Sims Annual Report 2016 | Quarterlytics

Plain-text annual report

PRS & Urban Regeneration Specialists ANNUAL REPORT & FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2016 Contents PAGE Key Points 1 Chairman’s Statement 2 Strategic Report 6 Directors 12 Advisers 13 Directors’ Report 14 Directors’ Remuneration Report 16 Statement of Directors’ Responsibilities 18 Independent Auditor’s Report 19 Consolidated Comprehensive Income Statement 21 Consolidated Balance Sheet 22 Company Balance Sheet 23 Consolidated Statement of Changes in Equity 24 Company Statement of Changes in Equity 25 Consolidated and Company Cash Flow Statements 26 Accounting Policies 27 Notes to the Financial Statements 32 Five Year Record 54 Proxy Form 55 Company number 03942129 Sigma Capital Group plc | Annual Report & Financial Statements 2016 1 Key Points FINANCIAL FY2016 FY2015 Revenue £5.4m £6.7m Proﬁt from operations £3.4m £1.8m Proﬁt before tax £3.7m £2.6m* Earnings per share 4.02p 3.39p* Net assets per share 40.7p 36.5p* Cash at year end £6.13m £25.14m *restated OPERATIONAL A year of signiﬁcant strategic progress with PRS activities > although some project delays as previously reported > UK PRS Properties venture (currently £84m development of new 607 family rental homes in the North West and Midlands) now on seven sites, with 252 homes completed PRS platform continued to expand: > > > geographic presence extended into new regions – Sigma now active in North West, North East, and Midlands additional house-building partner added; Keepmoat Limited expands construction resource and geographic coverage 1,000th PRS home delivered and let in November 2016 Self-funded PRS activity made signiﬁcant progress: > > > > > contributed £2.1m to proﬁt from operations £45m funding facility agreed with the Homes and Communities Agency in September 2016 ﬁrst site (50 family homes in Merseyside), completed and fully let by December 2016 a further six sites are now underway in the North West, North East and Midlands regions, with additional sites planned ‘Simple Life’ PRS brand launched in December 2016 to support scaling of self-funded activity Managed PRS activity overall progressed well: > > contributed £0.6m to proﬁt from operations Gatehouse Bank JV project (£105m development of 918 new family rental homes in the North West) completed in Q1 2017; currently 99% let with gross rental income of £7.5m pa Regeneration activities continued to make a good contribution: > > contributed £1.5m to proﬁt from operations £39m regeneration scheme, next to Lime Street Station, Liverpool, launched in October 2016 Proposed ﬂotation of The PRS REIT plc (“PRS REIT”) on the Main Market of the London Stock Exchange (Specialist Fund Segment) with a Sigma subsidiary appointed as Investment Adviser and Development Manager – see separate announcement issued today > > associated fund-raising of up to £250m, to be supported by the Homes and Communities Agency (“HCA”) a potentially transformational event for Sigma, with proposed Admission expected at the end of May Board remains conﬁdent about growth prospects as the Company’s business model develops > > > asset backing is strengthening critical shortage of new homes in England remains a structural issue political and economic backdrop is favourable 2 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Chairman’s Statement “I am delighted to report another year of signiﬁcant development as we continued to scale Sigma’s presence in the Private Rented Sector. The Group’s ﬁnancial results demonstrate the progress we are making, with proﬁt before tax rising by 42% to £3.7m. While these results are encouraging, the strategic progress we made over the year, including our major funding agreement with the Homes and Communities Agency, is of greater signiﬁcance and supports the material value creation we are targeting in the medium and long term. “We remain conﬁdent about growth prospects for the Group. The shortage of new homes in England is structural and remains a critical issue, and the political and economic backdrop is favourable. “Today’s announcement of the proposed ﬂotation of The PRS REIT plc, with Sigma appointed as Investment Adviser and Development Manager is potentially transformational for the Group. We believe it will be the ﬁrst quoted REIT to address opportunities in the PRS sector. Once launched, the REIT will support greater visibility of Sigma’s revenues and future earnings and help us to maximise the value of our pipeline of development opportunities. We are delighted that the Homes and Communities Agency is supporting both Sigma and the PRS REIT in our mutual goal of creating thousands of high quality, professionally managed, new rental homes in England. “In preparation for the REIT, we have altered our development schedules, delaying certain planned starts, so that we can provide the PRS REIT with a signiﬁcant and immediate pipeline of development opportunities when it launches. We look forward to updating shareholders further at the end of May.” David Sigsworth Chairman Sigma Capital Group plc | Annual Report & Financial Statements 2016 3 Introduction I am delighted to report another year of signiﬁcant development as we continued to scale Sigma’s presence in the Private Rented Sector (“PRS”). The Group’s ﬁnancial results demonstrate the progress we are making, with proﬁt from operations improving by 89% to £3.4m and proﬁt before tax rising by 42% to £3.7m. While these results are encouraging, the strategic progress we have made is of greater signiﬁcance and supports the material value creation we are targeting in the medium and long term. We achieved a number of strategic milestones during the year. In our half year report, we highlighted in particular our intention to explore a long-term holding vehicle which could assist us in capitalising on our strong pipeline of opportunities in PRS. We are therefore delighted to announce today the proposed ﬂotation on the Main Market of the London Stock Exchange (Specialist Fund Segment) of The PRS REIT plc (“PRS REIT”), with a Sigma subsidiary appointed as Investment Adviser and Development Manager. There is an associated fund-raising of up to £250 million alongside the ﬂotation and the REIT intends to use gearing to enhance equity returns. Gearing is capped at 45% of gross asset value and is expected to be around 35% to 40% of gross asset value following stabilisation of the PRS portfolio. We believe that the PRS REIT will be the ﬁrst quoted REIT in the UK to address the opportunities in PRS. The proposed IPO, which we expect to be completed at the end of May, represents the fulﬁlment of our work to explore the most efficient funding route to generate long term, predictable revenues and maximise both our control of our development pipeline and shareholder returns. Further information about the PRS REIT and Sigma’s role as Investment Adviser and Development Manager, is provided in a prospectus, which is expected to be published later today. Reaching this point outstrips other important staging posts attained in the year although, as we previously reported, there were also some delays which affected our managed and self-funded PRS activities in 2016. I am very pleased to highlight, in particular, the major funding agreement with the Homes and Communities Agency (“HCA”), signed at the end of September, and our new PRS partnership with Keepmoat Limited (“Keepmoat”) signed in June. Our HCA relationship enables us to materially increase the development of our own self-funded PRS portfolio and has subsequently led to the HCA’s commitment to support the PRS REIT with a direct investment of 9.99% of the gross IPO proceeds up to £25m in the REIT. Our partnership with Keepmoat signiﬁcantly increases our construction resource and provides further access to land assets in other parts of the UK. It also complements our existing ﬂourishing partnership with our founding partner, Countryside Properties plc (“Countryside”), which has constructed all our completed PRS units to date. Our ﬁrst site with Keepmoat, in Sheffield, commenced in July 2016 and is progressing well and we are also continuing to expand signiﬁcantly our activities with Countryside Properties. Over the year, we also acquired the ﬁrst six sites for Sigma’s self-funded PRS portfolio. These will deliver 345 high quality, new homes, at a gross development cost of approximately £45m. The ﬁrst of those sites, in Merseyside, comprising 50 new homes, was fully developed and let by the end of 2016. Across our managed PRS activities, with Gatehouse Bank plc (“Gatehouse”) and UK PRS Properties, we continued to progress our major development schemes. By the end of November 2016, we completed and let our 1,000th PRS home, with the majority representing the new homes we are delivering for these funding partners and the balance being our own self-funded homes. This milestone event took the gross development cost of the new homes completed by Sigma’s PRS platform at November 2016 to £120m since construction commenced in November 2014. The rental income stream from these new homes is in excess of £8m per annum. Since November 2016, we have delivered a further 270 new PRS homes, bringing the total number of new homes built by our platform to 1,270. The Company is also now building across three regions of England – the North West, North East, and the Midlands. We are also progressing plans to develop in the South of England. Whilst our principal focus is on PRS, our regeneration activities continue to produce good results. These activities support the objectives of our local authority partners and are mainly in the provision of market-for- sale and social housing. Towards the end of October, we were pleased to report the launch of a £39m regeneration scheme, immediately adjacent to Lime Street Station in the centre of Liverpool. The new ﬁnancial year has started very positively. We have continued to make progress on the delivery of our self-funded PRS portfolio as well as our managed PRS activities. In preparing for the proposed REIT, we have also rescheduled developments, delaying planned 4 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Chairman’s Statement (continued) starts. Once successfully launched, the PRS REIT will transform our model, allowing us to better capitalise on our development pipelines and signiﬁcantly improve revenue and earnings visibility. Revolving credit facility In September 2016, we agreed a £45m revolving credit facility with the HCA to accelerate the delivery of our own PRS portfolio. The ﬁrst amounts drawn under this facility were completed in January 2017. Financial Results The Group generated revenues of £5.38m for the ﬁnancial year to 31 December 2016 (2015: £6.72m). Proﬁt from operations improved by 89% to £3.37m (2015: £1.82m), with Sigma’s self-funded PRS activities contributing £2.1m (2015: nil). Managed PRS activities contributed £0.6m (2015: £0.9m) and regeneration activities added £1.5m (2015: £1.7m) to proﬁt from operations. The Group’s non-core venture capital activities and other holding activities generated a loss from operations of £0.8m (2015: loss of £0.7m). Administrative expenses rose by 13.7% to £3.6m during the year (2015: £3.17m) mainly as a result of the increased number of employees as we accelerated the PRS model. Proﬁt before tax for the year rose by 42% to £3.67m (2015: £2.59m restated). This is after an exceptional item of £0.4m which related to the termination of the Group’s agreement with Torrin Asset Management (2015: nil). Basic earnings per share increased by 19% to 4.02p (2015: 3.39p restated). The Group’s net assets backing continues to strengthen, with net assets per share at the year end increasing by 12% to £36.09m (2015: £32.26m restated), equivalent to 40.7p per share (31 December 2015: 36.5p per share restated). After the Group’s investment in PRS activities during the year, cash at 31 December 2016 stood at £6.1m (2015: £25.1m). *Prior year adjustment The Group’s prior year’s results have been adjusted to reﬂect the Group’s share of proﬁts, being £449,000, from Countryside Sigma Limited, Sigma’s joint venture vehicle with Countryside Properties plc. Dividends At this stage of Sigma’s development, the Board is not recommending the payment of a dividend. However, the Board intends that the Company will recommend or declare dividends at a future date, subject to the performance of the business, and will keep the dividend policy under review. Operational Overview The expansion of Sigma’s self-funded PRS activities was a key theme over 2016. Following the launch of these activities in December 2015, which was supported by a £20m (gross) fund raising, our funding agreement with the HCA in September 2016 has enabled us to scale up our plans. While we experienced unavoidable delayed starts across three sites in the ﬁrst half of the year, by December 2016 we had acquired six sites, with our ﬁrst site also completed and fully let. This site comprised 50 new family homes, at Mackets Lane in Merseyside. All six sites, which are located in the North West, North East and the Midlands, will deliver a total of 345 homes at a gross development cost of approximately £45m. Following the year end, in January 2017 Sigma acquired a seventh site, in Telford, which will comprise approximately 70 new homes at a gross development cost of c. £11m. We commenced our ﬁrst site under our new Keepmoat relationship in the summer of 2016 in Sheffield. This site comprises approximately 24 new family homes and we expect to start on additional sites in 2017. In December 2016, we also launched our own PRS brand, Simple Life, (www.simplelifehomes.co.uk) which will help to differentiate our offering in the rental marketplace. All our properties will be marketed and let under this brand, and managed by our existing lettings partner SDL Group. Our intention is for Simple Life to be recognised as standing for high quality, professionally managed rental homes. Across our managed PRS activities, our PRS platform completed the ﬁrst phase of PRS homes in our Gatehouse joint venture (“PRS Fund”) in the ﬁrst quarter of the current ﬁnancial year. This ﬁrst phase comprised 918 new family rental homes, in the North West of England at a total gross development cost of £105m. It is one of the UK’s ﬁrst large scale PRS schemes of new family homes and is currently 99% let and generating a gross rental income per annum of £7.5m. The second phase of managed PRS homes, with UK PRS Properties, which currently comprises 607 new homes with a total development cost of £84m is underway across the North West, North East Sigma Capital Group plc | Annual Report & Financial Statements 2016 5 and Midlands regions of England. To date, 252 properties are complete. Our partners are exploring their funding options to allow them to commence further sites. The continuing success and development of our PRS platform could not have been achieved without the support and commitment of our delivery partners, Countryside Properties (“Countryside”), and the SDL Group, and our funding partners, Gatehouse, UK PRS Properties and Barclays Bank. We were delighted to secure another partner, Keepmoat, which has a long term aim of delivering thousands of new PRS homes across England. The HCA is another new partner whose support is helping to unlock the creation of hundreds of new rental homes by Sigma. I would also like to thank our existing and new shareholders for their backing during the year. Our regeneration activities, which support our local authority partners, continued to make progress over the year. The delivery of a 200 market-for-sale housing site at Gateacre in Liverpool with our partners Liverpool City Council and Countryside, progressed well and 46 of the new homes have now been sold or reserved since the show homes opened in January 2017. In March 2016, we completed the sale of the remaining acreage of residential development land at Norris Green in Liverpool, which is in the process of delivering 69 private rented units. The land was acquired by UK PRS Properties in our second phase of PRS. Norris Green is an award winning regeneration project delivering 829 new homes across a variety of tenures. Once complete, it will be one of the most successful housing regenerations schemes in England. Our team, along with our partners, can take pride in what has been achieved in regenerating the community and improving the lives of residents. Across all sites in Liverpool, the residential regeneration effort by all will result in the delivery of 1,165 homes across all tenures. In October 2016, working with Liverpool City Council and our commercial development partner, ION Developments, we commenced the redevelopment of Lime Street Eastern Terrace, Liverpool. This