Driver Grp Regulatory News (DRV)

20 May 2014

DRIVER GROUP PLC

("Driver" or "the Group")

Half Yearly Report

For the six months ended 31 March 2014

Key Points

· Trading in line with management expectations

· Revenue up by 7% to £19.9m (2013: £18.5m)

· Middle East revenue up 15% and ahead of expectations

· Asia Pacific - revenue up 93% and ahead of expectations

· Europe - revenue up 6% - UK Project Services business strengthening in Power & Process and Civil & Infrastructure divisions.

· Underlying* profit before tax of £1.2m (2013: profit of £1.45m)

Profit before tax of £1.1m (2013: profit of £1.4m)

· Proposed dividend per share increased by 20% to 0.6p (2013: 0.5p)

· Underlying* earnings per share of 3.8p (2013: 4.8p)

Basic earnings per share of 3.3p (2013: 4.6p)

· Investment made in the following areas:

- Commenced trading in Hong Kong and development of Australia.

- Developing partnerships with software providers in training of staff in Europe.

- Continued investment in America.

· Cost base subsequently realigned in America following a slow start to the year

· Africa has had a slower start to the year as a result of the Government suspending work on three major hospitals. However, we have strengthened our dispute & advisory and project services offering in this region.

· Established Joint Venture in Canada targeting dispute and advisory services - benefits to come in 2015

*Underlying figures are stated before the share-based payment cost and amortisation of intangible assets

W Alan McClue, Chairman of Driver Group, said:

"I am pleased with the Group's performance for the first half of financial year 2013/2014 which was in line with management expectations. The period can be characterised as continued excellent performance in the Middle East and Asia Pacific starting to deliver a return on investment. The continuing development of the Asia Pacific Region, together with the secured revenues and pipeline of opportunities provide me with confidence in our performance for 2013/2014 and the medium term outlook for the Group."

Enquiries:

INTRODUCTION

I am delighted to report on the Group's performance for the first half of financial year 2013/2014; a period in which overall results were in line with management expectations.

The period was one of continued investment in the Asia Pacific region as we looked to establish our new offices in Australia and Hong Kong and strengthen our business in Singapore. I am very pleased to report that the Asia Pacific region is developing well and was ahead of expectations in the first half of the year. The Middle East region was again a strong contributor, trading better than anticipated in the period. These regions offset the slower start we had to the year in Africa, where the Government suspended work on three hospitals pending decisions on methods of procurement, and in America, where the continued investment has not yet generated the returns we were initially targeting from this region and certain measures have subsequently been taken to remedy the performance from the American business. The European region was helped by a better than anticipated performance in the Project Services business which compensated for a reduction in revenue in the UK's dispute and expert witness services. The offices in mainland Europe (Germany and Netherlands) were in line with our expectations. In addition, within our European business we have invested in developing partnerships with software businesses and in training staff which will serve to enhance the Company's Project Controls and Cost Management offerings.

New initiatives in the period have been the creation of a Joint Venture in Canada to serve the dispute and advisory market and working with software companies to assist in the implementation and use of project controls and management tools on construction and engineering projects. These areas of investment will begin to benefit the Group in the next financial year.

FINANCIAL RESULTS

Revenue of £19.9m for the first six months of 2014 has grown by 7% compared to the first half of 2013 (£18.5m) and profit before tax is £1.1m (2013: £1.4m). The revenue growth is the result of increased sales in all regions with the exception of Africa and America. The reduction in profit is in line with management's expectations for the period and is due to budgeted cost increases incurred as part of our investment programme resulting in a 1.3pp reduction in utilisation levels.

Group underlying pre-tax profit, for the first half, before the cost of share options and amortisation of intangible assets is £1.2m (2013: £1.45m). After the cost of share options and amortisation of intangible assets of £139,000 (2013: £50,000 cost of share options) the pre-tax profit for the six months ended 31 March 2014 was £1.1m (2013: £1.4m).

The Group's effective tax rate has remained stable at 17% (2013: 17%) reflecting the profits from overseas operations which benefit from lower tax rates. Underlying earnings per share, before share option costs and amortisation of intangible assets was 3.8p (2013: 4.8p). After share option costs and amortisation of intangible assets the earnings per share was 3.3p (2013: 4.6p). Net assets stand at £10.7m (2013: £8.7m).

