Driver Grp Regulatory News (DRV)

10 December 2019

DRIVER GROUP PLC

("Driver" or "the Group")

Dividend and Preliminary Results

Driver Group PLC (AIM: DRV), the global professional services consultancy to construction and engineering industries, is pleased to announce the dividend for the full year and its results for the financial year ended 30 September 2019.

The final dividend for the full year of 0.75 pence per share will be paid on 20 March 2020 to shareholders who are on the register of members at the close of business on 21 February 2020, with an ex-dividend date of 20 February 2020 subject to approval at the AGM.

Financial & Operational Highlights

Driver has delivered a robust set of results for the full year, with decent revenue and good profitability for the period, as a result of a markedly improved performance in the second half of the year following a challenging first six months.

·; Revenue decreased 7% to £58.5m (2018: £62.6m)

·; Underlying*profit before taxation decreased by 22% to £3.0m (2018: £3.8m)

·; Profit for the year increased to £2.7m (2018: £2.2m)

·; Net Cash** decreased after funding share buy-back programme and dividend payment totalling £1.3m to £5.4m (2018: £6.9m)

·; Earnings per share increased to 5.2p (2018: 4.0p)

·; Utilisation decreased to 76.8% (2018: 80.0%)

·; Prompt actions taken to rationalise & reduce cost base in APAC and ME regions to

reflect lower activity levels

·; Another good year in EuAm with both profits and revenues increased

·; Increased global footprint by opening office in Riyadh to develop KSA market

·; Growth of Diales brand still a key strategy with recent appointment of a new Head of Diales in the Middle East and new experts in the UK

·; Development of software solutions to enhance data management and analysis as part of the service to clients

Positive start to the new financial year in line with management expectations.

Gordon Wilkinson, Chief Executive Officer of Driver Group plc, commented: "I am very pleased to be able to report that, following a slow first six months to 2018/19, Driver Group has benefited from a much stronger second half to the financial year, and is continuing to make good progress across markets and sectors. It has been extremely encouraging to see the effects of the review of the business's strategic priorities earlier in the year now feeding through, with a markedly improved performance over the last six months."

* Underlying figures are stated before the share-based payment costs

** Net cash consists of cash and cash equivalents, bank loans and finance leases

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

CHAIRMAN'S STATEMENT

INTRODUCTION

The first six months of this year were a challenge for the Group as turnover fell substantially below anticipated levels. I have made the point several times that our ability to predict income much beyond two months is limited by the nature of the assignments we are asked to undertake. But the senior management team led by Gordon Wilkinson and Mark Wheeler did a sterling job to ensure that in addition to the cost reductions we initiated last year we reduced our break-even point even further. As a result although turnover in the second six months was not markedly different from the first half we were able to produce a thoroughly decent second half profit and a full year which while less than the previous year will stand us in good stead going forward. The broad geographic spread of the business has proved itself to be a strong and resilient business model, meaning that the excellent performance in Europe and Americas ('EuAm region') has offset the fall in the profitability of other regions. We are encouraged by the new business pipeline and by trading activities in the early weeks of the new financial year. Combined with the steps we have taken to reduce operating costs, the Board are confident that the Group can continue to enjoy further success in the coming year.

FINANCIAL RESULTS

The Group's revenue for the year was £58.5m (2018: £62.6m). The underlying* profit before tax was £3.0m (2018: £3.8m), which we believe more accurately reflects the underlying operating performance of the Group. The reported profit for the year increased to £2.7m (2018: £2.2m). The adjusted continuing basic earnings per share before share-based payments was 4.7p (2018: 6.1p).

There have been some regional differences in performances this year, with EuAm region the standout performer. Revenue in EuAm region grew by 3.5% to £29.8m (2018: £28.8m), and segmental profitability increased significantly by 31% to £3.9m (2018: £3.0m), reflecting an excellent year across the region. The Middle East ('ME region'), and Asia Pacific ('APAC region') have both had to weather a more challenging financial year. In the ME region, fairly steady levels of revenue and good utilisation rates (81% for the region) in Qatar and Oman were hindered by a weaker performance in UAE and Kuwait, meaning that profit reduced to £1.4m (2018: £2.1m). APAC region's revenue was down by 17% largely as a result of reduced activity in Singapore and Malaysia where large commissions were delayed during the year. This resulted in a loss for the Group in the region. We remain committed to these regions as there is a positive pipeline of work and opportunities remain that we will look to capitalise on in the coming year.