mixed-use development incorporates a c. 400 bedroom student residence, a c. 100-bedroom hotel, pre-let to Premier Inn along with 30,000 sq.ft of retail and leisure units and is due to complete in July 2018. We are also working with our partners on other regeneration schemes in Liverpool. The Board As previously reported, in April 2016, Bill MacLeod stepped down from the Board and Company. We wish him well as he pursues other activities. Staff On behalf of the Board, I would like to thank our staff for all their efforts during 2016. Sigma continues to transform its business and has made signiﬁcant progress in the delivery of PRS homes in the UK. This could not have been accomplished without the hard work, skill and enthusiasm of all involved. Their dedicated efforts are much appreciated. Everyone can be extremely proud of what has been achieved not only for the Company but also in the communities where high quality new housing can boost the prospects of individuals and stimulate the local economy. Outlook We remain conﬁdent about growth prospects for the Group. The shortage of new homes in England is structural and remains a critical issue, and the political and economic backdrop is favourable. The proposed launch of The PRS REIT is a potentially transformational event for Sigma, reinforcing the Group’s position as a leader in PRS. It will also help us to maximise our control over the pipeline of development opportunities we have identiﬁed, and improve revenue and earnings visibility. In preparation for the REIT, we have altered our development schedules, delaying certain planned starts, so that we can provide the PRS REIT with a signiﬁcant and immediate pipeline of development opportunities when it launches. We look forward to updating shareholders further at the end of May. David Sigsworth OBE Chairman 3 May 2017 6 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Strategic Report The Directors have pleasure in presenting their Strategic Report for the year ended 31 December 2016. Business activities and Group structure Sigma, together with its subsidiaries, is a property group principally focused on the PRS sector. Its activities also encompass urban regeneration and property asset management. Sigma is a public limited liability company incorporated in England. It acts as a holding company and at 31 December 2016 had four principal wholly owned subsidiaries: > > > > Sigma Capital Property Limited (“SCP”) Sigma Inpartnership Limited (“SIP”) Strategic Property Asset Management Limited (“SPAM”) Sigma Technology Investments Limited (“STI”) The Group’s PRS activities are carried out by SCP and its subsidiaries. During 2016, SCP has been investing in its own self-funded portfolio of private rented homes with the acquisition of seven sites to date; one site, consisting of 50 PRS homes, has been completed and let. The Group’s ﬁrst PRS joint venture with Gatehouse Bank plc commenced in November 2014 and has now completed the delivery of 918 new family homes for the private rental market with construction costs as forecast, occupation levels of 99% and rental levels exceeding initial budget expectations. In December 2015, a second phase of PRS homes was launched with UK PRS Properties (a fund principally backed by the Kuwait Investment Authority and institutional shareholders from the State of Kuwait). This second phase is progressing well and is currently active on seven sites for the delivery of 607 new family rental homes of which 252 having already been completed. The Group’s property regeneration activities are largely carried out by its subsidiary, SIP, which undertakes large-scale property-related regeneration projects, working as a bridge between public and private sector organisations. Founded in 2000 and operating from offices in Manchester, SIP established three partnerships, with Liverpool City Council, Salford City Council and Solihull Metropolitan Borough Council. The partnerships hold option arrangements with each local authority partner for the delivery of a mix of residential, commercial, education and health schemes. Most of the Group’s property management activities which sit outside of its PRS and local authority relationships are undertaken by SPAM. Until early 2016, the Group acted through SPAM, as property manager for its historic property limited partnership, SI Limited Partnership No 7. This partnership holds the investment in the City Wharf development in Aberdeen. The Group has a 19.3% holding in SI Limited Partnership No 7, although this investment was written down to nil in 2009. Whilst the Group has ceased its venture capital management activities, it still holds an interest in a venture capital fund and in a direct non-quoted equity investment both of which are held in STI. Key strategy Our core strategy is to utilise our property and capital raising expertise whilst working with local authorities, house building and funding partners, along with the Homes and Communities Agency to further our PRS activities and maintain our position at the vanguard of the private rented sector. This sector is now critically important in addressing the effects of the structural supply problems in the UK housing market and helping those disenfranchised from home ownership by affordability constraints. The sector additionally addresses the needs of an increasing group of those who simply enjoy the ﬂexibility that renting professionally managed new homes offers. The market has grown by 2.2m households in the last 10 years and is forecast to grow by a further 1.1m in the next ﬁve, adding to the supply pressures inherent in the market. In terms of the geographic roll out, Sigma’s strategy is to extend its activities beyond its existing local authority partnerships to other core cities in England. Our main direction of travel for these new opportunities is expanding our delivery in the Midlands and expanding into the south of England, broadly following the route of HS2, the largest infrastructure project in the UK. We have now delivered over 1,200 homes in a little over two years and our current overall active pipeline is in excess of 2,800 PRS homes in Greater Manchester, Merseyside, the North East and the Midlands. We have visibility over a further 2,000 plus plots within our key target locations. This PRS model is the key component of our strategy for 2017 and will continue to be executed through our dedicated Sigma PRS Platform. Sigma Capital Group plc | Annual Report & Financial Statements 2016 7 To this end, in September 2016, we agreed an innovative £45m revolving credit facility with the Homes and Communities Agency which will allow us to signiﬁcantly increase the delivery of our own assets. We have also signed a strategic partnership in June 2016 with an additional housebuilding partner, Keepmoat, enabling us to expand our geographic area of operation. Our coverage now includes the North East, North West and the Midlands, and we are actively appraising sites in a fourth region. The most exciting element to our strategy going forward is the intention to ﬂoat the ﬁrst ever UK quoted REIT, speciﬁcally focused on investment in the private rented sector. The PRS REIT is targeting a fundraise of £250m of equity. This, coupled with the HCA facility and our expanded housebuilding partnerships, will allow a signiﬁcant acceleration of our delivery capability and also enable Sigma to recycle its capital through the REIT’s purchase of Sigma’s seed portfolio. OVERVIEW OF THE BUSINESS Private Rented Sector residential portfolio Our PRS model, which has been designed to address the need for new homes in the UK, allows us to move residential land assets with planning permission, predominately from local authority partnerships and our house building relationships, to our fund structures. From a local authority perspective, the key advantage is that it beneﬁts from the delivery of large-scale high quality housing quickly, meeting both an urgent social need and wider regeneration objectives. This is achieved as the PRS model delivers houses typically at four to ﬁve times the rate of those built ‘for sale’ which tend to be built at the pace of sales demand. Furthermore, the local authorities beneﬁt from increased council tax receipts from the new homes as well as from the Government’s new homes bonus. The rapidity of delivery provided by our platform is both attractive to and synergistic for our housebuilding partners as it offers an enhanced return on capital as well as derisking and quickly maturing those sites on which there are a mix of ‘for sale’ and PRS homes. Sigma PRS In 2015, the Company raised £20m (gross) from a share placing to create a substantial portfolio of self- funded PRS assets leveraging its existing PRS infrastructure and relationships. In 2016, the Group agreed a £45m revolving credit facility with the Homes and Communities Agency (“HCA”) materially up scaling our delivery of self-funded new rental homes. This is the ﬁrst facility of its kind with the HCA and conﬁrms the beneﬁt of our strategy for central Government policy for housing demand. Sigma have acquired seven sites for development across the North West, North East and Midlands regions of England. The ﬁrst site, consisting of 50 new rental homes in Merseyside, was completed in November 2016. There was strong demand for the properties, which let quickly, and they are generating gross rental income in excess of that originally forecast. Three further sites will complete development during 2017 with the remainder in 2018. This portfolio is earmarked for purchase by The PRS REIT, in the event of the REIT’s successful launch, allowing us to build further new PRS homes. 2016 also saw the launch of our new PRS brand ‘Simple Life’ (www.simplelifehomes.co.uk), through which all our new sites will be marketed. The creation of this new consumer brand helps to further professionalise our approach to potential customers and, over time, we are aiming for Simple Life to be recognised as the ‘gold standard’ for tenant experience. Simple Life will be managed by SDL Group, which has managed the letting of all our delivered PRS properties to date under the auspices of Sigma’s in-house asset management and marketing teams. Joint Venture with Gatehouse Bank plc - Phase 1 This ﬁrst phase of homes is built on land procured by Sigma and is underpinned by our existing local authority partnerships. Gatehouse, a leading London- based Shariah compliant investment bank with a real estate portfolio worth in excess of £1 billion across the UK and Europe, delivered the equity element of the venture whilst Barclays Bank plc provided the debt ﬁnancing. This ﬁrst phase was completed after the year end, in March 2017, and consists of 918 new privately rented residential properties in the North West of England, with construction costs as forecast. The site is currently 99% let with rental levels continuing to be in excess of those originally forecast. For those properties, which have been let for in excess of 12 months, we are experiencing an 83% renewal rate with existing tenants. The properties have been let by the SDL Group under the brand, ‘DIFRENT’. 8 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Strategic Report (continued) Joint Venture with UK PRS Properties - Phase 2 Our second phase of PRS homes in partnership with UK PRS Properties commenced in December 2015 and construction is currently underway on seven sites across the North West and Midland regions of England which will deliver 607 family homes, with a gross development cost in excess of £84m. To date, 252 properties have been delivered with lettings progressing well and rental levels in excess of those forecast. As with phase 1, the new homes are being let by the SDL Group under the ‘DIFRENT’ brand. The PRS phases with Gatehouse and UK PRS Properties generate fees for the Group. An upfront fee is paid on commencement of a site, a management fee is paid quarterly over the duration of the delivery period, and a quarterly asset management fee is paid once the properties are let. Sigma also retains a share of the net proﬁts on disposal of the assets subject to a minimum return to investors. URBAN REGENERATION Liverpool Partnership (also referred to as Regeneration Liverpool) Our Liverpool Partnership is a limited liability partnership formed in 2007 between SIP and Liverpool City Council. The partnership was given an initial ten year option over a 60 acre residential development site, known as Norris Green, which had outline planning consent for around 800 new homes, with a total development value of c. £120 million. The partnership was established with the ﬂexibility to develop additional sites at the discretion of Liverpool City Council and over the last three years, the Council has increased the number of sites under option. The key sites added are Gateacre, the former Queen Mary School site and Lime Street/Knowledge Quarter. Although the initial partnership period has ended, the Liverpool Partnership will continue to develop and manage those sites under option until completion. In 2012, we formed a joint venture company with a major local commercial property development company, ION Developments Limited (formerly Neptune Developments Limited), to help accelerate the delivery of the commercial regeneration projects in Liverpool. In 2013, we established a second joint venture company, Countryside Sigma Limited, with house building specialist, Countryside, to assist us in the delivery of residential regeneration projects in the City. Land in the Liverpool Partnership can be developed using any one of the following three ways: by the Liverpool Partnership (with SIP earning a management fee and participating in a proﬁt share); by SIP (with SIP earning a fee and an agreed priority proﬁt); or by the Liverpool Partnership selling a site on the open market, with SIP earning a percentage of the sales price achieved. At least 20% of the land must be disposed of by sale on the open market. The majority of the land will be developed by SIP through our venture companies with Countryside and ION Developments Limited. Residential Projects The regeneration of the site at Norris Green continues to make excellent progress with the ﬁnal phase now in full swing. The development consists of eight phases totaling 829 properties of which 394 properties are for sale, 214 are affordable homes and 221 are private properties for rent delivered by our PRS joint ventures. Seven of the phases are complete and construction is progressing well on the ﬁnal phase of 269 homes, 200 being for sale and 69 for rent. At the end of March 2017 we had completed 633 of the homes. Of the 221 PRS properties, 198 are complete with all (bar 6) fully let. It is anticipated that the balance of the units will be completed before the end of June 2017. Construction on the former Queen Mary School site, which is approximately one mile from Norris Green is progressing well, with only the open market sale element left to complete. The scheme comprised a total of 200 new homes, with 64 homes designated for the PRS Fund. All of the PRS units have been constructed and are fully let, with rents in line with or in excess of that originally targeted. Our affiliate, Countryside Sigma Limited, is building the 136 open market sale homes and, to date, 123 have been built and sold, with only 13 remaining. Construction is also progressing well at Gateacre, a 19 acre former secondary school. The site consists of 200 new family homes for open market sale ranging from two and three bedroom town houses to ﬁve bedroom executive detached homes. The site is being marketed from two sales areas and uptake has been excellent with 6-8 units currently being completed per month. To date, 46 of the new homes are sold or reserved, since the show homes opened in January 2017. Commercial Projects The Liverpool Partnership secured a land option agreement to develop three key sites within the Knowledge Quarter in March 2013. This is a major Sigma Capital Group plc | Annual Report & Financial Statements 2016 9 ﬂagship mixed-use development to the south and east of Lime Street railway station in the centre of Liverpool and we continue to work with our commercial joint venture partner, ION Developments on these sites. Planning consent together with a forward funding commitment for the redevelopment of Lime Street Eastern Terrace was secured for a mixed use development incorporating a c. 400 bedroom student residence, a Premier Inn hotel and 30,000 sq.ft of retail/leisure units. However, following a delay, commencement on site did not take place until October 2016 with completion now due for July 2018. Redevelopment plans for the former ABC cinema on Lime Street have now been ﬁnalised and