FORMATION GROUP PLC
27 January 2017
FORMATION GROUP PLC
('Formation' or 'the Group')
Audited Results for the year ended 31 August 2016
Formation Group (NEX: FRM), the property development and project management
company, today announces its audited results for the year ended 31 August 2016
("the period").
Business Highlights
* Group revenue growth of 24% to £29.410m (2015: £23.764m) on the back of an
increasing workload driven by the current strong London property market;
* Profits before taxation of £2.157m from continuing operations (2015 profit:
£2.203m);
* Income of £1.424m recognised from the profit share agreement with Sunbel
Development Limited and Pinacle Developments Limited in relation to a
development property at Norwich House (2015 £2.421m);
* The Group is pleased to report continued sales of its apartments in its
completed development at 159-161 Iverson Road, London NW6 in the year ended
31 August 2016.
Commenting on the results, Willie O'Dea, Chairman of Formation Group, said:
I am pleased to report that the year ended 31 August 2016 has been another good
year for Formation Group and the Company is well positioned for 2017 and the
future. Group revenues have again increased on prior year results, with an
uplift of 24% this year.
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 increased banking facilities will enable the Group to drive further
improvements, increase profits and enhance shareholder value
Enquiries:
Formation Group plc Tel: +44 (0) 20 7920
David Kennedy, Chief Executive Officer 7590
Peterhouse Corporate Finance Limited (Corporate Tel: +44 (0) 20 7469
Advisor) 0930
Mark Anwyl / Fungai Ndoro
Formation Group Plc (NEX: FRM), headquartered in East London, is an NEX
Exchange Growth Market traded Company focused on property development and
project management services for medium and large scale building projects in
London and the City periphery.
The Company's portfolio includes both new build and conversion projects, and is
also diversified through a limited exposure to commercial work and the rental
sector.
The management team combines significant Plc experience with property
expertise. The Company is well positioned to exploit a buoyant London
residential property market, and believes that the newly added property
development division will form a substantial part of its profitability in the
future.
CHAIRMAN'S STATEMENT
I am pleased to report that the year ended 31 August 2016 has been another good
year for Formation Group and the Company is well positioned for 2017 and the
future. Group revenues have again increased on prior year results, with an
uplift of 24% this year from £23.764m in 2015 to £29.410m in 2016 due to
increasing revenues from professional construction services and sales at
Iverson Road. It is expected that revenue will grow over the coming financial
year with various large work contracts in place and additional sales on the
Iverson Road development.
This year has seen a profit after tax of £2.785m (2015 £1.814m) which is an
improvement in the Group's underlying financial performance. The profit from
the year from discontinued operations of £1.022m relates largely to a positive
write back of the loans of the properties held at Bradford and Bristol which
were sold on 2 October 2015 for £3.366m.
The finance income item of £1.424m relates to income recognised from the profit
share agreement entered into by Formation Group Plc as announced on the 8 July
2015 with Sunbel Development Limited ('Sunbel') and Pinacle Developments
Limited ('Pinacle') in relation to a development property at Norwich House,
9-19 Streatham High Road.
The Group is now focused only on property activities which includes property
development, property investment and professional construction management.
Every effort is being made to source further development opportunities with the
cash resources available to the Group from its participation in the recent
development of Norwich House and the profits from its finished development at
Iverson Road, London NW6.
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 increased banking facilities will enable the Group to drive further
improvements, increase profits and enhance shareholder value.
The Board and Staff
I would like to thank all board members and staff for the enormous efforts and
dedicated contributions they have made in achieving a record year, with a
significant uplift in revenues and profits for the Group. I would also like to
thank our shareholders for their continued trust and confidence in the Board
and in my leadership as Chairman.
The outlook for the Group is exciting and we look forward to operating a
secure, profitable, capital based property group going forward and to
delivering long-term, sustainable earnings growth to our shareholders.