Net cash at the close of the year stood at £5.4m (2018: £6.9m). This is after funding a dividend payment of £0.3m and a share buy-back programme of £1.0m during the year.

DIVIDEND

The Company's recently reinstated progressive dividend policy remains in place with the Directors approving the payment of an interim dividend for 2019 of 0.5p per share in October 2019 and recommending the payment of a final dividend of 0.75p per share (2018: 0.5p per share), reflecting our confidence in the renewed strength of the Group. The Board are committed to maximising shareholder value, while retaining balance sheet flexibility to fund ongoing operating requirements.

STRATEGY

The Group's strategy remains to focus on those areas of expertise where we have a particularly strong position, in claims and dispute resolution and in expert witness work, and to consolidate the Group's position as one of the leading firms in its areas of expertise. In support of this strategy we also keep under review broadening our sector, geographic and service offerings. We see no reason at this stage to amend our objective or strategy, although of course they remain under continual review. Your Board believes that the current share price does not fully reflect the true value of the business going forward and thus initiated a share buy-back which benefits all shareholders. We remain committed to the share buy-back programme, subject always to our being able to do so from surplus cash and in the absence of alternative uses of capital, such as infill acquisitions, with the potential to deliver higher returns.

BOARD

Driver Group appointed Elizabeth Filkin CBE to its Board as a Non-Executive Director on 1 October 2019 following a rigorous search process. Elizabeth's background and expertise further enhances our sectoral agility and reach, and we are delighted that she has joined us. We intend to appoint a third independent non-executive director in the course of the next few months.

OUTLOOK

As I have highlighted above, in a professional services business such as Driver, it is always difficult to predict activity levels and we have certainly experienced this over the past year, with projects that we expected to convert instead delayed or deferred. I have however, been pleased to see that, as we look to the future the business is capable of being profitable and cash generative in good times and less good times.

The cash position of the business remains strong and with a promising pipeline, the Board is confident that the Company can continue to build on the exceptional progress we have made in the last two years. The new financial year has started in line with expectations, and whilst a certain degree of uncertainty always exists around future projects, we are encouraged by the pipeline that we have. In the short term we continue to be well placed to benefit from the opportunities in our markets and to create value for our shareholders.

I would like to take this opportunity to thank all of the staff of Driver Group across the business for the continued loyalty and dedication that they have shown during this and previous years. Under the leadership of Gordon Wilkinson and Mark Wheeler each and every one has contributed to building a strong and resilient business and I express my profound gratitude to them all.

Finally, I should also like to thank again both our longstanding and new shareholders for their support throughout the year. Your Board will continue to do all it can to reward the confidence you have shown in us.

Steven Norris

Non-Executive Chairman

10 December 2019

* Underlying figures are stated before the share-based payment costs

** Net cash consists of cash and cash equivalents, bank loans and finance leases

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

CHIEF EXECUTIVE OFFICER'S REVIEW

INTRODUCTION

I am very pleased to be able to report that, following a slow first six months to 2018/19, Driver Group has benefited from a much stronger second half to the financial year, and is continuing to make good progress across markets and sectors. It has been extremely encouraging to see the effects of the review of the business's strategic priorities earlier in the year now feeding through, with a markedly improved performance over the last six months. I am confident that Driver Group is now well positioned to move into 2019/20 as a more resilient and focused business, where we expect to capitalise on the efficiency gains which have been achieved and to benefit from the added momentum generated within the business during the second half of the year.

The Group's global operating footprint has proven to be a source of significant operational strength and diversified risk with a strong result in the EuAm region offsetting weaker performance in the ME and APAC regions following a slow down in these markets. The Company continues to perform well across markets, regions and sectors with the new business enquiry pipeline at a healthy level, and a significant upturn in the level of enquiries in the second half of the year. We fully expect to make good progress in converting these leads, based on our track record of prudent business planning and management, our exceptional team of world-class professional services experts and our specialist understanding of sectors, markets and disciplines.

The benefits of our focused and targeted restructuring across the Group were evident in the second half of the year, and we expect to continue to see the value of it flowing through in 2019/20, particularly in the APAC and ME regions. As a result of the active management of the business reducing the costs, leading to the improved operating performance that we have seen in the last six months of the year, our underlying* profit before tax was £3.0m.