take a phased approach to the project. Whilst discussions are still ongoing with an operator for the venue, an initial planning application has been lodged for a change of use from cinema to live mixed performance events venue, nightclub/bar and television sound stage. The aim is for this to be determined during the summer together with concluding a contract with an operator. The plans for the redevelopment of Mount Pleasant Car Park are being worked on in conjunction with a potential funder for the project and also in consultation with other stake holders with signiﬁcant land holdings in the Knowledge Quarter area. The aim is to be in a position to lodge a full planning application later this year. Salford Partnership (also known as Higher Broughton Partnership) The Salford Partnership is our partnership with Salford City Council and Royal Bank of Scotland. During the year, we dealt with residual matters arising from previous residential and commercial projects of the Salford Partnership. Sigma is working closely with Salford City Council to bring additional land for delivery for PRS. A total of four sites and 206 units have been developed as part of the initial phase of our PRS Fund with Gatehouse and a further two sites consisting of 220 units are being developed as part of the joint venture with UK PRS Properties. We are in the process of reviewing more. North Solihull Partnership The Partnership was set up in 2007 by Solihull Metropolitan Borough Council, Bellway Homes, West Mercia Housing Association and SIP, with a remit of coordinating and delivering the regeneration of an area of circa 1,000 acres in North Solihull. The key objectives of the Partnership are to deliver new and replacement housing stock, ten new or refurbished primary schools and ﬁve new village centres incorporating neighbourhood council, medical and retail facilities. Our key role is the provision of development management services, including strategic development planning, coordination and procurement of development works, in return for agreed fees for these services. We continue to provide strategic advice to the Partnership on developments whilst our relationship with the Partnership allows us to look at PRS opportunities and we are actively in discussions with the council in that respect. City Wharf, Aberdeen Sigma continued to provide property management services to SI Limited Partnership No. 7 and its lender National Asset Management Agency (“NAMA”). In August 2015 NAMA disposed of the loan that supported the underlying property vehicles to OCM Albion Debtco DAC (“the Lender”). During 2015 the economic climate in Aberdeen deteriorated as a result in the fall of the oil price which resulted in two of the tenants, occupying three ﬂoors of City Wharf, exercising their right to break their leases. In light of these factors the Lender demanded immediate repayment of the loan and consequently the underlying property companies went into administration. The Group’s role as asset manager therefore came to an end in February 2016. Venture Capital activities Sigma continues to be a limited partner in one venture fund which was transferred to Shackleton Ventures Limited in 2013 with its investment in the fund held by STI. Sigma also holds one investment in an unquoted company. Financial Review of 2016 The Group’s revenue decreased by 19.9% to £5,383,000 (2015: £6,724,000). Revenue included the sale of development land at Norris Green, Liverpool, revenues from our managed PRS activities with Gatehouse and UK PRS Properties along with our ﬁrst rental income from our self-funded portfolio. Despite the fall in revenues, gross proﬁt decreased by only 3.5% to £4,923,000 (2015: £5,103,000). 10 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Strategic Report (continued) The Group made a trading proﬁt in the year of £1,325,000 (2015: £1,938,000), with property activities contributing a trading proﬁt of £2,196,000 (2015: £2,544,000). The discontinued venture capital activities generated a trading proﬁt of £8,000 (2015: trading loss of £6,000) and the trading proﬁt was impacted by the costs incurred by the holding company on Group matters. Full detail of the results for the year by business segment is given in Note 3 to the ﬁnancial statements. Administrative costs increased to £3,598,000 (2015: £3,165,000) reﬂecting an increase in the number of employees as a result of our increased investment in PRS activities. Proﬁt from operations increased by 85% to £3,365,000 (2015: £1,818,000). This result included an unrealised gain of £2,017,000 (2015: £nil) on the revaluation of investment property and an unrealised gain on investments of £23,000 (2015: unrealised loss of £120,000). Proﬁt before tax for the year was adversely affected by an exceptional item of £428,000 (2015: £nil). This related to the Group’s managed PRS activities and the termination of the Group’s agreement with Torrin Asset Management. As a result, proﬁt before tax was £3,670,000 (2015: £2,586,000 restated), which represents an increase of 42%. Net assets of the Group increased by 12% to £36,087,000 at 31 December 2016 (31 December 2015: £32,255,000 restated). Net assets at 31 December 2016 were equivalent to 40.7p per share (31 December 2015: 36.5p per share restated). Balance sheet The principal items in the balance sheet are goodwill of £544,000 (2015: £561,000), investment property of £24,825,000 (2015: £nil), property and equipment of £1,111,000 (2015: £33,000), accrued income of £5,611,000 (2015: £5,361,000), loans to the PRS Fund totalling £92,000 (2015: £1,759,000), cash of £6,125,000 (2015: £25,135,000) and trade and other payables of £4,226,000 (2015: £3,134,000). The goodwill relates to the acquisition of SIP and is reviewed each year for impairment. The investment property relates to Sigma’s own PRS. The property and equipment principally relates to the Group’s acquisition and redevelopment of its head office in Edinburgh. Accrued income includes £1,485,000 expected to be paid in 2017 and £4,126,000 which is due greater than one year as detailed in note 19 to the accounts. The loans to the PRS Fund of £92,000 were fully repaid in March 2017. The trade and other payables of £4,226,000 includes £2,901,000 in relation to its investment in property and was paid in January 2017. The Group’s current assets exceed its current liabilities by £4,492,000 (2015: £26,588,000). The Group has one long term liability of £481,000 (2015: £nil). This relates to a loan provided in relation to its acquisition and redevelopment of the Group headquarters as detailed further in note 21. Cash ﬂow After the Group’s investment in PRS activities, cash balances decreased by £19,010,000 to £6,125,000 (2015: increased by £19,915,000 to £25,135,000). The cash inﬂow from operating activities was £2,353,000 (2015: outﬂow of £995,000). The cash outﬂow from investing activities was £21,953,000 (2015: inﬂow of £1,756,000) along with the cash inﬂows from ﬁnancing activities of £590,000 (2015: £19,154,000). Key performance indicators The key performance indicators are concentrated on the property activities. The Group’s key performance indicators include: 2016 2015 £’000 £’000 CHANGE Revenue – all property activities 5,373 6,698 (20%) Operating proﬁt – property activities 4,213 2,544 +66% Unrealised proﬁt on revaluation of investment property 2,017 - +100% Group proﬁt from operations 3,365 1,818 +85% Cash balances 6,125 25,135 (76%) Principal risks and uncertainties The speciﬁc ﬁnancial risks of price risk, interest rate risk and credit risk are discussed in the notes to the ﬁnancial statements. The broader risks – ﬁnancial, operational, cash ﬂow and personnel - are considered below. Sigma Capital Group plc | Annual Report & Financial Statements 2016 11 The principal ﬁnancial risk relates to the housing market where a deterioration in the macro-economic outlook, the cyclical nature of residential market and a fall in house prices may affect Sigma’s income and its ability to raise or deploy ﬁnance for housing projects. The Group manages these risks by keeping abreast of any trends so that any likely down turn is anticipated, maintaining good funding relationships, ensuring a reputation of building a good quality product and having diversity in its income streams. A ﬁnancial risk is where the Group develops its own investment property and there may be increased costs from that originally forecast. This risk is mitigated by securing ﬁxed price design and build contracts before the development commences. A further ﬁnancial risk is the reduction in the value of the Group’s investment property. This risk is mitigated by the number of properties and their geographical location but also focusing on ensuring that the properties are let to good quality tenants, and are professionally managed so providing customers with a high level of service. In addition, the Group seeks to acquire investment sites at competitive prices. The principal operational risks of the business reside around management’s ability to secure new contracted property income streams from both residential and commercial property initiatives. The launch of its own self-funded portfolio, along with its joint ventures with Gatehouse and UK PRS Properties, have signiﬁcantly increased the proportion of the Group’s contracted revenue compared with one-off income streams. Where the Group undertakes property developments on its own balance sheet, development risk is managed by maintaining close control of pre-contract costs and by limiting the number of early stage developments ﬁnanced by the Group at any one time. The main cash ﬂow uncertainties of the business centre around the timing of rental income in respect of its investment properties, property project development fees and the receipt of proﬁts arising out of the partnerships. The Group is dependent on its Executive Directors and senior management for its success. There can be no assurance that the Group will be able to retain the services of these key personnel although historically the turnover of senior staff has been low. Incentives for senior staff include share options and carried interest in joint ventures, managed funds and Sigma’s Own PRS portfolio. Group continues to keep its employees informed on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved effectively through regular informal meetings. There is an employee share scheme which is open to all employees. During the year the Group fulﬁlled it legal obligation in relation to pension auto-enrolment and offered all employees the opportunity to join a deﬁned contribution scheme managed by the Group. Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort will be made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. Sustainability report Sustainability is ﬁrmly at the heart of the planning and housing system, and Sigma takes pride in working closely with our partners and local housing associations and communities to create sustainable, high quality developments. Sigma currently focuses on creating new homes and communities in the PRS sector in the North West, North East and Midland areas of England. This has led to signiﬁcant contributions to GDP and social prosperity in the region, not only revitalising neighbourhoods and creating much needed homes but also creating new jobs. Our contribution to increasing the housing stock is also a key source of revenue for the government and local authorities. We are pleased to report that we continue to make good progress in achieving our sustainability objectives and we look forward to further developing our longer-term vision in providing better environments for our customers to live. Signed by the order of the directors Employees The Directors believe that employees are fundamental to the Group’s success and are committed to the involvement and development of staff at all levels. The GF Barnet Chief Executive Officer 3 May 2017 12 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Directors David Sigsworth OBE Non-executive Chairman (Age 70) Gwynn Thomson, RICS Property Investment Director (Age 49) David spent over ten years as a main board director of FTSE 100 utility companies and most recently on the board of Scottish and Southern Energy plc. David is actively involved in the sustainable energy sector and holds several associated non-executive directorships. Gwynn has over 22 years’ experience in the property markets with his particular specialism being in commercial property investment. Prior to joining Sigma, Gwynn was a director of investment and valuation at DTZ. Graham Barnet Chief Executive Officer (Age 53) Duncan Sutherland Regeneration Director (Age 65) Graham co-founded Sigma Technology Management Limited in 1997. A qualiﬁed lawyer, Graham worked for Noble Grossart Limited, Edinburgh Financial Trust Limited and Shepherd & Wedderburn, specialising in corporate ﬁnance and corporate law, prior to forming his own company in 1994. This company, Merchant Investments Limited, was a specialist consultancy involved in the management of businesses both in the traditional and technology sectors. Graeme Hogg Chief Operating Officer (Age 51) Graeme has worked in the property and property ﬁnance sector throughout his career. He has worked on major commercial and residential development projects and has seven years of international experience in the areas of property development and fund management. Graeme co-founded Sigma Inpartnership with Duncan Sutherland in late 2000 and was instrumental in the creation of its three regeneration partnerships. Malcolm Briselden, ACMA Finance Director and Company Secretary (Age 49) Malcolm is a chartered management accountant who joined the company as Group Financial Controller in April 2012. Prior to Sigma, Malcolm spent nine years at The Premier Property Group Limited, the commercial property arm of Murray International Holdings Limited. Duncan co-founded Sigma Inpartnership with Graeme Hogg in 2000 and has been key in developing the partnership model with local government partners. Duncan works closely with government promoting this innovative approach to achieving regeneration. Duncan is also a Non-Executive Director of High Speed Two (HS2) Limited. James McMahon Non-executive Director (Age 67) Jim is a former senior partner in PricewaterhouseCoopers and was a founder partner of West Coast Capital with Sir Tom Hunter in 2001. He has many years’ experience in private equity, retail and public companies including Office Shoes, Booker plc, House of Fraser and Prestbury Group. William MacLeod Executive Director (Age 51) (left 5 April 2016) Bill has over 25 years’ experience of property investment, including real estate investment management. Previous positions include Managing Director at Cushman & Wakeﬁeld Investors and Director at ING Real Estate Investment Management. Based in London, Bill is also Managing Director of Torrin Asset Management, his own management business. The two non-executive Directors are the members of the Audit Committee and the Remuneration Committee. James McMahon is chairman of the Audit Committee and David Sigsworth is chairman of the Remuneration Committee. Sigma Capital Group plc | Annual Report & Financial Statements 2016 13 Advisers Registrars Capita IRG plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Secretary and Registered Office Malcolm Briselden, ACMA Floor 3, 1 St Ann Street Manchester M2 7LR Auditor Moore Stephens LLP 150 Aldersgate Street London EC1A 4AB Trading Address 18 Alva Street Edinburgh EH2 4QG Nominated Adviser and Broker Nplus1 Singer Capital Markets Limited One Bartholomew Lane London EC2N 2AX Financial PR KTZ Communications No. 1 Cornhill London EC3V 3ND 14 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Directors’ Report The Directors present their annual report on the affairs of the Group, together with the audited ﬁnancial statements and auditor’s report, for the year ended 31 December 2016. Results and dividends The Group made a net proﬁt before tax for the year of £3,670,000 (2015 restated: £2,586,000). The directors do not recommend the payment of a dividend (2015: nil). The directors are conﬁdent of the prospects of the Group for the current year. Review of the business and future developments The Directors are required to present an extended business review reporting on the development and performance of the Group and the Company during the year and their positions at the end of the year. This requirement is met by the Chairman’s Statement and the Strategic Report on pages 2 to 11. Directors The current Directors of the Company are listed on page 12, all of whom held office throughout the year except where indicated otherwise. Details of Directors’ interests in share options and in shares are given in the Directors’ Remuneration Report on pages 16 and 17. Risk factors Information on the Group’s ﬁnancial risk management objectives and policies relating to market risk, credit risk and liquidity risk is provided in note 1 to the ﬁnancial statements. The broader risks of the business are considered in the Strategic Report. Treasury activities and ﬁnancial instruments The Group’s ﬁnancial instruments comprise cash, equity investments plus other items such as trade debtors and trade creditors that arise directly from its operations. At 31 December 2015, the Group had positive cash balances of £6,125,000 (2015: £25,135,000). The Group’s policy is to keep surplus funds on short term and instant access deposit to earn the prevailing market rate of interest. The Group’s policy is only to borrow funds if such funds are needed to develop speciﬁc assets in which case the loan is secured against that asset and is held within the subsidiary company undertaking the development. The Group does not give cross guarantees from other companies within the Group. It is the Group’s policy not to speculate in derivative ﬁnancial instruments. The Company is not exposed to signiﬁcant foreign exchange risks as transactions in foreign currency are minimal. Directors’ indemnity insurance The Group held a Directors and Officers insurance policy in place throughout the year in respect of the Company and the Group’s subsidiaries. Political donations No political contributions were made during the year (2015: £nil). Going concern The income generated by the Group’s PRS activities, regeneration partnerships and other property activities comprises both contracted revenue and one-off income streams. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and ﬁnancial statements. Corporate governance The Company does not fully comply with the UK Corporate Governance Code as it is not required to do so but seeks within the practical conﬁnes of being a small company to act in compliance with the principles of good governance and the code of best practice as contained therein. The Board meets regularly to determine the policy and business strategy of the Group and has adopted a schedule of matters that are reserved as the responsibility of the Board. The Chief Executive Officer leads the development of business strategies within the Group’s operations. The Board consists of ﬁve Sigma Capital Group plc | Annual Report & Financial Statements 2016 15 The key elements of the system of internal control are: > > > Clear deﬁnition of delegated authorities and preparation of annual budgets for Board approval. Close involvement of senior management in the day to day business of the Group. Regular reporting of business performance to the Board and the review of results against budget. Awareness of relevant audit information At the date of this report and insofar as each of the Directors is aware: > > There is no relevant audit information of which the auditor is unaware. The Directors have taken all steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. Auditor A resolution to reappoint Moore Stephens LLP as auditor will be proposed at the Annual General Meeting. By order of the Board Malcolm Briselden, ACMA Company Secretary 3 May 2017 executive Directors and two non-executive Directors. The Board considers that there is an appropriate balance between the executives and non-executives and that no individual or small group dominates the Board decision making. The Board’s members have a wide range of expertise and experience and it is felt that concerns may be addressed to the non-executive Chairman. The Board has delegated certain authorities to committees, each with formal terms of reference. The whole Board acts as a Nomination Committee. The non-executive Directors are the members of the Audit Committee. It meets at least twice a year to consider the scope of the annual audit, interim ﬁnancial statements and to assess the effectiveness of the Group’s system of internal controls. Given the size of the Group, the Audit Committee considers an internal audit function is not currently justiﬁed. The Audit Committee is chaired by James McMahon. The non-executive Directors are the members of the Remuneration Committee. It meets at least once a year to determine Company policy on senior executive remuneration, to make detailed recommendations to the Board regarding the remuneration packages of the executive Directors and to consider awards under the Group’s option schemes and carried interest arrangements. The Chief Executive Officer is consulted on remuneration packages and policy but does not attend discussions regarding his own package. The remuneration and terms and conditions of the appointment of non-executive Directors are determined by the Board. The Remuneration Committee is chaired by David Sigsworth. The Board has considered mechanisms by which the business and the ﬁnancial risks facing the Group are managed and reported to the Board. The principal business and ﬁnancial risks have been identiﬁed and the control procedures that are in place to manage those risks have been documented. This document is subject to review by the Board and is updated on a regular basis. The Board acknowledges its responsibility for reviewing the effectiveness of the systems that are in place to manage risk and to provide reasonable but not absolute assurance with regard to the safeguarding of the Group’s assets against misstatement or loss. 16 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Directors’ Remuneration Report Directors’ remuneration The two non-executive Directors comprise the members of the Remuneration Committee. David Sigsworth chairs the committee. The Remuneration Committee decides the remuneration policy that applies to executive Directors. Salaries and beneﬁts The Remuneration Committee meets at least once a year in order to consider and set the remuneration packages for executive Directors. The remuneration packages are benchmarked to ensure comparability with companies of a similar size and complexity. Remuneration comprises basic salary and, for most directors, pension contributions to the Director’s personal pension scheme, and beneﬁts in kind. In addition, certain directors are paid a car allowance or receive a contribution to their travel expenses. Remuneration also includes share options and carried interest as detailed below. An analysis of remuneration by Director is given in note 8 of these ﬁnancial statements. Contracts of service G Barnet has a one-year rolling service agreement with the Company. The other executive Directors have service agreements with a three-month notice period. Directors’ interests – interests in share options Details of options held by Directors who were in office at 31 December 2016 are set out below. DIRECTOR GF Barnet GF Barnet GF Barnet M Briselden M Briselden M Briselden G Hogg G Hogg G Hogg G Hogg D Sutherland D Sutherland D Sutherland G Thomson G Thomson G Thomson G Thomson DATE OF GRANT NUMBER EXERCISE PRICE EXERCISE DATE EXPIRY DATE 28.11.13 114,286 26.25p 28.11.16 – 27.11.23 27.11.23 19.11.14 250,000 68.00p 19.11.17 – 18.11.24 18.11.24 05.01.16 400,000 93.50p 05.01.19 – 04.01.26 04.01.26 28.11.13 50,000 26.25p 28.11.16 – 27.11.23 27.11.23 19.11.14 174,816 68.00p 19.11.17 – 18.11.24 18.11.24 05.01.16 250,000 93.50p 05.01.19 – 04.01.26 04.01.26 29.07.11 250,000 7.50p 29.07.14 – 28.07.21 28.07.21 28.11.13 82,857 26.25p 28.11.16 – 27.11.23 27.11.23 19.11.14 264,503 68.00p 19.11.17 – 18.11.24 18.11.24 05.01.16 400,000 93.50p 05.01.19 – 04.01.26 04.01.26 29.07.11 119,500 7.50p 29.07.14 – 28.07.21 28.07.21 28.11.13 42,857 26.25p 28.11.16 – 27.11.23 27.11.23 19.11.14 64,503 68.00p 19.11.17 – 18.11.24 18.11.24 05.05.11 250,000 8.00p 05.05.14– 04.05.21 04.05.21 28.11.13 38,095 26.25p 28.11.16 – 27.11.23 27.11.23 19.11.14 200,000 68.00p 19.11.17 – 18.11.24 18.11.24 05.01.16 250,000 93.50p 05.01.19 – 04.01.26 04.01.26 During the year D Sigsworth exercised an option over 100,000 shares at 25p per share. Details of the Company’s option schemes are set out in note 24 to the ﬁnancial statements. The market price of the Company’s shares at 31 December 2016 was 82p. The range of market prices during the year was 70.5p to 106.5p. Sigma Capital Group plc | Annual Report & Financial Statements 2016 17 Carried interest arrangements Two of the Directors have been allocated a share of the carried interest assigned to Sigma arising from the historic venture funds. Current estimates are that no value is attributable to this carried interest. Subject to certain performance conditions, four of the Directors may be entitled to a share of the total carried interest which could arise from an exit in respect of the Group’s investment in the PRS joint venture with Gatehouse. Based on the methodology used to recognise a portion of the carried interest as Group revenue, the value of the total entitlement would be £942,000. This amount is dependent upon the actual outcome of the project and is not contractually due to the directors unless there is an exit in respect of Sigma’s investment which is not expected to be until 2018 at the earliest. The total entitlement to the directors is split in the following proportions: GF Barnet GR Hogg G Thomson D Sutherland 8.50% 8.50% 5.00% 3.00% Subject to certain performance conditions, four of the directors may be entitled to a share of the total carried interest which could arise from an exit in respect of the Group’s investment in the PRS joint venture with UK PRS Properties. Based on the methodology used to recognise a portion of the carried interest as Group revenue, the value of the total entitlement would be £127,000. This amount is dependent upon the actual outcome of the project and is not contractually due to the directors unless there is an exit in respect of Sigma’s investment which is not expected to be until 2020 at the earliest. The total entitlement to the directors is split in the following proportions: GF Barnet GR Hogg G Thomson M Briselden 7.50% 7.50% 2.50% 2.25% the fair value uplift on investment property, the value of the total entitlement would be £401,000. This amount is dependent on the actual disposal of the investment property and is not contractually due to the directors unless there is a disposal. The total entitlement to the directors is split in the following proportions: GF Barnet GR Hogg G Thomson M Briselden 4.5% 4.5% 1.5% 1.5% Directors’ interests - interests in shares Directors in office at 31 December 2016 had the following interests in the ordinary shares of 1p each of the Company: 2016 2015 NUMBER NUMBER GF Barnet 6,513,237 7,548,237 M Briselden 61,660 61,600 GR Hogg 536,496 536,496 D Sigsworth 645,304 545,304 G Thomson 142,857 142,857 D Sutherland 145,299 145,299 All of the above interests are beneﬁcial except for nil shares (2015: 735,000 shares) held by Graham Barnet as trustee for two of his children. On 16 March 2016, the shares are no longer included in the beneﬁcial interest of Graham Barnet under the terms of those trusts. On 19 April 2016, David Sigsworth exercised options over 100,000 ordinary shares of 1p each. On 28 November 2016, Bill MacLeod a former director, exercised options over 114,285 ordinary shares of 1p each. Pension fund holdings are included in the Directors’ interests shown above. There were no dealings in the Company’s shares by any of the Directors between 31 December 2016 and 2 May 2017. Subject to certain performance conditions, four of the directors may be entitled to a share of the total proﬁt on disposal in relation to the Group’s self-funded PRS properties. Based on methodology used to recognise D Sigsworth OBE Chairman 3 May 2017 18 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Statement of Directors’ Responsibilities The Directors are responsible for keeping adequate accounting records sufficient to show and explain company transactions and which disclose with reasonable accuracy at any time the ﬁnancial position of the Company and the Group and to enable them to ensure that the ﬁnancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the annual report and the ﬁnancial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare ﬁnancial statements for each ﬁnancial year. Under that law, the Directors have prepared the Group and Parent Company ﬁnancial statements in accordance with International Financial Reporting Standards as adopted by the European Union. Under company law, the Directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of affairs of the Company and the Group and of the proﬁt or loss of the Group for that period. In preparing those ﬁnancial statements, the Directors are required to: > > > > select suitable accounting policies and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable, understandable information; provide additional disclosures when compliance with the speciﬁc requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s ﬁnancial position and ﬁnancial performance; and prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. Sigma Capital Group plc | Annual Report & Financial Statements 2016 19 Independent Auditor’s Report to the shareholders of Sigma Capital Group plc identify material inconsistencies with the audited ﬁnancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on ﬁnancial statements In our opinion: > > > > the ﬁnancial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at year end and of the group’s proﬁt for the year then ended; the group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: > > the information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the group ﬁnancial statements are prepared is consistent with the group ﬁnancial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. We have audited the ﬁnancial statements of Sigma Capital Group plc for the year ended 31 December 2016 which are set out on pages 21 to 53. The ﬁnancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company ﬁnancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 18, the directors are responsible for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁnancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the ﬁnancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufficient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁcant accounting estimates made by the directors; and the overall presentation of the ﬁnancial statements. In addition, we read all the ﬁnancial and non-ﬁnancial information in the Annual Report to 20 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Independent Auditors’ Report (continued) Matters on which we are required to report by exception In the light of the knowledge and understanding of the parent company and its environment obtained in the course of the audit, we have not identiﬁed material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: > > > adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company ﬁnancial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration speciﬁed by law are not made; or > we have not received all the information and explanations we require for our audit. NEIL TUSTIAN (Senior Statutory Auditor) for and on behalf of MOORE STEPHENS LLP Statutory Auditor 150 Aldersgate Street London EC1A 4AB 3 May 2017 Sigma Capital Group plc | Annual Report & Financial Statements 2016 21 Consolidated Comprehensive Income Statement for the year ended 31 December 2016 RESTATED 2016 2015 NOTES £’000 £’000 Revenue 3 5,383 6,724 Cost of sales 4 (460) (1,621) Gross proﬁt 4,923 5,103 Unrealised gain on revaluation of investment property 12 2,017 - Unrealised proﬁt/(loss) on the revaluation of investments 17 23 (120) Administrative expenses 5 (3,598) (3,165) Proﬁt from operations 3,365 1,818 Finance income 6 290 319 Share of proﬁt of associate company 15 443 449 Exceptional items 7 (428) - Proﬁt before tax 3,670 2,586 Taxation 9 (105) (192) Proﬁt for the year 3,565 2,394 Proﬁt per share attributable to the equity holders of the Company: Basic proﬁt per share 10 4.02p 3.39p Diluted proﬁt per share 10 3.97p 3.35p There were no other comprehensive incomes or losses in either year other than those included in the comprehensive income statement. The accompanying notes are an integral part of this consolidated comprehensive income statement. The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the Company income statement. The loss for the Company for the year was £739,000 (2015: £542,000). 