The Group had net borrowings at 31 March 2014 of £1.2m (2013: net cash of £0.1m). This was in large part due to aged debt build up in Oman on extended Government contracts whilst contract addendum paperwork was put in place and contractual retentions on these projects. Since the close of the half year it is pleasing to report that these delayed payments have started to be received. Other matters impacting the cash position in the period were increases in general working capital requirements as a result of growth, increases in tax payable, and increased payment of prior year bonuses.

As a result of the continued revenue growth and the Oman debt, trade and other receivables increased by £1.9m over the first half to £12.6m (30 September 2013: £10.7m). Trade and other payables reduced by £0.5m to £6.3m (30 September 2013: £6.9m).

DIVIDEND

In view of the first half trading results and the secured revenues for the second half of the year, the Board are maintaining its progressive dividend policy and increasing the interim dividend for 2014 to 0.6 pence per share (2013: 0.5p) which will be paid on 1 August 2014 to shareholders on the register at the close of business on 4 July 2014.

TRADING PERFORMANCE

Continued growth of the business has been achieved in a trading environment that continues to be challenging for differing reasons across each region. We continue to focus on 'blue chip' clients and to provide a breadth of services that can be used across the lifetime of construction and engineering projects. Head count at the period end has increased to 354 (2013: 307) with increases in all regions.

Africa, whilst impacted by the suspension of the three hospitals resulting in revenue being down at £1m (2013: £1.7m), has strengthened its dispute & advisory offering and its project services division in the period. Utilisation levels in these areas of the business are at 78% whereas as a whole this is reduced to 61% due to the PPP team on the hospitals being underutilised. It remains a possibility that the Government will instruct a recommencement of the hospitals in Q4 of our financial year. Additionally, we have a significant number of proposals for PPP services outstanding that are awaiting final decisions.

America had a slow start to the year with revenue down 36% at £0.3m (2013: £0.4m) and was loss making in the period. This was largely due to one contract transferring to Asia Pacific upon commencement of construction activity. Action has subsequently been taken to adjust the senior management structure and costs to reflect the size and nature of the office now envisaged. We will continue to operate in this market within the Oil & Gas sector and use this base to build relationships with American customers when they need expert support in their overseas locations.

Asia Pacific has performed very well in the first half and is ahead of our expectations, primarily as a result of sales in Australia and Singapore. Revenue has doubled to £1.6m (2013: £0.8m). The new office in Hong Kong, which opened at the start of the year, has started to secure quality clients and commissions. Whilst the region posted a loss in the half year due to the establishment of key staff in the Hong Kong office and the high overhead burden necessary to establish and build a regional business this loss was less than budgeted. At the end of the period the region began to deliver monthly profits mainly through the provision of dispute & advisory services and expert witness work. Utilisation levels were relatively low at 53% (2013: 37%) reflecting the recruitment of staff in to Hong Kong and to a lesser extent the developing Australia office which was opened in Q3 of 2013. A large proportion of the anticipated increase in revenue in these offices can be undertaken by existing staff.

Performance of our European business has been satisfactory with revenue up 6% to £10.5m (2013: £9.9m). The Project Services business is ahead of anticipated revenues and utilisation levels are up 3pp at 82% (2013: 79%); this improvement is across both the Power & Process and the Civil & Infrastructure divisions. Mainland Europe and our International services from the UK performed as expected. However the disputes & advisory and expert witness services from the UK has underperformed with utilisation levels down 1pp at 68% (2013: 69%). The reason for the drop in these utilisation levels is not due to the number of commissions secured but as a result of them being smaller in scale than in the previous period. Added focus on market awareness of our expert witness offering to international disputes instructed out of the UK is starting to show some benefits for the second half. Profits from the UK were also reduced due to the investment of none billable consultants time in training on software products where we will partner with providers to assist in implementation and potentially operation of project controls and management systems to construction and engineering projects and companies.

The Middle East continues to be a strong region for the Group, once again outperforming our expectations. Revenues are up 15% at £6.5m (2013: £5.7m) and profit improved to £1.5m (2013: £1.4m). However, due to the unsustainably high utilisation levels in 2013 experienced as a symptom of substantial growth, utilisation levels were down 5pp at 83% (2013: 88%). The Qatar office performed particularly well and we are starting to see substantial opportunities ahead as the infrastructure, hotel and stadia projects are released ahead of the FIFA World Cup in 2022. Oman continues to grow as we secure work in both Government and private sectors and we are very pleased to have been appointed by the Petroleum Development Company of Oman to assist in developing their project controls and procedures across their business. We are also looking to further develop our project management business currently restricted to Oman in to UAE and are exploring the potential for an office in Kuwait focussing on the Oil sector.

