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
David Kennedy, Chief Executive Officer |
Tel: +44 (0) 20 7920
7590 |
Peterhouse Corporate Finance
Limited (Corporate Advisor) |
Tel: +44 (0) 20 7469 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 primarily based on sales to related parties. Thus, there
is a risk that the related parties may choose not continue to enter
into contracts with the Group, or that related party balances may
become irrecoverable if the related parties do not have the ability
to pay. |
The Group’s operational
management continue to maintain good and fruitful relationships
with the directors of the key related parties, and have regular
discussions about potential opportunities. The ability of
related parties to pay amounts outstanding is monitored, and
payments are reviewed to ensure that they are received on a timely
basis. |
The Group’s activities
are concentrated in the London residential property market.
This creates the risk that a downturn in the London 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. |
Management closely
monitor activity in the property market, and assess whether selling
prices are appropriate based on current market data. |
There is a risk that
the properties in the Iverson Road development do not generate the
revenues expected, due to either factors specific to the
development or due to a downturn in the local or national property
market. This would adversely affect the Group’s
profitability. |
It would appear from the sales
achieved that demand for high end value apartments have dropped
with some reduction in prices however management is confident that
the remaining apartments would be sold. |
The Group has
recognised a significant loan and receivable in relation to the
Norwich House profit share. There is a risk that the timing
or amount of the cash flows received by the Group in relation to
the profit share are not consistent with the assumptions made by
management in the recognition of the receivable, or that amount
owed to the Group is not recoverable. |
Management are closely
monitoring the progress of the Norwich House development and the
recoverability of the receivable and are satisfied that the risk is
being managed appropriately. This is supported by the loans
repayment in full following the year end. |
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 operations |
|
1,022 |
(219) |
|
|
__________ |
__________ |
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
Investment property |
-
275 |
-
275 |
|
__________ |
__________ |
|
297 |
301 |
|
__________ |
__________ |
Current assets |
|
|
Inventories
Trade and other receivables |
7,245
9,888 |
10,387
5,820 |
Cash and cash equivalents |
330 |
1,633 |
|
__________ |
__________ |
|
17,463 |
17,840 |
Assets included in disposal group
classified as held-for-sale |
- |
3,311 |
|
__________ |
__________ |
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 shareholders |
10,381 |
7,596 |
|
__________ |
__________ |
Consolidated statement of changes in equity
For the year ended 31 August 2016
|
Called
up
share
capital |
Share
premium
account |
Treasury shares |
Capital
redemption
reserve |
Share
option reserve |
Retained
earnings |
Total
equity |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance at
1 September 2014 |
2,205 |
2,106 |
- |
61 |
22 |
1,388 |
5,782 |
Profit and total comprehensive income for the financial
period |
|
|
|
|
|
1,814 |
1,814 |
|
|
|
|
|
|
|
|
Balance at
31 August 2015 |
2,205 |
2,106 |
- |
61 |
22 |
3,202 |
7,596 |
Profit and total
comprehensive income for the financial period |
- |
- |
- |
- |
- |
2,785 |
2,785 |
|
|
|
|
|
|
|
|
Balance
at
31 August 2016 |
2,205 |
2,106 |
- |
61 |
22 |
5,987 |
10,381 |
|
|
|
|
|
|
|
|
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 activities |
|
5,354 |
(6,906) |
|
|
__________ |
__________ |
|
|
|
|
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 share |
|
- |
(2,444) |
Repayments of investment accounted
for using the equity method |
|
- |
4,638 |
|
|
__________ |
__________ |
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 equivalents |
|
(1,303) |
1,305 |
|
|
|
|
Cash and cash equivalents at the
beginning of the year |
|
1,633 |
328 |
|
|
__________ |
__________ |
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 operations |
|
1,022 |
(219) |
|
|
__________ |
__________ |
Basic and diluted
profits – continuing and discontinued operations |
|
2,785 |
1,814 |
|
|
__________ |
__________ |
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
Number of
shares |
Number of 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 to fair value less costs to sell |
|
- |
(193) |
|
|
__________ |
__________ |
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 operations |
|
1,022 |
(219) |
|
|
__________ |
__________ |
|
|
|
|
|
|
|
|
|
|
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.