Driver Grp Regulatory News (DRV)

8 June 2021

DRIVER GROUP PLC

("Driver" or "the Group")

Interim Report

For the six months ended 31 March 2021

Key Points (for the six months ended 31 March 2021

· Underlying* profit before tax at £1.0m (2020: £1.3m) resulting in an underlying* profit before tax margin of 4% (2020: 4%).

· Profit before tax at £0.9m (2020: £1.3m).

· Net cash increase year on year of £3.9m to £7.2m (2020: £3.3m).

· Revenue down by 11.0% to £25.0m (2020: £28.0m) as a result of the impact of COVID-19.

· Gross profit at 26%, a £0.8m decrease to £6.4m (2020: £7.2m).

· Fee earner headcount decreased by 28 to 301 with an increase in EuAm offset by decreases in both APAC and Middle East.

· Overall utilisation rates of 72.1% (2020: 73.1%).

· Europe & Americas (EuAm) reported underlying* profit before tax for the period of £2.5m (2020: £1.7m) with utilisation rates at 71.6% (2020: 71.6%).

· Middle East (ME) reported underlying* loss before tax for the period of £0.4m (2020: breakeven) with utilisation rates at 75.0% (2020: 72.3%).

· Asia Pacific (APAC) reported underlying* loss before tax for the period of £0.3m (2020: £0.6m profit) with utilisation rates at 67.6% (2020: 77.1%).

* 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:

"The Group has continued to perform well despite the ongoing disruption caused by the COVID-19 pandemic. Meaningful progress has been made on implementing the five year strategy, and this has positioned the group well for future growth as restrictions following the pandemic are relaxed and we see the widely anticipated improvement in our key markets."

Results presentation

The leadership team will be hosting a live webcast for analysts and investors at 09.30 GMT on 8 June 2021. 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 3848 2810.

Enquiries:

INTRODUCTION

During the COVID-19 affected first half of the 2021 financial year the Group has performed in line with the second half of the 2020 financial year. This resilient performance is creditable during the first half of the financial year with underlying* profit before tax (stated before share based payment charges) being slightly below the result for the same period last year, which was largely unaffected by COVID-19. Whilst the performance during the period has been adversely impacted by various lockdowns in key territories and the loss of senior staff and associated team members to a competitor in the APAC region, we have made meaningful progress in implementing the five year strategic plan which was announced in December 2020. We have successfully established and grown a presence in the United States and Spain which has resulted in developing opportunities in these markets and in South America. Additionally, we have achieved the following strategic objectives:

• Grown the number of testifying Diales experts to 50

• Focused recruitment to further enhance our technical and geographic service offering

• Implemented a new long term incentive plan to aid the retention of key staff

• Won a long term contract with a major South Korean contractor based in Seoul which will help to further grow this sector

• Reduced the Group's cost base by approximately 13% year-on-year by bearing down selectively on operating costs whilst maintaining the Group's fee-earning capacity at maximum utilisation at pre-COVID levels

In addition, it is our intention to establish a forensic accounting service offering under the Diales brand. This new service line represents an excellent and complementary fit alongside our core construction-related quantum, delay and technical expert services. Implementation of these actions is consistent with the Group's stated strategic ambition to generate increased shareholder value through growing the proportion of revenues derived from higher margin expert assignments.

TRADING PERFORMANCE

Group revenue for the six months to 31 March 2021 was £25.0m, a decrease of 10.7% on the same period in 2020 (£28.0m), however the latter period was mainly unaffected by COVID-19. Overall, the Group reported an underlying* profit before tax of £1.0m (2020: £1.3m). Revenues in the EuAm region of £17.2m increased by 11.8% which was offset by decreases of 28.4% in ME and 55.7% in APAC respectively £5.7m and £2.1m. The EuAm region delivered operating profits of £2.5m (2020: £1.7m) whilst the ME region recorded an operating loss of £0.4m (2020: breakeven) and APAC region an operating loss of £0.3m (2020: operating profit £0.6m). The strong performance in EuAm was delivered across the region increasing the operating margin to 14.7% (2020: 11.2%) whilst the poor performances in ME and APAC regions reflect a combination of COVID-19 affected markets and the loss of key staff in Singapore to a competitor. Decisive action has been taken with a view to improving operating performance in both the ME and APAC regions, with both regions under the common leadership of a very experienced operational business leader, who joined the Group from a major competitor in September 2020.

The Group's effective tax rate is 34% (2020: 24%) reflecting a shift in the geographic split of overall Group profits with taxable profits generated in the EuAm region and losses in low tax regime in the ME region. Profit per share was 1.1p (2020: 1.8p).

The Group continues to maintain strict discipline over the management of its net working capital position and the Group's net cash** balance stood at £7.2m at 31 March 2021 compared to £8.2m at the traditionally seasonally higher financial year end position at 30 September 2020 and £3.3m at 31 March 2020.

