Final Results for the year ended 31 August 2014

FORMATION GROUP PLC

('Formation' or 'the Group')

Preliminary Results for the year ended 31 August 2014

Business Highlights

· Group revenues have grown by 36% this year from £5.85m to £7.94m on the back of increasing workload driven by the current strong London property market.

· Reduced loss of £0.1m from continuing operations in line with expectations (2013 loss: £0.39m).

· Gross profit on professional construction services was 11.3% in the year to 31 August 2014 (31 August 2013: 11.6%).

· Acquisition of 159-161 Iverson Road, London NW6, as a development site in West Hampstead, London. The site has the benefit of a planning approval for 19 residential units and 1 commercial unit.

· Receipt of £1.59m in part payment of the Group's Aldgate Investment Funds. 

· The Group continues to develop its interest in the construction and property development/management business, generating income through project development and management of small/medium scale building projects. Rental incomes, to a far lesser extent, are also generated on various residential and commercial investments retained by the Group.

· On 30 May 2014, the Group announced the appointment of William O'Dea Chairman, replacing David Kennedy, who remains the Chief Executive Officer, in the role of Chairman.

William O 'Dea, The Chairman of Formation reports that:

I am pleased to report that The Group is now fully focused on property development and construction activities for the first time in its history. We now look forward to operating a secure capital based property group going forward.

Enquiries:

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

NOMAD to Formation Group PLC;

Zeus Capital Limited - Ross Andrews / Andrew Jones - 0161 831 1512

CHAIRMAN'S STATEMENT

On 30th May 2014, the Group announced my appointment as Chairman, replacing David Kennedy in the role of Chairman. Group revenues continue to increase year on year with an uplift of 36% this year from £5.85m to £7.94m on the back of an increasing workload driven by the current strong London property market. It is expected that revenue will grow over the coming financial year with various work contracts in place and further commitments anticipated over the coming months.

Whilst this year has seen a loss of £0.52m (2013 loss: £0.41m) there has been an improvement in the Group's underlying financial performance following years of Sport related problems and restructuring as previously documented. The loss for the year from discontinued operations of £0.4m relates largely to a write down of the Bradford and Bristol properties to fair value. The continuous efforts of the Directors and management in this regard over the years are now showing through financially. The Group is now solely focused on Property activities which includes property development for the first time as per the RNS publications of the 11th April 2014 and 10th October 2014 regarding the purchase of the Iverson Road Site.

An RNS on the 21st March 2014, Formation was informed by Julius Properties Limited had resolved its legal dispute with Redrow Homes Limited over a title issue relating to the property at No 1 Commercial Street, London E1 and would be in full receipt of the majority of the funds by June 2014. Formation Group Plc announced by further RNS publications on the 11th April and 13th May 2014 that it had received the sum of £1.59m in part payment of its Aldgate Investment Funds. Formation Group Plc is confident it can source additional funds as and when viable investment opportunities are found.

The Chief Executive Officer's Report provides further detail on the individual projects, companies and properties within the Group at present.

The Group has added and will continue to add to the experienced base of construction and property personnel it has in order to meet its increasing contract commitments. It looks forward to utilising this experience to its advantage over the coming year. It is anticipated that access to future cash incomes and an improving credit rating for banking purposes will also allow the Group to drive further improvements, generate profits and enhance shareholder value.

The Board and Staff

I am pleased to report that The Group is now fully focused on property development and construction activities for the first time in its history. I would like to thank all board members and staff for the enormous efforts and dedicated contributions they have made over the past few difficult years in getting the business to where it now is, problem free and with a strong focus for the future.

We now look forward to operating a secure capital based property group going forward.

William O'Dea

Non-Executive Chairman

Chief Executive Officer's report and strategic report

Strategic Report

Introduction

This has been a year of consolidation for the Group coupled with a material increase in revenue. Prudent financial cost cutting measures of the past are now benefitting the Group's financial stability with sound foundations.

The primary focus of the Group now remains on taking advantage of the buoyant London property sector in which we operate in.

Results

The trading results for the year have improved with Group revenue from continuing operations increasing to £7.94m (2013 £5.85m).This has resulted in a loss of £0.1m from continuing operations (2013 loss: £0.39m). The improved trading results resulted from an increased order book boosting turnover and profitability coupled with a lean cost base.

The loss for the year from discontinued operations of £0.4m related largely to a write down of the Bradford and Bristol properties to fair value.

The Group's result for the year ended 31 August, 2014 after taxation was a loss of £520,000 (2013: £405,000).