Our utilisation rates, which are as ever, a key performance indicator for a global professional services business such as Driver, remain satisfactory at 76.8%, demonstrating that we have not been adversely impacted by the global slowdown that many have found evident over the past year.

Driver Group's plans for further strategic growth and development remain unaltered. Because the business is now on a firm financial footing, the Company has, over the last 12 months and more, run the slide rule over a number of potential acquisitions to assess whether they might add momentum to our business across key product sets and locations. Ultimately, we have concluded that none of these prospective candidates would generate the required synergies and that proceeding, therefore, with such acquisitions would fail to meet the test of being appropriate and earnings accretive; but we continue to have an open mind about future opportunities.

Your Board's confidence in the business and its strategic vision, and the business's prudent approach to long-term planning and balance sheet management, has led the Company to undertake a successful buy-back programme of £1.0m of shares.

The Company continues to develop data management software to enhance the service to clients and strengthen its leading global competitive market position. This has already been utilised in the APAC region where its benefits have quickly become apparent, enhancing service to our clients and delivering efficiency gains within the business. We have established an in-house data team, based in Singapore, who prepare bespoke software tools for use within the business. Typically, these tools are used for extensive data mining and add value to our clients by locating critical data quickly which saves money and, at the same time, may allow the discovery of key information within a strict court or arbitration deadline, which might otherwise not be possible. Our data services will be extended to be a direct client service within the next two years, following further development and global roll-out within the business.

I would like to take this opportunity on behalf of your Board to thank all the team at Driver Group for their hard work and commitment to the business during what has been a challenging period, and to our loyal clients around the world. We are appreciative of the support of all of them as we continue to position the business for further growth and an even better advisory offering as we begin the next decade.

Financial Performance HIGHLIGHTS

Revenue remains steady, although reduced year on year at £58.5m (2018: £62.6m). Underlying* profit before tax, given the issues in the first half of the financial year was respectable at £3.0m, although down from £3.8m in 2018. However, the reported profit for the year is up 27% on 2018 at £2.7m (£2.2m in 2018) as a result of the movement in share based payments during the year.

REGIONAL BREAKDOWN

ASIA PACIFIC

The APAC region has experienced a challenging year, and been unable to meet its performance targets. The results are partly a result of a slowdown in those markets and external challenges beyond our control; but they are, nonetheless, disappointing for the Group. Revenue was down across the region with the largest reductions being in Singapore and Malaysia which were a combined 17% below the 2018 position. As a consequence profitability was significantly down for the region and timely and effective measures have been put in place to reduce the cost base accordingly at a cost of £0.2m. As a result we hope to move forward with a more positive start to 2019/20 as there remains a strong pipeline of work, and we are well placed to exploit future opportunities in the region.

Middle East

In the ME region whilst Oman's revenue increased slightly by 0.6% to £6.1m both Qatar and UAE were down 5.7% and 8.6% at £3.2m and £9.7m respectively. Additionally the evidence of the ongoing opportunities for the Group in the ME region was hampered by a significantly weaker performance in Kuwait which was largely impacted by a local market slow down and a change in senior management. As a result, regional profit was £1.4m for the year, 32% down on the previous year.

The Group still attaches importance to this region, and the potential that it provides for the business; nonetheless, in the short term, decisive action has been taken to reduce overhead in the region at a cost of £0.2m and ensure sustainable future presence and trading performance in the ME region.

EUROPE AND AMERICAS

Across the EuAm region, there has again been a strong trading performance, resulting in an overall increase in revenue of 3.5% to £29.8m. The UK's revenue was encouraging at £21.4m, with a good performance across the whole of the UK market for both claims and project services. Other markets performed well too, but most notably Germany and Canada delivered significant increases in revenues of 35% up to £2.2m, and 46% up to £1.4m respectively. Profitability in the region rose 32% to £3.9m, reflecting the strength of our proposition. Our Technical Services team in London has continued to grow, increasing from 3 people 3 years ago, to 14. The team offers forensic architecture and engineering globally, from the UK. It is likely that this fast growing sector will be supplemented with further disciplines, to include geotechnical and engineering disciplines that relate directly to the exploration, extraction and refinement of oil and gas products. It is also likely that future years will see these services offered locally in our key centres of Dubai and Singapore, as well as in London. We are encouraged by the pipeline for 2019/20, and believe that the business is well positioned for further growth in the year ahead.

outlook

In spite of a challenging first half, the year has finished strongly, which is testimony to the work of all the team. That strong finish, supported by an enquiry rate which remains globally robust, has helped to ensure that there has been strong momentum into the new financial year.

