Preliminary Results

RNS Number : 1389X

Driver Group plc

17 February 2017

 

DRIVER GROUP PLC

("Driver" or "the Group")

Preliminary Results (unaudited)

For the Year to 30 September 2016

Driver provides specialist commercial & dispute resolution

Services to the construction and engineering industries

Financial Highlights

·      Revenue and profits in line with guidance given in pre-close trading update of 14 September

·      Revenue up 21% to £58.3m (2015: £48.0m)

o  Second half revenue up 13% to £30.4m (2015: £26.8m)

·      Underlying* operating loss of £0.2m (2015: Profit £1.2m)

o  Second half underlying* operating profit of £1.2m (2015: £1.6m)

o  Second half result absorbs £0.5m bad debt provision for "AMEA"

·      Underlying* loss before taxation of £0.4m (2015: Profit £1.1m) and reported loss before taxation of £5.3m (2015: £1.9m)

·      Net borrowings £9.9m at end September (2015: £2.5m)

Operational Highlights

·      Group Board changes

o  Gordon Wilkinson appointed Chief Executive Officer in March 2016

o  Hugh Cawley appointed Chief Financial Officer in September 2016

o  Bob Laslett resigned as Non-Executive Director in June 2016

·      Strategy refreshed and clearly articulated, focusing on the Group's traditional and proven areas of expertise, claims and dispute resolution and expert witness support services

                ·      Overhead and administrative savings of £1.3m (annualised) implemented in the second half

                ·      Asia Pacific, Middle East & Africa ('AMEA')

o  Regional oil & gas disputes team established in Singapore

o  H2 revenue up 26% on prior year period led by organic growth in UAE, Oman and Singapore

                ·      Europe & Americas ('EuAm')

o  H2 revenue up 6% on prior year period led by organic growth across the regions disputes services and growth from the Paris office opened in April 2015

Start to new financial year

·      First 4 months of new financial year comfortably ahead (by £1.1m at an underlying* profit before tax level) of prior year and ahead of internal forecasts

·      Equity fundraising announced today intended to reduce the Group's outstanding borrowings and provide the financial flexibility necessary to support the next phase of the turnaround.

* Underlying figures are stated before the share-based payment costs, exceptional items and amortisation of intangible assets 

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

Gordon Wilkinson, Chief Executive of Driver Group said:

"The proposed fundraise announced today is intended to provide the necessary level of refinancing to normalise the capital structure of the business. On completion this additional financing will provide a solid platform on which to effect the remainder of the board's recovery plan and to capitalise on the current opportunities available to the business"

Enquiries:
Driver Group plc Gordon Wilkinson, Group Chief Executive Hugh Cawley, CFO	[phone]   Email: [e-mail]   [phone]   Email: [e-mail]
N+1 Singer (Nominated Adviser & Broker) Sandy Fraser James White Alex Laughton-Scott	[phone]

CHAIRMAN'S STATEMENT

Introduction

The past year has been one of enormous change across the whole of the Driver Group.  The first half saw a significant increase in revenue but this was not accompanied by commensurate profits as the costs of the increased headcount within the "AMEA" region in particular outweighed new client assignments, and we experienced some delay in securing new opportunities.  The loss declared at the half year was clearly unacceptable.  Significant change was needed to improve the prospects of the Group and action needed to be taken decisively and effectively.  While much remains to be done the changes implemented saw a new management team under Gordon Wilkinson take charge and introduce a radical overhaul of every part of our business resulting in a second half which demonstrated a marked improvement.  The underlying* loss before tax of £1.5m in the first half was reduced to an underlying* loss before tax of £0.4m for the full year to 30 September 2016 and a clear strategy for the businesses has been articulated and is being executed.  The business in the UK and Europe showed excellent progress, particularly in the disputes and claims business, enhancing its reputation as a leading supplier of expert witnesses and in particular strengthening the Diales brand.  Our ambition now is to turn underlying profits into actual and sustainable profits and your Board is confident that this can be achieved over time.   

Financial results

Revenue for the year was £58.3m (2015: £48.0m) and underlying* operating loss before tax was £0.2m (2015: profit £1.2m).  The underlying* loss per share was 1.0p (2015: earnings of 3.2p).  The reported loss before taxation was £5.3m (2015: £1.9m), after exceptional items relating to severance payments of £1.4m (2015: £0.5m), impairment of goodwill £1.4m (2015: £nil), acquisition and integration costs of £0.6m (2015: £1.6m), restructuring costs of £0.2m (2015: £nil), a share based payment charge of £1.1m (2015: £0.5m) and amortisation of intangible assets of £0.2m (2015: £0.2m).

