Driver Grp Regulatory News (DRV)

30 June 2020

DRIVER GROUP PLC

("Driver" or "the Group")

Interim Report

For the six months ended 31 March 2020

Key Points (for the six months ended 31 March 2020)

· Revenue down by 6% to £28.0m (2019: £29.7m) as a result of a slowdown in the Middle East market.

· Gross profit at 26% a £0.5m increase to £7.2m (2019: £6.7m) due to the continued focus on higher margin work.

· Underlying* profit before tax at £1.3m (2019: £0.8m) resulting in an underlying* profit before tax margin of 4% (2019: 3%).

· Profit before tax at £1.3m (2019: £1.0m).

· Net cash decrease year on year of £1.7m to £3.3m (2019: £5.0m).

· Fee earner headcount decreased by 26 to 329 with decreases in both APAC and Middle East.

· Overall utilisation rates of 73.1% (2019: 76.1%).

· Europe & Americas (EuAm) reported underlying* profit before tax for the period of £1.7m (2019: £2.0m) with utilisation rates at 71.6% (2019: 70.3%).

· Middle East (ME) reported underlying* profit before tax for the period of £0.03m (2019: £0.4m) with utilisation rates at 72.3% (2019: 80.9%).

· Asia Pacific (APAC) reported underlying* profit before tax for the period of £0.6m (2019: loss £0.6m) with utilisation rates at 77.1% (2019: 76.1%).

* Underlying figures are stated before the share-based payment costs (this is not a GAAP measure).

** Net cash consists of cash and cash equivalents and bank loans

*** Utilisation % is calculated by dividing the total hours billed by the total working hours available for chargeable staff

Steve Norris, Chairman of Driver Group, said:

"Driver have had a good first half year to 31 March 2020 with only limited impact on performance from Covid-19 related issues. There were strong results in the Europe & Americas (EuAm) and Asia Pacific (APAC) regions offset by a weaker performance in the Middle East (ME) region"

Results presentation

The leadership team will not be hosting a physical results presentation, in line with current guidance on social distancing. Instead, they will be hosting a live webcast for analysts and investors at 09.30 (GMT), which can be accessed directly here: https://brrmedia.news/driver

Analysts have already been invited to participate in a live Q&A during the presentation, but any eligible person not having received details should contact the Company's PR advisers, Acuitas Communications at driver@acuitascomms.com or on +44 (0)20 3687 0868.

Enquiries:

Impact of covid-19

Driver has continuously monitored the development of the Covid-19 pandemic since January 2020, in view of the Company's global footprint. Driver took early action to protect the business and the employees by implementing a clear business continuity strategy which has enabled its clients across key global regions and offices to be serviced effectively and sustainably, without business interruption. In accordance with the requirements of local government and regulatory authorities in the relevant jurisdictions and in some circumstances in advance, Driver moved quickly to a flexible home working model in every region and office worldwide to protect the health and safety of its staff.

Although the impact on Driver of Covid-19 has been limited to date, in the interests of prudence, resilience, and long term strategic competitive positioning the directors acted promptly and implemented the following measures in order to maximise liquidity, preserve cash and enhance operational flexibility:

· The Board will not pay an interim dividend in respect of the current financial year and will revisit the Group's dividend policy only when there is sufficient clarity as to the actual impact of the Covid-19 pandemic on its trading and financial position.

· It has indefinitely postponed all non-essential capex and discretionary operational expenditure.

· It has drawn down in full its £3.0m revolving credit facility and will hold the resulting funds in order to meet any currently unforeseen contingencies

· All Board members' salaries are reduced by 20%, effective from 1 April 2020, for the foreseeable future.

· Targeted reductions in pay for under-utilised staff have been implemented.

· A small number of personnel have been furloughed.

· Where appropriate the Group have taken local government Covid-19 related financial support schemes.

· To protect the Group from unforeseen Covid-19 related impact on the business, a package of additional debt facilities in the amount of £4m and a relaxation of bank covenants have been agreed with HSBC.

The directors have prepared stress-tested cashflow forecasts covering a period of more than twelve months from the date of releasing these interim financial statements and, based on the package of cash and financing facilities available to Driver, including the agreed relaxation of bank covenants, the directors are confident in preparing the financial statements on a going concern basis.

THE BUSINESS

Driver have had a good first half year to 31 March 2020 with only limited impact on performance from Covid-19 related issues. There were strong results in the Europe & Americas (EuAm) and Asia Pacific (APAC) regions offset by a weaker performance in the Middle East (ME) region.

