FRM.L Regulatory News (FRM)

20 May 2008 07:00



FORMATION GROUP PLC

("Formation" or "the Group")

Interim Results

for the six months ended 29 February 2008

Formation Group PLC provides management and professional services to its clients within the sports, music and entertainment sectors as well as other high net worth individuals and trusts.

These services include accountancy, construction management, representation, sports finance broking and wealth management.

HIGHLIGHTS

Acquisition of leading talent management business, James Grant Media Group Ltd ("JGMG") on 29th February 2008 for a total potential consideration of £29.8 million. This figure is linked to JGMG achieving certain financial performance targets over a 3 year period

Revenue from continuing operations of £12.8 million (2007: £3.0 million)

Profit before tax from continuing operations of £1.76 million (2007: £0.33 million)

Basic earnings per share from continuing activities increased to 0.59 pence (2007: 0.18 pence)

Committed future gross profit at end of Feb 2008 of £19.4 million (2007: £5.5 million)

The Group is currently trading ahead of consensus forecasts for the full year and the board remains confident of the Group's prospects for the remainder of the year

John Lawrence MBE, Chairman of Formation said,

"I am very pleased to report that results from continuing businesses as a whole are trading ahead of our expectations and continue to provide good growth opportunities. Particularly pleasing is the growing amount of future contracted income the Group has secured. This gives us visibility and confidence as we plan for our future. 

The acquisition of James Grant Media also enables us to diversify into related and complementary business areas, adding scale and reach to our Group. We now serve clients within the sports, music and entertainment industries.

In addition, we have recently further strengthened our board with the appointments of Peter Powell, Ossie Kilkenny and Patrick Kennedy. Both Peter and Ossie have enviable track records in the entertainment and music industries and add depth and experience to this growing area of the Group. Patrick's appointment brings us closer to our largest strategic investor, the David Kennedy Family Trust, and additional depth to our Property Services. I welcome all three Directors to the board which has a good balance of executive and non-executive Directors.

We believe that the outlook for the Group over the short, medium and long term remains encouraging." 

Enquiries:

Formation Group PLC, 

Mike Wallwork, Communications Director, T: +44 (0) 161 980 1210 

Investec Investment Banking, 

Paul Gray, T: +44 (0) 207 597 5176 

Patrick Robb, T: +44 (0) 207 597 5169 

Notes to editor: 

Formation Group PLC (AIM: FRM) provide management and other professional services predominantly to high net worth clients within the sports, music and entertainment industries. Formation's services, delivered through two distinct divisions; Management and Professional Services, include accountancy, tax, wealth management, talent management, sports representation, construction management and sports finance broking. High net worth clients include professional athletes, sporting clubs and institutions, entertainers, musicians, real estate developers and trust companies.

CHAIRMAN'S STATEMENT 

It gives me great pleasure to present the Group's results for the six months ended 29 February 2008.

This has been another busy period for the Group with the acquisition of the leading talent management business; James Grant Media Group Ltd (JGMG) on the last day of the period. 

This acquisition is in line with our previously stated strategy of diversifying into related and complementary business areas. We now serve clients within the sports, music and entertainment sectors. I would also like to formally welcome the management and staff of JGMG.

As a direct consequence of our acquisitions, we have strengthened our board with the addition of Peter Powell and more recently Ossie Kilkenny. Both have enviable track records in the entertainment and music industries and add depth and experience to this growing area of the Group. I am also delighted to confirm that Patrick Kennedy has also recently joined the board, representing the interests of our largest shareholder; the David Kennedy Family Trust which at the time of publishing hold in excess of 51% of the Group's issued share capital. I welcome all three Directors to the board which has a good balance of executive and non-executive Directors.

The results from continuing businesses are strong and a good reference point for our continued progress. We are currently trading ahead of consensus forecasts for the full year and continue to see growth opportunities going forward. It is also encouraging to see the growing amount of future contracted income the Group has secured. This gives us visibility and confidence as we plan for our future.

