Final Results

FORMATION GROUP PLC

('Formation' or 'the Group')

Preliminary Results for the year ended 31 August 2010

Business Highlights

·; The Group and its investment partner, JV Finance Limited, have, during the year, invested combined funds of £18.2million into JV Finance Ventures Limited in order to discharge the amounts owed to the Administrator of Heritable Bank and outstanding construction costs. This investment, of which the Group contributed a share of £6.7m, has now secured the release of the Aldgate site from Heritable Bank and the necessary construction warranties for the future development of the site.

·; The disposal of the Group's Wealth Management businesses in December 2009 has strengthened the Group's financial position.

·; The Group acquired Proactive Sports Management Limited a previously owned company in July 2010 to assist in the conduct of ongoing sports related litigation matters. This acquisition has contributed some cash to the Group business.

·; Two new project management agreements started for 2 medium size jobs in London with fees contribution of circa £450,000.

·; The Group is now fully focused on its property activities and ensuring it has a lean cost base going forward.

·; Post year end Formation Asset Management Limited was placed into Creditors Voluntary Liquidation (CVL). In addition, Formation Architectural Design Limited has been wound down from June 2010 due to subdued market activity.

Charles Green , Chairman of Formation said;

"The difficulties and challenges facing the Group are no less than in the previous year. The prevailing weakness in the financial markets continues to frustrate the Group's plans moving forward. There is however, improvement in the Group's financial performance, as these results show. The efforts of the Directors and management are now beginning to show through. There have also been positive movements on the various pieces of litigation that surround the company and your board believe these are now close to a resolution."

Enquiries:

Formation Group PLC - David Kennedy; Chief Executive Officer - 020 7920 7590

NOMAD to Formation Group PLC;

Zeus Capital Limited - Ross Andrews / Tom Rowley - 0161 831 1512

CHAIRMAN'S STATEMENT

In October 2010, the company announced my return as Chairman, having occupied that position at the time of the company's flotation in 1992. John Lawrence, having announced his intention not to stand for re-election, left the company on 2 July 2010.

The difficulties and challenges facing the Group are no less than in the previous year. The prevailing weakness in the financial markets continues to frustrate the Group's plans moving forward. There is however, improvement in the Group's financial performance, as these results show. The efforts of the Directors and management are now beginning to show through. There have also been positive movements on the various pieces of litigation that surround the company and your board believe these are now close to a resolution.

The Chief Executive Officer's Report provides further detail on the individual projects that are engaging the company at the current time. Your board are confident that the transformation of the Group is nearing completion. A clear focus following this period of transition will allow all employees to drive further improvements and shareholder value.

The liquidation of Formation Asset Management announced on 8th September 2010, has now been completed and no exposure to any related liabilities remains with the company

There is still much to do and Formation Group remains, for the moment, a work in progress. The Directors enter 2011 with optimism that we have the capability and determination to complete the turnaround of the Group.

The Board and Staff

This has understandably been a difficult and challenging period for the Group. I would firstly like to place on record my thanks to all board members and staff who continue to put this business first and their effort and dedication continues to be highly valued and very much appreciated.

Charles Green - Non-Executive Chairman

CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

This has continued to be a difficult trading period following the unprecedented collapse in markets and institutions of the prior year. The potential contingent property liability linked to the Aldgate development (specifically the previously disclosed £11.55 million liability which is attached to certain Loan Notes provided by a number of retail investors), which in turn was dependent upon the bank funding agreement with Heritable Bank PLC, had previously cast some uncertainty over the Group. The Group and its investment partner, JV Finance Limited have in the period invested combined funds of £18.2million into JV Finance Ventures Limited in order to discharge the amounts owed to the Administrator of Heritable Bank and outstanding construction costs. This investment, of which the Group contributed £6.7m, has now secured the release of the Aldgate site from Heritable Bank and the necessary construction warranties for the future development of the site.

The disposal of the Group's Wealth Management businesses in December 2009 has strengthened the Group's financial position. Post year end in line with the Group's continued strategy of concentrating in the property sector, Formation Asset Management Limited was placed into Creditors Voluntary Liquidation (CVL). In addition, Formation Architectural Design Limited has been wound down from June 2010 due to subdued market activity, with all architectural work now outsourced to independent practices. The primary focus of the Group now remains on the property sector. The acquisition of Proactive Sports Management Limited, a previously owned company, in July 2010 was to assist in the conduct of ongoing sports related litigation matters. 

The Group remains confident of successful outcomes to its sports related litigation and on the ability of the property sector to recover from recent recessionary events and looks forward to future growth in this field.

Results

The trading results for the year have been impacted by the weak property market and lack of availability of development funding. Sports related litigation costs and the placing of Formation Asset Management Limited in CVL have also impacted results. For the year ended 31 August 2010, the Group revenue from continuing operations was £2.2 million (2009: £19.0 million) resulting in a loss before taxation and exceptional items from continuing operations of £1.2 million (2009: loss of £2.9 million).