William O'Dea
Non-Executive Chairman
CHIEF EXECUTIVE OFFICER'S STATEMENT
Strategic Report
Introduction
I am delighted to report that this has been another excellent year for the
Group with significant increases in revenue and profitability. The Group
continues to strengthen its presence in the London property market through a
profit share participation at Norwich House, in Streatham, London and the
completion of the development in Iverson Road, West Hampstead with a number of
the apartments being sold within the financial year.
The outlook for the Group is optimistic as the UK economy comes to terms with
the impact of 'Brexit vote' in June 2016, and the directors continue to monitor
market activity.
Results
The trading results for the year have continued to improve with Group revenue
from continuing operations increasing to £29.410m (2015 £23.764m) due to the
increased number of contracts in progress and the sales of a number of the
apartments on the completed Iverson Road development. This has resulted in a
pre-tax profit of £2.157m from continuing operations (2015 £2.203m).
The profit for the year from discontinued operations of £1.022m relates largely
to a positive write back of the loans of the properties held at Bradford and
Bristol which were sold on 2 October 2015 for £3.366m.
The audited financial statements for the year ended 31 August 2016.The Group's
result for the year after taxation was a profit of £2.785m (2015 profit of £
1.814m).
Key Performance Indicators (KPIs)
Gross profit is considered to be the most meaningful KPI. Gross profit on
professional services was 9.9% in the year to 31 August 2016 (2015 6.3%).
Turnover has risen by 24% in 2016 to £29.410m (2015 £23.764m).
The Group's building companies are listed in the considerate contractor scheme.
The Group's aim is to have a zero-accident policy however, whilst the Group has
an excellent safety record, during the year Formation Construction Limited had
a death at one of its construction sites. The accident is currently under
investigation by the Health and Safety Executive, however there is no
indication at the year end that the Company was negligent in any way. The Group
continues to review all of its policies and procedures to ensure that safety
remains its top priority.
Staff turnover is low due to careful selection of high calibre personnel and
the Group's excellent reputation continues to attract loyal and hardworking
staff.
Principal activity and business review
The principal activity of the Group is the provision of professional
construction management services with an increasing focus on the more
profitable development/investment business as seen by the sales of some of the
apartments on the completed of the Iverson Road development.
The Group continues to project manage a number of central London property
developments and has been engaged to provide these project management services
by companies which are defined as related parties of Formation Group Plc.
The Group has also completed the development of the Iverson Road site with
profits on the sold apartments recognised in the year to 31 August 2016.
The Group has been involved in the construction project management of fifteen,
mainly residential, projects during the year. All of the projects are located
in Greater London. Eight of the schemes have been completed in the year with
seven ongoing.
The Group has an investment and financial interest in two of the projects as
follows:-
Norwich House, 9-11 Streatham High Road, London SW16 1DZ
Project management and profit share participation in a development site of 103
residential units, associated car parking, 3 commercial units and the freehold
interest in an adjoining apartment block. The profit share arrangement and the
related accounting treatment. As part of its participation in the profit share,
the Group advanced a loan of £2.444m.
Following the year end, the Group has received payment in full its loan and
profit share with Sunbel Developments Limited.
159-161 Iverson Road, London NW6
The Group acquired this development in Formation Homes (London) Limited (Group
subsidiary) in the prior financial year. The site benefited from planning
approval for 19 residential units and 1 commercial unit. Construction works
were completed in March 2016. The construction and project management works
were financed by borrowings of £5.617m. The development was completed in March
2016 with profit on apartments sold recognised in the financial year. Further
sales took place post year end which enabled the loan to be paid off as per the
RNS announcement on 9 November 2016.
Investment Property Retained
The Group currently has an interest in the following income producing
investment properties:
52-58 Commercial Road, London E1
Rocquefort Properties Limited holds on behalf of Formation Group Plc 11 car
parking spaces valued at £25,000 each, a total value of £275,000. The spaces
are to be sold or let as directed by Formation Group Plc which will then
receive the net proceeds.