We believe that we are, therefore, well positioned to deliver a sustainable and profitable business for the coming year and beyond, and that we can provide on-going success for all our stakeholders.

Gordon Wilkinson

Chief Executive Officer

10 December 2019

*Underlying figures are stated before the share-based payment costs

** Net cash consists of cash and cash equivalents, bank loans and finance leases

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

CHIEF FINANCIAL OFFICER'S REVIEW

In 2019 Driver Group performed well in the EuAm region but faced a slowdown in activity levels in the ME and APAC regions. Overall this resulted in lower revenues and underlying* profit before tax than 2018 however, profit for the year has improved by 27% as a result of the profit and loss account movement in share based payments during the year. The key financial metrics are as follows:

Total revenue decreased by 7% to £58.49m (2018: £62.62m) and gross profit decreased by 14.4% to £13.94m (2018: £16.28m). The reduction in gross margin was as a result of the lower revenues in the APAC and ME regions the impact of which has been offset by a rationalisation of the cost base. The profit before tax for the year has increased by 19% to £3.25m (2018: £2.74m) as a result of the movement in share based payments during the year. The net cash** at the year end was £5.4m compared to net cash** of £6.9m in 2018, after funding a dividend payment of £0.27m and a share buy-back programme amounting to £1.0m. Underlying* profit before tax benefited from an impairment credit of £0.4m during the year as a result of the collection of old previously provided debts. However, this was offset by incurring £0.4m of rationalisation costs in the ME and APAC regions.

The EuAm region increased revenue by 3.5% to £29.77m (2018: £28.75m) and generated an increase in segmental profit of 31.6% to £3.91m (2018: £2.97m). This excellent performance was driven by good revenues in the UK of £21.41m (2018: £21.52m) and significant growth in revenues in mainland Europe of 11% to £6.93m (2018: £6.25m) and strong growth in revenues in Canada of 46% to £1.44m (2018: £0.98m).

The ME region saw revenues drop during the year by 14.2% to £19.65m (2018: £22.91m) due to a reduction in market activity in the UAE and Kuwait. Revenues in Oman showed a small increase at £6.05m and revenues in Qatar were down 5.7% at £3.2m (2018: £3.4m). Segmental profit for the region decreased to £1.45m (2018: £2.14m).

The APAC region saw revenues drop by 17.2% to £9.07m (2018: £10.96m). The reduction was spread across the region although more pronounced in Singapore as it proved difficult to maintain the performance in 2018. Singapore is now well established as a regional claims and dispute hub, however, these tend to be larger commissions which result in more variable annual revenues. The segmental result for the year was a loss of £0.36m (2018: segmental profit £0.95m). The APAC region continues to be a target for further growth opportunities.

The utilisation*** rate of chargeable staff across the business as a whole for the year stood at 76.8%, a decrease from 80.0% in the prior year reflecting the weak first half to the year. Utilisation rates displayed a degree of variability throughout the year ranging from a low of 70.8% to a high of 84.2%. This overall decrease in utilisation is clearly a significant factor in the results for 2019 and is one of the businesses' key performance indicators.

After a net interest charge of £0.09m (2018: £0.13m) the underlying* profit before tax was £3.00m (2018: £3.84m) and the reported profit before tax was £3.25m (2018: £2.74m) after a credit of £0.24m for share-based payments (2018: charge £1.10m). The credit for share-based payments has been due to the criteria for the vesting of share options not being met for the year.

NET WORKING CAPITAL

At the end of the year, net cash** stood at £5.4m (2018: £6.9m) after dividend payments and a share buy-back programme amounting to £1.3m in aggregate during the year. Net working capital has increased slightly during the year due to a reduction in creditors and timing of debtor receipts.

TAXATION

The Group incurred a tax charge of £0.50m in the year (2018: £0.57m). The tax charge includes the effects of expenses not deductible for tax purposes and is calculated at the prevailing rates for the jurisdictions in which the Group operates. Consequently, the effective tax rate for the year was 15% (2018: 21%). Adjusting for the share-based payments charge the effective tax rate is 17% (2018: 15%).

