FRM.L Regulatory News (FRM)

17 May 2007 07:02

Formation Group PLC17 May 2007 FORMATION GROUP PLC ("Formation" or "the Group") Interim Results for the six months ended 28 February 2007 Formation provides a range of professional services and products to high networth individuals, principally professional sportsmen, and organisations in thesports and entertainment arena. These services and products include wealthmanagement, bespoke property investments, corporate finance, insurance andrepresentation. Key Points Strategic • Disposal of Sports Marketing Division on 31 October 2006 - marks the first step in the next phase of the Group's development • Group's focus is now on developing its wealth management and bespoke property investment activities • Advised on the successful launch of a bespoke property fund, The Whitechapel Property Fund Limited, which provided an investment opportunity for the Group's high net worth clients • Board is actively considering potential acquisitions • Company is expected to return to AIM shortly Financial • Turnover from continuing operations of £3.0m (2006: £3.3m) • Profit before tax from continuing operations of £329,000 (2006: loss of £128,000) • Basic earnings per share from continuing activities increased to 0.18p (2006: loss of 0.08p) • Profit of £4.2m generated from the disposal of Sports Marketing Division • Net funds of £7.5m (2006: net borrowings of £0.3m) at the end of the period • Board remains confident of the Group's prospects for the remainder of the year John Lawrence MBE, Chairman of Formation, commenting, said, "As shareholders are aware, during the period, the business was fundamentallytransformed with the decision to dispose of the Sports Marketing Division. Thiswas completed in late October 2006 and I am pleased to highlight that weachieved material gains from the disposal, testimony to the management's abilityto extract value for shareholders. The disposal leaves Formation focused on its range of professional services, andwe believe there are exciting opportunities to enhance the Group and itsproposition. We are actively examining potential acquisition targets which complement ourexisting businesses in order to accelerate our expansion and have identified anumber of possible opportunities. We are in the process of completing thenecessary due diligence on one such target and expect to make a furtherannouncement in the near future. We believe that the outlook for the Group over the short, medium and long termremains encouraging." Enquiries: Formation Group PLC Neil Rodford Tel: 020 7448 1000 (today) or 01625 539832 (thereafter) Biddicks Katie Tzouliadis Tel: 020 7448 1000 WH Ireland Limited Katy Mitchell Tel: 0161 832 2174 CHAIRMAN'S STATEMENT It gives me great pleasure to present the Group's results for the six monthsended 28 February 2007. As shareholders are aware, during the period, the business was fundamentallytransformed with the decision to dispose of the Sports Marketing Division. Thiswas completed in late October 2006 and I am pleased to highlight that weachieved material gains from the disposal, testimony to the management's abilityto extract value for shareholders. The Sports Marketing Division accounted for a material part of Group turnover inthe last financial year and its disposal leaves Formation focused on its wealthmanagement, corporate finance, bespoke property investment and representationactivities. We believe that there are exciting opportunities to build on thisbase, particularly in the areas of property management and the creation ofbespoke investments for wealth management clients. With the proceeds of the saleof the Division, we are well-placed to consider appropriate acquisition targetsand we are doing so actively. I am particularly pleased to report that results from the continuing businessover the period are significantly higher year on year. Looking forward, we have a clear plan of how we intend to develop the Group. Ourstrategy of diversifying into related, complementary areas has, to date,delivered tangible results and we believe it will continue to do so in thefuture. Acquisitions will help to accelerate our expansion plans and the Boardhas identified a number of possible target acquisitions. We are in the processof completing the necessary due diligence on one such target and expect to makea further announcement in the near future. We believe that the outlook for the short, medium and long term remainsencouraging. John Lawrence MBENon-Executive Chairman17 May 2007 CHIEF EXECUTIVE OFFICER'S REPORT The interim financial results for the six months ended 28 February 2007 arereported upon under International Financial Reporting Standards (IFRS). Turnover for the period was £3.0 million for continuing operations (2006: £3.3million) and profit before tax from continuing operations was £329,000 (2006:loss of £128,000). Basic earnings per share from