Principal Risks and Uncertainties
Potential risks are listed below:-
Potential Risks Mitigation
The Group's activities continue to be The Group's operational management
primarily based on sales to related continue to maintain good and fruitful
parties. Thus, there is a risk that relationships with the directors of
the related parties may choose not the key related parties, and have
continue to enter into contracts with regular discussions about potential
the Group, or that related party opportunities. The ability of related
balances may become irrecoverable if parties to pay amounts outstanding is
the related parties do not have the monitored, and payments are reviewed
ability to pay. to ensure that they are received on a
timely basis.
The Group's activities are Management closely monitor activity in
concentrated in the London residential the property market, and assess
property market. This creates the whether selling prices are appropriate
risk that a downturn in the London based on current market data.
property market will affect the levels
of project management activity and the
market value of the Iverson Road
properties, and therefore the Group's
profitability. Further uncertainty has
arisen since June 2016 the post Brexit
vote which has impacted the prices of
high value apartments.
There is a risk that the properties in It would appear from the sales
the Iverson Road development do not achieved that demand for high end
generate the revenues expected, due to value apartments have dropped with
either factors specific to the some reduction in prices however
development or due to a downturn in management is confident that the
the local or national property market. remaining apartments would be sold.
This would adversely affect the
Group's profitability.
The Group has recognised a significant Management are closely monitoring the
loan and receivable in relation to the progress of the Norwich House
Norwich House profit share. There is development and the recoverability of
a risk that the timing or amount of the receivable and are satisfied that
the cash flows received by the Group the risk is being managed
in relation to the profit share are appropriately. This is supported by
not consistent with the assumptions the loans repayment in full following
made by management in the recognition the year end.
of the receivable, or that amount owed
to the Group is not recoverable.
Outlook
This year the Group delivered a significant increase in revenues. Formation
Group continues to be positive that its core property construction activity
remains strong and that it will be able to continue to generate substantial
revenues. The Group continues to have a healthy on-going project stream that
will include the final sales of the Iverson Road apartments, expected to occur
during the year ending 31 August 2017. Cash due to the Group under the Norwich
House profit share agreement has been received in full following the year end.
Formation Group will continue to focus on property activities, which includes
property development, property investment and professional construction
management. The Board intends to use the cash generated from the development at
Norwich House and profits from Iverson Road to source further development
opportunities.
David Kennedy
Chief Executive Officer
Consolidated Income Statement
For the year ended 31 August 2016
2016 2015
£'000 £'000
Continuing operations
Revenue 29,410 23,764
Cost of sales (26,488) (22,266)
__________ __________
Gross profit 2,922 1,498
Administrative expenses (2,189) (1,716)
__________ __________
Operating profit/(loss) from continuing operations 733 (218)
Finance income 1,424 2,421
Finance costs - -
__________ __________
Profit before taxation 2,157 2,203
Taxation (394) (170)
__________ __________
Profit for the year from continuing operations 1,763 2,033
Discontinued operations
Profit/(loss) for the year from discontinued 1,022 (219)
operations
__________ __________
Profit for the year 2,785 1,814
__________ __________
Attributable to:
Equity holders of the parent 2,785 1,814
__________ __________
2,785 1,814
__________ __________
Earnings/(Loss) per share
From continuing operations
Basic and diluted 0.79p 0.91p
From discontinued operations
Basic and diluted 0.46p (0.09p)
From continuing and discontinued operations
Basic and diluted 1.24p 0.81p
Consolidated statement of comprehensive income
For the year ended 31 August 16
2,016 2,015
£'000 £'000
Profit for the year 2,785 1,814
___________ ___________
Total comprehensive Income for the year 2,785 1,814
___________ ___________
Attributable to:
Equity holders of the parent
Continued operations
Discontinued operations 1,763 2,033
1,022 (219)
__________ __________
2,785 1,814
__________ __________
Consolidated statement of financial position
As at 31 August 2016
2016 2015
£'000 £'000
