Final Results

FORMATION GROUP PLC

('Formation' or 'the Group')

Preliminary Results for the year ended 31 August 2011

Business Highlights

·; The Group has continued its drive to cut overheads in order to ensure a lean cost base going forward.

·; Successful completion by FG (Bristol) Ltd of the development at 175-180 Church Road, St George, Bristol within budget and projected timescale. This development is now managed on a non recourse funding basis. Post year end the York House Bradford development has been successfully completed and will be managed on a similar basis.

·; The Group is now fully focused on its property activities.

Post year end there have been positive outcomes in relation to the Company's, previously reported contingent liabilities and litigation:

·; The Whitechapel Property Fund Limited has been repaid its initial investment plus agreed interest virtually in full. This repayment releases Formation of its guarantee to the fund and consequently has extinguished the contingent liability of £3.95m. The Group has an entitlement to a profit share from the remaining unsold units within this development which is anticipated to be circa £1.3m.

·; As announced on 18th January 2012, following completion of the disposal of the Aldgate development by Julius Properties Limited ("JPL"), the Group has been released from the contingent liability relating to Formation's guarantee to assist JPL in repaying Aldgate East Property Company Limited a maximum of £11.55 million in respect of capital and interest on loan notes.

·; Additionally, the Group settled a longstanding dispute with Gestifute which led to a net cash inflow.

Charles Green, Chairman of Formation said;

"The difficulties and challenges facing the company are no less than in the previous year. The prevailing weakness in the financial markets continue to hinder the Group and its plans in moving forward. There has however been improvement in the Group's underlying financial performance before exceptional items, as these results show. The continued efforts of the Directors and management are beginning to bear fruit. Post year end there have been positive outcomes in relation to the Group's previously reported contingent liabilities and litigation which places the company in a more stable position going forward."

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

The difficulties and challenges facing the company are no less than in the previous year. The prevailing weakness in the financial markets continue to hinder the Group and its plans in moving forward. There has however been improvement in the Group's underlying financial performance before exceptional items, as these results show. The continued efforts of the Directors and management are beginning to bear fruit. There have been positive outcomes to the various litigation issues surrounding the Group as announced in November and December of 2011. The Board expects 2012 to bring similar results to the few remaining litigation issues in which it is involved.

The Chief Executive Officer's Report provides further detail on the individual projects, companies and properties within the Group at present. The contingent liability issues surrounding Aldgate and Whitechapel are similarly addressed. There has been massive progress on both these issues with the Company's exposure to both of these contingent liabilities extinguished in January 2012. The Board are confident that the transformation of the Group is nearing a completion. The Board believes that a clear focus and access to future cash incomes will allow the Group to drive further improvements and shareholder value.

There still remains much to do within Formation Group Plc. The Directors enter 2012 with optimism and the belief that the sacrifices of the past will enable future prosperity. Additionally, the Company strongly believes that recent stream lining of its overheads ensures that it is has a very lean cost structure going forward.

The Board and Staff

This has again been a difficult and challenging year for the Group. I would like to place on record my thanks to all board members and staff for their tireless efforts and dedication throughout the year. Their efforts are achieving results which will make for a strong capital based Property Group going forward.

Charles Green - Non-Executive Chairman

 CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

In the unprecedented financial environment in which we currently operate this has continued to be an extremely tough year for the Group. The weakness in financial markets and continued lack of investor / consumer confidence has curtailed the Group's workload and ability to grow. The tough measures taken in recent years have proved beneficial to the current year's performance.

The contingent property liability linked to the Aldgate development (the previously disclosed £11.55m 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 posed some risk to the Group. The Group and its investment partner, JV Finance Limited, last year invested combined funds of £18.2 million 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 £6.7 million, secured the release of the Aldgate site from Heritable Bank and the necessary construction warranties for the future development of the site.

An RNS update on Aldgate in August 2011 announced that Julius Properties Limited ("JPL") (owner of Aldgate site) had conditionally disposed of its interest in the site to a UK national house builder.

The conditions of this agreement had to be satisfied by 22 February 2012 and consideration payable under the disposal agreement was to be split with part payable on completion and part being deferred. The deferred portion of the consideration is to be payable within 30 months of the completion date.

Formation issued a further RNS announcement on 18 January 2012 stating that all conditions relating to the disposal of Aldgate had been discharged and that completion of the property sale had taken place in January 2012. The disposal payment sum was split with part payable on completion (£20.5m) and part deferred (£18.45m) for a period of up to 30 months. This disposal releases the Group from the contingent liability relating to Formation's guarantee to assist JPL in repaying Aldgate East Property Company Limited a maximum of £11.55 million in respect of capital and interest on loan notes.