On 31st May Gordon Wilkinson left the Group having during his tenure of four years led the business through a challenging period to a consistently profitable and financially stable position today. Mark Wheeler succeeds Gordon as the Group Chief Executive Officer and with an unrivalled wealth of industry knowledge is well placed to lead the group on its next phase of development. Additionally, John Mullen, a leading quantum expert, has been appointed as a non-executive director providing substantial additional industry expertise to the composition of the board.

TRADING PERFORMANCE

Group revenue for the six months to 31 March 2020 was £28.0m a decrease of 5.6% on the same period in 2019 (£29.7m). Overall, the Group reported a profit before tax of £1.3m (2019 £1.0m). Revenues in EuAm £15.4m and APAC £4.7m regions increased by 3.5% and 4.0% respectively which was offset by a decrease in ME region of 23% to £8.0m. The EuAm and APAC regions delivered operating profits of £1.7m (2019: £2.0m) and £0.6m (2019: loss of £0.6m) respectively with the ME region producing a disappointing breakeven result (2019: profit of £0.4m). The good performance in EuAm was across the region and in APAC was mainly from increased activity in Singapore. The weak performance in the ME region mainly resulted from a slowdown in the regional economy and steps were taken in January to reduce costs in light of the lower activity levels in the region. The significantly improved result from the APAC region was as a result of improved staff utilisation levels and the closure of the low margin project services business in the region.

The Group's effective tax rate is 24% (2019: 17%) reflecting a shift in the geographic split of overall Group profits. Earnings per share was 1.8p (2019: 1.5p).

The Group was in a net cash* position of £3.3m at 31 March 2020 compared to £5.4m at 30 September 2019 and 5.0m at 31 March 2019.

Net cash outflow from operations was £0.5m (2019: £0.8m) during the first six months, including a net outflow from an increase in trade and other receivables of £2.1m (2019: £0.5m cash inflow) and a net cash outflow from a decrease in trade and other payables of £0.4m (2019: £2.4m). Tax paid totalled £0.3m (2019: £0.5m) and the acquisition of fixed assets absorbed £0.1m (2019: £0.1m). A further cash outflow during the period was the payment of dividends of £0.7m (2019: £nil).

DIVIDEND

The directors announced in the trading update that Driver will not pay an interim dividend in respect of the current financial year and will revisit the Group's dividend policy only when there is sufficient clarity as to the actual impact of the Covid-19 pandemic on its trading and financial position (2019: 0.5p per share).

OUTLOOK

Although the first half of 2020 has seen lower activity than expected in the Middle East, we took swift action to re-align the regional cost base and the first half profits of the Group are significantly ahead of the same period last year. The Group continues to maintain strict discipline over the management of its net working capital position and I am pleased to report that the Group's current net cash balance stands at £5.5m.

In more normal times, Driver is conditioned to operating with relatively low forward revenue visibility and, as a consequence of the Covid-19 pandemic there is heightened uncertainty over client behaviours and their impact on our business. However, with current trading holding up well and with recently increased debt facilities the directors believe that the Group is well placed to trade through this current uncertain market environment and to take advantage of the opportunities afforded as a consequence of the disruption of Covid-19 in the Group's target market.

I would like to pay particular tribute to our CEO Mark Wheeler and CFO David Kilgour for the way they have managed the business through the last difficult months. I thank my Board colleagues, Peter Collini and Elizabeth Filkin for their unstinting support and most of all, I thank every one of our staff wherever they are in the world for their continued diligence and loyalty. I am grateful for the confidence our shareholders have consistently demonstrated and I assure them that the Group will continue to do its utmost to repay that confidence.

Steven Norris

Non-Executive Chairman

30 June 2020

* Net cash consists of cash and cash equivalents and bank loans

Consolidated Income Statement

Interim report for the six months ended 31 March 2020

* Underlying figures are stated before the share-based payment costs (this is not a GAAP measure).

Consolidated Statement of Comprehensive Income

Interim report for the six months ended 31 March 2020

Consolidated Statement of Financial Position

Interim report for the six months ended 31 March 2020

Consolidated Cashflow Statement

Interim report for the six months ended 31 March 2020

Consolidated Statement of Changes of Equity

Interim Report for the six months ended 31 March 2020

For the six months ended 31 March 2020 (Unaudited):

For the six months ended 31 March 2019 (Unaudited):

Consolidated Statement of Changes of Equity (continued)

Interim Report for the six months ended 31 March 2020

For the year ended 30 September 2019 (Audited):

(1)  Total equity attributable to the equity holders of the Parent

(2)  'Other reserves' combines the currency reserve and capital redemption reserve. The movement in the current and prior year relates to the translation of foreign currency equity balances and foreign currency non-monetary items.