Key Performance Indicators (KPIs)

Gross profit is considered to be the most meaningful KPI. Gross profit on professional services was 11.3% in the year to 31 August 2014 (31 August 2013: 11.6%). Turnover has risen by 36% in 2014 to £7.94m (2013 £5.85m).

The Group has a strong Health & Safety record and where possible has enlisted in the considerate contractor scheme. The Group's aim is to have a zero accident policy. Staff turnover is non-existent due to careful selection of top personnel and the Group's excellent reputation has ensured that it has attracted staff who are loyal and have worked with us in the past. The Group's policy is to retain high performing individuals and build strong teams.

Principal activity and business review

The principal activity of the Group is the provision of professional construction management services.

The subsidiary undertakings principally affecting the profits and net assets of the Group in the year are listed in note 5 to the Company financial statements.

Business Overview

The Group continues to develop its interest in the construction and property development/construction management business, generating income through project development and management of small/medium scale building projects. Rental incomes to a far lesser extent are also generated on various residential and commercial investments retained by the Group.

Chief Executive Officer's report and strategic report (continued)

Some schemes in which we have been involved this year are:

(i) Park Road, London N8

Project management on the new build construction of 9 apartments and associated car parking on the site of a former pub. This project completed during the financial year.

(ii) Finchley Road, London NW3

Project management on the new build construction of 22 luxury apartments above a large basement area and associated car parking in an affluent North London location.

(iii) Boleyn Road, London N16

Project management on the demolition of a pub and the new build construction of 9 apartments above a ground floor and basement commercial unit. This project completed during the financial year.

(iv) Bovis House,142 Northolt Road, South Harrow,HA2 OEE

Project management on a conversion of office to 101 apartments, associated car parking and land with further development potential.

(v) South London Press,2-4 Leigham Court Road, London SW16 2PD

Project management on a conversion and new build development of 35 apartments and a commercial unit in a restricted environment.

(vi) 116-120 Tooley Street, London SE1

Project management on a new build construction of 9 apartments and a commercial unit in a restricted

and busy environment on Tooley Street, between London Bridge and Tower Bridge.

(vii) Norwich House,9-11 Streatham High Road, London SW16 1DZ

Pre purchase assistance, appraisal and advice on the acquisition of a residential development site of circa

100 residential units, associated car parking, 3 commercial units, freehold interest in adjoining apartment

block, and areas of possible further development potential.

(viii) 159-161 Iverson Road, London NW6

Acquisition of this development site by Formation Homes (London) Limited (Group subsidiary) in West Hampstead, London. The site has the benefit of a planning approval for 19 residential units and 1 commercial unit. Completion of its purchase was in October 2014 with construction works scheduled to take 15 months from commencement of piling works.

Two of the above schemes have been completed during the year with the others ongoing.

We have seen an increasing appetite from banks this year to support development funding and the outlook for the buoyant London property market in the sector we operate in remains positive.

Chief Executive Officer's report and strategic report (continued)

Investment Property Retained

The Group currently has an interest in the following income producing investment properties:

(i) 52-58 Commercial Road, London E1

Rocquefort Properties Limited owed the Group an outstanding sum of £275,000 as announced on 14th February 2014. In settlement thereof, it now holds on behalf of Formation Group Plc 11 car parking spaces valued at £25,000 each. The spaces are to be sold or let as directed by Formation Group Plc who will then receive the net proceeds.

Principal Risks and Uncertainties

Going concern

With the partial receipt of the Aldgate JV monies, the material increase in Construction Project Management Contracts and the acquisition of a development site in London (159-161 Iverson Road, NW6), the Directors are confident this risk is minimal.

Other potential risks are listed below:-

Potential Risks Mitigation

Health and safety External Professional Health and Safety advisor engaged.

All site staff fully trained with regular site monitoring and meetings. This has resulted in a strong health and safety record.

Client's ability to pay. Client has long track record in securing bank funding.

Risk of defective build, normal perils on site Full insurances in place to cover all such eventualities.

such as fire, flooding, accidents etc.

Development and Investments in property Proper checks are in place prior to purchase using

market with less than 60% gearing. various tools such as market appraisal, profit

and cash flow projections. However this is always subject

to a downturn in the property sector.

Recruitment and Staffing. The Group is fully satisfied that it is adequately geared to meet current activity levels.

Chief Executive Officer's report and strategic report (continued)

Outlook

The business has undergone significant change and challenges over the past five years. It has been creative in its approach to such change and challenges, and willing to take the tough decisions in relation to litigation issues, winding down and liquidating of companies when necessary and decisions on staffing in order to ensure the Group's survival in a difficult trading environment.

The outlook is promising with a larger order book than last year and the belief that it will continue to grow. The completion of the acquisition of a development site in London by a Group subsidiary post year end, and the possibility of investing into further London development opportunities over the coming year offers the potential of a return to profits for the Group.

