formation group plc preliminary results 2006 november 2006

Formation Group PLC

Preliminary Results 2006

November 2006

www.formationgroupplc.com

Formation Group PLC www.formationgroupplc.com2

Formation Group

At Year End 2006

Sports Marketing

> 5 subsidiaries

> 2 subsidiaries

> 2 subsidiaries

Sale of Sports Marketing Division

post year end (31 Oct 2006)

Representation

Management services to professional footballers and entertainers

Financial planning for athletes & other high net worth individuals, sports associations & clubs

Wealth Management & Professional Services


Highlights

> Revenue increased by 13% to £15.1 million (2005: £13.4 million)*

> Operating profit from continuing operations of £1.6 million is 23% higher (2005: £1.3 million)*

> Net funds of £2.1 million at 31st August 2006 (2005: £0.4m)

> Committed future gross profit of £2.8 million- £1.5m will be recognised in FY ending 31st August 2007

> Basic EPS from continuing operations increased 20% to 0.91p (2005: 0.76p)*

> Proposed final dividend of 0.105p per share – year on year increase of 11%

Post year end

> Sale of Sports Marketing Division – £10.223 million in cash upon completion – £1.050 million dependent upon 2007 financial performance– Profit on disposal of £4.5 million– Group cash balance of circa £7.0 million

> Strategy in place to reinvest Group capital for long term sustainable growth

* Restated in accordance with IFRS


2006

Consolidated Income Statement

£000

Continuing operationsRevenueCost of sales

Gross ProfitAdministrative expenses

Operating profit from continuing operationsInvestment incomeFinance charge

Profit before taxTax

Profit from continuing operations

Discontinued operationsBefore exceptional itemsExceptional items

Profit attributable to equity holders of parentDividends

Retained profit for financial year

Earnings per shareFrom continuing operations – Basic & dilutedFrom continuing & discontinued operations – Basic & diluted

2005*

15,091(5,267)

9,824(8,217)

1,6079

(108)

1,508(431)

1,077

(169)(365)

543(109)

434

0.91p0.46p

13,350(4,528)

8,822(7,517)

1,3057

(56)

1,256(387)

869

200-

1,069(98)

971

0.76p0.93p

* R

est

ate

d in

acc

ord

an

ce w

ith I

FR

S


Cash Flow Statement

Cash generated by operationsTaxes paidInterest paid

Net cash inflow from operating activities

Investing activitiesInterest receivedProceeds on disposal of property, plant & equipmentPurchases of property, plant & equipmentPurchases of trademarks & rightsDeferred consideration paidAcquisition of subsidiariesCash acquired with subsidiariesAcquisition expensesDisposal of subsidiaryCash disposed of with subsidiary

Net cash generated by / (used in) investing activities

Financing activitiesDividends paidIssue of share capitalPurchase of shares (held in treasury)Repayments of obligations under finance leasesNew bank loans raisedRepayment of bank loan

Net cash (used in) / generated by financing activities

Net increase / (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the yearEffect of foreign exchange rate changes

Cash and cash equivalents at the end of the year

£000 2005*2006

1,017(395)(108)

514

1418

(170)(2)

(356)(242)

135(107) 1,366

(8)

648

(109)791

(138)(20)

-(1,200)

(676)

486

1,674(17)

2,143

2,210(129)

(56)

2,025

1262

(196)(2)

(3,031)(468)

342- --

(3,281)

(98)--

(12)1,200

-

1,090

(166)

1,82911

1,674

* R

est

ate

d in

acc

ord

an

ce w

ith I

FR

S


Balance Sheet

* R

est

ate

d in

acc

ord

an

ce w

ith I

FR

S

Non-current assetsGoodwillOther intangible assetsProperty, plant & equipmentDeferred tax asset

Current assetsTrade and other receivablesCash and cash equivalents

Total assets

Current liabilitiesTrade and other payablesTax liabilitiesObligations under finance leasesBank overdrafts and loans

Net current liabilitiesNon-current liabilitiesTrade and other payablesObligations under finance leasesBank loans and overdrafts

Total liabilities

Net assets

£000 2006 2005*

15,91742

349124

16,432

6,7822,187

8,969

25,401

(8,419)(753)

(4)(44)

(9,220)

(251)

(343)(30)

-

(373)

(9,593)

15,808

17,27551

42527

17,778

9,4461,674

11,120

28,898

(11,407)(726)

(12)(400)

(820)(42)

(800)

(1,662)