Net borrowings at the year-end were slightly higher than expected, at £9.9m (2015: £2.5m), reflecting the losses, the costs of severance payments, and of the acquisition of Initiate Consulting Limited ('Initiate') and the increase in working capital requirements associated with the growth of the business.  The deleveraging of the balance sheet is, of course, the principal reason for the additional equity injection. The Company has today announced the placing conditionally to raise £8.0 million before expenses (the "Placing") with up to a further £0.5 million to be raised by way of an Open Offer to existing shareholders at not less than 35 pence per share (the "Issue Price"), alongside new term debt facilities of an initial £8.0 million, comprising a £5.0 million term debt facility and a revolving credit facility of a further £3.0 million, which will become effective and drawable upon completion of the Placing.

Dividend

Given the trading results the Board do not recommend the payment of a dividend for 2016 (2015: final 1.05p; full year 1.65p).

Strategy

The strategy of your Board is to concentrate on those areas where we excel, in claims and dispute resolution, with the objective of consolidating the Group's position as one of the pre-eminent firms in its areas of expertise.  Whilst this may not deliver dramatic revenue growth in the near term it ought to result in a healthy and stable business, generating attractive returns for shareholders.

Board

As announced with the Interims, Dave Webster retired as CEO and assumed a non-executive role.  Dave was replaced by Gordon Wilkinson, previously Chief Operating Officer of Initiate in March of this year.  Bob Laslett resigned as a non-executive director at the beginning of June, and Damien McDonald stepped down to pursue other opportunities with effect from 30 September to be replaced by Hugh Cawley as Chief Financial Officer.  As Dave Webster now steps down altogether, we welcome the appointment of John Horgan as a non-executive director who I am sure will be a significant asset to the Board in the future.  I believe we now have a balanced and experienced Board well able to deliver the Group's recovery and growth strategy.

I should like to place on record our thanks to the retiring members of the Board for their service and dedication and to wish them well in their future endeavours.

Outlook

The first four months of this current financial year have shown a marked improvement compared with the equivalent period in the previous year, with underlying* profit before tax improving by £1.1m and ahead of internal forecasts.  While it is always difficult to predict volumes in a professional services business such as ours your Board is confident that the company will continue to take out unnecessary costs, improve margins and refine our areas of operation both geographically and intellectually.  Gordon Wilkinson as CEO and Mark Wheeler as Global COO have led this recovery and I am enormously grateful to them both and through them to all our staff for the enormous effort they have put in to reforming our business in challenging times.  With this strategy of increasing our concentration on the higher margin claims and disputes markets now so clearly articulated and once the financial structure of the business is again back on a solid base following the equity raise now in process, I believe that shareholders, staff and other stakeholders can look forward to the future with renewed confidence.

Steven Norris

Non-Executive Chairman

* Underlying figures are stated before the share-based payment costs, exceptional items and amortisation of intangible assets

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

 

CHIEF EXECUTIVE'S REPORT

Introduction

Having taken on the role of Group Chief Executive in March 2016, I was in no doubt of the significant challenges that lay ahead and the major rebuilding exercise required to return the business to a sustainable and profitable business model. Despite impressive revenue growth in recent years, we had failed to effectively manage our cost base and cash collections, ultimately leading to an underlying* loss before tax of £1.5m in the first half of the financial year.

There were a number of immediate challenges to address:

The first priority was clearly to adjust the cost base, which presented opportunities for reduction as it had been put in place to support a planned steep increase in both revenue and profit. Actions taken resulted in an annualised overhead cost saving of £1.3m.

In parallel the Group strategy for growth and diversification was closely scrutinised, and a decision made to move away from providing a high volume of low margin work in a wide number of construction related activities. Instead, the focus was returned to the Group's core business offering of construction claims, dispute resolution, and the provision of expert witness services. These core services have consistently been the Group's most profitable services, with gross margins of between 25% and 40%, varying from region to region. We also focussed on the development and strengthening of the Diales brand, which has proved hugely successful with our clients.

Our cash collection had become less effective, especially in some of our more challenging markets. Immediate steps were taken to improve our cash position and put in place new processes to improve our on-going cash collection.

The final step in the repositioning process was to appoint a predominately new leadership team and structure which was both streamlined, and could provide consistent global leadership and direction. This led to the recruitment of Hugh Cawley as Chief Financial Officer, replacing Damien McDonald, who has now left the business. The appointment of Mark Wheeler as Global Chief Operating Officer in September 2016, completed the leadership team and gave us the ability to drive a strategy of global integration focussed on delivering excellence in all that we do and achieving sustainable and profitable success.

The financial year 2015-16 was undoubtedly a challenging one, with H1 being particularly disappointing. However H2 saw the Group return to profit at an underlying* level with trading stabilised, and an underlying* loss before tax for the year of £0.4m (2015: £1.1m profit), a creditable recovery on the H1 underlying* loss before tax of £1.5m.