In addition, after receipt of the deferred element of consideration, JPL will be able to substantially repay the loans provided by JV Finance Ventures Limited in which Formation has a 36.88% equity interest.

As the interest in Aldgate has been disposed of, the investment has been reclassified as a 'held for sale asset' and accordingly has been restated to fair value based on the present value of the anticipated deferred consideration. A loss on this reclassification of £534k has been recognised in the income statement.

The Whitechapel Property Fund Limited has been repaid its initial investment plus agreed interest virtually in full. This repayment releases Formation of its guarantee to the fund and consequently its contingent liability position in the sum of £3.95m is no longer required. The Group has an entitlement to a profit share from the remaining unsold units within this development which is anticipated to be circa £1.3m.

The Group has had positive outcomes in its sports related litigation as reported in November and December of 2011. The acquisition of Proactive Sports Management Limited, a previously owned company, in July 2010 proved extremely beneficial in the finalization of some of these sports related litigation issues. We anticipate further positive outcomes over the coming year on the few remaining litigation matters. 

The primary focus of the Group now remains on consolidation and the property sector. The Group remains confident of successful outcomes to its outstanding litigation issues. The Directors remain confident on the ability of the property sector to recover from recent recessionary events and looks forward to future growth in this field whilst also consolidating its cash position.

Results

The trading results for the year have been impacted by the weak property market and lack of availability of development funding. Continued litigation costs over the year have impacted results. For the year ended 31 August 2011, the Group revenue from continuing operations was £6.0 million (2010: £2.2 million) resulting in a loss before taxation and exceptional items from continuing operations of £1.5 million (2010: £1.2 million).

Dividend

Historically the Group has always sought to reward shareholders by way of an annual dividend payment. In the last three 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 shareholders a dividend. The decision will continue to be reviewed and monitored as the Group's resources and performance improves.

Business Overview

The Group is now predominately a construction and property development / management business generating income through project developing / management of small / medium scale building projects. Rental incomes are also generated on various residential and commercial investments retained by the Group and its subsidiaries.

Schemes in which we have been involved this year are:

(i) No 1 Commercial Street, London E1

Site maintenance, liaising with specialist subcontractors, professionals, public bodies and legal practices / project monitors in satisfying the due diligence enquiries of prospective funders, tenants and purchasers of the mixed use new build development incorporating 212 apartments, car parking and approximately 10,000sqm of various commercial uses.

(ii) 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.

(iii) 110 - 114 Elmore Street, London N1.

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

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

Development of a new build project incorporating 15 apartments, 3 retail units and associated car parking.

(v) York House, Upper Piccadilly, Bradford, BD1 4PB.

Development of a Grade II Listed Building into 24 Apartments and a commercial unit.

As stated last year, this area of our business has and will continue in the short term to come under pressure. Bank debt, is in short supply with banks being more selective and aggressive with their terms. This situation reduces our ability to expand and that of our prospective clients.

Last year the Group acquired Proactive Sports Management Limited (a previously owned company), primarily to assist in the conduct of various sports related litigation cases. The company has no employees and no longer manages sports personnel but is being operated to finalise cases in litigation.

Investment Properties Retained

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

1. 52-58 Commercial Road, London E1.

Formation Group Plc has an entitlement to 40% of the profits of Rocquefort Properties Limited. This company presently retains commercial properties at the above address including 17,000 sq ft of office / education use, 1,500 sq ft retail unit, 25 basement car parking spaces and a ground rents income from 142 residential units. The profit element on these properties attributable to Formation Group Plc after repayment of outstanding loans is anticipated to be circa £1.3 million. It is likely that these properties will be sold in 2012.

2. 175 180 Church Road, St.George, Bristol.

FG (Bristol) Limited, a wholly owned subsidiary of Formation Group PLC currently owns 15 apartments, 3 retail units and associated car parking at the above address. The apartments are income producing, whilst the retail units are unlet. Current gross anticipated rental income, on a fully let basis, is £137,000. Dunbar Assets Plc currently provides non recourse funding, secured upon the scheme of £2,019,687.

3. York House, Upper Piccadilly, Bradford, BD1 4PB.

FG (Bradford) Limited, a wholly owned subsidiary of Formation Group Plc currently owns 24 apartments and a retail unit at the above address. The apartments and commercial unit have just recently been advertised for rental. Gross anticipated income, on a fully let basis, is £140,000 p.a. Dunbar Assets Plc currently provide non recourse funding, secured upon the scheme of £2,155,241.

Risks and Uncertainties

Going concern

As highlighted in note 1, the ability of the group to continue trading as a going concern is dependent on the realisation of cash from The Whitechapel Development and new construction contracts being won in the next twelve months. There is a significant level of uncertainty over the ability of the group to continue as a going concern however, we have a reasonable expectation that the company have adequate resources to continue in operational existence for the foreseeable future.

