19 Nov 2008 07:00
FRM.L
19 November 2008
FORMATION GROUP PLC
("Formation" or "the Group")
Preliminary Results
for the year ended 31 August 2008
Formation provides a range of management and professional services to its clients within the sports, music and entertainment sectors as well as other high net worth individuals and trusts.
Business Highlights
Acquisition of leading talent management business, James Grant Media Group Limited (since renamed James Grant Media Limited) on 29 February 2008 for a total potential consideration of up to £29.8 million. This figure is linked to James Grant Media Limited achieving certain financial performance targets over a 3 year period
Defined divisional structure of 'Management Services' and 'Professional Services' in support of re-branding work and client proposition development
Strengthening of the board with three key appointments
Financial Highlights
Operating profit from continuing operations of £3.5 million (2007: £1.1 million)
Total basic earnings per share from continuing operations increased to 1.00p (2007: 0.66p)
Committed future gross profit at year end of £14.5 million (2007: £12.9 million)
John Lawrence, Chairman of Formation said;
"The financial year ended 31 August 2008 saw the Group achieve its ambitious goals. Although the Group has taken on senior debt, this facility and its cash reserves have enabled us to add breadth to our service proposition and clients to our roster. This has also enabled the Group to deliver substantial financial growth. Both recent acquisitions; James Grant Media Limited and O J Kilkenny & Co Limited (acquired on 31 August 2007) have contributed in line with our expectations, and the Group has achieved its market consensus forecast.
Whilst the current economic climate makes our acquisition strategy more difficult, the opportunities which present themselves within our existing businesses are testament to the progress we are making. We remain appropriately geared as a business with a net debt as at 31 August 2008 of £1.8 million and until we see more stability within global financial markets, an ongoing strategy to organically grow our business is our primary objective. We have significant opportunities to cross-sell our services amongst our subsidiary companies and further integrate these services for the benefit of all clients.
Post year-end, Heritable Bank PLC ("Heritable"), a subsidiary of Landsbanki, was put into Administration which has cast uncertainty over a property development at Aldgate East underground station, London to whom the Group acts as project manager and part-underwriter. This uncertainty surrounds the part underwriting which was discussed in previous accounts and whilst this position is currently unclear, we are seeking to secure a positive outcome, exploring a range of options to achieve this. We provide full details of how the Administration of Heritable might impact the Group within the Chief Executive Officer's report."
Enquiries:
| Formation Group PLC www.formationgroupplc.com | Neil Rodford, Chief Executive Mike Wallwork, Communications Director | T: 0161 980 1210 T: 07795 613844 |
| Investec Investment Bank | Patrick Robb / Paul Gray | T: 020 7597 5970 |
CHAIRMAN'S STATEMENT
The financial year ended 31 August 2008 saw the Group achieve its ambitious goals. Operating profit from continuing operations increased by 203% to £3.5 million from £1.1 million in 2007.
The Group has added breadth to its service proposition and clients to its roster, demonstrating the benefits of our strategy. This, coupled with the acquisition of James Grant Media Limited, has produced an excellent year for the Group.
Prospects
Looking to the future, we are seeing an increasing number of acquisition opportunities presenting themselves. Whilst the current economic climate may restrict our ability to continue our acquisition strategy, these opportunities are testament to the progress we are making. We remain appropriately geared as a business with a net debt as at 31 August 2008 of £1.8 million. We would obviously not rule out further acquisition activity in the short term but our priority, until we see more stability within global financial markets, is to continue to develop organically with an ongoing strategy to invest for future growth whilst enhancing our proposition. We have significant opportunities to cross-sell our services amongst our nine companies and further integrate these services for the benefit of all clients.
However, whilst we have a growing business eager to expand and deliver more client services and enhanced returns for shareholders, we will not jeopardise what we have carefully built in such times of uncertainty. It is for these reasons that the board has decided not to propose a dividend payment. We will reconsider this position at the half year interim results for the period ending 28 February 2009.
The Board and Staff
I am delighted to welcome Peter Powell, Ossie Kilkenny and Patrick Kennedy who have all joined the board during the year. Peter became a director following the acquisition of James Grant Media Limited in February 2008 and both he and Ossie, who joined the board in May 2008, add considerable experience through enviable track records within the entertainment and music industries. Patrick also joined the board in May 2008 and is associated with the David Kennedy Family Trust. I welcome all three directors to the board which has a wealth of relevant experience within the industries in which we operate.