On behalf of the Board I would like to take this opportunity to thank the staff for their efforts and loyalty throughout a very challenging 2016.

Financial performance

Revenue grew by 21% to £58.3m (2015: £48.0m).  Gross Margin increased by £1.1m to £11.7m (2015: £10.6m).

AMEA

A significant proportion of the revenue generated in AMEA came from the Middle East market. This market continues to be highly competitive, and the payment terms available have created a significant challenge for the business in collecting its debts.  Our overall bad debt provision in 2016 was increased significantly to £1.4m (2015: £0.5m) owing to a number of Middle East contracts being written down. Moving forward we will take a more stringent approach to our bad debt provisions.

The implementation of our previous strategic plan had led to a significant increase in headcount across the AMEA region. Steps have been taken to ensure our headcount is more closely aligned with our ability to secure and deliver profitable work.

Despite the downturn in the Oil & Gas sector in the year, the region saw an increase in the number of appointments on commissions, particularly in Asia Pacific. We are optimistic that this trend will continue.

The market in Hong Kong has been challenging, and whilst there was no growth for the Group, trading was steady and we remain confident that we can be a major player in the marketplace.

The Australian market was very difficult in FY 2015-16 and as such we significantly reduced our costs to stabilise trading.

Europe and Americas

The UK continued to operate in a strong and consistent manner. Following the outcome of the Brexit vote in June, the UK construction market dipped briefly but has now recovered and is showing signs of growth in 2017 and beyond. The UK Government announced an additional £23bn of capital spend on innovation and infrastructure over the next five years; the third runway at Heathrow was approved; and construction of HS2 will start next year.

The UK has developed into a centre of excellence for testimony and dispute resolution expertise. 2016 saw the number of our Diales experts increase, from only 13 four years ago, to close to 40, half of whom are based in the UK. We are winning more expert work around the globe, typically with healthy gross margins of up to 40%.

The Netherlands and Germany have been effectively run as one business following leadership changes in 2014-15. The offices service Northern Europe predominantly in offshore and heavy engineering. Both have had a good year, with the Netherlands achieving record breaking revenue and profit levels for the year as a whole.

Although still in its infancy, our France business is performing well. In its first 18 months the office has expanded to a team of 10, and there are significant opportunities to grow the business further. We have a dominant position and unique offering in the French market that should facilitate continued growth and opportunities to develop markets in Central and South America, as well as parts of French speaking Africa and Canada.

After a strong first year in 2015 for our Canadian business, 2016 has been somewhat more difficult owing to a number of commissions taking longer than expected to start.

At the end of year we changed the leadership team which had a positive effect and is starting to produce results.

Initiate

Initiate was acquired in December 2014, and performed broadly in line with expectations throughout 2016 financial year.  During this financial year Initiate has continued to provide project delivery and project management services to the infrastructure sector. Strong relationships with the existing client base have served as a solid base for the business, particularly in Network Rail, Transport for London and Heathrow.

During the year a review of the management team's progress in extending these services to the Middle East region took place. A decision was made to discontinue this intended expansion due to a high level of local competition in a well-established marketplace that did not provide opportunity for increased margin.  The Initiate brand is now firmly focused on the UK infrastructure market, where its core strengths lie.  The business's consulting revenues have reduced in Q4 from £1.5m in 2015 to £1.3m in 2016. The board has subsequently determined from a review of the market for such businesses that an impairment was required against the carrying amount of goodwill (note 5) for both this business and Driver Project Services of some £1.4m.

The outlook for Initiate, however, remains reasonable with recent post-Brexit decisions for Hinkley, HS2, and in particular Heathrow, where Initiate is well placed to capitalise on the planned expansion.

Outlook

The outlook for the Group's core global business in the construction claims, dispute resolution, and expert witness markets remains strong. The Driver Trett brand is ranked among the top three global leaders in this niche section. Our highly-regarded pool of experts/specialists have an excellent reputation in the industry and strong links to the world's leading law firms.

Whilst the Group had a very disappointing period in H1 of 2016, we have taken decisive action in the restructuring of the leadership team with an emphasis firmly on profit and cash generation. Significant cost savings have already been implemented in H2, and we are seeing the benefits of a reduced cost base in re-building our margin.

Although the business has been through a difficult time in 2016 much of the substantial investment made in attracting new talent and achieving a truly global reach leaves the Group well placed to deliver a significantly improved performance in the next financial year and beyond.

With the Group now operating as one global business, rather than by region, under one Chief Operating Officer, we can ensure that our clients get the right people/team with the right expertise, and in the right location.