continuing activities were 0.18pence (2006: loss of 0.08 pence). The Group made a profit from the disposal ofthe Sports Marketing Division of £4.2 million. As at 28 February 2007, the Group had committed future gross profit of £5.5million (2006: £3.4 million on a like for like basis), which represents anincrease of 62% over last year. Of this £5.5 million, £1.6 million (2006: £1.4million) will be recognised in the current financial year ending 31 August 2007. At the end of the period under review, the Group had net funds of £7.5 million(2006: net borrowings of £0.3 million). In line with the Group's current dividend policy, no interim dividend is beingdeclared, however the Directors expect to recommend the payment of a finaldividend at the time of the preliminary results for the year ended 31 August2007. Trading Formation provides a range of related specialist services to two distinctcustomer groups. The first is high net worth individuals, the majority of whomare sportsmen, who require financial planning and ancillary services, togetherwith career advice; the second is sporting organisations and clubs for whichFormation can broker financial solutions. The Group's services comprise: • Wealth Management - provided by Kingsbridge Asset Management Limited; • Corporate Finance - provided by Capital Sports Solutions Limited; and • Representation - provided by Proactive Sports Management Limited and Proactive Sports Management USA Inc. We are satisfied with the trading performance and contribution of eachsubsidiary. All traded in line with, or ahead of, our expectations for thehalf-year and we remain positive about the trading performance of each businessfor the remainder of the year. Wealth Management & Professional Services Turnover for the period under review was £1.8 million (2006: £2.1 million) andoperating profit was £416,000 (2006: £497,000). The Wealth Management business provides independent financial advice tosportsmen, entertainers and other high net worth individuals. This encompassesfinancial planning, protection and wealth accumulation. The business isperforming in line with our expectations at the end of the period. In line with recent changes in FSA regulation and industry best practice, weremain focused on moving the business towards a recurring income model of annualmanagement fees which will increase the level of funds under management andprovide a solid foundation for future growth. Accordingly we have completed arebranding exercise, streamlined the infrastructure and invested in IT systemsto facilitate this transition. The Corporate Finance operation is a specialist broker providing bespokefinancial products to sporting organisations and clubs who wish to acceleratecash flows by borrowing money secured against future income from commercialcontracts, including sponsorship income, broadcast income and transfer fees.During the period under review, we advised on six debt related corporatetransactions. We are pleased with the progress we are making in this area andare investigating the possibility of establishing our own in-house managed fund.The Corporate Finance business is performing in line with our expectations atthe end of the period. Representation The Representation business provides management services and career advice toprofessional sportsmen, predominantly footballers, as well as celebrities. Theperformance of this Division is significantly weighted towards the second halfof the year, reflecting the football transfer windows. Results for the firsthalf were in line with our expectations, with turnover of £1.2 million (2006:£1.2 million) and an operating profit of £187,000 (2006: loss of £25,000). We completed 15 transfers or contract renewals in the period under review. Wehave six licensed agents based out of two locations, the UK and the US, with theUK generating the material part of our income. Looking forward, we expect togrow the business organically whilst looking to drive through more efficienciesin the existing operation. Property Ventures Since October 2006, the Board has been committed to adding new revenue streamsthat are complementary to the Group's current operations. In particular, webelieve there is an opportunity to develop in-house bespoke financial productsto offer to the Group's existing high net worth clients, as well as the widerinstitutional and investor communities. We believe that in-house products willprovide new revenue opportunities via initial commissions, annual managementfees, performance related bonuses and profit share linked to the performance ofthe scheme. In line with this objective, during the period under review, the Group advisedon a bespoke property fund, The Whitechapel Property Fund Limited("Whitechapel"), which was listed on the Channel Islands Stock Exchange on 28February 2007. This fund provided an opportunity for the Group's high net worthclients to invest in a