In addition to welcoming our new board members and the management and staff of James Grant Media Limited, I would also like to take this opportunity, on behalf of the board, to praise all our staff which now number approximately 130 across the UK and USA. Each business is dependent upon the skill, dedication and enthusiasm of its staff and Formation has staff firmly focused on achieving our common goals and providing a first class service to our clients. Their hard work is very much appreciated, understood and valued which is essential to our continued growth and success.
John Lawrence M.B.E.
Non-Executive Chairman
Formation Group PLC
CHIEF EXECUTIVE OFFICER'S REPORT
INTRODUCTION
We continue to develop and enhance our service proposition and have added another material business, James Grant Media Limited to the Group, over the last twelve months. This activity has also seen the Group structured under two very distinct and complementary divisions; Management Services and Professional Services with significant re-branding work undertaken to support this structure and our quest to develop 'Formation' as a trading, as well as holding company brand entity.
The acquisition of the highly regarded talent management business James Grant Media Limited has enabled the Group to further diversify into the entertainment industry. This builds upon our sports heritage and more recent move into the music industry, following the acquisition of the specialist accountancy practice O J Kilkenny & Co Limited last year. All three industries are highly complementary with similar opportunities and challenges.
Whilst there have been some seismic and unprecedented collapses in markets and institutions, particularly post our year end, events we are both very mindful of, and alert to, our strategy remains consistent, and our vision clear; we aspire to become the dominant global sport, music and entertainment service business orientated around European talent.
We aim to achieve this goal by;
continuing to recruit, motivate and reward the best people against our behavioural values
further expanding our service to offer clients more choice
continuing to acquire businesses which add scale and further enhance our financial position and ultimately, our shareholder return.
RESULTS
Our continuing businesses have produced a creditable performance, representing substantial year on year growth whilst trading in line with overall expectations.
For the year ended 31 August 2008, the Group revenue from continuing operations was £35.0 million (2007: £11.1 million). Profit before taxation from continuing operations was £3.35 million (2007: £1.4 million).
Basic earnings per share from continuing operations has increased by 52% to 1.00p (2007: 0.66p) whilst basic earnings per share from continuing and discontinued operations, was 1.29p (2007: 4.02p).
At 31 August 2008, the Group had committed future gross profit from current contracts of £14.5 million (2007: £12.9m). £7.9 million is expected to be recognised in the financial year ending 31 August 2009.
At 31 August 2008, the Group had net debt of £1.8 million (2007: funds of £3.6 million), reflecting the investment we have made in growing the business.
This represents another strong performance with substantial increases in all key financial areas. Once again we have demonstrated our ability to grow our business and trade profitably whilst in parallel, building our services and diversifying our service proposition. All this is testament to the hard work and effort of the whole Formation team.
DIVIDEND
After careful consideration, the directors are not recommending the payment of a final dividend. It has often been our policy to provide our shareholders with a tangible annual return by way of a dividend payment but in the current economic climate, and set in context with the uncertainty we find ourselves in following the Administration of Heritable Bank PLC prudence dictates that we should not make such a payment at this time. We will consider our position in this regard at the half year ending 28 February 2009.
REVIEW OF DIVISIONS
Formation comprises two divisions, a Management Services division and a Professional Services division. A review of trading within each division is set out below.
MANAGEMENT SERVICES DIVISION
Overview
Our Management Services division contains three trading subsidiaries; James Grant Media Limited, Proactive Sports Management Limited and Proactive Sports Management USA Inc.
James Grant Media Limited specialise in the provision of talent management services to clients across all sectors of the entertainment industry in the UK and USA. The company provides contract and commercial management services to clients who primarily work in primetime TV and radio. This business also provides brand management and e-commerce opportunities for incremental client income.
Both Proactive Sports Management businesses specialise in the management of professional footballers contracted to clubs in England, Scotland and USA as well as players with clubs in the top tiers of the Danish, French, German, Dutch, Norwegian, Spanish and Swedish leagues. In addition, Proactive in the UK also manage a number of Premiership Rugby Union players. These management services include both on-field playing contract negotiation, off-field commercial and image rights negotiation as well as concierge services and general player assistance.
During the year under review, the division generated revenue of £6.0m (2007: £3.3m). Operating profit (pre central overhead) increased by 91% to £1.7m (2007: £0.9m).
Talent Management
James Grant Media Limited was acquired in February 2008 and we are proud to have made such a high profile acquisition.