Non-current assets
Intangible assets - -
Property, plant and equipment 22 26
Investments
Investment accounted for using the equity - -
method 275 275
Investment property
__________ __________
297 301
__________ __________
Current assets
Inventories 7,245 10,387
Trade and other receivables 9,888 5,820
Cash and cash equivalents 330 1,633
__________ __________
17,463 17,840
Assets included in disposal group classified - 3,311
as held-for-sale
__________ __________
Total current assets 17,463 21,151
__________ __________
Total assets 17,760 21,452
__________ __________
Current liabilities
Trade and other payables (4,065) (3,893)
Bank loans (3,314) (9,963)
__________ __________
Total current liabilities (7,379) (13,856)
__________ __________
Net current assets 10,084 7,295
__________ __________
Total liabilities (7,379) (13,856)
__________ __________
Net assets 10,381 7,596
__________ __________
Equity
Share capital 2,205 2,205
Share premium account 2,106 2,106
Capital redemption reserve 61 61
Share option reserve 22 22
Retained earnings 5,987 3,202
__________ __________
Total equity attributable to the parent's 10,381 7,596
shareholders
__________ __________
Consolidated statement of changes in equity
For the year ended 31 August 2016
Called up Share Capital Share
share premium Treasury redemption option Retained Total
capital account shares reserve reserve earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 2,205 2,106 - 61 22 1,388 5,782
1 September
2014
1,814 1,814
Profit and
total
comprehensive
income for
the financial
period
Balance at 2,205 2,106 - 61 22 3,202 7,596
31 August
2015
Profit and - - - - - 2,785 2,785
total
comprehensive
income for
the financial
period
Balance at 2,205 2,106 - 61 22 5,987 10,381
31 August
2016
Consolidated statement of cash flows
for the year ended 31 August 2016
2016 2015
£'000 £'000
Operating activities
Cash generated/(used) in operations 5,354 (6,752)
Interest paid - (154)
__________ __________
Net cash inflow/(outflow) from operating 5,354 (6,906)
activities
__________ __________
Investing activities
Purchases of property, plant and equipment (11) (25)
Cash inflow from Norwich House profit share - 400
Cash outflow in respect of Norwich House profit - (2,444)
share
Repayments of investment accounted for using the - 4,638
equity method
__________ __________
Net cash (used)/generated by investing activities (11) 2,569
__________ __________
Financing activities
New loans (6,646) 5,642
Proceeds on sale of Treasury Shares - -
__________ __________
Net cash (used)/generated by financing activities (6,646) 5,642
__________ __________
Net (decrease)/increase in cash and cash (1,303) 1,305
equivalents
Cash and cash equivalents at the beginning of the 1,633 328
year
__________ __________
Cash and cash equivalents at the end of the year 330 1,633
__________ __________
Notes
1. Basis of preparation and going concern
The Directors have prepared working capital forecasts for the period to 28
February 2018 and as a result are satisfied the Group has sufficient resources
to continue in operational existence for the next 12 months. The financial
statements are therefore prepared on a going concern basis.
2. Earnings/ (loss) per share
The calculation of basic and diluted earnings/ (loss) per share is based on the
following losses and numbers of shares:
2016 2015
£'000 £'000
Basic and diluted earnings- continuing operations 1,763 2,033
Basic and diluted earnings/(loss) - discontinued 1,022 (219)
operations
__________ __________
Basic and diluted profits - continuing and 2,785 1,814
discontinued operations
__________ __________
2016 2015
Number of Number of
shares shares
'000 '000
Weighted average number of shares:
Ordinary shares in issue 220,515 220,515
Treasury shares - -
__________ __________
Basic 220,515 220,515
Dilutive effect of share options 3,840 3,212
__________ __________
Diluted 224,355 223,727
__________ __________
Profit 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.
3. Reconciliation of profit/(loss) from continuing operations to net cash
inflow from operating activities
2016 2015
£'000 £'000
Operating profit/(loss) from continuing operations 733 (218)
Operating profit/(loss) from discontinued operations) 1,022 (64)
Depreciation of property, plant and equipment 15 15
Impairment of assets classified as held for sale - 193
Disposal of asset classified asset held for sale 3,311 -
Impairment of investment - 10
__________ __________
Operating cash flows before movements in working capital 5,081 (64)
Decrease/(increase) in inventories 2,743 (8,091)
(Increase) in receivables (1,869) (719)
(Decrease)/increase in payables (601) 2,122
__________ __________
Cash generated/(used) in operations 5,354 (6,752)
__________ __________
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. 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.