property development in a prime regeneration area inLondon. Whitechapel issued £5.4 million of loan notes, the net proceeds of which have been lent to the property developer to part fund the project, with investors receiving a fixed compounded return. The Information Memorandum for The Whitechapel Property Fund Limited sets out the transaction and the parties involved, some of whom are related to the Group. This can be downloaded from the Group's website at www.formationgroupplc.com/pdf/KingsbridgeWhitechapel.pdf. We are committed to developing the property aspect of the business and areactively pursuing acquisition opportunities in order to form a propertymanagement division within the Group in the near future. Employees The Board would like to extend its thanks and appreciation to all the Group'semployees for their commitment and contribution to the Group's success duringthe period. We also wish our former colleagues in the Sports Marketing Divisionevery success. Risks and Uncertainties We believe that the Group has a number of concentrated exposures which can besummarised as follows; our ability to retain and motivate senior management andpersonnel; the continued desire for live English football matches whichunderpins the financial health of football clubs and, therefore, our clients'salaries; and finally, the sustainability of the UK (specifically centralLondon) residential and commercial property sectors. Outlook Our business model of providing a range of specialist services is wellestablished and we believe we have sound foundations in place to grow thebusiness, both organically and by acquisition. We remain committed to adding newrevenue streams and complementary services to the Group's existing coreproposition. All companies are trading in line or ahead of our expectations. We remainoptimistic about the prospects for the Group for the remainder of the year andbeyond. Neil RodfordChief Executive17 May 2007 Consolidated income statementFor the six months ended 28 February 2007 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 Note (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Continuing operations Revenue 2 3,027 3,252 6,766 Cost of sales (202) (314) (343) ------------ ----------- ----------- Gross profit 2,825 2,938 6,423 Administrative expenses (2,587) (3,026) (6,077) ------------ ----------- ----------- Operating profit/(loss) from 2 continuing operations 238 (88) 346 Investment income 120 2 8Finance costs (29) (42) (107) ------------ ----------- ----------- Profit/(loss) before taxation 329 (128) 247 Taxation 4 (99) 31 (88) ------------ ----------- ----------- Profit/(loss) for the financial period from continuing operations 230 (97) 159 Discontinued operationsProfit for the financial period from 3 discontinued operations 4,372 420 384 ------------ ----------- ----------- Profit for the financial period attributable to equity holders ofparent 4,602 323 543 Dividends 5 (131) (109) (109) ------------ ----------- ----------- Retained profit for the financial period 4,471 214 434 ------------ ----------- ----------- Earnings/(loss) per share From continuing operationsBasic 6 0.18p (0.08)p 0.13p ------------ ----------- ----------- Diluted 6 0.18p (0.08)p 0.13p ------------ ----------- ----------- From continuing and discontinuedoperationsBasic 6 3.64p 0.28p 0.46p ------------ ----------- ----------- Diluted 6 3.54p 0.28p 0.46p ------------ ----------- ----------- Consolidated statement of recognised income and expenseFor the six months ended 28 February 2007 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Exchange loss on foreign currency translation of foreign operations (7) (1) (17) Profit for the financial period attributable to equity holders ofparent 4,602 323 543 ------------ ---------- ----------- Total recognised income and expenses for the period attributable to equityholders of the parent 4,595 322 526 ------------ ---------- ----------- Consolidated balance sheetAs at 28 February 2007 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Non-current assetsGoodwill 12,773 17,305 15,917Other intangible assets 31 46 42Property, plant and equipment 221 414 349Deferred tax asset 115 94 124 ------------ ----------- ----------- 13,140 17,859 16,432 ------------ ----------- ----------- Current assetsTrade and other receivables 2,568 5,434 6,782Cash and cash equivalents 7,538 554 2,187 ------------ ----------- ----------- 10,106 5,988 8,969 ------------ ----------- ----------- Total assets 23,246 23,847 25,401 ------------ ----------- ----------- Current liabilitiesTrade and other payables (2,994) (6,477) (8,419)Tax liabilities (44) (809) (753)Obligations under finance leases (13) (12) (4)Bank overdrafts and loans - (100) (44) (3,051) (7,398) (9,220) Net current assets/(liabilities) 7,055 (1,410) (251) Non-current liabilitiesTrade and other payables (83) (539) (343)Tax liabilities (99) (150) -Obligations