Gordon Wilkinson

Chief Executive Officer

* Underlying figures are stated before the share-based payment costs, exceptional items and amortisation of intangible assets 

STRATEGIC REPORT - FINANCE DIRECTOR'S REVIEW  

Overview of the year

The financial key performance indicators for the Group are revenue, operating profit and profit before tax, all of which ultimately reflect the effects of the key influence of chargeable staff utilisation.  We also monitor underlying* operating profit and underlying* profit before tax as we believe that these measures better reflect the underlying, replicable results of the Group.  The poor results for the first half year, in which the Group lost £1.5 million at underlying* profit before tax level contrasted markedly with the second half in which the Group returned to profit, though not sufficient wholly to counteract the losses of the first half. In terms of revenue, this was another year of substantial growth, up 21% to £58.3m from £48.0m, whereas underlying* profit before tax fell from a profit of £1.1m in the prior year to a loss of £0.4m.  There were also substantial exceptional costs recognised in the year of £3.6m (2015: £2.2m), reflecting principally severance costs incurred of £1.4m (2015: £0.5m) in an effort to control overheads particularly, in dismantling the central team which had been assembled in the UAE.  With the appointment of the Global COO, such a team was no longer necessary.  Other significant exceptional costs were the recognition of impairment in the value of the UK project management businesses of £1.4m (2015: £nil); and the amortisation of deferred consideration of £0.6m (2015: £1.6m) relating to the acquisition of Initiate at the end of 2014.  Other costs excluded from underlying* profit before tax comprised share-based payments of £1.1m (2015: £0.5m).  The increased cost in the year has been largely due to the acceleration of the share options charge relating to employee options that were replaced by long term incentive plans designed to help align staff motivation with the interests of shareholders and the amortisation of acquired intangibles of £0.2m (2015: £0.2m) associated with the Initiate acquisition.   Utilisation across the whole business during the year averaged out at 71% (2015: 76%), including the first half of the year when it dropped to 69% (2015: 74%).  The financial results for 2016 clearly reflected this excess of unproductive headcount.

After a net interest charge of £0.2m (2015: £0.1m) the underlying* loss before tax was £0.4m (2015: profit of £1.1m) and the reported loss before tax was £5.3m (2015: loss £1.9m).

The Europe & Americas business segment revenue grew again this year, by £0.7m to £22.9m although underlying* operating profit reduced by £0.2m to £1.9m; exceptional costs of £0.5m (2015: £0.1m), reduced profit for the year to £1.4m (2015: £2.0m). 

The Asia Pacific / Middle East / Africa segment revenue increased by £9.1m to £29.4m, whilst underlying* operating profit turned negative from a profit of £0.8m to a loss of £1.1m.  This deterioration can be attributed to the decision to recruit extensively with the aim of growing revenue, in advance of winning the business for which the staff would be required.  After exceptional items and amortisation of intangible assets of £0.5m (2015: £0.5m) the operating loss increased to £1.6m (2015: profit £0.2m). 

Initiate, acquired in December 2014, reported revenue of £5.9m (2015:£5.4m) and an underlying* operating loss of £0.1m (2015: profit of £0.4m).  After exceptional items of £1.6m and amortisation of intangibles of £0.2m, the operating loss was £1.8m (2015: £1.4m).

Corporate costs have been allocated more fully to the business segments in 2016 in order to better reflect the benefits accruing to the segments from the support activities reflected in the corporate costs.  Unallocated costs remaining at the underlying level amounted to £1.0m in 2016 (2015: £2.1m).  After a share option cost of £1.1m (2015: £0.5m) and exceptional costs of £0.9m (2015: £nil) the reported unallocated costs were £3.3m (2015: £2.7m).  These segmental results for the year are disclosed in note 3.

Taxation

The Group showed a tax credit of £0.1m (2015: charge £0.1m).  The tax charge includes the effects of expenses not deductible for tax purposes and losses made in countries where the effective tax rate is nil, consequently, the effective tax rate for the year was negative 2% (2015: 5%). 

Earnings per share

Underlying* earnings per share were minus 1.0 pence (2015: 3.2 pence).  The basic loss per share was 16.8 pence (2015: loss per share 6.5 pence).

Cash flow

There was a cash outflow from operations before changes in Working Capital of £1.6m (2015: £0.7m).  This reflected the reported loss for the year of £5.3m (2015: profit of £1.8m) before depreciation and amortisation of £0.7m (2015: £0.6m) and the share based payment charge of £1.1m (2015: £0.5m).  The outflow from increased receivables of £4.2m (2015: £3.0m) resulting from the growth in revenue in the second half of the year was offset slightly by an inflow from increased payables of £0.4m (2015: £2.9m).  Net tax paid in the year was £0.1m (2015: £0.5m).

There was a net cash outflow from investing activities of £0.7m (2015: £0.8m) principally consisting of net capital spend of £0.7m (2015: £0.5m). There were no costs of acquisition in 2016 (2015: £0.3m).