The business has made significant integration strides in a very short period of time and is already very much part of the wider Group. We hope to see a continuation of this process over the coming periods through appropriate client referrals to other relevant parts of Formation. I echo our Chairman's comments in welcoming the directors and staff of James Grant Media Limited and have enjoyed immensely working with Peter Powell and his fellow directors over the last few months.
The business has performed in line with our expectations in this period. We are proud of the clients they bring to the Group and remain confident in this business's ability to continue to attract the very best names in the entertainment industry.
Sports Management
The USA business has once again produced excellent year-on-year growth and has again successfully negotiated a number of European club contracts for its North and South America domiciled players. The business continues to go from strength to strength and has established itself as one of, if not the main football management businesses in the US. In January 2008, the business managed to recruit seven of the top 12 Major League Soccer collegiate elite players (via the USA draft system) which was a great achievement.
There remain a number of opportunities both from an organic and acquisition perspective and the outlook remains strong in its core football market.
In the UK, the business has produced a result below expectation, primarily as a consequence of a Football Association fine of £300,000 levied against one of our licensed agents in July 2008 and the related legal costs. This fine relates to an enquiry by the F.A. dating back to 2005, following a well documented trial which collapsed in 2004 at which the agent in question was a prosecution witness. After careful consideration and extensive advice, the Group has decided not to financially support any appeal of this decision.
As outlined in the publication of the Group's Interim Results in May 2008, UK football representation is a difficult market in which to grow. We have some excellent long term client relationships in place in the UK. The challenge is to grow this business in an increasingly competitive and fragmented market following an influx, in recent years, of foreign players into the top tiers of English football.
PROFESSIONAL SERVICES DIVISION
Overview
Our Professional Services division contains six trading subsidiaries; Formation Asset Management Limited, Formation Architectural Design Limited, Formation Design & Build Limited, Formation Sports Capital Limited, Formation Wealth Solutions Limited and O J Kilkenny & Co Limited.
During the year under review, the division generated revenue of £29.0m (2007: £7.8m). Operating profit (pre central overhead) increased by 201% to £3.2m (2007: £1.1m).
Wealth Management
Formation Asset Management Limited ("FAM"), formerly Kingsbridge Asset Management provides our wealth management services.
Following the accreditation as a "directly authorised" business by the FSA last year and the significant investment in I.T. made at that time, we took the important step to relocate FAM into our Wilmslow office whilst at the same time, bringing the business under the Formation brand.
This business is now trading from the same location as its core football client base. The re-branding of all customer facing businesses is integral to successful organic growth across the Group. FAM was the latest business to transfer to a consistent Formation brand name, following in the footsteps of Formation Architectural Design Limited, Formation Design & Build Limited, Formation Sports Capital Limited and Formation Wealth Solutions Limited. Others will follow over the coming periods.
The business is now very well placed to overcome the inevitable challenges it will face over the coming period. Our historic strength in structuring property products will not, in all likelihood, be viable for the foreseeable future, primarily because of market sentiment in this sector but also the ability in the current market to arrange debt funding into large property developments has all but ceased since the Summer of this year.
Our consultants continue to cultivate excellent client relationships and have taken a very proactive stance of seeking to protect our clients' wealth over the last few uncertain months. Our strategy over the last couple of years of enhancing contracted income lines which give the Group good visibility of income whilst providing a very transparent fee structure aligned to our clients' interests will also stand us in good stead going forward.
Sports and Media Finance
Formation Sports Capital Limited provides specialist corporate finance and broking services to sport and media businesses.
The business has once again performed very strongly over the year, accelerating over £85 million worth of receivable income for sporting clubs and institutions, a substantial increase on the previous period. Whilst the current economic climate remains uncertain, our profile and reputation in the sports and media finance arena is increasing and we fully expect to continue building football club and rights holder relationships both in the UK and Europe. Whilst we cannot predict how the economy will unfold over the coming months, we believe our strategic position in this sector will provide us with further opportunity.
Accountancy
O J Kilkenny & Co Limited ("OJK") provides tax, accountancy and royalty examination services to clients within the music, sport and entertainment sectors.
Acquired by the Group on 31 August 2007, this is OJK's first full consolidated period within the Group and I am pleased to report that trading is in line with our expectations.
The business continues to win new clients on a regular basis and has significant organic growth potential. We will, over the coming months, be looking to relocate OJK into larger West London offices to facilitate this growth. We have also introduced more robust finance systems to enhance our cash collection position and streamline billing processes.
We have restructured the business so that it operates within the same subsidiary board structure as all other Group companies. In support of this, we have devoted a lot of time to ensure the senior management, who will now operate this board as directors, are suitably rewarded and incentivised to move the business onto the next level.
