Driver Grp Regulatory News (DRV)

5 June 2018

DRIVER GROUP PLC

("Driver" or "the Group")

Interim Report

For the six months ended 31 March 2018

Key Points (for the six months ended 31 March 2018)

· Revenue up by 3% to £31.7m (2017: £30.9m), rising to 5% when removing the impact of the South African business disposed of in the year ended 30 September 2017

· Gross profit up to 28% resulting in £1.4m increase to £8.9m (2017: £7.5m)

· Underlying* PBT up 104% to £2.1m (2017: £1.03m) resulting in an underlying* PBT margin of 7% (2017: 3%)

· Net cash at 31 March 2018 of £0.8m (2017: net borrowings** £3.5m)

· Fee earner headcount increased by 23 to 387 on continuing business mainly as a result of growth in APAC region. Overall utilisation rates up 7.4% points to 81.6%

· Asia Pacific (APAC) reported underlying* PBT for the period £0.6m compared with a loss £0.1m with utilisation rates at 91.6%

· Middle East (ME) reported underlying* PBT for the period of £1.3m up 19% with utilisation rates at 83.5%

· Europe & Americas (EuAm) reported underlying* PBT for the period of £1.4m up 4% with utilisation rates at 73.6%

· Head office property sale and leaseback completed on 20 April 2018

* Underlying figures are stated before the share-based payment costs and exceptional items (note 6).

** Net (borrowings) / cash consists of cash and cash equivalents, bank loans and finance leases.

Steve Norris, Chairman of Driver Group, said:

"Driver has built on the turnaround of the Group's performance in the year ended 30 September 2017, the Group has continued to deliver on the strategy laid out at the time of the refinancing last year, by producing profit growth and debt reduction. Along with the remedial actions taken last year to restore the business to profit and bring stability to the balance sheet, the Group has concluded on the sale and leaseback of the head office property in April 2018 as promised at the time of the refinancing last year. Whilst the financial improvement is very pleasing we are of course far from complacent and we remain focused on delivering further profit growth and cash generation over the coming months and years."

INTRODUCTION

Building on the turnaround of the Group's performance in the year ended 30 September 2017, the Group has continued to deliver on the strategy laid out at the time of the refinancing last year, by producing profit growth and debt reduction. Along with the remedial actions taken last year to restore the business to profit and bring stability to the balance sheet, the Group has concluded on the sale and leaseback of the head office property in April 2018 as promised at the time of the refinancing last year. Whilst the financial improvement is very pleasing we are of course far from complacent and we remain focused on delivering further profit growth and cash generation over the coming months and years. I am confident that the Group is well-placed to deliver consistently in its core business.

The Group's core business is in claims and dispute management and expert witness work. We are fortunate to count many industry-leading proponents among our firm's complement which gives us strong client relationships and a competitive edge whilst having a reputation for delivering a world class service. The Group is structured into three regions covering much of the developed world. In Europe & Americas (EuAm), where we have a relatively mature and well-recognised business, the profitability achieved during the last six months, with a segmental profit margin of just under £1.4m on £14.3m of total revenue, has borne testament to the sense of this strategy. In the Middle East (ME) and Asia Pacific (APAC) regions the local management teams have delivered excellent results where ME produced revenue of £12.0m and profit of £1.3m and APAC produced revenue of £5.4m and profit of £0.6m.

FINANCIAL RESULTS

Revenue for the first half of the financial year was £31.7m, an increase of 3% on the first half of 2017 (£30.9m). The 7.9% revenue growth in EuAm to £14.3m, and the 57.5% revenue growth in APAC to £5.4m were offset by the reduction in revenues in the ME business by 11.8% to £12.0m as a consequence of a major commission coming to an end. Gross profit grew by £1.4m to £8.9m when compared to the first half of 2017 (£7.5m). Administrative expenses increased by £0.1m to £7.1m when compared to the first half of 2017 (£7.0m).

The Group reported an underlying* profit before tax of £2.1m (2017: £1.0m). The operating profit amounted to £1.8m (2017: £0.6m) and the pre-tax profit for the period was £1.7m (2017: £0.4m).

The Group's effective tax rate from continuing operations is 17% reflecting the geographic make-up of the Group, with UK profits utilising brought forward losses from prior years and with profits in the current period in overseas operations at local tax rates and no brought forward tax losses. Underlying* profit per share was 3.4p (2017: 3.0p). After share-based payment costs and exceptional items the profit per share was 2.7p (2017: 0.7p).

The Group has improved from a net borrowings** position of £3.5 million at 31 March 2017 and net borrowings** of £0.2m at the end of September 2017 to a net cash** position of £0.8m as at 31 March 2018.

Net cash inflow from operations was £1.3m (2017: £1.4m cash outflow) during the first six months, including a net outflow from an increase in trade and other receivables of £2.1m (2017: £2.1m) and a net cash inflow from a decrease in trade and other payables of £0.9m (2017: £0.2m outflow). The acquisition of fixed assets absorbed £0.2m (2017: £0.1m).

DIVIDEND

The Board does not recommend the payment of an interim dividend (2017: £nil). The Board continues to keep dividend policy under review and is committed to restoring dividend payments when appropriate in the future.

TRADING PERFORMANCE

During the six-month period to 31 March 2018 the headcount rose by 6.6% to 467 after adjusting for the effect of the business disposals during 2017. This mainly reflected a 6.3% increase in fee-earners of which more than half were sub-contractors in the UK and APAC regions. Overall staff utilisation levels rose during the period to 81.6% (2017: 74.2%) thanks largely to excellent performances in the APAC and ME regions.