Potential Property Liabilities

The administrative 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 was £11.55 million.

The announcement on 30th August 2011 that Julius Properties Limited ("JPL") a Guernsey registered company that owns the property development above Aldgate East Station, London (Aldgate) had entered into a conditional agreement for the disposal of Aldgate to a UK national housebuilder moved the entire process substantially forward.

A further announcement on 18th January 2012 stated that all conditions relating to the disposal had been satisfied and that the land disposal was completed by JPL with a part payment (£20.5m) received and a further deferred consideration (£18.45 m) due within 30 months.

The Directors of Formation are satisfied that the contingent liability relating to Formation's guarantee to assist JPL in repaying Aldgate East Property Company Limited a maximum of £11.55m in respect of capital and interest on loan notes is now extinguished.

In addition, after receipt of the deferred element of the consideration, JPL will be able to substantially repay the loans provided by JV Finance Ventures Limited, the special purpose vehicle set up by Formation and JV Finance Limited in which Formation has a 36.88% equity interest.

The Whitechapel Property Fund which was raised on 52-58 Commercial Road, London E1 was due for repayment at the end of February 2011 by Rocquefort Properties Limited. This repayment date was extended with the consent of The Whitechapel Property Fund Limited with interest continuing to accrue at the agreed rate of 10% on any outstanding balances. This fund has now been substantially repaid. The repayment of the fund has extinguished the Group's contingent liability in the sum of £3.95m relating to its guarantee to the fund.

Divested Business

The past three 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 the necessary cash reserves available to participate in resolving Aldgate's banking difficulty as a result of Heritable Bank's demise. The subsequent conditional sale by Julius Properties Limited of its interest in Aldgate has moved the Group a step closer to recouping its investment in Aldgate's rescue.

The Creditors Voluntary Liquidation of Formation Asset Management Limited and the winding down of Formation Architectural Design Limited and Proactive Sports Management Limited have allowed the Group to focus on its property and cash management position.

Restructuring over the past three years has ensured that the core property business remains competitive, whilst also maintaining a strong nucleus with future access to cash reserves which will enable the Group to grow and prosper.

Outlook

The business has undergone significant change and challenges over the past three years. It has been creative in its approach to such change and challenges, acquiring a previously owned company (Proactive Sports Management Limited) to assist in the conduct of its sports related litigation, quickly winding down and liquidating companies in order to reduce its cost exposure and making the hard decisions on staff and overheads as necessary in order to survive in an extremely difficult trading environment.

The company will continue to act decisively and be ready to maximise its position now that the Whitechapel and Aldgate contingent liability positions are resolved. The recent discharge of these liabilities now potentially gives the Group future access to its investment monies in JV Finance Ventures Limited and its anticipated profit share from Whitechapel.

The outlook continues to be best summarised as cautiously optimistic. We believe the company is now in a position where it is ready to prosper from any recovery in the property and finance / lending markets that materialises. The company anticipates having recourse to its cash investment in Aldgate over the coming years and the reinvestment benefits which may follow.

David Kennedy - Chief Executive Officer

Consolidated statement of comprehensive income

for the year ended 31 August 2011

Consolidated statement of financial position

31 August 2011

Consolidated statement of changes in equity

31 August 2011

Consolidated statement of cash flows

for the year ended 31 August 2011

Notes

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 2011 or 31 August 2010 but is derived from those accounts. Copies of the Company's audited statutory accounts for the year ended 31 August 2011 will be despatched to shareholders shortly.

The Directors have prepared working capital forecasts for the period to 31 August 2013, which includes part realisation of profits due the Group from its share in the profits of The Whitechapel Development of £870,000 and income of £200,000 from a construction contract which has yet to be secured, although the directors have received notification of intention to proceed with the contract. The ability of the group to continue trading as a going concern is dependent on the realisation of cash from these two events in the next twelve months. Given the current difficult market conditions there is a significant level of uncertainty over the ability of the group to realise cash from the sale of the freehold property within the timescales required.

The Directors have concluded that the combination of these circumstances represent a material uncertainty that casts significant doubt upon the company's ability to continue as a going concern. Nevertheless after making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the company have 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.

In view of the significance of the factors outlined above, the auditors' report to be contained in the 2011 statutory accounts is likely to include an emphasis of matter paragraph which will refer to the existence of the uncertainties and state that the circumstances represent a material uncertainty that may cast significant doubt upon the company's ability to continue as a going concern.

The statutory accounts for the year ended 31 August 2010 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 2010 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 2011 and 2010 and have therefore not been included.

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. 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

Formation's Annual General Meeting is to be held on the 20 March 2012 at the offices of Imparando (Uk) Ltd, 3rd floor, 52 -58 Commercial Rd, London E1 1LP at 11am.