(14,207)

14,691

(1,425)

(12,545)


Revenue & Profit Trends

Summary

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2003 2004 2005* 2006

£ 000 s

Revenue Profit from operations

> Divisional Revenue

2006 2005*

• Sports Marketing 8,3256,734

• Wealth Management & Professional 3,635 3,259• Representation 3,131

3,357

> Divisional Contribution:

• Sports Marketing 1,261

1,213 • Wealth Management & Professional 543 526• Representation 995

1,061

• Contribution 2,799 2,800

• Central costs (1,192) (1,495)

• Profit from operations 1,607 1,305

£000s £000s


Trends


Disposal

Terms

• Sale of the entire share capital of the five subsidiaries comprising the Sports Marketing Division

to Sportfive Gmbh & Co KG

• £10.223m in cash on completion of the deal

• An additional £1.050m in cash due after YE August 2007 dependent upon performance of

division and continued employment of selected senior management

Rationale

• £4.5 million profit on disposal

• Maturity of the sector and our position within it

• Valuation achieved crystallises the underlying value

• Net proceeds allow the Group to develop other divisions, both organically and

by acquisition


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2005* 2006

Wealth Management & Professional Services

Divisional Contribution

£ 000 s

Kingsbridge Asset Management

> Currently acts for over 600 clients including approximately 15% of all Premier League players

> Moving to an annual fee based advisory service (as opposed to commission based structure)

> Trail income has increased from £135k per year (Oct 2003) to circa £700k

CBG Sports

> Established a 50/50 joint venture this year with CBG Group plc, a general and personal insurance, and risk management company

> Option to buy remaining 50% on third anniversary (September 2009)

Capital Sports Solutions

> Assists clubs to accelerate cash flow by organising advances secured against future income from existing contracts

Turnover Contribution

Key Points



Representation

Representation Contribution

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2005* 2006

£ 000 sTurnover Contribution

Key Points

> Provides a comprehensive athlete management service including transfers, contract renewals and image rights negotiation

> Proactive Sports Management in the UK and Proactive USA

> Disposal of Proactive Scandinavia for total cash consideration of £2 million in the period

> Representation had a successful year in 2006 contributing £995k to earnings

> Successfully established a talent management team

> Year-on-year reduction due to market forces

> Committed future gross profit of £2.8 million of which £1.5 million will be recognised in the year ending 31st August 2007



The Future

Management believes greatest opportunity lies within what is currently defined as ‘Wealth Management & Professional services Division’

Formation Group PLC

Wealth Management

Property Investments

Financial Brokerage

Insurance Services

Legal & Accountancy

Services

Representation

IFA

Tax, protection & investments

Brokerage & lending

General and personal

insurance, & risk

management

Legal services

Accountancy

Athlete & talent

management, & image rights

Clients Group

High net worth clients – sports & entertainment sectorsSporting clubs &

organisations

Organic & investment

Investment Organic Organic InvestmentAcquisition


The Future Wealth Management

Fee based model

• Continue the transition to a fee based advisory service (as opposed to commission based model) with money-under-management

• Not compromising earnings

• More consistent income stream and visibility of earnings

• Less pressure to sell to generate income

• Consistent with FSA regulations & market trends since depolarisation

Pensions

Expand client base

• Broaden client base beyond sports to include other HNW individuals

• Particular focus on entertainment industry

• Product portfolio provides platform to attract new clients

• ‘A Day’ increases money under management materially

Organic growth strategy


The FutureProperty

Key Benefits

Opportunities:

• Short term return – commission & fees via client investments

• Medium term return (3 years) – profit share from client / Formation Group investments

• Bespoke products

• A means of participating in prime sectors of UK commercial & residential property markets for investors who would not normally be able to participate on their own account

• Opportunity currently exists in the market for property investments that fall below the typical institutional investor level

• Strategic partner – material shareholder in Group

• Establishment of a property fund being considered by the Board


The Future Financial Brokerage

Current Business Model

• Operates a brokerage model

• Assists clubs to accelerate cash flow

• Arranges advances secured against a club’s future income from existing contracts (transfers, sponsorships, broadcast income etc)