Construction Project Management
Our acquisition of what is now named Formation Design & Build Limited ("FD&B") in June 2007, enables us to package and sell down investment products in an asset class our wealth management business clients have traditionally invested in. In addition to these investment products, this business has generated substantial revenue and profit through the project management of large scale building developments.
We are currently involved in a number of large scale sites which are each at various stages of development. Inevitably, this area of our business has, and will continue in the short to medium term, to come under pressure.
The post year end Administration Order in relation to Heritable Bank PLC, which provides debt funding to a property development that Formation is involved in, has created uncertainty over a contingent underwriting liability which was noted in Formation's last set of report and accounts. The following provides the background and potential effects Heritable's Administration could have on the Group.
Background
In August 2007 Formation acted as investment adviser to Aldgate East Property Company Limited ("AEPC") which raised £19.8 million through the issue of Junior Unsecured Loan Notes and Subordinated Junior Unsecured Loan Notes (the "Loan Notes") to retail investors, including clients of Formation's asset management company, Formation Asset Management Limited.
The proceeds from the issue of the Loan Notes, along with a proportion of a £93.0 million banking facility ("the Facility") provided by Heritable, a subsidiary of Landsbanki, were used by Julius Properties Limited ("the Developer") to acquire the land and commence the Aldgate development.
In performing its duties as Investment Adviser and providing underwriting facilities, Formation was paid an initial fee of £1.8m with a further fee, which is calculated by reference to the total profit from the development, payable on completion of the development. As part of the profit sharing arrangement, Formation and the Impala Discretionary Settlement ("Impala"), the Developer's ultimate shareholder, each conditionally guaranteed 50% of the Junior Unsecured Loan Notes.
Effect of Heritable's Administration Order on the Developer
Following Landsbanki's recent well publicised financial difficulties, the Court of Session made an Administration Order in relation to Heritable on 7 October 2008. Ernst & Young LLP were then appointed as Heritable's administrators ("Administrator").
The Administration Order has understandably placed uncertainty over the Developers ability to fund the ongoing development at Aldgate. Representatives from the Developer continue to engage with the Administrators in order to agree on a mutually acceptable resolution.
Given the current economic backdrop, the Developer is unable to provide any certainty regarding the refinancing and consequently the likelihood of completing the development within the original timeframe.
Under the terms of the Loan Note agreement between the Developer and AEPC, in the event that the Aldgate development is not completed before 28 August 2011 when the Loan Notes become redeemable, or earlier if certain construction and sales conditions are not met, and then only upon the request of the issuer (AEPC), Formation and Impala may each be liable to assist the Developer with any shortfall in repaying AEPC the funding and interest AEPC supplied from the issue of the Junior Unsecured Loan Notes. Formation's current maximum liability under this arrangement is £11.6 million, a sum previously disclosed as a contingent liability in its financial accounts.
Effect of Heritable's Administration Order on Formation
As noted above, Formation's involvement in the Aldgate development is twofold:
1. Formation has underwritten £11.6m of the Junior Unsecured Loan Notes and interest issued by AEPC to fund part of the development of the Aldgate property. This underwritten agreement is subject to Formation's ability to meet this liability.
2. Formation Design & Build Limited, a subsidiary of Formation, is acting as project manager to the Developer in relation to the Aldgate development. Formation Design & Build Limited has contracts in place with various parties to build the Aldgate development the main one of which is committed for the duration of the scheme. Whilst the Developer is ultimately responsible for the costs incurred in the Aldgate development, Formation Design & Build Limited is liable to pay the contractors on their behalf. In the unlikely scenario that the Developer was unable to pay these costs, Formation would be negatively affected.
Development Update
The Aldgate development is located in central London within walking distance of Liverpool Street Station. The development consists of 105,000 square feet of office and retail space, 217 residential units of which 74 have already been sold as affordable housing units, an important social aspect of the development, particularly in such a prominent London location.
The programmed construction works began in October 2007 and up until Heritable's Administrator being appointed, remained firmly on track for completion during quarter one 2010 with construction currently up to the 11th storey of the 22 storey tower and lift shaft work progressing to the 15th storey.
Whilst the conclusion of the Developers discussions with the Administrators remain outstanding, we are seeking to secure a positive outcome for all stakeholders.