OUTLOOK

The Group's budgets planned for a better performance in the second half of the year as the investments in new offices carried through from 2013 start to deliver benefits in the second half. A recent review of the regions continues to support the view that this is the case and this is also supported by the level of secured commissions we have obtained and our current pipeline of opportunities.

We continue to focus on the growth that the Asia Pacific region can provide for us through its network of offices and particularly the new offices in Australia and Hong Kong. The region will play an important role in leveraging our global clients as the Chinese, Japanese and Korean companies venture west to Africa, the Middle East and Europe. Our DIALES expert witness brand is also important for global growth and we see our strength being our international experts being supported by local staff so that we can serve our clients on any significant disputes in the key strategic areas of the world.

A key objective continues to be increasing and strengthening our offering in the Oil & Gas sector and the associated heavy engineering works in shipyards and on marine vessels. We have secured some quality appointments in the period in Asia Pacific, Middle East, Netherlands and UK and continue to believe that our office locations across these hubs are key to increasing commissions in this sector.

Whilst we have invested and will continue to invest in Canada this year we do not anticipate any meaningful benefit until 2015 and the same can be said for the investment in the project controls and project management software systems initiative.

In respect of the current financial year the platform created in our fledgling offices, the secured revenues and pipeline of opportunities and the recent review of our ability to deliver second half budgets give the Board confidence in the outlook for this financial year.

I continue to be very confident and excited by the opportunities that exist for the Group and firmly believe that the plans we have in place to leverage our service offerings and global network of offices will deliver significant shareholder value in the medium term.

W. Alan McClue

Non-Executive Chairman

19 May 2014

Condensed Consolidated Income Statement (Unaudited)

Half yearly report for the six months ended 31 March 2014

Condensed Consolidated Statement Of Comprehensive Income (Unaudited)

Half yearly report for the six months ended 31 March 2014

Condensed Consolidated Statement Of Financial Position (Unaudited)

At 31 March 2014

Condensed Consolidated Cashflow Statement (Unaudited)

Half yearly report for the six months ended 31 March 2014

Condensed Consolidated Statement of Changes in Equity (Unaudited)

Half yearly report for the six months ended 31 March 2014

For the six months ended 31 March 2014:

For the year ended 30 September 2013:

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

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

(2) The shortfall between the exercise price of share options granted and the outstanding loan due from the EBT is transferred from own shares to retained earnings over the vesting period.

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 2014 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 2013. 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 2014 or are expected to be adopted and effective at 30 September 2014. 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 2014 and 31 March 2013 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 2013 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2013 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2013 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 2014 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 30 September 2014.

3 DIVIDEND

The directors propose an interim dividend for the half-year ended 31 March 2014 of 0.6p per share (2013: 0.5p).

4 SUMMARY SEGMENTAL ANALYSIS

REPORTABLE SEGMENTS

For management purposes, the Group is organised into five operating divisions: Europe, Middle East, Africa, Asia Pacific and America. These divisions are the basis on which the Group is structured and managed, based on its geographic structure. In each of the divisions the key service provisions are: quantity surveying, planning / programming, quantum and planning experts, dispute avoidance / resolution, litigation support, contract administration, commercial advice / management and strategic project management.

Segment information about these reportable segments is presented below.

Six months ended 31 March 2014

Six months ended 31 March 2013

4 SUMMARY SEGMENTAL ANALYSIS - continued

Year ended 30 September 2013

(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 

Potential ordinary shares relating to 247,285 share options (31 March 2013: 625,000) have not been included in the calculation of diluted earnings per share as their value has no dilutive effect.

6 ACQUISITIONS

On 30 September 2013 the Group entered into a contract to acquire the remaining 49% shareholding of Driver Group Africa (pty) Ltd subject to conditions precedent which were received during the period to 31 March 2014. The initial cost of the acquisition was ZAR 3.3m (£206,000) satisfied in cash and a further ZAR 2.7m (£164,000) satisfied by grant of options over Driver Group shares. Further share options may be issued based on future performance criteria.

On 25 September 2013 the Group acquired certain contracts and goodwill of PJ Consulting Limited through Driver Trett (Hong Kong) Limited. This contract had certain conditions which were met during March 2014 and consideration of HK$2m (£155,000) was paid after the period end. This transaction resulted in the recognition of an intangible asset relating to the contracts acquired.