We will continue to seek complementary acquisitions whilst remaining firmly focused on delivering organic growth. We will achieve this by leveraging the collective services we have carefully assembled for the benefit of all our clients. 

May I also take this opportunity to thank all our staff who are a highly professional and dedicated group of people committed to serving the needs of our valued clients. We will continue to recognise and reward our employees in line with the Group's performance. 

Finally I am pleased to report that your board believes the outlook for the short, medium and long term remains encouraging.

John Lawrence MBE

Non-Executive Chairman

CHIEF EXECUTIVE OFFICER'S REPORT

Revenue for the period was £12.8 million from continuing operations (2007: £3.0 million) and profit before tax from continuing operations was £1.76 million (2007: £0.33 million). Basic earnings per share from continuing activities were 0.59 pence (2007: 0.18 pence).

As at 29 February 2008, the Group had committed future gross profit of £19.4 million (2007: £5.5 million), which represents an increase of 252% over last year. Of this, £5.3 million (2007: £1.6 million) is expected to be recognised in the current financial year ending 31 August 2008.

In line with the Group's current dividend policy, no interim dividend is being declared. However, the Directors expect to recommend the payment of a final dividend at the time of the preliminary results for the year ending 31 August 2008.

TRADING

In line with our previously stated strategy, we have continued to develop the business and enhance our service proposition.

We have structured our business into two distinct divisions; Management Services and Professional Services and will report financials on this basis going forward.

MANAGEMENT SERVICES DIVISION

Revenue for the period under review was £1.5 million (2007: £1.2 million) and operating profit was £0.48 million (2007: £0.18 million).

Our Management division contains three businesses; James Grant Media Group Ltd, Proactive Sports Management Ltd and Proactive Sports Management USA Inc. All three businesses provide career management and representation advice to entertainers and athletes within the sports and entertainment sectors. For many of our clients our services extend beyond commercial and endorsement contract negotiation to a variety of concierge services.

Entertainment Management - James Grant Media Group Ltd

We concluded the acquisition of JGMG on the last day of this reporting period. It is therefore too early to provide any review on its financial performance. However, we are confident in this business and look forward to reporting on its first trading period within the Group at the year end.

Sports Management - Proactive Sports Management (UK and USA) 

Both sports management businesses are trading ahead of expectation and are showing good year on year growth. The USA business is starting to become a material part of the Group and offers further growth opportunities going forward, both from an organic and acquisition perspective. In January this year this business managed to recruit seven of the top 12 Major League Soccer collegiate elite players (via the USA draft system) which was an exceptional achievement. The business has also appointed two senior managers during the period and the outlook remains strong in its core football market.

In the UK, we have produced another strong performance which is very pleasing in what can only be described as a difficult market. This is due in the main to the high proportion of overseas players joining Premier League clubs. Understandably they have already appointed representatives on their arrival to the UK. Consequently, client recruitment remains an ongoing challenge but we are well positioned to attract new clients and have further developed our ancillary concierge service to reinforce and differentiate our service proposition. 

PROFESSIONAL SERVICES DIVISION

Revenue for the period under review was £11.3 million (2007: £1.8 million) and operating profit was £1.8 million (2007: £0.42 million).

Our Professional Services division contains a number of subsidiary companies including; O J Kilkenny & Co Ltd, Kingsbridge Asset Management Ltd, Formation Wealth Solutions Ltd, Formation Sports Capital Ltd, Formation Design & Build Ltd and Formation Architectural Design Ltd. 

We have the opportunity and importantly, the service capability and skill set to deliver Professional Services across our chosen customer segments. These are sport, music and entertainment as well as clients in the property construction management arena. The short, medium and long term objective will be to increase cross selling of our services within our existing client base, allowing each client to engage with the Group at the level they choose is most appropriate for them. Some clients will continue to place all their service requirements with us whilst others will select individual services based on their needs.

The following details our Professional Services businesses in terms of the services they provide and sectors they currently operate in.

Accountancy - OJK is a leading specialist accountancy practice within its chosen sectors and has the ability to consolidate this position through further organic growth from clients both within and outside of the Group as well as through selective acquisition. 