Other Key Property Projects
Columbia Formation Group Ireland Limited ("CFGIL") - Our equity investment into CFGIL remains in our books at its input value. However, ahead of our Interim period ending 28 February 2009, we intend to carefully monitor the carrying value of this asset in respect of future developments in the Irish property market.
52 - 58 Commercial Road, London E1 ("Whitechapel") - During this period, we have also seen a further deposit payment made by the purchaser of a number of units previously disclosed. This development project remains on track for completion in Summer 2009 and we will provide a more detailed sales update in our Interim statement expected to be published in May 2009.
RISKS AND UNCERTAINTIES
The Group's challenges centre upon four main areas:
Financial Markets
It is difficult, if not impossible for any business to predict how the financial outlook will unfold in the short to medium term. We have seen some unprecedented activity in recent weeks and whilst this naturally leads to concern in some areas of our business (not least property), we expect it to also provide us with opportunity in other areas such as sports and media finance brokering. We will continue to keep a close watching brief to ensure we act as appropriately as we can. We will also continue to assess the carrying value of all our assets in light of current economic conditions. The Group's forecasts assume the successful re-negotiation of the Group's overdraft facility which is due to expire in March 2009.
Potential property liabilities
As we have highlighted within this announcement, this area of risk and uncertainty has been heightened in recent weeks following the collapse of Icelandic bank Landsbanki and the knock on effect with the Administration of Heritable as one of its subsidiaries. We hope, via the developer's ongoing discussions with the Administrator to reach a point of greater certainty soon and will continue to monitor the situation closely, acting as ever, in the best interests of all stakeholders.
We have also previously disclosed, the other potential property liability linked to the Whitechapel development. Since the publication of our Interim Results in May 2008, this development has seen a further deposit payment made by the purchaser for all the open market Whitechapel residential units. Given this significant purchase commitment we remain cautiously optimistic of a successful outcome for this development.
Single majority shareholder
We have in the past acknowledged that a high percentage of the Group's share capital within the control of a single party is not without some degree of risk, we are also aware that this presents liquidity issues in terms of attracting additional institutions to our shareholder base. However, the David Kennedy Family Trust continues to be hugely supportive of the Group. Tangible evidence of this support, in the form of the £8 million term loan facility arranged at short notice at the time of the James Grant Media Limited acquisition, is a direct testament to this view.
People
We continue to acknowledge the important role our people play in what is a people business. We have over many years recruited many first class, highly talented senior people. The recruitment of our first dedicated HR Manager, as disclosed as part of our Interim Report earlier this year, is key to the ongoing process of rewarding and developing the best people to work alongside and support our clients. People are our lifeblood and it is vital to us that we continue to provide a workplace and cultural environment that is fun and one that our people embrace and continue to be proud of. With this environment comes the energy and devotion such people businesses thrive on.
CHARITABLE CAUSES
The Group continues to take its corporate and social responsibilities seriously and having formally established our charity committee I am delighted to report that we successfully achieved our objective of raising £30,000 for MedEquip4Kids a specialist children's charity which provides healthcare equipment for babies and young children. Our activities included parachute jumping, 10km runs, a charity grudge squash match and by far the biggest and arduous challenge; the "three peaks challenge" - scaling Ben Nevis, Snowdonia and Scafell within a 24 hour timed period, a feat successfully undertaken by 11 hardy souls from across the Group.
OUTLOOK
The business has achieved more scale and diversity during the last 12 months. Our tactical acquisitions in recent years have provided the Group with a broader services base to leverage and increasing amounts of visible contracted income. We expect these two facets to stand us in good stead over the coming uncertain period. The prevailing macro financial environment will clearly provide its challenges to all businesses, in all industries across the globe. We have as usual provided our shareholders with a balanced view of the risks associated with our business, the most significant of which remains our potential exposure to property markets. We have communicated extensively on these risks within this announcement and will continue to do so in the interest of our shareholders and client investors.
We view the next phase of the Group's progress with optimism. Our objective is simple, to be alert to the opportunities such times present whilst maintaining a firm focus on servicing our clients needs.
We have a balanced and very experienced board and a strong senior management team in place who are committed, professional and enthused to meet the inevitable challenges that lie ahead and to help achieve our objectives.