Net cashflow from financing activities was an inflow of £3.1m (2015: £1.7m).  This included net proceeds from borrowings of £4.2m (2015: £1.9m), offset by the repurchase of share options of £0.4m (2015: £nil), a dividend paid of £0.3m (2015: £0.5m), interest paid of £0.2m (2015: £0.1m) and repayment of borrowings of £0.1m (2015: £nil). The prior year, 2015, also benefited from the proceeds from sale of shares of £0.4m.

The Company had net borrowings at the end of the year of £9.9m compared to £2.5m at 30 September 2015.

DIVIDENDS

The Directors do not propose the payment of a dividend for the year (2015: a final dividend of 1.05 pence per share at a cost of £320,000).

On behalf of the Board

Hugh Cawley

Chief Financial Officer

* Underlying figures are stated before the share-based payment costs, exceptional items and amortisation of intangible assets

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2016
	Notes	Unaudited 2016 £000	2015 £000
REVENUE	2	58,261	47,950
Cost of Sales		(46,579)	(37,380)
GROSS PROFIT		11,682	10,570
Administrative expenses		(17,010)	(12,508)
Other operating income		197	170
Underlying* operating (loss)/profit		(208)	1,155
Exceptional items	5	(3,559)	(2,173)
Share-based payment charges and associated costs	19	(1,141)	(510)
Amortisation of intangible assets	13	(223)	(240)
OPERATING LOSS	2, 4	(5,131)	(1,768)
Finance income		14	9
Finance costs	6	(231)	(104)
LOSS BEFORE TAXATION	2	(5,348)	(1,863)
Tax expense	7	115	(96)
LOSS FOR THE YEAR		(5,233)	(1,959)
Loss attributable to non-controlling interests from continuing operations		(3)	-
Loss attributable to equity shareholders of the parent from continuing operations		(5,230)	(1,959)
		(5,233)	(1,959)
Basic loss per share attributable to equity shareholders of the parent (pence)	10	(16.8)p	(6.5)p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2016

	Notes	Unaudited 2016 £000	2015 £000
LOSS FOR THE YEAR		(5,233)	(1,959)
Other comprehensive income:
Items that could subsequently be reclassified to the Income Statement:
Exchange differences on translating foreign operations		(49)	(79)
OTHER COMPREHENSIVE INCOME FOR THE YEAR NET OF TAX		(49)	(79)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		(5,282)	(2,038)
Total comprehensive income attributable to:
Owners of the parent		(5,279)	(2,038)
Non-controlling interest		(3)	-
		(5,282)	(2,038)

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 SEPTEMBER 2016

	Unaudited 2016		Restated* 2015
	£000	£000	£000	£000
NON-CURRENT ASSETS
Goodwill	3,456		4,838
Property, plant and equipment	2,927		2,676
Intangible assets	621		842
Deferred tax asset	21		35
		7,025		8,391
CURRENT ASSETS
Trade and other receivables	20,346		16,537
Derivative financial asset	454		17
Cash and cash equivalents	555		1,111
		21,355		17,665
TOTAL ASSETS		28,380		26,056
CURRENT LIABLITIES
Borrowings	(3,352)		(479)
Trade and other payables	(8,593)		(9,384)
Derivative financial liability	(1,395)		(153)
Current tax payable	(49)		(209)
		(13,389)		(10,225)
NON-CURRENT LIABILITIES
Borrowings	(7,110)		(3,100)
Deferred tax liabilities	(301)		(352)
Trade and other payables	-		(317)
		(7,411)		(3,769)
TOTAL LIABILITIES		(20,800)		(13,994)
NET ASSETS		7,580		12,062
SHAREHOLDERS' EQUITY
Share capital		127		125
Share premium		3,453		3,095
Merger reserve		1,702		3,102
Currency reserve		(441)		(392)
Capital redemption reserve		18		18
Retained earnings		2,829		6,219
Own shares		(107)		(107)
TOTAL SHAREHOLDERS' EQUITY		7,581		12,060
NON-CONTROLLING INTEREST		(1)		2
TOTAL EQUITY		7,580		12,062

**Restated to reflect the reallocation of £1,609,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of initiate Consulting Ltd in December 2014.  The amount is equal to the difference between the fair value on issue and the nominal value.

CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2016

	Unaudited             2016 £000		2015      £000
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year	(5,233)		(1,959)
Adjustments for:
Depreciation	503		357
Amortisation	223		240
Impairment of goodwill	1,400		-
Exchange adjustments	249		(5)
Finance income	(14)		(9)
Finance expense	231		104
Tax (credit)/expense	(115)		96
Equity settled share-based payment charge	1,141		510
OPERATING CASH FLOW BEFORE CHANGES IN WORKING CAPITAL AND PROVISIONS	(1,615)		(666)
Increase in trade and other receivables	(4,184)		(2,968)
Increase in trade and other payables	434		2,865
CASH USED IN OPERATIONS	(5,365)		(769)
Tax paid	(98)		(491)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES	(5,463)		(1,260)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received	14		9
Acquisition of property, plant and equipment	(728)		(532)
Acquisition of intangible assets	-		(41)
Acquisition of subsidiary net of cash acquired	-		(344)
Proceeds from the disposal of property, plant & equipment	-		80
NET CASH OUTFLOW FROM INVESTING ACTIVITIES	(714)		(828)
CASH FLOWS FROM FINANCING ACTIVITIES
Interest paid	(231)		(104)
Repayment of borrowings	(91)		(33)
Proceeds of borrowings	4,162		1,926
Repurchase of share options	(462)		-
Proceeds from sale of shares	-		401
Dividends paid to equity shareholders of the parent	(320)		(505)
Payment of dividends to non controlling interests	-		(10)
NET CASH INFLOW FROM FINANCING ACTIVITIES	3,058		1,675
Net decrease in cash and cash equivalents	(3,119)		(413)
Effect of foreign exchange on cash and cash equivalents	(249)		5
Cash and cash equivalents at start of period	694		1,102
CASH AND CASH EQUIVALENTS AT END OF PERIOD	(2,674)		694

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2016

2016: Unaudited                                                                                                          *Restated

	Share capital £000	Share premium £000	Merger reserve £000	Other reserves(2) £000	Retained earnings £000	Own shares £000	Total(1) £000	Non-controlling interest £000	Total Equity £000
OPENING BALANCE AT 1 OCTOBER 2014	111	2,702	1,493	(295)	8,173	(107)	12,077	12	12,089
Loss for the year	-	-	-	-	(1,959)	-	(1,959)	-	(1,959)
Other comprehensive income for the year	-	-	-	(79)	-	-	(79)	-	(79)
Total comprehensive income for the year	-	-	-	(79)	(1,959)	-	(2,038)	-	(2,038)
Dividends	-	-	-	-	(505)	-	(505)	(10)	(515)
Share-based payment	-	-	-	-	510	-	510	-	510
Issue of share capital	8	393	-	-	-	-	401	-	401
Shares issued as part of the consideration in a business combination	6	-	1,609	-	-	-	1,615	-	1,615
CLOSING BALANCE AT 30 SEPTEMBER 2015	125	3,095	3,102	(374)	6,219	(107)	12,060	2	12,062
Loss for the year	-	-	-	-	(5,230)	-	(5,230)	(3)	(5,233)
Other comprehensive income for the year	-	-	-	(49)	-	-	(49)	-	(49)
Total comprehensive income for the year	-	-	-	(49)	(5,230)	-	(5,279)	(3)	(5,282)
Dividends	-	-	-	-	(320)	-	(320)	-	(320)
Share-based payment	-	-	-	-	1,141	-	1,141	-	1,141
Transfer on impairment of goodwill	-	-	(1,400)	-	1,400	-	-	-	-
Issue of share capital	2	358	-	-	-	-	360	-	360
Repurchase of share options	-	-	-	-	(381)	-	(381)	-	(381)
CLOSING BALANCE AT 30 SEPTEMBER 2016	127	3,453	1,702	(423)	2,829	(107)	7,581	(1)	7,580

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

⁽²⁾    'Other reserves' combines the translation 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.   

*Restated to reflect the reallocation of £1,609,000 from the share premium account to the merger reserve in relation to shares issued as part of the consideration for the purchase of initiate Consulting Ltd in December 2014.  The amount is equal to the difference between the fair value on issue and the nominal value.

NOTES

1.         These Preliminary Results have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS") and the IFRS Interpretation Committee (IFRIC) interpretations as endorsed by the European Union.  The financial information set out in these Preliminary Results does not constitute the Company's statutory accounts for the year ended 30 September 2016 or the year ended 30 September 2015 but is derived from those accounts. These preliminary results have been prepared in accordance with the accounting policies set out in the Annual Report and Financial Statements of Driver Group plc for the year ended 30 September 2015 which will be consistent with those in the Annual Report and Financial Statements of Driver Group plc for the year ended 30 September 2016 when finalised.

The Directors have prepared cashflow forecasts for a period of 48 months from the date of releasing these financial statements which show that the Group will have sufficient funds to continue and therefore that the going concern basis of preparation is appropriate. However, a key assumption within these forecasts is the receipt of £8m from an equity placing and new banking facilities of £8m. The Company has today announced the Placing conditionally to raise £8.0 million before expenses with up to a further £0.5 million to be raised by way of an Open Offer to existing shareholders at the Issue Price, alongside new term debt facilities of an initial £8.0 million, comprising a £5.0 million term debt facility and a revolving credit facility of a further £3.0 million, which will become effective and drawable upon completion of the Placing.