• Structured on recourse

Paym

ent m

ade to C

lient

Clearing bank

Various emerging funds bank

Private equity

Insurance

Hedge funds

Capital Sports

SolutionsSolution Proposal

Success based fees

CLI

EN

TFu

ndin

g Req

uire

men

t

Paym

ent m

ade to C

lient

Clearing bank

Various emerging funds bank

Private equity

Insurance

Hedge funds

Capital Sports

SolutionsSolution Proposal

Success based fees

CLI

EN

TFu

ndin

g Req

uire

men

t

• Establish a fund and finance deals directly

• Opportunity for profit lies in the arbitrage between perceived risk (high) and actual risk (low) of short-term lending to top European clubs

• An initial fund under consideration

• Run as open ended fund

• Annual dividends

Future

Capital Sports Solutions Fund

Leverage component

2x

Institutional investors, banks & HNW

Equity component

Group capital & private investors (HNW clients)


The FutureRepresentation, Insurance, and Legal & Accountancy Services

Legal & Accountancy Services

Insurance

Representation

• Grow CBG Sports joint venture

• Cross selling insurance to existing client base

• Cross selling Group services to insurance clients

• Add legal services firm/ in house team when legislation permits

• Government White Paper issued October 2005, Legal Services Bill due for consideration

• Selective acquisitions

• Option to buy remaining 50% on third anniversary (September 2009)

• Continue to develop Talent Management team

• Target entertainment industry

• Cherry pick individuals

• Acquire ‘one man operations’ with quality client bank

AcquisitiveOrganic

• N/A


Appendices


Board of DirectorsExecutive Directors

Neil Rodford (CEO)Neil Rodford, aged 37, joined the Group in 2001 and was appointed as Chief Operating Officer in 2002, becoming Chief Executive Officer in 2003. His early career was at Marks & Spencer and W.H. Smith (News), where he was appointed General Manager in 1994. At that time, Neil was W.H. Smith’s youngest general manager in the company’s history. He left in 1996 to join Harrods Holdings and was appointed Managing Director of Fulham Football Club in 1997. He has substantial experience in management and strategy planning.

Mark Page ( Finance Director)Mark Page, aged 43, joined the Group in 2002 in a senior financial position and was appointed as Finance Director in that year. He previously spent ten years at Iceland Foods, latterly as Group Financial Accountant. He qualified as a chartered accountant at Coopers & Lybrand.

Michael Kennedy (Director)Michael Kennedy, aged 62, joined the board in January 2005. Michael is a senior partner at the law firm Herbert Reeves & Co and has represented football players for more than 20 years. As a solicitor, he also specialises in property law.

Ian Battersby (Director of Wealth Management)Ian Battersby, aged 48, has been involved at a senior level with the Wealth Management Division since 2000 and has been Business Development Director of Kingsbridge Asset Management Limited since 2003, responsible for product development, sector penetration and high net worth client management.


Board of Directors

Non Executive Directors

John Lawrence MBE (Non Executive Chairman)John Lawrence, aged 61, was appointed Non Executive Chairman in August 2003. Previous to this he held a Non Executive Directorship on the Board, a position he has held since flotation. John formed JEL Energy Conservation Services in 1975, which was sold to Thorn EMI. Following this, he was Chairman & CEO of a number of Thorn EMI technology companies. Since 1993 he has been an investor and Non Executive Chairman / Director of both public and private companies. He is currently a Director of W.H. Ireland Group PLC.

Alec Craig (Non Executive Director)Alexander Craig, aged 49, was appointed as a Non Executive Director of the Group in September 2003. Alec is a senior partner of Halliwells solicitors and is also Non-Executive Chairman of Tepnel Life Sciences Plc and a Non Executive Director of Aberdeen Growth Opportunities VCT Plc. He also has considerable AIM experience with previous directorships at Zi Medical Plc and Biolife Capital Plc.

Laurie Turnbull (Non Executive Director)Laurie, aged 56 years, is an experienced senior executive in both public and private companies. For over 15 years, he was Chief Executive Officer of Texas Group plc, the venture capital company, and was active in numerous acquisitions and initial public offerings. Laurie is currently Chief Executive of PenMc Plc and Non Executive Chairman of CBG Group Plc.


Enquiries

FORMATION GROUP PLC CONTACT DETAILS

PRESS RELATIONS CONTACT DETAILS

Neil Rodford, Chief Executive Tel: +44 (0) 1625 539 832

Mark Page, Finance Directorwww.formationgroupplc.com

Katie Tzouliadis, Biddicks Tel: +44 (0) 20 7448 1000

formation group plc preliminary results 2006 november 2006

Documents

cash equivalentscash

subsidiarynet cash

group cash balance

share year

ifrscash flow statement

year increase

operations basic dilutedfrom

financial performance