Neil Rodford
Chief Executive Officer
Formation Group PLC
| FORMATION GROUP PLC | |||||
| Consolidated income statement | |||||
| For the year ended 31 August 2008 | |||||
| 2008 | 2007 | ||||
| Note | £'000 | £'000 | |||
| Continuing operations | |||||
| Revenue | 2 |
34,941 | 11,138 | ||
| Cost of sales | (19,062) | (3,697) | |||
|
|
| ||||
| Gross profit | 15,879 | 7,441 | |||
| Administrative expenses | (12,399) | (6,293) | |||
|
|
| ||||
| Operating profit from continuing operations | 2 | 3,480 | 1,148 | ||
| Investment income | 195 | 261 | |||
| Finance costs | (321) | (40) | |||
|
|
| ||||
| Profit before taxation | 3,354 | 1,369 | |||
| Taxation | (1,223) | (434) | |||
| Profit for the year from continuing operations | 2,131 | 935 | |||
| Discontinued operations | |||||
| Profit for the year from discontinued operations | 3 | 621 | 4,748 | ||
|
|
| ||||
| Profit for the year | 2,752 | 5,683 | |||
| Attributable to: | |||||
| Equity holders of the parent | 2,703 | 5,683 | |||
| Minority interests | 49 | - | |||
| 2,752 | 5,683 | ||||
| Earnings per share | |||||
| From continuing operations | |||||
| Basic | 5 | 1.00p | 0.66p | ||
| Diluted | 5 | 0.97p | 0.65p | ||
|
|
| ||||
| From discontinued operations | |||||
| Basic | 5 | 0.29p | 3.36p | ||
| Diluted | 5 | 0.29p | 3.28p | ||
| From continuing and discontinued operations | |||||
| Basic | 5 | 1.29p | 4.02p | ||
| Diluted | 5 | 1.26p | 3.93p | ||
|
|
| ||||
| FORMATION GROUP PLC | |||||
| Consolidated statement of recognised income and expense | |||||
| For the year ended 31 August 2008 | |||||
| 2008 | 2007 | ||||
| £'000 | £'000 | ||||
| Profit for the year | 2,752 | 5,683 | |||
| Exchange gain/(loss) on foreign currency translation of foreign operations | 40 | (13) | |||
| Total recognised income and expense for the year | 2,792 | 5,670 | |||
| Attributable to: | |||||
| Equity holders of the parent | 2,743 | 5,670 | |||
| Minority interests | 49 | - | |||
| 2,792 | 5,670 | ||||
| FORMATION GROUP PLC | |||
| Consolidated balance sheet | |||
| As at 31 August 2008 | |||
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Non-current assets | |||
| Goodwill | 47,409 | 31,685 | |
| Other intangible assets | 18 | 26 | |
| Property, plant and equipment | 330 | 314 | |
| Non-current financial assets | 4,862 | 4,862 | |
| Deferred tax asset | 135 | 20 | |
|
|
| ||
| 52,754 | 36,907 | ||
| Current assets | |||
| Inventories | 2,222 | 2,291 | |
| Trade and other receivables | 6,978 | 7,281 | |
| Cash and cash equivalents | 4,028 | 3,605 | |
| 13,228 | 13,177 | ||
| Total assets | 65,982 | 50,084 | |
| Current liabilities | |||
| Trade and other payables | (11,562) | (9,938) | |
| Current income tax liabilities | (1,503) | (711) | |
| Obligations under finance leases | (9) | (37) | |
| Bank overdrafts and loans | (1,833) | - | |
|
|
| ||
| (14,907) | (10,686) | ||
|
|
| ||
| Net current (liabilities)/assets | (1,679) | 2,491 | |
|
|
| ||
| Non-current liabilities | |||
| Trade and other payables | (3,605) | (1,560) | |
| Obligations under finance leases | (8) | (15) | |
| Bank loans | (4,010) | - | |
|
|
| ||
| (7,623) | (1,575) | ||
|
|
| ||
| Total liabilities | (22,530) | (12,261) | |
|
|
| ||
| Net assets | 43,452 | 37,823 | |
| Equity |
|
| |
| Share capital | 2,205 | 2,058 | |
| Share capital to be issued | - | 500 | |
| Share premium account | 2,106 | 2,106 | |
| Treasury shares | (102) | (689) | |
| Capital redemption reserve | 61 | 61 | |
| Merger reserve | 20,326 | 17,629 | |
| Currency reserve | 50 | 10 | |
| Share option reserve | 324 | 217 | |
| Retained earnings | 18,142 | 15,640 | |
| Total equity attributable to the parent's shareholders | 43,112 | 37,532 | |
| Minority interests | 340 | 291 | |
| Total equity | 43,452 | 37,823 |
| FORMATION GROUP PLC | |||||
| Consolidated cash flow statement | |||||
| For the year ended 31 August 2008 | |||||
| Note | 2008 | 2007 | |||
|
| £'000 | £'000 | |||
| Operating activities |
| ||||
| Cash generated from operations | 6 | 3,153 | 1,703 | ||
| Income taxes paid | (1,036) | (101) | |||
| Interest paid | (219) | (40) | |||
| Net cash inflow from operating activities | 1,898 | 1,562 | |||
|
|
| ||||
| Investing activities | |||||
| Interest received | 194 | 262 | |||
| Proceeds on disposal of property, plant and equipment | - | 8 | |||
| Purchases of property, plant and equipment | (113) | (1,075) | |||
| Purchases of trademarks and rights | - | (1) | |||
| Deferred consideration paid | (1,190) | (385) | |||
| Acquisition of subsidiaries | (9,418) | (1,600) | |||
| Cash acquired with subsidiaries | 2,688 | 425 | |||