The Company's existing top-up facility of £2.0 million is due to expire in April 2017 and whilst the Directors are confident that the equity placing will be successful, should it fail to be approved by Shareholders at the General Meeting of the Company to be convened on 9 March 2017 (or not proceed for any other reason) the Company would be obliged to enter into negotiations with its bankers for the extension of its existing facilities or the arrangement of new facilities either with its existing bank or with a new lender(s). Whilst the Directors are confident that its existing bankers would engage in constructive negotiations following a request for a facility extension or renewal, there is nonetheless no guarantee that the Company would be able to arrange suitable alternative bank financing prior to expiry of the existing facilities.

Should the above not take place, in view of the inherent uncertainty around the alternative courses of action available to the Directors, the going concern basis on which these financial statements have been prepared may prove to be inappropriate. If the auditors were to be asked to issue an audit report today it is likely their report would be unqualified, but would draw attention to the going concern uncertainties by way of emphasis without qualifying their report. In circumstances where the going concern basis is inappropriate, adjustments are likely to have to be made to the net assets shown in these financial statements to reduce assets to their more immediately recoverable amounts, to reclassify fixed assets and creditors due after more than one year to current assets and current liabilities and to provide for further liabilities that may arise.

Group statutory accounts for the year ended 30 September 2015 have been delivered to the Registrar of Companies, and those for the year ended 30 September 2016 will be delivered following the Company's Annual General Meeting.  The audit on the 2016 accounts is not yet complete. BDO LLP have reported on the 2015 accounts. Their report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006.

2.         Earnings per share

	Unaudited 2016 £000	2015 £000
Loss for the financial year attributable to equity shareholders	(5,230)	(1,959)
Share-based payment charges and associated costs	1,141	510
Exceptionals (note 4)	3,559	2,173
Amortisation of intangible assets	223	240
Adjusted (loss)/profit for the year before share-based payments, amortisation of intangible assets and exceptional items	(307)	964
Weighted average number of shares:
-     Ordinary shares in issue	31,251,190	30,401,519
-     Shares held by EBT	(596,677)	(596,677)
-     Vested options with nominal consideration	426,017	272,997
Basic weighted average number of shares	31,080,530	30,077,839
Effect of Employee share options	1,590,610	2,149,588
Diluted weighted average number of shares	32,671,140	32,227,427
Basic loss per share	(16.8)p	(6.5)p
Adjusted (loss)/earnings per share before share-based payments, amortisation of intangible assets and exceptional items	(1.0)p	3.2p

3.    Segmental Analysis

REPORTABLE SEGMENTS

For management purposes, the Group is organised into three operating divisions: EuAm (Europe & Americas), AMEA (APAC, Middle East & Africa) and Initiate.  These divisions are the basis on which the Group is structured and managed, based on its geographic structure.  In EuAm and AMEA the key service provisions are: quantity surveying, planning / programming, quantum and planning experts, dispute avoidance / resolution, litigation support, contract administration and commercial advice / management.  In Initiate the key service provisions are capital investment consultancy providing development, project and contracting management services to the infrastructure market in the UK.

Segment information about these reportable segments is presented below.

 

Year ended 30 September 2016

Unaudited

	Europe & Americas £000	APAC, Middle East & Africa £000	Initiate £000		Eliminations £000		Unallocated(1) £000	Consolidated £000
Total external revenue	22,945	29,440	5,876		-		-	58,261
Total inter-segment revenue	532	80	-		(612)		-	-
Total revenue	23,477	29,520	5,876		(612)		-	58,261
Segmental profit/(loss)	1,916	(1,089)	(52)		-		-	775
Unallocated corporate expenses(1)	-	-	-		-		(983)	(983)
Share-based payment charge	-	-	-		-		(1,141)	(1,141)
Exceptional items (note 4)	(535)	(504)	(1,600)		-		(920)	(3,559)
Amortisation of intangible assets	-	(27)	(196)		-		-	(223)
Operating profit/(loss)	1,381	(1,620)	(1,848)		-		(3,044)	(5,131)
Finance income	-	-	-		-		14	14
Finance expense	-	-	-		-		(231)	(231)
Profit/(loss) before taxation	1,381	(1,620)	(1,848)		-		(3,261)	(5,348)
Taxation	-	-	-		-		115	115
Profit/(loss) for the year	1,381	(1,620)	(1,848)		-		(3,146)	(5,233)
OTHER INFORMATION
Non current assets	5,642	742	490		-		151	7,025
Reportable segment assets	9,955	14,779	908		-		2,738	28,380
Capital additions(2)	70	547	4		-		107	728
Depreciation and amortisation	118	291	197		-		120	726
(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 of 10% or more of the Group's revenue in the year to 30 September 2016.