22 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Consolidated Balance Sheet at 31 December 2016 RESTATED 2016 2015 NOTES £’000 £’000 ASSETS Non-current assets Goodwill and other intangibles 11 544 561 Investment property 12 24,825 - Property and equipment 13 1,111 33 Investment in joint venture 15 892 449 Fixed asset investments 16 2 2 Financial assets at fair value through proﬁt and loss 17 576 553 Trade and other receivables 19 4,126 4,069 32,076 5,667 Current assets Stocks 18 - 509 Trade receivables 19 323 1,020 Other current assets 19 2,622 3,250 Cash and cash equivalents 6,125 25,135 9,070 29,914 Total assets 41,146 35,581 LIABILITIES Non-current liabilities Interest bearing loans and borrowings 21 481 - Current liabilities Trade and other payables 20 4,226 3,134 Interest bearing loans and overdrafts 21 55 - Deferred tax liability 22 297 192 Total liabilities 5,059 3,326 Net assets 36,087 32,255 Equity Called up share capital 23 887 885 Share premium account 23 31,885 31,833 Capital redemption reserve 34 34 Merger reserve (249) (249) Capital reserve (7) (7) Retained earnings 3,537 (241) Equity attributable to equity holders of the Company 36,087 32,255 The accompanying notes are an integral part of this consolidated balance sheet. Sigma Capital Group plc | Annual Report & Financial Statements 2016 23 Company Balance Sheet at 31 December 2016 2016 2015 NOTES £’000 £’000 ASSETS Non-current assets Property and equipment 13 43 - Investment in subsidiaries 14 2,921 2,921 Trade and other receivables 19 23,218 3,179 26,182 6,100 Current assets Trade receivables 19 215 500 Other current assets 19 61 96 Cash and cash equivalents 3,395 23,562 3,671 24,158 Total assets 29,853 30,258 LIABILITIES Current liabilities Trade and other payables 20 1,659 1,592 Total liabilities 1,659 1,592 Net assets 28,194 28,666 Equity Called up share capital 23 887 885 Share premium account 23 31,885 31,833 Capital redemption reserve 34 34 Retained earnings (4,612) (4,086) Total equity 28,194 28,666 The accompanying notes are an integral part of this balance sheet. The loss for the Company for the year was £739,000 (2015: £542,000) The ﬁnancial statements on pages 21 to 53 were approved by the Board of Directors and authorised for issue on 3 May 2017 and were signed on its behalf by: GF Barnet Chief Executive Officer 3 May 2017 Registered number 03942129 24 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Consolidated Statement of Changes in Equity for the year ended 31 December 2016 SHARE CAPITAL SHARE PREMIUM REDEMPTION MERGER CAPITAL RETAINED TOTAL CAPITAL ACCOUNT RESERVE RESERVE RESERVE EARNINGS EQUITY £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 January 2015 612 12,952 34 (249) (7) (2,722) 10,620 Transactions with owners in their capacity as owners - - - - - - - Issue of shares 273 19,783 - - - - 20,056 Cost of share issue - (902) - - - - (902) Comprehensive income for the year - - - - - 1,945 1,945 Share-based payments - - - - - 87 87 At 31 December 2015 885 31,833 34 (249) (7) (690) 31,806 Prior year adjustment - - - - - 449 449 At 31 December 2015 restated 885 31,833 34 (249) (7) (241) 32,255 Transactions with owners in their capacity as owners - - - - - - - Issue of shares 2 52 - - - - 54 Comprehensive income for the year - - - - - 3,565 3,565 Share-based payments - - - - - 213 213 At 31 December 2016 887 31,885 34 (249) (7) 3,537 36,087 There were no other comprehensive incomes or losses in either year other than those included in the proﬁt and loss for the year. Sigma Capital Group plc | Annual Report & Financial Statements 2016 25 Company Statement of Changes in Equity for the year ended 31 December 2016 SHARE CAPITAL SHARE PREMIUM REDEMPTION RETAINED TOTAL CAPITAL ACCOUNT RESERVE EARNINGS EQUITY £’000 £’000 £’000 £’000 £’000 At 1 January 2015 612 12,952 34 (3,631) 9,967 Issue of shares 273 19,783 - - 20,056 Cost of share issue - (902) - - (902) Loss for the year - - - (542) (542) Share-based payments - - - 87 87 At 31 December 2015 885 31,833 34 (4,086) 28,666 Issue of Shares 2 52 - - 54 Loss for the year - - - (739) (739) Share-based payments - - - 213 213 At 31 December 2016 887 31,885 34 (4,612) 28,194 26 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Consolidated and Company Cash Flow Statements for the year ended 31 December 2016 GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 NOTES £’000 £’000 £’000 £’000 Cash ﬂows from operating activities Cash received/(used in) from operations 27 2,353 (995) (20,244) 1,351 Net cash used in operating activities 2,353 (995) (20,244) 1,351 Cash ﬂows from investing activities Purchase of property and equipment (1,102) (25) (50) - Purchase of investment property at fair value through proﬁt and loss (22,808) - - - Repayment of loans by PRS Fund 1,667 1,741 - - Fixed asset investments - (2) - - Interest received and other ﬁnancial income 290 42 73 39 Net cash (invested in)/generated from investing activities (21,953) 1,756 23 39 Cash ﬂows from ﬁnancing activities Bank loan 536 - - - Issue of shares 54 19,154 54 19,154 Net cash generated from ﬁnancing activities 590 19,154 54 19,154 Net (decrease)/increase in cash and cash equivalents (19,010) 19,915 (20,167) 20,544 Cash and cash equivalents at beginning of year 25,135 5,220 23,562 3,018 Cash and cash equivalents at end of year 6,125 25,135 3,395 23,562 The accompanying notes are an integral part of this cash ﬂow statement. Sigma Capital Group plc | Annual Report & Financial Statements 2016 27 Accounting Policies for the year ended 31 December 2016 The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year. Basis of accounting The ﬁnancial statements have been prepared on a going concern basis. The business model of the Group together with the principal risks and uncertainties are set out in the Strategic Report and the Group’s ﬁnancial risk management is covered in note 1. The progress of the Group since the balance sheet date is described in the Chairman’s Statement and Strategic Report. The Group had a bank balance of £6,125,000 at the end of the year and therefore has considerable ﬁnancial resources for the size of its current business activities. The ﬁnancial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The Company has prepared its ﬁnancial statements in accordance with IFRS as adopted for use in the European Union and as applied in compliance with the provisions of the Companies Act 2006. The ﬁnancial statements have been prepared on the historical cost basis, except where IFRS requires an alternative treatment. The principal variations from historical cost relate to ﬁnancial instruments (IAS 39). Adoption of new and revised standards The accounting policies applied are the same as those applied in the ﬁnancial statements for the year ended 31 December 2015 with the exception of IAS 40 Investment Property and IAS 28 Investments in Associates and Joint Ventures. New standards introduced during the period had no material impact on the results or net assets of the Company or Group. A number of new standards and amendments to existing standards have been published which are mandatory, but are not effective for the year ended 31 December 2016. The Directors do not anticipate that the adoption of these revised standards and interpretations will have a signiﬁcant impact on the ﬁgures included in the ﬁnancial statements in the period of initial application other than the following: IFRS 9 Financial Instruments The standard is effective for periods beginning on or after 1 January 2018. The standard makes substantial changes to the measurement of ﬁnancial assets and ﬁnancial liabilities. There will only be three categories of ﬁnancial assets whereby ﬁnancial assets are recognised at either fair value through proﬁt and loss, fair value through other comprehensive income or measured at amortised cost. On adoption of the standard, the Group will have to re-determine the classiﬁcation of its ﬁnancial assets based on the business model for each category of ﬁnancial asset. This is not considered likely to give rise to any signiﬁcant adjustments other than reclassiﬁcations. The principal change to the measurement of ﬁnancial assets measured at amortised cost or fair value through other comprehensive income is that impairments will be recognised on an expected loss basis compared to the current incurred loss approach. As such, where there are expected to be credit losses these are recognised in proﬁt or loss. For ﬁnancial assets measured at amortised cost the carrying amount of the asset is reduced for the loss allowance. For ﬁnancial assets measured at fair value through other comprehensive income the loss allowance is recognised in other comprehensive income and does not reduce the carrying amount of the ﬁnancial asset. Most ﬁnancial liabilities will continue to be carried at amortised cost, however, some ﬁnancial liabilities will be required to be measured at fair value through proﬁt or loss, for example derivative ﬁnancial instruments, with changes in the liabilities’ credit risk recognised in other comprehensive income. IFRS 15 – Revenue from contracts with customers The date the standard is effective from 1 January 2018. The standard has been developed to provide a comprehensive set of principles in presenting the nature, amount, timing and uncertainty of revenue and cash ﬂows arising from a contract with a customer. The standard is based around the following steps in recognising revenue: > > > Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; > Allocate the transaction price; and > Recognise revenue when a performance obligation is satisﬁed. On application of the standard the disclosures are likely to increase. The standard includes principles on disclosing the nature, amount, timing and uncertainty of revenue and cash ﬂows arising from contracts with customers, by providing qualitative and quantitative information. 28 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Accounting Policies (continued) IFRS 16 – Leases The standard is effective for periods beginning on or after 1 January 2019, but can be applied before that date if the Company also applies IFRS 15 revenue from Contracts with Customers. IFRS 16 eliminates the classiﬁcation of leases as either operating leases or ﬁnance leases for a lessee. Instead all leases are treated in a similar way to ﬁnance leases applying IAS 17. Leases are ‘capitalised’ by recognising the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, a company also recognises a ﬁnancial liability representing its obligation to make future lease payments. IFRS 16 replaces the typical straight-line operating lease expense for those leases applying IAS 17 with a depreciation charge for lease assets (included within operating costs) and an interest expense on lease liabilities (included within ﬁnance costs). Basis of consolidation The Group ﬁnancial statements consolidate the ﬁnancial statements of Sigma and its subsidiary undertakings. The Group has taken advantage of the exemption under IFRS 1 First-time Adoption of International Financial Reporting Standards not to adopt IFRS 3 retrospectively and hence has used merger accounting for STM which was ﬁrst consolidated into the Group in 2000. All other subsidiary undertakings are consolidated using acquisition accounting from the date of acquisition. Under acquisition accounting, the cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identiﬁable net assets acquired is recorded as goodwill. The direct costs of acquisition are recognised immediately as an expense. The Group has an interest in three limited partnerships which undertake property regeneration, the North Solihull Partnership, the Salford Partnership and the Liverpool Partnership (together “the Partnerships”). The Group has a 49.805% share of any proﬁts that might arise in the North Solihull Partnership through its 25% holding in the General Partner of this partnership and through a wholly owned subsidiary which acts as a limited partner. The Group has a 32.99% share of any proﬁts that might arise in the Salford Partnership through its 25% holding in the General Partner of this partnership, through a wholly owned subsidiary which acts as a limited partner and through three other wholly owned subsidiaries. The Group has a 0.01% share of any proﬁts that might arise in the Liverpool Partnership through a wholly owned subsidiary. The Directors consider that the Group neither exercises control nor has the potential to control the Partnerships and acts in a commercial capacity as project manager, development manager and developer of the underlying projects undertaken by the Partnerships. The Group has a 25.1% interest in Countryside Sigma Limited (“CSL”) a residential housing developer also engaged in the sourcing and provision of affordable housing for housing associations and other registered social landlords. The Group earns proﬁts on residential developments depending on the size of each development and is entitled to 50% of the residual proﬁts of CSL once all developments are complete. The Group uses the equity method of consolidation, initially at cost, and the carrying amount is increased or decreased to reﬂect the Group’s share of the proﬁt or loss with the amount recognised in the proﬁt and loss account. The Directors consider that the Group neither exercises control nor has the potential to control CSL. The Group has a 20.1% interest in Thistle Limited Partnership (“TLP”), its PRS joint venture with Gatehouse. The Group will retain a share of the net disposal proﬁts on the assets, subject to a minimum return to investors. The Group made a loan of £2m to TLP in 2014 which has now been repaid in full during the current and prior year. The Directors consider that the Group neither exercises control nor has the potential to control TLP and acts in a commercial capacity as development and asset manager. The Group also has a 20% interest in UK PRS (Jersey) I LP in relation to its PRS joint venture with UK PRS Properties. The Group will retain a share of net disposal proﬁts on the assets, subject to a minimum return to investors. The Directors consider that the Group neither exercises control nor has the potential to control UK PRS (Jersey) I LP and acts in a commercial capacity as development and asset manager. Segmental reporting The Directors regard the Group’s reportable segments of business to be property, venture capital fund investment and holding company activities. The business operates in a single region the UK. Costs are allocated to the appropriate segment as they arise with central overheads apportioned on a reasonable basis. Sigma Capital Group plc | Annual Report & Financial Statements 2016 29 Intangible assets Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identiﬁable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment annually. For the purposes of assessing impairment, assets are grouped in to cash generating units (CGU) being the lowest levels for which there are separately identiﬁable cash ﬂows. Any impairment is recognised immediately in the income statement and is not subsequently reversed. When the Group disposes of an interest in a subsidiary, the value of goodwill is reduced by the proportion that relates to the interest being disposed of. Property and equipment Property and equipment are stated at cost less depreciation and any provision for impairment. Depreciation Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful life. The rates of depreciation are as follows: Property held for own use over 30 years Leasehold improvements over the term of the lease Fixtures and office equipment 25% per annum Computer equipment 33-50% per annum Acquired intangible assets Interests in joint ventures Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques. The signiﬁcant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows: INTANGIBLE USEFUL VALUATION ASSET ECONOMIC LIFE METHOD Customer Remaining Multi-period relationships period of Earnings Method contract Investment Property Property that is held for long-term rental yields or for capital appreciation or both is classiﬁed as investment property under IAS 40. Investment property, including that which is being constructed for future use as investment property, is measured initially at its cost including related transactions costs. After initial recognition, investment property is carried at fair value. The investment properties are externally valued by Savills. Savills are qualiﬁed independent valuers who hold a recognised and relevant professional qualiﬁcation. Gains or losses arising from changes in the fair value of the Group’s investment properties are included in proﬁt from operations in the income statement of the period in which they arise. Investment property falls within level 3 of the fair value hierarchy as deﬁned by IFRS 13. Further details are provided in note 1. Investments in joint ventures are accounted for by the equity method of accounting and are initially recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s share of proﬁt or loss after the date of acquisition. The Group’s share of proﬁt or loss is recognised in the income