| Acquisition expenses | (878) | (141) | |||
| Purchase of non-current financial assets | - | (4,862) | |||
| Net proceeds on disposal of subsidiary companies | 1,007 | 8,662 | |||
| Cash disposed of with subsidiary | - | (1,986) | |||
| Net cash used by investing activities | (7,710) | (693) | |||
|
|
| ||||
| Financing activities | |||||
| Dividends paid | (235) | (131) | |||
| Proceeds on issue of shares | - | 1,500 | |||
| Purchase of own shares | (207) | (751) | |||
| Net proceeds from sale of own shares | 828 | - | |||
| New loans | 6,000 | - | |||
| Loan repayments | (157) | - | |||
| Repayments of obligations under finance leases | (34) | (12) | |||
| Net cash generated by financing activities | 6,195 | 606 | |||
| Net increase in cash and cash equivalents | 383 | 1,475 | |||
| Cash and cash equivalents at the beginning of the year | 3,605 | 2,143 | |||
| Effect of foreign exchange rate changes | 40 | (13) | |||
| Cash and cash equivalents at end of the year | 4,028 | 3,605 | |||
|
|
| ||||
FORMATION GROUP PLC
Notes to the preliminary announcement
For the year ended 31 August 2008
1. Basis of preparation
The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 August 2008 or 2007, but is derived from these accounts.
The financial statements have been prepared on a going concern basis, notwithstanding the potential impact on the Group's operations resulting from:
delays to a major property development, to which the Group acts as construction project manager and has also provided a conditional guarantee to loan note investors in that development.; and
the re-negotiation of existing bank overdraft facilities which are due to expire on 31 March 2009
These matters are detailed in the Chief Executive Officer's report included within this announcement.
The Directors have prepared working capital forecasts for the period to 31 December 2009. The working capital forecasts assume that no cash outflows in respect of the loan note guarantee will occur, a satisfactory payment plan will be agreed with the major contractor to the development and the Group's existing rolling credit facility of £3 million, which is due to expire in March 2009, will be satisfactorily re-negotiated.
Notwithstanding, the challenges facing the Group as detailed above and in the Chief Executive Officer's report, the Directors have put plans in place to manage such challenges and are satisfied, given options currently available to them, that the Group will continue in operational existence for the foreseeable future.
Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts.
In respect of the 2007 statutory accounts their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
In view of the significance of the factors outlined above, the auditors' report contained in the 2008 statutory accounts includes an emphasis of matter paragraph which refers to the existence of these uncertainties and their impact on the Group's ability to continue in operational existence for the foreseeable future. Their report contained no further statements under section 237 (2) or (3) of the Companies Act 1985.
Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ('IFRS'), this announcement in itself does not contain sufficient information to comply with IFRS.
2. Segment information
For management purposes, the Group is organised into two operating divisions; Management Services and Professional Services. These divisions are the basis on which the Group reports its primary segment information.
Segment information about these businesses is presented below:
| 2008 | 2007 | |||||
| Operating | Operating | |||||
| Revenue | profit | Revenue | profit | |||
| Continuing operations | £'000 | £'000 | £'000 | £'000 | ||
| By class of business: | ||||||
| Management Services | 5,989 | 1,664 | 3,347 | 869 | ||
| Professional Services | 28,952 | 3,245 | 7,791 | 1,077 | ||
| Sports Marketing | - | - | 1,742 | 262 | ||
| Discontinued operations | - | - | (1,742) | (262) | ||
| 34,941 | 4,909 | 11,138 | 1,946 | |||
| Unallocated corporate expenses |
| (1,429) |
| (798) | ||
| Profit from operations | 3,480 | 1,148 |
3. Results of discontinued operations
On 31 October 2006, the Group completed the disposal of its Sports Marketing business. The deferred consideration due on the disposal of the Sports Marketing business was determined by reference to profits earned by that business in the year ended 31 August 2007. Discussions with the purchaser regarding the amount of deferred consideration have been finalised in the year resulting in the recognition of a further profit on disposal of discontinued operations of £621,000.