We believe the Group is in a position where it is ready to prosper from the current strong London residential property market. The balance of Company's investment in Aldgate, being £2.80m, is available for property investment opportunities as agreed with JV Ventures Finance Limited.

The Chief Executive Officer's report and strategic report have been approved by the Board.

By order of the Board

David Kennedy

Chief Executive Officer

04February 2015

Consolidated income statement

For the year ended 31 August 2014

Consolidated statement of comprehensive income (continued)

For the year ended 31 August 2014

Consolidated statement of financial position

As at 31 August 2014

Consolidated statement of financial position (continued)

As at 31 August 2014

Consolidated statement of changes in equity

31 August 2014

Consolidated statement of cash flows

for the year ended 31 August 2014

General information

1. Basis of preparation and going Concern

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board and the Companies Act 2006.

The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ended 31 August 2014. The consolidated financial statements have been prepared on a going concern basis.

The Directors have prepared working capital forecasts for the period to 29 February 2016. The ability of the Group to continue trading as a going concern is dependent on the continuing income streams from existing and new contracts, together with the continued realisation of the Group's remaining investment from the Aldgate Development. Additionally, continued support may be required from its majority shareholder.

Nevertheless after making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.

2. Loss per share

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

Loss per share is calculated by dividing the loss 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 loss per share calculations in 2014 and 2013.

3. Reconciliation of loss 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. Post Balance Sheet Event

An RNS published on 10 October, 2014 announced that, through a wholly owned subsidiary Formation Homes (London) Limited has now completed on the purchase of a development site at 159-161 Iverson Road, London for a total consideration of £5.9m The development consists of 19 apartments and 1 commercial unit with a timetable of 16 months to complete. This purchase has been funded with a combination of bank funding and cash from Group resources utilising £2.41m from the partial repayment of funds from Formation Group JV investment in Aldgate.

5. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Included within trade and other receivables is a sum due from Rocquefort Property Holdings Limited, a company which is owned by the Impala Discretionary Settlement of which the potential beneficiaries are D Kennedy and P Kennedy. The amount relates to a profit share in Whitechapel. The balance at the year end was £Nil (2013: £777,308).

Movements during the year on this balance are detailed below:

During the year, Group companies entered into the following transactions with related parties who are not members of the Group:

The Tulip Trust and Kennedy Private Trust Company Limited as trustees of The Kennedy Family Discretionary Settlement have an interest in 140,113,704 shares (2013:115,243,696 shares) in the Company. During the year:

· Formation Design & Build Limited & Formation Construction Limited project managed a number of property developments for companies controlled by the Osprey Private Trust Company Limited, as trustees of The Osprey Trust and Kennedy Private Trust Company Limited and as trustees of Kennedy Family Discretionary Settlement. Revenue from these contracts totalled £7,893,670 (2013: £5,823,000) in the year. At 31 August 2014, the Group had debtor balances due from these companies of £1,941,676 (2013: £930,226).

· Formation Design & Build Limited leased premises from Columbia House Properties (No.6) Limited (a company ultimately owned by Kennedy Private Trust Company Limited as trustees of Kennedy Family Discretionary Settlement) on a five year lease from 6 September 2012. The terms of the lease include a rental of £29,700 per annum. The charge for the year was £29,286 (2013: £30,531).

· The Group invested in JV Finance Ventures Limited in December 2009 with JV Finance Limited. JV Finance Limited is majority owned by the J V Purpose Trust. Therefore, JV Finance Limited is viewed as a related party given its relationship with the Tulip Trust and Kennedy Family Trust, which is also the majority shareholder in the Group.

6. Discontinued operations

Discontinued operations relate to the continued treatment of the investment properties of FG Bradford Limited & FG Bristol Limited results as part of discontinued operations.

Results of discontinued operations

The results of the discontinued operations which have been included in the consolidated income statement, were as follows:

The investment properties are secured by Dunbar Assets Plc under non-recourse financing.

An impairment charge has been recognised on the investment properties which have been written down to its fair value less costs to sell. This is based on current market evidence.

7. Annual Report and Accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 and 435 of the Companies Act 2006. The financial information for the year ended 31 August 2014 has been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498(2) or 493(2) of the Companies Act 2006.

The annual report will be sent to shareholders on the 4 February, 2015. Additional copies will be available on the Company's website: www.formationgroupplc.com

8. Annual General Meeting

Formation's Annual General Meeting is to be held on the 27th February, 2015 at the offices of Imparando (UK) Limited, 3rd Floor, 52-58 Commercial Road, London E1 1LP at 11 am.