statement. Stocks and work in progress Development properties and land held for development and/or resale are valued at the lower cost and net realisable value. Work in progress on development properties is valued at the cost of labour and materials plus interest incurred on borrowings for development expenditure until the date of practical completion. Net realisable values are based on directors’ assessments of the projected net sales proceeds for each property or plot of land. The key assumptions in assessing these values take into account the current and projected rental levels, anticipated property investment yields at the projected date of sale and underlying capital values. As the property values can be heavily inﬂuenced by variances in these assumptions over time the directors’ assessment of valuation assumes that properties can be held for a longer period where the net realisable value cannot be achieved in the short term. 30 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Accounting Policies (continued) Financial instruments Trade payables Financial assets and ﬁnancial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash ﬂows, discounted at the effective interest rate. The movement in the provision is recognised in the comprehensive income statement. Cash Cash and cash equivalents comprise cash at bank and in hand. Investments Investments represent the Group’s interest in the equity value of one unquoted stock and one venture capital fund managed by a third party. Investments are classiﬁed as ﬁnancial assets at fair value through proﬁt or loss and are initially measured at cost. Subsequent measurement is at fair value. The fair value of the unquoted stock is established using International Private Equity and Venture Capital Valuation Guidelines. The fair value of the investments in the venture capital fund is based on the net asset value of the fund at the Company’s year end as reported by the independent fund manager where the Board believes that this is materially equivalent to fair value. The fund manager undertakes a full fair value assessment of the investments held by the venture capital funds using valuation methodologies in line with British Venture Capital Association guidelines. Investments classiﬁed as “ﬁnancial assets at fair value through proﬁt or loss” are recognised as non-current assets. Investment in subsidiary companies is stated at cost less provision for any impairment in value. Trade payables are not interest bearing and are stated at their amortised cost. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Current and deferred tax The charge for current tax is based on the results for the year as adjusted for items which are non- assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the ﬁnancial statements and the corresponding tax basis used in the computation of taxable proﬁt. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable proﬁts will be available against which deductible temporary differences can be recognised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax proﬁt nor the accounting proﬁt. Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is Sigma Capital Group plc | Annual Report & Financial Statements 2016 31 expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares or options that will eventually vest. Fair value is measured using the Black Scholes-Merton pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Revenue recognition Fees for services provided by the Group are measured at the fair value of the consideration received or receivable, net of value added tax. Rental income from investment properties is accounted for on an accruals basis. Property project management fees are recognised when the service is provided. Income arising from proﬁt share arrangements is recognised when the amount of proﬁt can be reliably estimated but discounted to reﬂect when the amount will actually be received. The proﬁt share estimate is reviewed on a quarterly basis. Development management fees are recognised on a pro-rata basis over the development period. Transaction fees and other fees for corporate ﬁnance work are recognised when the service is provided subject to completion of the respective transaction being virtually certain. Carried interest is recognised over the initial period of the project but discounted to reﬂect when the amount will actually be received and is reviewed on a quarterly basis. Revenue recognised in advance of invoicing is shown as accrued income within debtors. Operating leases Amounts due under operating leases are charged to the income statement in equal annual instalments over the period of the lease. Retirement beneﬁt costs The Group operates a deﬁned contribution retirement beneﬁt scheme. The amount charged to the income statement in respect of retirement beneﬁt costs are the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either prepayments or accruals in the balance sheet. Impairment At each balance sheet date, the Group reviews the carrying amounts of its property and equipment and intangible assets with ﬁnite lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Goodwill arising on acquisition is allocated to cash- generating units. The recoverable amount of the cash- generating unit to which goodwill has been allocated is tested for impairment annually, or on such other occasions that events or changes in circumstances indicate that it might be impaired. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. Impairment losses relating to goodwill are not reversed. Exceptional items Exceptional items are deﬁned as items of income and expenditure, which, in the opinion of the Directors, are material and unusual in nature or of such signiﬁcance that, in order to give a full understanding of the Group’s underlying ﬁnancial performance, they require separate disclosure on the face of the comprehensive income statement in accordance with IAS1 Presentation of Financial Statements. Prior year adjustment The Group was not expecting a share of the proﬁts from its interest in Countryside Sigma Limited in the prior year. As the results of Countryside Sigma Limited were not ﬁnalised before the accounts were signed, the share of proﬁt was not included. It was subsequently determined that the proﬁt was correct and the Directors believe the amount of proﬁt is material and therefore a prior year adjustment has been made. 32 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements for the year ended 31 December 2016 1. Financial risk management Financial risk factors The Group’s business activities are set out in the Strategic Report on pages 6 to 11. These activities expose the Group to a number of ﬁnancial risks. The following describes the Group’s objectives, policies and processes for managing these risks and the methods used to measure them. The Group only operates in the UK and transacts in sterling. It is therefore not exposed to any foreign currency exchange risk. Capital risk management The Group’s objectives for managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and beneﬁts for other stakeholders and to maintain an efficient capital structure to manage the cost of capital. At 31 December 2016 the Group had short term debt of £55,000 (2015: £nil). There were no changes in the Group’s approach to capital management during the year. Market risk Price risk The Group is exposed to equity securities price risk because of equity investments held by the Group and classiﬁed on the consolidated balance sheet either as ﬁnancial assets at fair value through proﬁt and loss or trading investments which are also held at fair value through proﬁt or loss. At 31 December 2016, 99% (2015: 99%) of the Group’s investments was investment in one venture fund. The venture fund invests in early stage companies which are by their nature of a higher risk than more mature trading companies. Risk is mitigated to a certain extent by the fact that the fund holds investments in several companies. At 31 December 2016, the fund held 8 investments (2015: 8 investments). A third party manages the venture fund. A net movement of 10% in the value of the venture fund holdings would give rise to a movement in the income statement of £57,000 (2015: £55,000). The Group earns proﬁt share in respect of property projects which is partly based on development values and is therefore exposed to price risk. Fair values IFRS 13 sets out a three-tier hierarchy for ﬁnancial assets and liabilities valued at fair value. These are as follows: Level 1 Level 2 quoted prices (unadjusted) in active markets for identical assets and liabilities; inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 unobservable inputs for the asset or liability. Investment property falls within Level 3. The Investment valuations provided by the independent valuation expert are based on RIC’s Professional Valuation Standards, but include a number of unobservable inputs and other valuation assumptions. The signiﬁcant unobservable inputs and the range of values used are: TYPE RANGE Investment yield 4.5% to 4.75% Gross to net assumption 21.5% to 23.5% Sigma Capital Group plc | Annual Report & Financial Statements 2016 33 The impact of changes to the signiﬁcant unobservable inputs are: 2016 2016 2015 2015 STATEMENT STATEMENT INCOME OF FINANCIAL INCOME OF FINANCIAL STATEMENT POSITION STATEMENT POSITION IMPACT IMPACT IMPACT IMPACT £’000 £’000 £’000 £’000 Improvement in yield by 0.125% 656 656 - - Worsening in yield by 0.125% (622) (622) - - Improvement in gross to net by 1% 306 306 - - Worsening in gross to net by 1% (306) (306) - - The above sensitivities are the average values in respect of all investment property fair valued at 31 December 2016 and includes investment properties under construction. Financial assets at fair value through the proﬁt and loss account fall within Level 3. The investment valuations are provided by the manager of the fund based on industry guidelines and reviewed quarterly by the Board. The valuations are based on market data related to multiples appropriate to the related industry and development stage of the investee. The signiﬁcant unobservable inputs relate to this data. Interest rate risk The Group has limited interest rate risk in respect of its loan that part funded the acquisition and refurbishment of its new head office. The impact is on income and operating cash ﬂow and arises from changes in market interest rates. From time to time, certain of the Group’s cash resources are placed on short term ﬁxed deposit of up to one year to take advantage of preferential rates. Otherwise, cash resources are held in current, ﬂoating rate accounts. Credit risk The Group’s credit risk is primarily attributable to its trade receivables and other current assets. During the year ended 31 December 2016, the Group’s cash and cash equivalents were held with the Bank of Scotland, Royal Bank of Scotland plc and Investec Bank plc. The concentration of credit risk from trade receivables and other current assets varies throughout the year depending on the timing of transactions and invoicing of fees. Property rental income arises from the Group’s investment in PRS assets. Rental income is paid monthly in advance. Property project management fees arise from Sigma Inpartnership’s joint venture, CSL. The fees are agreed in advance and are recognised as per the accounting policy on revenue recognition. Fees are payable on a monthly basis over the development period. Each project is subject to ﬁnancial due diligence prior to commencement including a detailed appraisal. The project is reviewed regularly thereafter. As the fees are paid throughout the development period the risk is reduced. The proﬁt share arising from Sigma Inpartnership’s joint venture, CSL, is recognised as per the accounting policy on revenue recognition. The proﬁt share is payable once the project is complete and once other criteria have been fulﬁlled. Each project is subject to ﬁnancial due diligence prior to commencement including a detailed appraisal. The project is reviewed regularly thereafter. Property project management fees arise in respect of Sigma Inpartnership’s joint venture with ION Developments. The fees are agreed in advance and are recognised as per the accounting policy on revenue recognition. Fees are payable monthly over the development period. Each project is subject to ﬁnancial due diligence prior to commencement including a detailed appraisal. The project is reviewed regularly thereafter. 34 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 1. Financial risk management (continued) Carried interest arises from the Group’s PRS activities and is recognised as per the accounting policy on revenue recognition. The carried interest is payable on exit or from an agreed valuation. The Group’s PRS activities are subject to ﬁnancial due diligence prior to commencement including a detailed appraisal. The performance of the project is monitored on a monthly basis with updates on the level of carried interest calculated quarterly. Carried interest is recognised over the expected life of the project and therefore the risk is reduced. Revenue recognised in advance of the contracted right to invoice or receive payment is shown in accrued income. The amounts recognised will be paid during the development period, usually between one month and up to four years, but the underlying fundamentals of the projects are such that the credit risk represented by these amounts is deemed to be low. Property project management fees are also earned by Sigma Inpartnership that arise from the work undertaken on the three regeneration partnerships with Liverpool City Council, Salford City Council and Solihull Metropolitan Borough Council. The basis of these fees for the coming year and beyond is agreed in advance with each partnership and each month the invoices are approved by the partnership for payment. Consequently, the amounts outstanding at any one time generally represent only one or two months’ fees and the credit risk of the customers is deemed to be low. Development fees earned in respect of the groups PRS activities are agreed in advance of the project or a site commencing, are based on the expected development costs and are payable quarterly in arrears. Asset management fees are earned in respect of the groups PRS activities and are earned based on the number of residential units that have reached practical completion. During the current year the Group earned property management fees from the management of City Wharf, Aberdeen. However, in January 2016 the company that held the asset was put into administration. Other exposures of the Group are spread over a number of customers and counterparties with little concentration on any one entity. The concentration of credit risk arising from trade receivables and other current assets is analysed below: 2016 2015 £’000 £’000 Property management fees due to Sigma Inpartnership 44 72 Transaction fee due to Sigma Capital Property - 916 Development management fees due to Sigma Capital Property 264 - Other property management fees 15 32 Other debtors 378 94 Other debtors - loan to PRS Fund 92 1,500 Other debtors - loan to PRS Fund - 259 Other prepayments 139 105 Accrued income in respect of disposal of land - 1,575 Other accrued income 5,610 3,786 Social security and other taxes 529 - 7,071 8,339 The maximum exposure to credit risk for trade receivables and other current assets is represented by their carrying amount. The development management fees due to Sigma Capital Property were paid in January 2017. The loan of £92,000 (2015: £1,500,000) in respect of the PRS Fund was fully repaid in March 2017. Sigma Capital Group plc | Annual Report & Financial Statements 2016 35 Liquidity risk The Group seeks to manage liquidity risk to ensure sufficient liquidity is available to meet the requirements of the business and to invest cash assets safely and proﬁtably. The Board reviews regularly available cash to ensure there are sufficient resources for working capital requirements and to meet the Group’s limited partner commitments to the venture funds. 