The results of the discontinued operations which have been included in the consolidated income statement, were as follows:
| 2008 | 2007 | ||||
| £'000 | £'000 | ||||
| Revenue | - | 1,742 | |||
| Cost of sales | - | (1,154) | |||
|
|
| ||||
| Gross profit | - | 588 | |||
| Administrative expenses | - | (326) | |||
|
|
| ||||
| Operating profit from discontinued operations | - | 262 | |||
| Investment income | - | 1 | |||
|
|
| ||||
| Profit before taxation | - | 263 | |||
| Attributable tax expense | - | (92) | |||
|
|
| ||||
| Profit from discontinued operations | - | 171 | |||
|
|
| ||||
| Profit on disposal of discontinued operations before taxation | 621 | 4,577 | |||
| Attributable tax expense | - | - | |||
|
|
| ||||
| Profit on disposal of discontinued operations | 621 | 4,577 | |||
|
|
| ||||
| Profit attributable to discontinued operations | 621 | 4,748 | |||
4. Dividends
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Final dividend paid for the year ended 31 August 2007 of 0.115 pence per ordinary share (2006 - 0.105 pence) | 235 | 131 | |
5. Earnings per share
Earnings per share are based on the following profits and numbers of shares:
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Profit for the year: | |||
| Basic and diluted - continuing operations | 2,131 | 935 | |
| Basic and diluted - discontinued operations | 621 | 4,748 | |
| Basic and diluted - continuing and discontinued operations | 2,752 | 5,683 | |
|
|
| ||
| 2008 | 2007 | ||
| Number of | Number of | ||
| shares | Shares | ||
| '000 | '000 | ||
| Weighted average number of shares: | |||
| Basic | 214,017 | 141,277 | |
| Dilutive effect of share options | 4,812 | 3,412 | |
| Diluted | 218,829 | 144,689 | |
|
|
|
Earnings per share is calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of shares in issue during the year.
6. Reconciliation of profit from continuing operations to net cash inflow from operating activities
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Profit for the year | 2,752 | 5,683 | |
| Profit on disposal of discontinued operations | (621) | (4,577) | |
| Taxation | 1,223 | 526 | |
| Investment income | (195) | (262) | |
| Finance costs | 321 | 40 | |
| Depreciation of property, plant and equipment | 115 | 85 | |
| Amortisation of intangible assets | 8 | 10 | |
| Share option charge/(credit) | 128 | (8) | |
| Loss on sale of tangible fixed assets | 9 | 22 | |
| Write off of intangible assets | - | 6 | |
|
|
| ||
| Operating cash flows before movements in working capital | 3,740 | 1,525 | |
| Increase in inventories | (343) | (367) | |
| Decrease/(increase) in receivables | 161 | (1,130) | |
| (Decrease)/increase in payables | (405) | 1,675 | |
|
| |||
| Cash generated from operations | 3,153 | 1,703 | |
|
|
| ||
7. Condensed statement of changes in total equity
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Opening equity | 37,823 | 15,808 | |
| Dividends paid | (235) | (131) | |
| Profit for the year attributable to equity holders of the parent | 2,703 | 5,683 | |
| Issue of new shares | 2,344 | 16,647 | |
| Purchase of treasury shares | (207) | (751) | |
| Issue of treasury shares | - | 200 | |
| Sale of treasury shares | 828 | - | |
| Other reserves movement due to share options charge | 107 | 89 | |
| Minority interest arising on acquisition of subsidiary undertaking | - | 291 | |
| Minority interest in profit for the year | 49 | - | |
| Exchange gain/(loss) on foreign currency translation recognised directly in equity | 40 | (13) | |
|
|
| ||
| Closing equity | 43,452 | 37,823 | |
|
|
|
8. Annual Report and Accounts
The annual report will be sent to shareholders on or about 12 December 2008. Additional copies will be available from that date on the Company's website www.formationgroupplc.com.
9. Annual General Meeting
It is expected the Annual General Meeting of the Company will be held on or around 6 January 2009, a further announcement will be made when the actual date and location of the Annual General Meeting is determined.