We expect these costs to level out through the second half of the year.

Within Americas, Europe & UK the Driver Trett business delivered significant revenue growth in the UK and Germany as has the Project Services business in the north of UK. Our Measurement business also grew in the period. The businesses that underperformed were Project Services in the south of the UK and the Netherlands office. The Project Services business is in the process of addressing the concerns that management has identified as we believe the market does exist to enable growth in this area.

Our commercial joint venture in Canada has commenced trading in the period and was profitable. Post this reporting period we opened an office in Paris which is expected to break even in the second half.

OUTLOOK

In the Annual Report & Accounts the Company reported that this year was one of investment in structure and creation of critical mass particularly in Africa, Asia & Middle East. As indicated above, the investment has been made and the board anticipates that as a result we will generate a stronger, larger and more profitable Region. The opportunities now being created are of a greater scale than in the past and there is a focus on the large international oil & gas and infrastructure, construction and engineering companies across the region. The quality of our client base is improving along with the opportunities they present to us. The region is now starting to work as a whole rather than the three separate regions it used to be and this should produce better cross border utilisation of staff and client relationships.

For the remainder of the current financial year, the Americas, Europe & UK including initiate are expected to continue to deliver in line with management expectations. We are seeing increasing growth in construction and engineering activity across the UK where we are firmly established and have ample opportunity for growth in mainland Europe, Canada and in to South America through our European clients.

Over the medium term gradual growth is expected in the UK with more aggressive growth anticipated in mainland Europe particularly through the office in Germany and the newly opened office in Paris where we see an opportunity for our locally based people with the relationships and various language skills to support the large European construction and engineering companies globally. The Canadian business can also continue to grow.

In respect of the current financial year as a whole, the outlook depends on how quickly the increased number of fee earners recruited in to the Africa, Asia & Middle East Region can progress from current utilisation levels to optimum utilisation levels. We see this as a matter of timing. It has always been the nature of our business that it is difficult to predict precise revenues more than two months ahead. Whilst we are working to utilise the latent capacity we currently have in our increased fee earning base, any change in timing of revenue generation will have an immediate corresponding impact on underlying profitability. There is clear evidence that we are reaching the required utilisation levels in this Region as May and June revenue forecasts are the highest of any month in the current year and higher than average monthly revenues in the previous two financial years. However, in the fourth quarter of July to September there is a risk in this region that this momentum could be affected due to Ramadan (June / July) followed by the August holiday period whereby certain clients may not take key strategic decisions. Therefore the Group intends to continue to be conservative in its outlook and it should be understood that our short term forecasts for 2015 may be subject to change for this reason.

In summary the Group has implemented change aimed at positioning it for material growth in the medium term and the costs of this have been incurred. We have made significant strides in setting in place a strategy for sustainable growth in the years ahead. The second half of this financial year is difficult to predict precisely for the reasons I have already alluded to but current reports identify continuing growth and the board believes that the strategy will deliver improved shareholder value in the medium and indeed long term.

I should say that I have also been impressed with the quality of the staff I have met so far in Driver Group and I thank them all for their efforts.

Steven Norris

Non-Executive Chairman

1 June 2015

Condensed Consolidated Income Statement (Unaudited)

Half yearly report for the six months ended 31 March 2015

*Restated to reflect discontinued operations

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

Half yearly report for the six months ended 31 March 2015

Condensed Consolidated Statement of Financial Position (Unaudited)

At 31 March 2015

Condensed Consolidated Cashflow Statement (Unaudited)

Half yearly report for the six months ended 31 March 2015

Condensed Consolidated Statement of Changes in Equity (Unaudited)  

Half yearly report for the six months ended 31 March 2015

For the six months ended 31 March 2015:

Condensed Consolidated Statement of Changes in Equity (Unaudited) (continued)

Half yearly report for the six months ended 31 March 2015

For the year ended 30 September 2014:

\* Total equity attributable to the equity shareholders of the parent

(1) 'Other reserves' combines the translation reserve, capital redemption reserve and other reserves.

NOTES

1 BASIS OF PREPARATION

The condensed consolidated interim financial information has been prepared in accordance with the accounting policies that are expected to be adopted in the Group's full financial statements for the year ending 30 September 2015 which are not expected to be significantly different to those set out in note 1 of the Group's audited financial statements for the year ended 30 September 2014. These are based on the recognition and measurement principles of IFRS in issue as adopted by the European Union (EU) and are effective at 30 September 2015 or are expected to be adopted and effective at 30 September 2015. The financial information has not been prepared (and is not required to be prepared) in accordance with IAS 34. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of this financial information. The financial information for the half years ended 31 March 2015 and 31 March 2014 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The annual financial statements of Driver Group plc are prepared in accordance with

IFRSs as adopted by the European Union. The comparative financial information for the year ended 30 September 2014 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2014 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2014 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed consolidated financial statements.