EARNINGS PER SHARE

Basic earnings per share was 5.2 pence (2018: 4.0 pence). Underlying* continuing basic earnings per share was 4.7 pence (2018: 6.1 pence).

CASH FLOW

There was a net cash inflow from operating activities before changes in working capital of £3.44m (2018: £4.42m), reflecting the reported profit for the year of £2.75m (2018: £2.17m) after depreciation and amortisation of £0.42m (2018: £0.55m) and the share-based payment credit of £0.24m (2018: charge £1.10m). Within that, there was an increase of £0.66m in trade and other receivables (2018: increase of £1.29m), and a decrease in trade and other payables of £2.05m (2018: increase of £2.94m). Net tax paid in the year was £0.62m (2018: £0.39m).

There was a net cash outflow from investing activities of £0.29m (2018: inflow £1.5m) principally capital expenditure of £0.34m offset by interest received. The inflow in 2018 was principally due to the sale of the head office building and the disposal of a subsidiary which combined amounted to £1.85m offset by capital expenditure of £0.35m.

Net cashflow from financing activities was an outflow of £2.36m (2018: outflow of £2.17m) with the current year reflecting the dividend and share buy-back programme of £1.27m and scheduled term loan repayments of £0.98m.

DIVIDENDS

The Directors propose a final dividend for 2019 of 0.75p per share (2018: 0.50p per share). If approved, the dividend will be paid on 20 March 2020 to shareholders on the register on 21 February 2020.

David Kilgour

Chief Financial Officer

10 December 2019

* Underlying figures are stated before the share-based payment costs

** Net cash consists of cash and cash equivalents, bank loans and finance leases

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

Consolidated Income Statement

For the year ended 30 September 2019

*Underlying figures are stated before the share-based payment costs

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2019

Consolidated Statement of Financial Position

For the year ended 30 September 2019

Consolidated Cashflow Statement

For the year ended 30 September 2019

Consolidated Statement of Changes in Equity

For the year ended 30 September 2019

(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.

(3) The shortfall in the market value of the shares held by the EBT and the outstanding loan is transferred from own shares to retained earnings.

NOTES

1 BASIS OF PREPARATION

The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets, and in accordance with Applicable Accounting Standards.

The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 September 2019 or 2018. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These results were approved by the Board of Directors on 9 December 2019.

2 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). This has remained unchanged from the previous year. 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 additions to property, plant and equipment including additions resulting from acquisitions through business combinations.

No client had revenue exceeding 10% of the Group's revenue in the year to 30 September 2019

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

(2) Capital additions comprise additions to property, plant and equipment including additions resulting from acquisitions through business combinations.

 No client had revenue exceeding 10% of the Group's revenue in the year to 30 September 2018.

Geographical information

Geographical information of Non current assets

3 TAXATION

Analysis of the tax charge

The tax charge on the profit for the year is as follows:

Factors affecting the tax charge

The tax assessed for the year varies from the standard rate of corporation tax in the UK. The difference is explained below:

Factors that may affect future tax charges

As enacted in the Finance Act 2016, from 1 April 2020 there will be a reduction in the main rate of corporation tax to 17%. This will affect future tax charges accordingly.

4 EARNINGS PER SHARE

5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Some asset and liability amounts reported in the Consolidated Financial Statements contain a degree of management estimation and assumptions. There is therefore a risk of significant changes to the carrying amounts for these assets and liabilities within the next financial year. The estimates and assumptions are made on the basis of information and conditions that exist at the time of the valuation.

The following are considered to be key accounting estimates.

Impairment reviews

Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill has been allocated. The value in use calculation requires an entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. An impairment review test has been performed at the reporting date and no impairment is required.

Receivables impairment provisions

The amounts presented in the Consolidated Statement of Financial Position are net of allowances for doubtful receivables, estimated by the Group's management based on the expected credit loss within IFRS 9. This is calculated using a simplified model of recognising lifetime expected losses based on geographical location of the Group's entities and considers historical default rates, projecting these forward taking into account any specific debtors and forecasts relating to local economies. At the Statement of Financial Position date a £2,384,000 (2018: £2,046,000) provision was required. If management's estimates changed in relation to the recoverability of specific trade receivables the provision could increase or decrease. Any future increase to the provision would lead to a corresponding increase in reported losses and a reduction in reported total assets.