under finance leases (45) (35) (30)Bank overdrafts and loans - (800) - ------------ ----------- ----------- (227) (1,524) (373) ------------ ----------- ----------- Total liabilities (3,278) (8,922) (9,593) ------------ ----------- ----------- Net assets 19,968 14,925 15,808 ------------ ----------- ----------- EquityShare capital 1,264 1,149 1,264Share premium account 694 18 694Treasury shares (433) - (138)Capital redemption reserve 61 61 61Currency and other reserves 3,823 3,829 3,839Profit and loss account 14,559 9,868 10,088 ------------ ----------- ----------- Total equity 19,968 14,925 15,808 ------------ ----------- ----------- Statement of changes in shareholders' equityFor the six months ended 28 February 2007 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Opening shareholders' equity 15,808 14,691 14,691Dividends paid (131) (109) (109)Profit for the period attributable to equity holders of the parent 4,602 323 543Issue of new share capital - - 791Purchase of treasury shares (295) - (138)Other reserves movement due to share options charge and disposal of subsidiaries (9) 21 47Exchange loss on foreign currency translation recognised directly in equity (7) (1) (17) ----------- ---------- ---------- Closing shareholders' equity 19,968 14,925 15,808 ----------- ---------- ---------- Consolidated cash flow statementFor the six months ended 28 February 2007 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) Note £'000 £'000 £'000 Cash (used in)/generated by operations 7 (8) (338) 1,017Income taxes (paid)/received (127) 23 (395)Interest paid (29) (47) (108) ----------- ----------- ----------- Net cash (outflow)/inflow from operating activities (164) (362) 514 ----------- ----------- ----------- Investing activitiesInterest received 121 5 14Proceeds on disposal of property, plant and equipment 8 - 18Purchases of property, plant and equipment (999) (73) (170)Purchases of trademarks and rights - - (2)Deferred consideration paid (335) (231) (356)Acquisition of subsidiaries - (42) (242)Cash acquired with subsidiary - - 135Acquisition expenses (29) - (107)Proceeds on disposal of subsidiary companies, net of disposal costs 9,208 - 1,366Cash disposed of with subsidiary companies (1,987) - (8) ----------- ----------- ----------- Net cash generated by/(used in)investing activities 5,987 (341) 648 ----------- ----------- ----------- Financing activitiesDividends paid (131) (109) (109)Proceeds on issue of shares - - 791Purchase of own shares (295) - (138)New obligations under finance leases 29 - -Repayments of obligations under finance leases (5) (7) (20) ----------- ----------- ----------- Net cash (used in)/generated by financing activities (402) (116) 524 ----------- ----------- ----------- Net increase/(decrease) in cash and cash equivalents 5,421 (819) 1,686 Cash and cash equivalents at the beginning of the period 2,143 474 474 Effect of foreign exchange rate changes (26) (1) (17) ----------- ----------- ----------- Cash and cash equivalents at end of the period 7,538 (346) 2,143 ----------- ----------- ----------- Notes to the Interim InformationFor the six months ended 28 February 2007 1. Basis of preparation The Group's interim results for the six months ended 28 February 2007 have beenprepared in accordance with International Financial Reporting Standards (IFRS).The accounting policies adopted are consistent with those adopted in thepreparation of the annual financial statements for the year ended 31 August2006. The comparative figures are an abridged version of the Group's full financialstatements and, together with other financial information contained in theseinterim results, do not constitute statutory financial statements of the Groupwithin the meaning of section 240 of the Companies Act 1985. Statutory financial statements for the year ended 31 August 2006 have been filedwith the Registrar of Companies for England and Wales and have been reported onby the Group's auditors. The report of the auditors was not qualified and didnot contain a statement under section 273(2) or (3) of the Companies Act 1985. 2. Segment information 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) Profit Profit/ (loss) Profit from from from continuing continuing continuing Revenue operations Revenue operations Revenue operations £'000 £'000 £'000 £'000 £'000 £'000By class ofbusiness:Wealth management and professionalservices 1,841 416 2,076 497 3,635 543Representation 1,186 187 1,176 (25) 3,131 995 -------------------- -------------------- --------------------- 3,027 603 3,252 472 6,766 1,538 -------- -------- ---------Central costs (365) (560) (1,192) ------------ ------------ ------------Profit/(loss) from operations 238 (88) 346 ------------ ------------ ------------ 3. Results of discontinued operations On 10 July 2006, the Group sold its holding in Proactive Scandinavia which carriedout all of the Group's representation