2 TAXATION

The tax expense on the profit for the half-year ended 31 March 2015 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 30 September 2015.

3 DIVIDEND

The directors propose an interim dividend for the half-year ended 31 March 2015 of 0.6p per share (2014: 0.6p).

4 SUMMARY SEGMENTAL ANALYSIS

REPORTABLE SEGMENTS

During the period there has been a change in the reportable segments. This is due to a change in how the Group is structured and how information is presented to the chief operating decision maker. Comparative segmental analysis has been restated to reflect this change.

For management purposes, the Group is organised into three operating divisions: Americas, Europe & UK (AEU), APAC, Middle East & Africa (AMEA) and initiate. These divisions are the basis on which the Group is structured and managed, based on its geographic structure. In AEU and AMEA the key service provisions are: quantity surveying, planning / programming, quantum and planning experts, dispute avoidance / resolution, litigation support, contract administration and commercial advice / management. In initiate the key service provisions are capital investment consultancy providing development, project and contracting management services to the infrastructure market in the UK. In September 2014 the Group closed its USA operations based in Houston and the Americas division, represented then only by the US, was consequently disclosed as discontinued.

Segment information about these reportable segments is presented below.

Six months ended 31 March 2015

(1) Unallocated costs represent Directors' remuneration, administrative staff, corporate head office costs and expenses associated with AIM.

(2) Inter-segment revenue is charged at prevailing market rates.

4 SUMMARY SEGMENTAL ANALYSIS - continued

Six months ended 31 March 2014 (restated)

Year ended 30 September 2014 (restated)

(1) Unallocated costs represent Directors' remuneration, administrative staff, corporate head office costs and expenses associated with AIM.

(2) Inter-segment revenue is charged at prevailing market rates.

5 EARNINGS PER SHARE 

No potential ordinary shares relating to share options (31 March 2014: 247,285) have not been included in the calculation of diluted earnings per share as their value has no dilutive effect.

6 ACQUISITIONS

On 08 December 2014 the Group acquired initiate Consulting Limited ("Initiate"). Initiate are capital investment consultants providing development, project and construction management services to the infrastructure market in the UK. The consideration for the acquisition is being satisfied by way of an initial cash payment of £1.5m, which is being satisfied out of the Company's existing financial resources, and by the issue of 1,594,274 new ordinary shares in the Group (the "Consideration Shares") with a fair value of £1.6m. There is a further £2.185m additional cash payment, which is deferred over a 2 year period and is conditional on key individuals remaining in employment. This is treated as a post combination employment cost.

The acquisition enables the Group to immediately provide development and project management services on significant aviation, highway and rail projects across the UK and creates the opportunity to leverage existing project and dispute & advisory services in to this sector and to Initiate's client base. This is an excellent strategic fit for the Group, in a sector experiencing significant growth, for example through the Government's £375bn National Infrastructure Plan. Over the medium term, Driver Group will look to develop the service to other regions where infrastructure-spend is at significant levels, such as across the Middle East and Africa.

For the year ended 30 April 2014, Initiate reported turnover of £7.48m and operating profit of £0.73m. Given the complementary nature of the two businesses, the acquisition provides the Group with synergistic benefits. It fits perfectly with the Group's stated strategy of developing complementary service offerings that allow for leverage of the existing business and is expected to provide strong growth opportunities for the Company.

Book and provisional fair value of assets and liabilities acquired: 

Fair value of consideration paid

The contribution to net profit of the Group was an underlying* profit of £0.193m. After exceptional items (note 7) and amortisation of intangible assets of £0.053m the contribution was a net loss of £0.612m. Group revenue includes £2.22m from the operations of Initiate.

7 EXCEPTIONAL ITEMS

Exceptional items are operating costs that are not expected to be incurred every year and due to their nature and amount are disclosed separately.

(1) Severance costs include redundancy, payment in lieu of notice, ex-gratia, other discretionary payments and associated legal costs.

(2) Acquisition costs include legal and professional fees, office and restructuring costs and post combination employment costs relating to the initiate acquisition