During the year, Group companies entered into the following transactions with
related parties who are not members of the Group:
Tulip Trust and Kennedy Private Trust Company Limited have an interest in
133,565,954 shares (2015: 132,940,454 shares) in the Company.
During the year:
* Formation Design and Build Limited and Formation Construction Limited
project managed a number of property developments for companies controlled
by the Impala Private Trust Company Limited. Revenue from these contracts
totalled £25.584m (2015 £23.764m) in the year. At 31 August 2016, the Group
had debtor balances due from these companies of £4.387m (2015 £2.153m).
* Formation Design & Build Limited leased premises from Columbia House
Properties (No.6) Limited a company ultimately owned by Kennedy Private
Trust Company Limited on a five-year lease from 6 September 2012. The terms
of the lease include a rental £0.0297m per annum. The charge for the year
was £0.033m (2015 £0.028m). Balance outstanding as at 31 August 2016 is £
nil (2015 £0.008m).
* Formation Group Plc leased premises from Columbia House Properties (No.6)
Limited a company ultimately owned by Kennedy Private Trust Company Limited
on a seven-year lease from 1 March 2015. The terms of the lease include a
rental of £0.033m per annum. The charge for the year was £0.033m (2015 £
0.016m). Balance outstanding as at 31 August 2016 is £nil (2015 £nil).
* 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 are the
majority shareholders in the Group.
5. Discontinued operations
Discontinued operations relate to proceeds received on investment properties,
which were disposed of in the year by FG (Bradford) Limited, FG (Bristol)
Limited. Additionally, the non-trading activities of Formation Wealth Solutions
Limited and Formation Architectural Design Limited are also included 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:
2016 2015
£'000 £'000
Revenue 6 234
Cost of sales (10) (104)
__________ __________
Gross (loss)/profit (4) 130
Administrative expenses (4) (2)
Impairment of investment properties - adjustment - (193)
to fair value less costs to sell
__________ __________
Operating (loss) from discontinued operations (8) (65)
Finance income 1,315 -
Finance costs (24) (154)
__________ __________
Profit (Loss) before taxation 1,283 (219)
Attributable tax expense (261) -
__________ __________
Profit (Loss) for the year from discontinued 1,022 (219)
operations
__________ __________
2016 2015
£'000 £'000
Investment properties - 3,311
___________ ___________
The investment properties had previously been secured by Dunbar Assets Plc
under non-recourse financing.
As previously announced the Investment properties held in Formation Group plc
100% owned subsidiaries FG (Bradford) Limited and FG (Bristol) Limited were
handed back to Dunbar Assets plc in late 2013 with a view to dispose of the
properties. Formation Group Plc is pleased to announce that the sale has now
been completed on the 2 October, 2015 for £3.366m with a positive write back of
£1.054m on the loans secured against these properties by Dunbar Assets Plc.
In addition, it was agreed with Dunbar Assets Plc that should a Corporation tax
charge be trigged by the disposals, this would be covered by them. As a result,
finance income also includes and amount of £0.261m relating to amounts due from
Dunbar in the form of a Corporation Tax reimbursement.
6. Annual Report and Accounts
The financial information set out in this 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 2016 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 498(3)
of the Companies Act 2006.
The annual report will be sent to shareholders on 3 February, 2017 Additional
copies will be available on the Company's website: www.formationgroupplc.com
7. Annual General Meeting
Formation's Annual General Meeting is to be held on 27 February 2017 at the
offices of Formation Group Plc, 2nd Floor Oakwood House, London E2 7SY at 11
am.
Formation : Audited Results for the year ended 31 August 2016
January 27, 2017 at 02:02 am
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