Dividend

Historically the Group has always sought to reward shareholders by way of an annual dividend payment. In the last two years however the Group has not done so following careful consideration set in context with the uncertainty we found ourselves in following the administration of Heritable Bank PLC.

Whilst we have strengthened our position in this regard, trading remains weak, hence the Directors, after careful consideration have decided not to pay a shareholders dividend. The decision will continue to be reviewed and monitored as the Group's resources and performance improves.

Business Overview

The company is now predominately a construction and property development/management business generating income through project developing/management of small/medium to large scale building projects.

We are currently involved in three large and four small/medium sized schemes which are each at various stages of the planning/development process. These schemes are:

(i) 15/17 Leman Street, London E1

Planning and preconstruction in connection with a 251 bedroomed hotel.

(ii) Clancy Quay, South Circular Road, Islandbridge, Dublin Ireland.

Project management on the construction of 420 apartments, car parking, retail units and office space on Phase 1 (now completed) of this large inner city mixed use scheme.

(iii) No 1 Commercial Street, London E1

Preconstruction procurement, feasibilities, site maintenance etc. in anticipation of a remobilisation of a mixed use new build development incorporating 212 apartments, car parking and approximately 10,000 sqm of various commercial uses.

(iv) 9-15 The Parade, Stroud Green Road, London N4

Project management on the construction of 35 apartments and a large ground floor and basement retail unit.

(v) 110-114 Elmore Street, London N1

Project management on the conversion of a warehouse into 17 apartments, 1 house and a commercial unit.

(vi) 175-180 Church Road, St. George, Bristol

Development of a new build project incorporating 15 apartments, 4 retail units and associated car parking.

(vii) York House, Upper Piccadilly, Bradford, BD1 4PB

Development of a Grade II Listed Building into 23 apartments and I commercial unit.

Inevitably this area of our business has, and will continue in the short term, to come under pressure. Bank debt, so often a pre-requisite to large scale developments is in short supply with banks being more selective and aggressive with their terms. We remain fortunate in having forged an inner London reputation in the construction sector and intend to focus on this geographical area in the future. The London property market remains buoyant and likely to outpace other areas of the country in its recovery.

The Group acquired Proactive Sports Management Limited (a previously owned company), primarily to assist in the conduct of its ongoing sports related litigation cases. The company manages various sports personnel and presently shows an operating profit.

Development Updates

Various feasibility studies, small site management and architectural works (externally appointed) in association with smaller planning applications continue as part of our routine business process.

1. 15/17 Leman Street, London E1, has been the subject of a planning appeal following a planning refusal during the period. Preconstruction design, liaison with engineers, specialist contractors and neighbours has continued in anticipation of a site start in 2011.

2. Clancy Quay, Dublin Ireland has completed on Phase 1 of this large mixed use scheme. It is unlikely that further phases of the scheme will commence in the foreseeable future due to the present economic environment. We are presently assisting the developer in finalising contractors accounts, outstanding defects and compiling proposals for the future development/management/letting of the various phases within the scheme.

3. No 1 Commercial Street, London E1. As disclosed previously, following the demise of Heritable Bank and suspension of construction works on site in October 2008 the development was secured from the bank's administrator in December 2009.

4. 9-15 The Parade, Stroud Green Road, London N4. We are providing project management services on this mixed use scheme, which was purchased by our client as a partially built building. Works are anticipated for completion by August 2011.

5.110-114 Elmore Street, London N1. We are providing project management services on this turn of the century warehouse conversion into apartments, a house and commercial unit. Works are scheduled for completion by June 2011.

6.175-180 Church Road, St .George, Bristol. We through F.G (Bristol) Limited purchased this partially built mixed use site comprising 15 apartments, 4 retail units and associated parking in June 2010. Construction works are in progress with completion anticipated by March 2011.

7. York House, Upper Piccadilly, Bradford, BD1 4PB. We through F.G (Bradford) Limited purchased this Grade II Listed building in June 2010.The building has a planning approval for conversion to 23 apartments and a commercial unit. Construction works are in progress with completion anticipated by July 2011.

Risks and Uncertainties

Potential Property Liabilities

The administration order in relation to Heritable Bank PLC, first detailed within our Preliminary announcement in November 2008, resulted in uncertainty over a contingent liability in relation to the Aldgate development. The Group's current maximum liability under this arrangement remains £11.55 million.

However, the announcement on 14 December 2009, that Julius Properties Limited (JPL) had reached agreement with the administrator of Heritable Bank PLC regarding the Aldgate development was an important step for the Group. It was agreed that the administrator would accept £11 million in full and final settlement of the £32.9 million indebtedness to Heritable Bank.