Wealth Management - KAM provides wealth management services, as a directly authorised FSA approved IFA to a wide range of professional athletes (predominantly football, golf and cricket), entertainers and musicians. FWS provides bespoke investment products to other third party financial institutions for the benefit of their clients. These businesses have recorded a strong trading period. They are also benefiting from various people and technological investments we have made over the last 12 months. Both businesses will, with effect from 1 July 2008, be based in Wilmslow, Cheshire, a move which will enhance the businesses profitability over time whilst enabling it to work more closely with its sister company; Proactive Sports Management. Unlocking the potential to independently advise other clients across the Group will also provide organic growth.

Sports Finance Brokerage - FSC provides bespoke financial solutions to sporting organisations, football clubs and selected media outlets within the UK and elsewhere in Europe who are looking to accelerate their cash flow from contracted income. Clubs can use this service to manage cash flows against a number of their different income streams including transfer fees, broadcast income, endorsement agreements and season ticket revenues. The business is trading behind plan at the half year. The complexity of some of the deal structures within this business aligned to a more cautious approach to lending means that the conclusion of deals has been more protracted than usual. 

Construction Management - Through two businesses; FDB and FAD, we provide a range of construction management services to property development companies. This business co-ordinates the construction process on behalf of a developer and uses these relationships to devise and present investment opportunities which can then be packaged and ultimately sold via our two wealth management sister companies; Kingsbridge Asset Management and Formation Wealth Solutions. Investment funds within this asset class have traditionally, and will continue to appeal to many of our clients. The business continues to trade in line with its plan and will continue to work closely with our property development clients to carefully select, evaluate and construct investment opportunities for the benefit of our clients. Location will continue to be key and we expect future developments to continue to be in and around the centre of London. 

RISKS AND UNCERTAINTIES

Understanding and mitigating business risks are as important to the Group as developing and maximising its growth potential. As a board, we constantly review this area of our business and readily accept our responsibility to convey a balanced view to all our shareholders. 

Commercial property markets - The key challenges outlined as part of our year end report in November 2007 remain largely unaltered. The potential property liabilities previously disclosed within the two property funds launched last year remain unchanged with 'The Whitechapel Property Fund Limited' project  substantially mitigated following the off plan bulk purchases of units previously announced. 'The Aldgate East Property Company Limited' project is not due for completion until 2010 and we continue, through our liaison with the trustees of this company, to monitor progress of this prime London location now that construction has begun. Whilst the trustees of this fund remain confident in these development locations, given the macro economic environment, this area of potential risk will be continually assessed and actively managed.

Single majority shareholder - We continue to firmly believe that the David Kennedy Family Trust are involved with the Group for the long term. Their tremendous support is as strong as ever. The £8 million term loan facility arranged by the David Kennedy Family Trust, at the time of our acquisition of James Grant Media Group Ltd, is a direct testament to the continued support that we receive from our largest shareholder. However, we also acknowledge that a high percentage of the Group's share capital within the control of a single party is not without some degree of risk. 

People - As a services orientated business it is our people who deliver for our clients. We acknowledge their value and appreciate the need to continue to motivate, recognise and reward our people in order to maximise both our and their performance. In December 2007, we successfully recruited the Group's first dedicated HR Manager who will drive consistency in our processes whilst working closely with all subsidiaries to ensure we attract, reward and develop the very best people available. 

OUTLOOK

We have continued to develop the business and its client proposition during the last six months and the outlook for all trading subsidiaries remains encouraging. We have also continued to operate and execute a strategy we have developed since our listing in 2001. Our focus on acquiring complementary businesses which add value to our clients, provide incremental revenue and help drive shareholder value continues to be successfully implemented and we are starting to achieve the scale which we believe will, over time, produce significant reward.

As ever, the dedication and devotion of our skilled team of employees is at the heart of our business performance and I would like to thank all Group staff for their continued hard work and endeavour. 

NEIL RODFORD 

Chief Executive Officer