Net cash inflow from operations was £0.3m (2020: £0.5m outflow) during the first six months, including a net inflow from a decrease in trade and other receivables of £0.1m (2020: £2.1m cash outflow) and a net cash outflow from a decrease in trade and other payables of £1.5m (2020: £0.4m). Tax paid totalled £0.2m (2020: £0.3m) and the acquisition of fixed assets absorbed £0.2m (2020: £0.1m). A further cash outflow during the period was the payment of dividends of £0.4m (2020: £0.7m).

DIVIDEND

The final dividend announced at the time of the results for the year to 30 September 2020 (0.75p per share) in December was paid in March 2021. Reflecting our confidence in the medium term prospects for the Group and the inherently cash generative nature of our business along with the strong balance sheet position the Board recommends the payment of an interim dividend of 0.75p per share for 2021 (2020: nil p per share).

OUTLOOK

Activity levels during April and May were broadly unchanged from those witnessed during the first half and while the pipeline of opportunities continues to build, the COVID impact on pipeline conversion timelines suggests that the prospects of a meaningful uptick during the remainder of the current financial year are now limited. Construction-related claims activity is a lagging indicator of broader trends in infrastructure spend and the Board's belief is that Driver's current activity levels are reflective of the wider market. Looking beyond the current financial year, recognising that Driver typically operates with limited forward revenue visibility, our expectation is that the very significant constraints on routine business development which have existed throughout the last twelve months will start to abate. The building blocks which underpin our five year plan are in place and the Board is confident that the actions already implemented to reposition the business with growth focussed on higher margin expert service lines and, including the significant reduction in the cost base and hence monthly revenue break-even level noted above, together ensure that the Group is well placed to take advantage of the widely anticipated improvement in our key markets as infrastructure spend recovers and the sector confronts the reality of a COVID-induced backlog of claims and disputes.

I would like to pay particular tribute to our CEO Mark Wheeler and CFO David Kilgour for the way they have managed the business during the COVID-19 affected times and in tandem have still made significant progress in implementing the objectives of the five year strategic plan. I also thank my Board colleagues, Peter Collini, Elizabeth Filkin and John Mullen 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

8 June 2021

* 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

Consolidated Income Statement

Interim report for the six months ended 31 March 2021

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

Consolidated Statement of Comprehensive Income

Interim report for the six months ended 31 March 2021

Consolidated Statement of Financial Position

Interim report for the six months ended 31 March 2021

Consolidated Cashflow Statement

Interim report for the six months ended 31 March 2021

Consolidated Statement of Changes of Equity

Interim Report for the six months ended 31 March 2021

For the six months ended 31 March 2021 (Unaudited):

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

Consolidated Statement of Changes of Equity (continued)

Interim Report for the six months ended 31 March 2020

For the year ended 30 September 2020 (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 2020 and that are expected to be adopted in the Group's full financial statements for the year ending 30 September 2021.

The financial information in this interim report is in compliance with the recognition and measurement principles of international accounting standards 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 2021 and 31 March 2020 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 2020 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2020 have been filed with the Registrar of Companies. The Independent Auditor's Report on that Annual Report and Financial Statements for 2020 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 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 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. Whilst the COVID-19 restrictions have been relaxed across some jurisdictions the ongoing impact continues to be felt. The Directors are continuing to closely monitor the impact on the business to ensure the welfare of the staff and the clients.

The Directors have prepared cash flow forecasts and a reverse stress test covering a period of more than 12 months from the date of releasing these 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 such as a reduction in both revenues and debtor receipts. The forecasts show that the Group could incur a further reduction in revenues of up to approximately 19% compared to existing depressed COVID-19 levels if combined with a minimal change to the cost base and a reduction of cash collections by up to 24% compared to current levels and still have sufficient headroom to operate. In all scenarios, the Group remained in a cash positive position with headroom throughout and as such there were no concerns with the banking covenants associated with the Group's facilities.

At 31 March 2021 the Group had cash reserves of £7.45m with an undrawn revolving credit facility of £5.0m and an undrawn £1.75m Coronavirus Large Business Interruption Loan Scheme Facility (£0.25m drawn). In addition to the above, the Group has also agreed a relaxation of its banking covenants until 30 September 2021.

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. As such these Financial Statements have been prepared on a going concern basis.

2 TAXATION

The tax charge on the profit for the half-year ended 31 March 2021 is based on the estimated tax rates in the jurisdictions in which the Group operates, for the year ending 30 September 2021.

3 DIVIDEND

In view of the medium term prospects for the Group and the inherently cash generative nature of the business along with the strong balance sheet position, the Board recommends the payment of an interim dividend of 0.75p per share for 2021 (2020: interim dividend nil p per share).

4 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.

(2) Capital additions comprise of additions to property, plant and equipment and intangible assets.

5 EARNINGS PER SHARE

6 POST BALANCE SHEET EVENT

There have been no significant events requiring disclosure since 31 March 2021.