2. Signiﬁcant accounting estimates and judgements Sources of estimation uncertainty The preparation of the ﬁnancial statements requires the Group to make estimates, judgements and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Directors base their estimates on historical experience and various other assumptions that they believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting estimates and judgements The preparation of ﬁnancial statements in conformity with IFRSs requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the ﬁnancial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continually made and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable in the circumstances. As the use of estimates is inherent in ﬁnancial reporting, actual results could differ from these estimates. The Directors believe the following to be the key areas of estimation and judgement: (i) Revenue recognition The Group believes that the most signiﬁcant judgement area in the application of its accounting policies is in respect of revenue recognition. The matters taken into account when assessing the amount of revenue to recognise are detailed in the accounting policy on revenue recognition. (ii) Fair value of investment property The matters taken into account when assessing the fair value of investment property are detailed in accounting policy on investment property. (iii) Fair value of unlisted investments The matters taken into account when assessing the fair value of the unlisted investments are detailed in the accounting policy on investments. (iv) Goodwill and impairment The recoverable amount of goodwill is determined based on value in use calculations of the cash- generating units to which it relates. Further detail on key assumptions, including growth rates, discount rates and the time period of these value in use calculations is given in note 11. 36 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 3. Segmental information – business segments At 31 December 2016 the Group has just one business activity, property. The Group’s venture capital fund management activities ceased in the ﬁrst half of 2014. The Group had four signiﬁcant customers in the year. Thistle Limited Partnership was a signiﬁcant customer with proﬁt share and carried interest earned of £1,549,000 (2015: £2,137,000), UK PRS (Jersey) Properties I Limited with fees and carried interest of £1,247,000 (2015: £763,000), Countryside Sigma Limited with development management fees and proﬁt share earned of £954,000 (2015: £1,441,000), Countryside Properties (UK) Limited with fees and sale of land totalling £548,000 (2015: £2,032,000) and ION Developments with fees totalling £577,000 (2015: £nil). The revenue from services from the Group’s Owned PRS property represents £66k of gross rental income (2015: £nil). Rental operating costs attributable to the gross rental income for the year were £16k (2015: £nil). The segment analysis for the year ended 31 December 2016 is as follows: MANAGED OWNED PRS VENTURE OLDING INTRA GROUP REGENERATION PROPERTY PROPERTY CAPITAL HCOMPANY ADJUSTMENTS TOTAL £’000 £’000 £’000 £’000 £’000 £’000 £’000 Revenue from services 2,171 3,136 66 10 0 0 5,383 Trading proﬁt/(loss) 1,538 607 51 8 (812) (67) 1,325 Unrealised gain on revaluation of investment property - - 2,017 - - - 2,017 Unrealised gain on revaluation of investments - - - 23 - - 23 Proﬁt/(loss) from operations 1,538 607 2,068 31 (812) (67) 3,365 Finance income 128 87 - 2 73 - 290 Share of associate 443 - - - - - 443 Exceptional items - (428) - - - - (428) Proﬁt/(loss) before tax 2,109 266 2,068 33 (739) (67) 3,670 Total assets 6,060 4,971 25,796 3,444 29,853 (28,978) 41,146 Total liabilities (216) (7,486) (23,728) (1,651) (1,659) 29,681 (5,059) Net assets 5,844 (2,515) 2,068 1,793 28,194 703 36,087 Capital expenditure - 1,052 - - 50 - 1,102 Depreciation 1 13 - 2 7 - 23 Segmental assets Net assets of the Group’s Regeneration activities consists mainly of its accrued income in respect of property projects. The Group’s Owned PRS Property consists of Investment property measured at fair value. Venture Capital net assets includes its historic investment in one venture fund and cash. Sigma Capital Group plc | Annual Report & Financial Statements 2016 37 The restated segment analysis for the year ended 31 December 2015 is as follows: RESTATED MANAGED OWNED PRS VENTURE HOLDING INTRA GROUP REGENERATION PROPERTY PROPERTY CAPITAL COMPANY ADJUSTMENTS TOTAL £’000 £’000 £’000 £’000 £’000 £’000 £’000 Revenue from services 3,602 3,096 - 26 - - 6,724 Trading proﬁt/(loss) 1,652 892 - (6) (582) (18) 1,938 Unrealised gain on revaluation of investment property - - - - - - - Unrealised loss on revaluation of investments - - - (120) - - (120) Proﬁt/(loss) from operations 1,652 892 - (126) (582) (18) 1,818 Finance income 65 212 - 2 40 - 319 Share of associate 449 - - - - - 449 Proﬁt/(loss) before tax 2,166 1,104 - (124) (542) (18) 2,586 Total assets 6,224 4,961 - 3,491 30,258 (8,795) 35,581 Total liabilities (2,493) (7,637) - (1,732) (1,592) 9,570 (3,326) Net assets 3,731 (2,676) - 1,759 28,666 775 32,255 Capital expenditure - 25 - - - - 25 Depreciation - 6 - 3 1 - 10 4. Cost of sales 2016 2015 £’000 £’000 Costs in relation to the development at North Arran Way (25) (78) Costs in relation to sale of land 514 1,448 Other (29) 251 460 1,621 38 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 5. Expenses by nature Expenses included in administrative expenses are analysed below. 2016 2015 £’000 £’000 Administrative expenses Employee costs (salaries and national insurance) 2,288 1,892 Employers pension contributions 100 84 Share based payments 213 87 Other employee related costs 104 52 Consultancy 84 102 Travel and entertainment 233 245 Depreciation 24 10 Amortisation 17 18 Operating lease rentals: - plant and machinery 14 2 - land and buildings (net) 122 122 Other premises costs 38 108 Audit services: - Fees payable to Company auditor for the audit of the parent company and consolidated accounts 23 30 - the audit of the Company’s subsidiaries pursuant to legislation 31 32 Non-audit services: - tax services 25 18 - other accountancy services 5 14 Other legal, professional and ﬁnancial costs 229 294 Administration costs 48 55 3,598 3,165 6. Finance income 2016 2015 £’000 £’000 Interest income on short-term deposits and loans 79 42 Interest income on loan to PRS Fund - 212 Unwinding of discount 211 65 290 319 Sigma Capital Group plc | Annual Report & Financial Statements 2016 39 7. Exceptional items 2016 2015 £’000 £’000 Managed PRS activities 428 - 428 - The Group’s agreement with Torrin Asset Management for fees payable in relation to its managed PRS activities was terminated during the year giving rise to a settlement of £428,000. The Group considers this an exceptional item due its size and non-recurring nature. 8. Directors and employees The average monthly number of employees, including executive Directors, employed by the Group during the year was: Property 17 13 Administration 8 6 25 19 2016 2015 The aggregate remuneration was as follows: 2016 2015 £’000 £’000 Wages and salaries 2,035 1,683 Social security 253 209 Pension costs – deﬁned contribution plans 100 84 Share based payment charge - equity settled 213 87 2,601 2,063 Remuneration comprises basic salary and pension contributions and some employees also receive a car allowance or contribution to travel expenses. In addition, other payments are made which are beneﬁts in kind, being private health insurance and life assurance. The type of remuneration is consistent from year to year. Ad hoc bonuses may be paid to reward exceptional performance. Such bonuses are decided by the Remuneration Committee on the recommendation of the Chief Executive Officer. Share options are also awarded to employees from time to time. In the past the share options awarded had performance criteria attached which related to the stock market performance of the Company. More recently the Remuneration Committee has decided that this type of performance condition was not appropriate to individual employees given the volatility of smaller company stocks including those of the Company. The granting of share options to individual employees is determined taking into account seniority, commitment to the business and recent performance. Details of share options granted to and exercised by Directors in the year are contained in the Directors’ Remuneration Report. 40 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 8. Directors and employees (continued) The key management of the Group comprises the Sigma Capital Group plc Board Directors. The total remuneration for each director is shown below. ANNUAL OTHER SALARY INCENTIVES BENEFITS TOTAL PENSION ________________ ________________ ________________ ________________ ________________ 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive GF Barnet 395 275 - 76 - - 395 351 - - M Briselden 128 85 - 9 6 6 134 100 12 9 G Thomson 130 116 - 10 - - 130 126 13 12 G Hogg 225 156 - 76 5 5 230 237 22 16 D Sutherland 96 91 - - 5 5 101 96 5 5 W MacLeod 76 90 - - - - 76 90 - - Non-executive D Sigsworth 55 40 - - - - 55 40 - - J McMahon 40 10 - - - - 40 10 - - 1,145 863 - 171 16 16 1,161 1,050 52 42 Certain Directors have been allocated a share of the carried interest in respect of the PRS joint ventures with Gatehouse and with UK PRS properties. In addition, subject to certain performance conditions, four of the directors may be entitled to a share of the total proﬁt on disposal in relation to the Group’s self-funded PRS properties. No carried interest has crystallised to date. Details of the carried interest arrangements are contained in the Directors’ remuneration report. 9. Taxation 2016 2015 £’000 £’000 UK corporation tax on proﬁt for the year - - Deferred tax – origination and reversal of timing differences 105 192 Tax on proﬁt on ordinary activities 105 192 Sigma Capital Group plc | Annual Report & Financial Statements 2016 41 The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below. RESTATED 2016 2015 £’000 £’000 Proﬁt before tax 3,670 2,586 Proﬁt before tax at the effective rate of corporation tax in the UK of: 20% (2015: 20.25%) 734 524 Effects of: Expenses not deductible for tax purposes 59 59 Share of partnership losses - (30) Share of joint venture proﬁt after tax (89) (91) Capital allowances in excess of depreciation (28) (6) Utilisation of losses 176 (4) Gains on revalued properties not recognised in deferred tax (408) - Other short term timing differences not recognised in deferred tax (208) (199) Effect of reduction in deferred tax rate (102) - Other adjustments (29) (61) Tax charge for the year 105 192 The Group’s deferred tax assets, other than those relating to short term timing differences, are not recognised as it is not sufficiently clear that losses will be capable of utilisation in future periods. The amounts set out below will be available for offset against future taxable proﬁts. These are stated using a corporation tax rate of 17% (2015: 19%). 2016 2015 £’000 £’000 Unrelieved management expenses and other losses 2,634 2,801 Unrelieved capital losses 689 770 Chargeable gains (343) - Excess of depreciation over capital allowances 6 Other timing differences (297) (173) 2,683 3,404 42 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 10. Proﬁt per share The calculation of the basic proﬁt per share for the year ended 31 December 2016 and 31 December 2015 is based on the proﬁts attributable to the shareholders of Sigma Capital Group plc divided by the weighted average number of shares in issue during the year. PROFIT WEIGHTED ATTRIBUTABLE TO AVERAGE BASIC PROFIT SHAREHOLDERS NUMBER OF PER SHARE £’000 SHARES (PENCE) Year ended 31 December 2016 3,565 88,649,088 4.02 Year ended 31 December 2015 (Restated) 2,394 70,555,231 3.39 Diluted proﬁt per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potential dilutive ordinary shares. The Company has only one category of potentially dilutive ordinary shares, those share options granted where the exercise price is less than the average price of the Company’s shares during the year. Diluted proﬁt per share is calculated by dividing the same proﬁt attributable to equity holders of the Company as above by the adjusted number of ordinary shares in issue during the year ended 31 December 2016 of 89,750,427 (2015: 71,511,717). For the year ended 31 December 2016, the diluted earnings per share is 3.97 pence (2015 restated: 3.35 pence). 11. Goodwill and other intangible assets OTHER GOODWILL INTANGIBLES TOTAL £’000 £’000 £’000 Cost At 31 December 2015 and 31 December 2016 656 105 761 Amortisation and impairment At 1 January 2015 123 59 182 Amortisation charge - 18 18 At 31 December 2015 123 77 200 Amortisation charge - 17 - At 31 December 2016 123 94 200 Carrying value At 31 December 2016 533 11 544 At 31 December 2015 533 28 561 Impairment Goodwill and other intangibles arising on consolidation represent the excess of cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. The carrying amount of intangible assets, being the fair value of the contractual relationships, is allocated to the cash generation units (CGUs) as follows: Sigma Capital Group plc | Annual Report & Financial Statements 2016 43 Sigma Inpartnership 2016 2015 £’000 £’000 Goodwill 533 533 Intangible assets 11 28 The major assumption used in value in use calculations is as follows: Pre-tax discount rate 9% 9% The directors estimate discount rates using pre-tax rates that reﬂect current market assessment of the time value of money and the risk speciﬁc to the CGU. The pre-tax discount rate is based on a number of factors including the risk free rate in the UK and the inherent risk of the forecast income streams included in the Group’s cash ﬂow projections. The value in use cash ﬂows are based upon management approved budgets for a period of one year and on speciﬁc assumptions and projections on a project by project basis for a further four years, using management’s detailed knowledge and expectations of the outcome of each project. Thereafter a conservative estimate of continuing cash ﬂows is included assuming nil growth. The results of the value in use calculations for the CGU shows that Sigma Inpartnership exceeds its carrying amount in both the current and prior year. 12. Investment property GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Cost At 1 January 2016 - - - - Additions during the year 22,808 - - - At 31 December 2016 22,809 - - - Fair value adjustment At 1 January 2016 - - - - Revaluation during the year 2,017 - - - At 31 December 2016 2,017 - - - Net book value At 31 December 2016 24,825 - - - The investment properties were externally valued by Savills. Savills are qualiﬁed independent valuers who hold a recognised and relevant professional qualiﬁcation. The valuation basis of market value conforms to international valuation standards. The valuation is based on market evidence of investment yields, expected gross to net income rates and actual and expected rental values. 