Across the Group, the half year saw a 104% increase in the underlying* profit, from the equivalent period last year, to £2.1m (2017: £1.0m). This £1.1m improvement was achieved through a combination of a small revenue increase with gross profit margins improving to 28%, and staff utilisation rates increasing from 74.2% to 81.6%.

In APAC region revenues increased by £2.0m to £5.4m reflecting the benefit of restructuring and focussed business development in the region. As a result the region delivered a profit of £0.6m (2017: loss £0.1m) largely as a result of the Singapore business.

In the ME region revenue decreased by £1.6m to £12.0m as a result of a major commission reaching completion, however, profit increased by 19% to £1.3m as a result of good cost management. Within the region particularly good results were achieved by Qatar and Kuwait which delivered revenue increases of 82% and 114%.

The EuAm region delivered revenue growth of 7.9% to £14.3m and profit growth of 4.4% to £1.4m. Within this the Driver Trett UK business delivered an increase in revenue of 22.3% to £7.3m and profit of 22.5% to £1.6m whilst mainland Europe revenues fell by £0.5m to £2.9m resulting in a fall in profit to £0.1m. The UK Driver Project Services business delivered an increase in revenue of 11.5% to £3.4m which resulted in a 72.2% profit increase to £0.3m.

Additionally, it continues, as always, to be important to convert the profit growth into operational cash inflows and we continue to closely monitor our performance and gradually collect the older Middle East debt.

OUTLOOK

It is the inherent nature of our business that forecasting with any accuracy much beyond twelve weeks ahead is notoriously difficult. That said, the profit booked in the first half leaves the Group increasingly well placed to record good progress in the current financial year. Staff utilisation rates are steady overall at levels in excess of 80%, costs are much better controlled and progress is being made in the collection of aged debt.

Ours is very much a people business and on behalf of our senior leadership team of Gordon Wilkinson, Mark Wheeler and David Kilgour, I would particularly like to thank every one of our staff, wherever they are in the world, for their hard work and support in what has been a tough but invigorating turnaround in our fortunes. I should also like to thank all our shareholders, established and new, for their continuing support. The Group will continue to do its utmost to repay the confidence you have shown in the business.

Steven Norris

Non-Executive Chairman

4 June 2018

Consolidated Income Statement

Interim report for the six months ended 31 March 2018

*Underlying figures are stated before the share-based payment costs and exceptional items (note 6).

**Restated to reflect discontinued operations

Consolidated Statement of Comprehensive Income

Interim report for the six months ended 31 March 2018

Consolidated Statement of Financial Position

At 31 March 2018

Consolidated Cashflow Statement

Interim report for the six months ended 31 March 2018

Consolidated Statement of Changes in Equity

Interim Report for the six months ended 31March 2018

For the six months ended 31 March 2018 (Unaudited):

Consolidated Statement of Changes in Equity (continued)

Interim report for the six months ended 31 March 2018

For the year ended 30 September 2017 (Audited):

(1) Total equity attributable to the equity shareholders of the parent

(2) 'Other reserves' combines the currency reserve and capital redemption reserve.

1 BASIS OF PREPARATION

The 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 2018 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 2017. The financial information in this interim report is in compliance with the recognition and measurement principles of IFRS as adopted by the European Union (EU) but does not include all disclosures that would be required under IFRSs. 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 2018 and 31 March 2017 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited but has been reviewed by our auditors.

The comparative financial information for the year ended 30 September 2017 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2017 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2017 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 interim consolidated financial statements.

2 TAXATION

The tax charge on the profit for the half-year ended 31 March 2018 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 30 September 2018.

3 DIVIDEND

In view of the current trading position, the directors do not propose an interim dividend for the half-year ended 31 March 2018 (2017: nil pence per share).

4 SUMMARY SEGMENTAL ANALYSIS

REPORTABLE SEGMENTS

For management purposes, the Group is now organised into three operating divisions: Europe & Americas (EuAm), Middle East (ME) and Asia Pacific (APAC). This has changed from the previous operating divisions of Europe & Americas (EuAm) and Africa, Middle East and Asia Pacific (AMEA), due to the disposal of the African subsidiary in May 2017 and the dismantling of the AMEA central management team in late 2016. These divisions are now the basis on which the Group is structured and managed, based on its geographic structure. The following key service provisions are provided across all three operating divisions: quantity surveying, planning / programming, quantum and planning experts, dispute avoidance / resolution, litigation support, contract administration and commercial advice / management.

Segment information about these reportable segments is presented below.

Six months ended 31 March 2018 (Unaudited)

Six months ended 31 March 2017 (Unaudited)

**Restated to reflect discontinued operations and a change to operating segments

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

**Restated to reflect a change in operating segments

5 EARNINGS PER SHARE

6 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) Restructuring costs include bank charges and legal and professional fees in relation to the requirement of the revised banking facility.

(2) Disposal of subsidiary includes the loss on the disposal of Driver Trett South Africa (pty) Ltd and the associated legal and professional fees for the disposal.

**Restated to reflect discontinued operations 

7 POST BALANCE SHEET EVENT

Following the period end, the Group has entered into an agreement with Jetglobal Limited for the sale of the freehold property interest in the Group's central administration offices located in Haslingden, UK and the immediate leaseback of these premises.

The cash consideration at completion on 20 April 2018 was £1.65 million. The sale will give rise to a small profit on disposal for the Group, before transaction costs. The property is classed as a held for sale asset at the period end and no gain has been recognised in these financials statements with respect to the sale.

The new lease is for an initial term up to 2 January 2026 at a fixed annual rent of £210,000 with a current annual cash cost to Driver of approximately £105,000 after adjusting for rental income receivable from a sub-tenant. The proceeds of the sale have been used to repay some of the Group's borrowings.