Year ended 30 September 2015 

	Europe & Americas £000	APAC, Middle East & Africa £000	initiate £000		Eliminations £000		Unallocated(1) £000	Consolidated £000
Total external revenue	22,243	20,333	5,374		-		-	47,950
Total inter-segment revenue	508	200	-		(708)		-	-
Total revenue	22,751	20,533	5,374		(708)		-	47,950
Segmental profit/(loss)	2,087	781	399		-		-	3,267
Unallocated corporate expenses(1)	-	-	-		-		(2,112)	(2,112)
Share-based payment charge	-	-	-		-		(510)	(510)
Exceptional items (note 4)	(81)	(460)	(1,617)		-		(15)	(2,173)
Amortisation of intangible assets	-	(77)	(163)		-		-	(240)
Operating profit/(loss)	2,006	244	(1,381)		-		(2,637)	(1,768)
Finance income	-	-	-		-		9	9
Finance expense	-	-	-		-		(104)	(104)
Profit/(loss) before taxation	2,006	244	(1,381)		-		(2,732)	(1,863)
Taxation	-	-	-		-		(96)	(96)
Profit/(loss) for the year	2,006	244	(1,381)		-		(2,828)	(1,959)
OTHER INFORMATION
Non current assets	7,556	471	2		-		362	8,391
Reportable segment assets	13,335	10,744	577		-		1,400	26,056
Capital additions(2)	111	333	-		-		70	514
Depreciation and amortisation	105	208	163		-		121	597
(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 of 10% or more of the Group's revenue in the year to 30 September 2015.

Geographical information:

	External revenue by location of customers
	Unaudited 2016 £000	2015 £000
UK	20,713	21,413
UAE	8,724	7,040
Oman	6,270	4,306
South Africa	3,347	4,894
Netherlands	2,699	1,381
South Korea	1,939	226
France	1,740	356
Singapore	1,689	405
Qatar	1,678	1,650
Saudi Arabia	1,481	-
Malaysia	1,330	654
Germany	1,272	1,174
Hong Kong	1,123	648
Kuwait	967	748
Australia	924	1,006
Belgium	624	236
Canada	540	511
United States	367	-
China	205	7
Azerbaijan	75	576
Other countries	554	719
	58,261	47,950

4.    Exceptional Items

	Unaudited 2016 £000	2015 £000
Severance costs (1)	1,385	526
Acquisition and integration costs (2)	620	1,647
Restructuring costs (3)	154	-
Impairment of Goodwill (note 5)	1,400	-
	3,559	2,173

⁽¹⁾      Severance costs include redundancy, ex-gratia, other discretionary payments and associated legal costs.

⁽²⁾    Acquisition and integration costs include contingent consideration being a cost of £0.6m (2015: £1.5m) in respect of deferred consideration dependent on future employment, legal and professional fees associated with the acquisition of Initiate and office restructuring costs.

⁽³⁾    Restructuring costs include bank charges and legal and professional fees in relation to the requirement of an additional banking facility.

5.    Goodwill

The group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method required the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows.

As discussed in the Chief Executive Officer's review, a decision was made to discontinue the intended expansion of the project delivery and project management services, into the Middle East region. Consequently and in addition to the reduced revenues of the UK project management businesses (Initiate and Driver Project Services) the recoverable amount of these cash generating units ('CGU's') was insufficient to cover the carrying value of the total net assets, resulting in an impairment charge totalling £1.4m being recognised in the statement of comprehensive income. 

A 1% increase in the discount rate would reduce the recoverable amount of the Initiate CGU by approximately £0.001 million and the Driver Project Services CGU by £0.11 million

A 2% reduction in the annual revenue would reduce the recoverable amount Initiate CGU by approximately £0.064 million and the Driver Project Services CGU by £0.11 million

The carrying amount of goodwill is allocated to the cash generating units (CGU's) as follows;

Driver Project Services Ltd            £1,918,000

Initiate Consulting Ltd                  £487,000

Trett Ltd                                        £1,050,000

The key assumptions used in the value in use calculations are as follows;

       Gross margin        -           13.5% - 34%

Growth rate          -           2%

Discount rate        -           18% (pre-tax)

6.    Copies of the Annual Report and Financial Statements

Copies of the Annual Report and Financial Statements will be available on the Group's website (www.driver-group.com) when completed and will be sent to the shareholders in due course.  Further copies will be available to the public, free of charge, at the Group's office, Driver House, 4 St Crispin Way, Haslingden, Lancashire, BB4 4PW.

 

END

 

 

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