1 BASIS OF PREPARATION

The consolidated interim financial information has been prepared using accounting policies which are consistent with those applied at the prior year end 30 September 2019 and that are expected to be adopted in the Group's full financial statements for the year ending 30 September 2020. The Group has adopted the new IFRS 16 accounting standard from 1 October 2019.

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 and are not IAS 34 compliant. 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 2020 and 31 March 2019 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 2019 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2019 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2019 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.

The consolidated financial statements have been prepared on a going concern basis. In reaching their assessment, the directors have considered a period extending at least twelve months from the date of approval of this half yearly financial report.

The directors continue to monitor developments across the markets the Group operate in and the potential impact of Covid-19 in the short and medium term and is in particular focussed on the key risks of: delays by clients in contracting for claims advice; projects being suspended or planned projects not proceeding which could potentially result in a reduction in staff utilisation levels; and the impact of the current situation on the financial stability of clients causing delays to payments.

As Driver's business is geographically well spread across the World the directors have been managing the impact of Covid-19 since January 2020 when the Singapore and Hong Kong offices started working remotely. As Covid-19 has spread, remote working has been successfully adopted at varying times in the Middle East offices and across Europe including the UK with minimal disruption of service to our clients. The directors have been closely monitoring the impact on the business ensuring the welfare of the staff and the clients. The Group has implemented a number of measures to reduce operating costs and conserve cash, including:

· reduction of payroll costs from a small number of personnel being placed on Furlough Leave, targeted reductions in pay for under-utilised staff and a reduction in directors pay

· reduction in near term operating expenditure as a result of remote working and a lack of travel

· deferral of any non-essential operating and capital expenditure

· application of government financial support schemes where appropriate

The directors have prepared cash flow forecasts covering a period of more than 12 months from the date of releasing these interim financial statements. This assessment has included consideration of the forecast performance of the business for the foreseeable future, the cash and financing facilities available to the Group and the mitigating actions undertaken to reduce the impact of Covid-19. In preparing these forecasts, the directors have considered sensitivities incorporating the potential impact of Covid-19. The Group at 31 March 2020 had cash reserves of £3.3m and an undrawn revolving credit facility of £3.0m. Subsequent to the half year end the Group agreed terms with their debt providers, HSBC UK Bank plc, for additional facilities of £4.0m by way of an increase to the existing £3.0m revolving credit facility to £5.0m and a further £2.0m through a Coronavirus Large Business Interruption Loan Scheme Facility. In addition the relaxation of financial covenants for the next twelve months were agreed.

Based on the cash flow forecasts prepared including appropriate stress testing, the directors are confident that any funding needs required by the business will be sufficiently covered by the existing cash reserves and the undrawn additional credit facility.

2 NEW STANDARDS ADOPTED

IFRS 16 Leases: is effective for periods beginning on or after 1 January 2019 and the Group transitioned on 1 October 2019. IFRS 16 replaces IAS 17 Leases and provides a single lessee accounting model, requiring lessees to recognise related right of use lease assets and lease liabilities for all applicable leases on the statement of financial position. The presentation and timing of income and expense recognition in the income statement has also changed. On transition, management adopted the modified retrospective approach and as such, comparative figures have not been restated. As a result of the new accounting standard, the statement of financial position has seen an increase in non current assets of £2.2m, a decrease in prepayments of £0.2m and a resulting increase in liabilities of £2.1m, of which, £0.9m is a current liability and £1.2m is a non current liability. Overall profit has not materially changed, however, EBITDA and cashflow from operating activities have both increased by £0.5m due to IFRS 16. Leases of under one year in length and low value assets have not been capitalised.

The following table presents the impact of adopting IFRS 16 on the statement of financial position as at 1 October 2019:

The following table reconciles the minimum lease commitments disclosed in the Group's 30 September 2019 financial statements to the amount of lease liabilities recognised on 1 October 2019:

3 TAXATION

The tax charge on the profit for the half-year ended 31 March 2020 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 30 September 2020.

4 DIVIDEND

In view of the current trading position and the Covid-19 outbreak, the Board does not intend to pay an interim dividend for 2020 (2019: 0.5 pence per share).

5 SUMMARY SEGMENTAL ANALYSIS

REPORTABLE SEGMENTS

For management purposes, the Group is organised into three operating divisions: Europe & Americas (EuAm), Middle East (ME) and Asia Pacific (APAC). These divisions are 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.

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

6 EARNINGS PER SHARE

7 POST BALANCE SHEET EVENT

Subsequent to the half year end the Group agreed terms with their debt providers, HSBC UK Bank plc, for additional facilities of £4.0m by way of an increase to the existing £3.0m revolving credit facility to £5.0m and a further £2.0m through a Coronavirus Large Business Interruption Loan Scheme Facility. In addition the relaxation of financial covenants for the next twelve months were agreed.