activities in Scandinavia. The results ofthis company wre previously included in the Representation division.On 31 October 2006, the Group completed the disposal of its Sports Marketingbusiness. The results of the discontinued operations which have been included inthe consolidated income statement, were as follows: 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Revenue 1,742 5,295 8,997 Cost of sales (1,154) (3,049) (4,924) ----------- ---------- ----------- Gross profit 588 2,246 4,073 Administrative expenses (326) (1,648) (3,050) ----------- ---------- ----------- Operating profit from discontinued operations 262 598 1,023 Investment income 1 3 6Finance costs - (5) (1) ----------- ---------- ----------- Profit before taxation 263 596 1,028 Attributable tax expense (92) (176) (279) ----------- ---------- ----------- Profit for the financial period from continuing operations 171 420 749 ----------- ---------- ----------- Profit/(loss) on disposal of discontinued operations 4,201 - (365) Attributable tax expense - - - ----------- ---------- ----------- Profit/(loss) on disposal of discontinued operations 4,201 - (365) ----------- ---------- ----------- Net profit attributable to discontinued operations 4,372 420 384 ----------- ---------- ----------- 4. Taxation The taxation charge at 30.0% of profit before taxation, is based on theestimated effective rate of tax on earnings for the full year ending 31 August2007. 5. Dividends 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Dividend paid per share in the period of0.105 pence(2006 - 0.095 pence) (131) (109) (109) ------------ ----------- ------------- 6. Earnings per share Earnings per share are based on the following profits and numbers of shares: 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Profit/(loss) for the period:Basic and diluted earnings - continuing 230 (97) 159operationsBasic and diluted earnings - discontinued operations 4,372 420 384 ----------- ----------- -----------Basic and diluted earnings - continuing and discontinued operations 4,602 323 543 ----------- ----------- ----------- Number of Number of Number of shares shares shares '000 '000 '000 Weighted average number of shares:Basic 126,361 114,874 118,462 ------------- ----------- ------------ Diluted 129,923 114,874 118,462 ------------- ----------- ------------ 7. Reconciliation of profit from operations to net cash from operations 6 months 6 months Year ended ended ended 28 Feb 2007 28 Feb 2006 31 Aug 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Profit/(loss) from continuing operations 238 (88) 346Profit from discontinued operations 262 598 1,023Depreciation of property, plant and equipment 46 85 168Amortisation of intangible assets 10 5 11Share option charge 11 21 47Loss on sale of fixed assets 20 - - ----------- ----------- ---------- Operating cash flows before movements in working capital 587 621 1,595Decrease in receivables 100 4,009 2,776Decrease in payables (695) (4,968) (3,354) ----------- ----------- ---------- Cash (used in)/generated by operations (8) (338) 1,017 ----------- ----------- ---------- 8. Contingent liability During the period under review, the Group acted as investment adviser to abespoke property investment product, The Whitechapel Property Fund Limited("Whitechapel"), which was listed on the Channel Islands Stock Exchange on 28February 2007. This fund provided an opportunity for the Group's high net worthclients to invest in a property development in a prime regeneration area inLondon. Whitechapel issued £5.4 million of loan notes which have been lent tothe property developer to part fund the project, with investors receiving afixed compounded return. The Loan Notes will be in issue for a minimum period oftwo years or maximum of four depending on the build programme and success of thescheme. In return for a success based fee, Formation has agreed to underwrite half ofthe value of the loan notes and associated interest. The maximum liability inrelation to this is £4 million. INDEPENDENT REVIEW REPORT TO FORMATION GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 28 February 2007 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expense, theconsolidated balance sheet, the reconciliation of changes in equity, theconsolidated cash flow statement and related notes 1 to 8. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the company, in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare also responsible for ensuring that the accounting policies and presentationapplied to the interim figures are consistent with those applied in preparingthe preceding annual accounts except where any changes, and the reasons forthem, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 28 February 2007. Deloitte & Touche LLPChartered AccountantsManchester17 May 2007 This information is provided by RNS The company news service from the London Stock Exchange