Formation Group PLC in conjunction with JV Finance Limited have contributed through JV Finance Ventures Limited a combined sum of £18.2 million, (Formation Group's own contribution being £6.7 million) on terms as announced on 2 September 2010 in order to settle with both Heritable's administrator and outstanding creditors in order to secure the Aldgate site and the necessary warranties for completed construction works.

The Board believes that its investment in JV Finance Ventures Limited represents a positive step forward towards the repayment of the loan note investors in the Aldgate development, which would in turn eliminate the Group's contingent liability.

Discussions in the present difficult financial environment have commenced with various institutions to secure the requisite funding to enable the Aldgate project to be completed. Once more clarity has developed on this front we will be in a position to provide a completion timescale and liaise with all development investors to discuss what, if any impact, we expect on loan note repayment. Under the terms of the existing loan note agreements a return is due to investors in August 2011.

The Whitechapel Property Fund, which was raised on 52-58 Commercial Road, London E1, is due for repayment by the end of February 2011 by Rocquefort Properties Limited. The Board of Formation Group understands that sufficient properties are now exchanged and assets available to meet all of Rocquefort's obligations thereby eliminating any recourse to Formation Group's guarantee.

Divested Business

The last two years have seen a substantial refocus in the Group's activities. The recommendation by the Board and subsequent approval by shareholders to dispose of certain non-related businesses has strengthened the Group's financial position and made available the necessary cash reserves to participate in resolving Aldgate's banking difficulty as a result of Heritable Bank's demise. Whilst it is of paramount importance to ensure that the Aldgate loan notes are repaid, we expect to financially benefit from the investment in JV Finance Ventures Limited once the issues surrounding the development are resolved and loan notes settled.

Internal restructuring, wage freezes, redundancies and continued cost cutting over the past two years have all ensured that the core property business remains competitive, whilst also maintaining a strong nucleus to assist in the anticipated future growth of the recently subdued property market.

Outlook

The business has undergone significant change over the past two years. The Group has taken the necessary steps by utilising part of the cash resources generated as a result of the prior year MBO in helping to secure a future resolution to the Aldgate loan note contingent liability problem. However this remains a significant issue to resolve given the current difficult banking environment with limited funds available and difficult borrowing criteria.

The outlook is best summarised as cautiously optimistic. The Company will continue to seek to conclude the key development at Aldgate, satisfy the loan note position of retail investors, and successfully conclude sports management related litigation with the assistance of the recently acquired Proactive Sports Management Limited. We also believe that the business is now in a position where it is ready to prosper from any recovery in the property and finance/lending markets that materialises.

David Kennedy - Chief Executive Officer

Consolidated statement of comprehensive income

for the year ended 31 August 2010

Consolidated statement of financial position

Consolidated statement of changes in equity

31 August 2010

Consolidated statement of cash flows

for the year ended 31 August 2010

Notes to the consolidated financial statements

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 2010 or 31 August 2009 but is derived from those accounts. Copies of the Company's audited statutory accounts for the year ended 31 August 2010 will be despatched to shareholders shortly.

The financial statements have been prepared on a going concern basis. The Directors have prepared working capital forecasts for the period to 31 August 2012. The working capital forecasts assume that no cash outflows in respect of the loan note guarantee will occur.

Whitechapel Development

The bondholders are due to be repaid on 28 February 2011 by Rocquefort Properties Limited. The Board of Formation Group Plc understands that sufficient properties are now exchanged and assets available to meet all of Rocquefort's obligations thereby eliminating any recourse to Formation Group's guarantee.

Aldgate Development

Details of the progress made during the year in respect of the Aldgate development are set out in the Chief Executive Officer's Report. Discussions are currently ongoing with potential purchasers/tenants for the residential and commercial elements of the scheme for which a number of offers have been received. In addition, discussions are relatively advanced with a number of institutions to secure funding to fund the development to completion. The directors are confident that sufficient funds will be available to reach a settlement with all loan holders whose investments are due for repayment in August 2011.

The Directors are satisfied that the forecast level of trading performance and cash flows are achievable and that the Group will therefore be able to continue to operate for the foreseeable future.

The statutory accounts for the year ended 31 August 2009 received an unqualified audit report and did not contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 August 2009 have been delivered to the Registrar of Companies.

Whilst the information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement in itself does not include sufficient information to comply with IFRS.

2. Earnings per share

The calculation of basic and diluted earnings per share is based on the following profits and numbers of shares:

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.

The share options in issue are anti-dilutive in respect of the basic loss per share calculations in 2010 and 2009 and have therefore not been included.

3. Reconciliation of profit from continuing operations to net cash inflow from operating activities

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less.

4. Annual Report and Accounts

The annual report will be sent to shareholders shortly. Additional copies will be available on the Company's website: www.formationgroupplc.com

5. Annual General Meeting

The Annual General meeting of the Company will be held on 31 March 2011 at the offices of Imparando (UK) Ltd, 3rd floor, 56 Commercial Road, London E1 1LP at 11 am.