Driver Group (AIM:DRV) PLC has reached a deal for its underperforming Middle East business and said it is looking for ways to return surplus cash to shareholders, lifting its shares as much as 22%.
The construction and engineering consultancy has agreed that 25 employees who work on Middle East assignments will leave the company on 1 June 2022 and immediately join another entity in the region.
The unnamed counterparty will assist in the collection of about £3.5mln of regional debt owed to Driver and has agreed to pay Driver about £2mln in cash as an advance payment in respect of the debtor book.
“The agreement we have reached will allow us to focus on the client base and market segments that are the best fit for Driver Group (AIM:DRV)'s wider business, and should facilitate higher utilisation, significantly improved profitability, and enhanced sustainability for the global business,” said Driver chief executive Mark Wheeler.
AIM-traded Driver said the reduction in its regional cost base is expected to exceed £3mln per year as against the £1mln in annual cost savings identified in the group’s March trading update.
In the March statement, Driver said a problematic loss-making contract in the APAC region and an unexpected drop in revenues in the Middle East region meant that underlying pretax profit for the half year was expected to be between £300,000 and £500,000 against £1.0mln in the year-earlier period.
“The full operational impacts of today's changes to the group's operational footprint will take time to work through and the directors are not yet in a position to offer guidance on the likely outcome for the year as a whole,” it said today in a statement.
However, it added that the estimated net cash balances of £5.3mln, following receipt of the advance payment from the counterparty, will comfortably exceed the company's near-term operational requirements and as a result it is reviewing the alternatives for returning surplus cash to shareholders.
The shares were up 20% at 33.0 pence in mid-morning trading.