44 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 13. Property and equipment FIXTURES FREEHOLD LEASEHOLD AND OFFICE COMPUTER PROPERTY IMPROVEMENTS EQUIPMENT EQUIPMENT TOTAL £’000 £’000 £’000 £’000 £’000 GROUP Cost At 1 January 2015 - 43 60 181 284 Additions - - 16 9 25 At 31 December 2015 - 43 76 190 309 Additions 1,028 44 26 4 1,102 Disposals - (43) (57) (170) (270) At 31 December 2016 1,028 44 45 24 1,141 Depreciation At 1 January 2015 - 43 58 165 266 Charge for the year - - 1 9 10 At 31 December 2015 - 43 59 174 276 Charge for the year - 6 8 9 23 Disposals - (43) (57) (169) (269) At 31 December 2016 - 6 10 14 30 Net book value At 31 December 2016 1,028 38 35 10 1,111 At 31 December 2015 - - 17 16 33 Sigma Capital Group plc | Annual Report & Financial Statements 2016 45 FIXTURES LEASEHOLD AND OFFICE IMPROVEMENTS EQUIPMENT TOTAL £’000 £’000 £’000 COMPANY Cost At 1 January 2015 7 15 22 Additions - - - At 31 December 2015 7 15 22 Additions 44 6 50 Disposals (7) (12) (19) At 31 December 2016 44 9 53 Depreciation At 1 January 2015 7 14 21 Charge for the year - 1 1 At 31 December 2015 7 15 22 Charge for the year 6 1 7 Disposals (7) (12) (19) At 31 December 2016 6 4 10 Net book value At 31 December 2016 38 5 43 At 31 December 2015 - - - 46 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 14. Investment in subsidiaries and partnerships COMPANY COMPANY 2016 2015 £’000 £’000 At 31 December 2015 and 31 December 2016 2,921 2,921 Subsidiaries and partnerships The Company has investments in the following subsidiaries and partnerships: COMPANY NAME COUNTRY OF INCORPORATION % HOLDING PRINCIPAL ACTIVITY Sigma Capital Property Ltd Scotland 100 Property* Sigma Inpartnership Limited Scotland 100 Property* Strategic Property Asset Management Limited Scotland 100 Property* Strategic Investment Management Holdings Limited Scotland 100 Property* Sigma Property Investment Limited Scotland 100 Property* Sigma Property Partners Limited Scotland 100 Property* Sigma General Partner Limited Scotland 100 Property* Sigma FP General Partner Limited Scotland 100 Property* Sigma Thistle Founder Partner LP England 68.25 Property** Sigma Thistle Phase II FP Limited Partnership Scotland 75 Property* Sigma Thistle Phase II GP LLP Scotland 100 Property* Sigma Thistle Phase II Limited Scotland 100 Property* Sigma UK PRS GP Limited Jersey 100 Property*** Sigma Founder Partner Limited Partnership Scotland 100 Property* Sigma PRS Developments Limited Scotland 100 Property* Sigma PRS Investments I Limited Scotland 85 Property* Sigma PRS Investments II Limited England 85 Property** Sigma PRS Investments III Limited England 85 Property** Sigma PRS Investments IV Limited England 85 Property** Sigma PRS Investments V Limited England 85 Property** Sigma PRS Investments VI Limited England 85 Property** Sigma PRS Investments VII Limited England 85 Property** Sigma PRS Investments VIII Limited England 85 Property** Sigma PRS Investments XI Limited England 85 Property** Sigma PRS GP Limited Scotland 100 Property* Sigma PRS General Partner LLP Scotland 100 Property* Sigma PRS Founder Partner LP Scotland 100 Property* Sigma PRS Management Limited England 100 Dormant** Sigma PRS Property Investments LP England 100 Property** Liverpool Inpartnership Limited England 100 Property** Solihull Inpartnership Limited England 100 Property** Sigma Capital Group plc | Annual Report & Financial Statements 2016 47 COMPANY NAME COUNTRY OF INCORPORATION % HOLDING PRINCIPAL ACTIVITY Salford Inpartnership Limited Scotland 100 Property* Inpartnership (LP) Limited Scotland 100 Property* City Spirit Regeneration Limited England 100 Property** City Spirit Regeneration (Salford) Limited England 100 Property** Inpartnership CS Limited England 100 Property** Blackburn Inpartnership Limited Scotland 100 Property* Sigma Technology Management Limited England 100 Venture Capital** Sigma Technology Investments Limited England 100 Venture Capital** Sigma Technology Founder Partners Limited England 100 Venture Capital** Liverpool Inpartnership 2007 Limited England 100 Dormant** Inpartnership Health Limited England 100 Dormant** Sigma PRS Properties LP Scotland 100 Dormant* The PRS REIT Limited England 100 Dormant** SI Hotels (GP1) Limited England 100 Dormant** SI Hotels (GP2) Limited England 100 Dormant** SI Hotels Glasgow (GP1) Limited Scotland 100 Dormant* SI Hotels Glasgow (GP2) Limited Scotland 100 Dormant* SI No 7 (GP1)Limited Scotland 100 Dormant* SI No 7 (GP2) Limited Scotland 100 Dormant* SI (LP) Limited England 100 Dormant** Registered Office: 18 Alva Street, Edinburgh, EH2 4QG Registered Office: Floor 3, 1 St. Ann Street, Manchester, M2 7LR * ** *** Registered Office: 44 Esplanade, St. Helier, Jersey, JE6 9WG 15. Investment in joint venture GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 At 1 January 2016 449 - - - Share of proﬁts 443 449 - - At 31 December 2015 892 449 - - Group share of net assets 892 449 - - The share of net assets relates to the Group’s investment in Countryside Sigma Limited. Countryside Sigma Limited is incorporated in the United Kingdom and the Group owns 25.1% of the ordinary share capital. The accounting reference date of Countryside Sigma Limited is 30 September. The results for 12 months to 31 December 2016 and the ﬁnancial position as at that date have been equity accounted in these ﬁnancial statements. The Group is contractually entitled to 50% of the proﬁt of Countryside Sigma expected to be realised at the end of the development. 48 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 16. Fixed asset investments GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 At 1 January 2016 2 - - - Additions - 2 - - At 31 December 2016 2 2 - - The addition during the prior year relates to the Group’s investment in UK PRS (Jersey) I Limited Partnership. 17. Financial assets at fair value through proﬁt and loss GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 At 1 January 2016 553 673 - - Additions - - - - Disposals - - - - Fair value write up/(down) 23 (120) - - At 31 December 2016 576 553 - - The ﬁnancial assets at fair value through proﬁt and loss are the Group’s holdings in venture capital funds and an unquoted security. The underlying investments in the funds are in unlisted start-up companies. The investments are valued by the manager of the fund on a basis consistent with industry guidelines and are reviewed quarterly by the Board. The directly held unquoted security amounts to £6,000 and was also valued on a basis consistent with industry guidelines. The total fair value adjustments made during the year relating to investments, both ﬁnancial assets at fair value through proﬁt and loss and trading investments are set out below. GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Financial assets at fair value through proﬁt and loss: - the venture capital funds 23 43 - - - Unquoted securities - (163) - - 23 (120) - - 18. Stocks The following is included in the net book value of stocks GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Land and development properties - 509 - - The value of stocks expensed during the year and included in cost of sales was £509,000 (2015: £1,439,000). Sigma Capital Group plc | Annual Report & Financial Statements 2016 49 19. Trade receivables and other current assets GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Trade receivables 323 1,020 2 - Receivables from Group undertakings – current - - 213 500 Receivables from Group undertakings – non current - - 23,218 3,179 Social security and other taxes 529 - 17 45 Other debtors 471 518 4 2 Other debtors - non current - 1,335 - - Prepayments and accrued income 1,622 2,732 40 49 Prepayments and accrued income – non current 4,126 2,734 - - 7,071 8,339 23,494 3,775 Less receivables from Group undertakings - non current - - (23,218) (3,179) Less other debtors - non current - (1,335) - - Less prepayments and accrued income – non current (4,126) (2,734) - - Current portion 2,945 4,270 276 596 Trade receivables GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Trade receivables not due 321 975 98 222 Trade receivables past due 1-30 days - 31 5 4 Trade receivables past due 31-60 days 2 9 23 104 Trade receivables past due 61-90 days - 5 83 4 Trade receivables past due over 90 days - - 6 166 Gross trade receivables at 31 December 2016 323 1,020 215 500 Provision for bad debt at 1 January 2016 - - - - Debt provisions reversed in the year - - - - Provision for bad debt at 31 December 2016 - - - - Net trade receivables at 31 December 2016 323 1,020 215 500 The Directors consider that the carrying amount of trade receivables approximates to their fair value. Debts provided for and written off are determined on an individual basis and included in Administrative expenses in the ﬁnancial statements. The Group’s maximum exposure on credit risk is fair value on trade receivables as presented above. The Group has no pledge as security on trade receivables. The Group’s other debtors include a loan of £nil (2015: £259,000) in respect of the PRS Fund which was repaid in full during 2016 and a loan of £92,000 (2015: £1,500,000) also in respect of the PRS Fund which was paid in March 2017. The loan of £92,000 attracts interest at the rate of 12% per annum compounded daily and a deferred interest sum of £100,000. The Group’s non-current prepayments and accrued income includes fees of £2,294,000 (2015: £1,608,000) which will be paid between 2017 and 2020, carried interest of £1,832,000 (2015: £914,000) which is expected to be paid no earlier than 2018 and loan interest of £nil (2015: £212,000). 50 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 20. Trade and other payables GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Trade payables 3,103 79 61 39 Payables to Group undertakings - - 1,552 1,345 Other creditors - 3 - - Social security and other taxes 84 359 - - Accruals and deferred income 1,039 2,693 46 208 4,226 3,134 1,659 1,592 The Directors consider that the carrying amount of trade payables approximates to their fair value. 21. Interest – bearing loans and overdrafts GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Current liabilities Bank loans 55 - - - Non-current liabilities Bank loans 481 - - - Total interest bearing loans and overdrafts 536 - - - The loan part funded the acquisition and redevelopment of the Group’s head office in Edinburgh. The original value of the loan was £550,000 and is repayable in quarterly instalments with a ﬁnal instalment in 2021. Interest is charged at commercial rates. The loan is held by Sigma Capital Property Ltd and is secured on the property. A cross guarantee is provided by the Company. 22. Deferred tax liability GROUP COMPANY 2016 2016 £’000 £’000 Amounts due to be paid within one year 297 - The movement in the year in the Group and Company net deferred tax liability position was as follows: Opening position as at 1 January 2015 - - Charge to statement of comprehensive income for the year 192 - At 31 December 2015 192 - Charge to statement of comprehensive income for the year 105 - At 31 December 2016 297 - Sigma Capital Group plc | Annual Report & Financial Statements 2016 51 23. Share capital and share premium Group and Company NUMBER ORDINARY SHARE OF SHARES SHARES PREMIUM TOTAL £’000 £’000 £’000 At 31 December 2015 88,501,430 885 31,833 32,718 Exercise of share options 214,285 2 52 54 At 31 December 2016 88,715,715 887 31,885 32,772 The total authorised number of ordinary shares is 130,000,000 (2015: 130,000,000) with a par value of 1p per share (2015: 1p). All issued shares are fully paid. 24. Share options The Company has two option schemes for executive Directors and employees, the Sigma Capital Group plc Company Share Option Scheme 2010, which has received HM Revenue and Customs approval, and the Sigma Capital Group plc Unapproved Share Option Scheme 2010. All options are granted at the market value of the shares at the date of grant. Both share option schemes run for a period of ten years and have a vesting period of three years. All employees are eligible to participate in the schemes. No payment is required from option holders on the grant of an option. There were 1,885,774 options over ordinary shares (2015: nil) granted during the year. No performance conditions or market conditions are attached to these options. Movements in the number of share options outstanding and their related weighted average exercise prices were as follows: 2016 2015 WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE PRICE EXERCISE PRICE IN PENCE PER OPTIONS IN PENCE PER OPTIONS SHARE (‘000S) SHARE (‘000S) At 1 January 2016 43 2,545 36.3 3,250 Granted 93.5 1,886 - - Exercised 25.7 (214) 8.7 (645) Expired / lapsed 68.0 (89) 50.4 (60) At 31 December 2016 66.4 4,128 43.0 2,545 Of the 4,128,000 outstanding options (2015: 2,545,000), 1,031,000 had vested at 31 December 2016 (2015: 720,000). 52 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Notes to the Financial Statements (continued) 24. Share options (continued) Share options outstanding at the end of the year have the following expiry date and exercise prices: EXERCISE PRICE PENCE PER 2016 2015 EXPIRY DATE SHARE NUMBER NUMBER 2018 25.0 - 100,000 2021 8.0 250,000 250,000 2021 7.5 369,500 369,500 2023 26.25 411,190 525,476 2024 68.0 1,211,741 1,299,975 2026 93.5 1,885,774 - There were 1,885,774 (2015: nil) options granted in the year. The weighted average fair value of options granted to executive Directors and employees during the year determined using the Black-Scholes-Merton valuation model was 22.7p per option. The signiﬁcant inputs into the model were exercise price shown above, volatility of 30%, dividend yield of 0%, expected option life of 4 years and annual risk free interest rate of 1.12%. Future volatility has been estimated based on comparable information rather than historical data. 25. Other reserves The capital redemption reserve was created on the buy-back of shares in the Company and their subsequent cancellation, being the nominal value of the shares cancelled. The merger reserve and capital reserve were created on the merger of Sigma Technology Management Limited (“STM”) with the Company. The fair value of equity-settled share-based payments is expensed on a straight line basis over the vesting period and the amount expensed in each year is recognised in retained earnings. The movement in reserves for the years ended 31 December 2016 and 2015 is set out in the Consolidated and Company Statements of Changes in Equity. 26. Operating lease commitments The Company leased the Group’s offices in Edinburgh until 31 December 2016 under a non-cancellable operating lease. In January 2016 Sigma Inpartnership surrendered its existing lease of the Group’s offices in Manchester under a non-cancellable operating lease which was due to expire in 2016. In January 2016 the Company commenced a new lease for Group offices in Manchester under a non-cancellable operating lease which expires in 2021. Other Group companies lease various plant and machinery under non-cancellable lease agreements. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2016 2015 PLANT AND LAND AND PLANT AND LAND AND MACHINERY BUILDINGS MACHINERY BUILDINGS £’000 £’000 £’000 £’000 The Group Within 1 year 14 30 8 121 From 2-5 years 32 90 12 120 After 5 years - - - - 46 120 20 241 The Company Within 1 year - 30 - 119 From 2-5 years - 90 - 120 After 5 years - - - - - 120 - 239 Sigma Capital Group plc | Annual Report & Financial Statements 2016 53 27. Cash ﬂows from operating activities RESTATED GROUP GROUP COMPANY COMPANY 2016 2015 2016 2015 £’000 £’000 £’000 £’000 Proﬁts/(loss) after tax 3,565 2,394 (739) (542) Adjustments for: Share-based payments 213 87 213 87 Depreciation 23 10 7 1 Amortisation 17 18 - - Finance income (290) (319) (73) (39) Fair value (proﬁt)/loss on ﬁnancial assets at fair value through proﬁt or loss (23) 120 - - Loss on disposal of trading investments at fair value through proﬁt or loss - 1 - - Share of associate proﬁt (443) (449) - - Unrealised proﬁt on revaluation of investment property (2,017) - - - Changes in working capital: Decrease/(increase) in stocks 509 (509) - - Trade and other receivables (398) (4,741) (22,970) 1,592 Trade and other payables 1,197 2,394 3,318 252 Cash ﬂows from operating activities 2,353 (995) (20,244) 1,351 28. Capital commitments The Group have entered into contracts with unrelated parties for the construction of residential housing with a total value of £38,457,000 (2015: £nil). As at 31 December 2016, £21,878,000 (2015: £nil) of such commitments remained outstanding. 29. Related party transactions Sigma holds a 25.1% shareholding in Countryside Sigma Limited. Fees invoiced in relation to development management services for the year were £425,000 (2015: £489,000). At 31 December 2016, Sigma was owed £16,000 (2015: £69,000). The Group has a 20.1% capital interest in Thistle Limited Partnership, its joint venture with Gatehouse. Proﬁt share earned and paid during the year were £1,041,000 (2015: £1,118,000). The Group also received interest of £434,000 (2015: £nil) in respect of its loans to Thistle Limited Partnership. The Group has a 20% interest in UK PRS (Jersey) I LP in respect of its joint venture with UK PRS Properties. Fees invoiced in relation to services for the year were £797,000 (2015: £763,000). At the year end, Sigma were owed £268,000 (2015: £763,000). The group also sold land and development property to UK PRS (Jersey) I LP for £548,000 (2015: £nil). During the year, the Group paid fees of £680,000 (2015: £nil) to Torrin Asset Management Limited of which former director Bill MacLeod is also a director. The balance outstanding at the end of the year was £nil (2015: £52,934). Certain Directors have been allocated a share of the carried interest in respect of the PRS joint ventures with Gatehouse and with UK PRS properties. In addition, subject to certain performance conditions, four of the directors may be entitled to a share of the total proﬁt on disposal in relation to the Group’s self-funded PRS properties. No carried interest has crystallised to date. Details of the carried interest arrangements are contained in the Directors’ remuneration report. 54 Sigma Capital Group plc | Annual Report & Financial Statements 2016 Five Year Record RESTATED 2016 2015 2014 2013 2012 £’000 £’000 £’000 £’000 £’000 Revenue 5,383 6,724 3,868 5,808 2,326 Cost of sales (460) (1,621) (660) (3,555) - Gross proﬁt 4,923 5,103 3,208 2,253 2,326 Other operating income 2,040 (26) 170 54 (833) Administrative and other expenses (3,598) (3,259) (3,192) (2,662) (2,575) Proﬁt/(loss) from operations 3,365 1,818 186 (355) (1,082) Net ﬁnance income 290 319 28 10 22 Share of proﬁts/(losses) from joint ventures /associate companies 443 449 - 20 (111) Exceptional item (428) - - (531) - Proﬁt/(loss) before tax 3,670 2,586 214 (856) (1,171) Taxation (105) (192) - - - Proﬁt/(loss) for the year 3,565 2,394 214 (856) (1,171) Attributable to: Equity holders of the Company 3,565 2,394 214 (856) (1,171) Minority interests - - - - - 3,565 2,394 214 (856) (1,171) Net assets employed 36,087 32,255 10,620 2,636 2,597 Basic earnings/(loss) per ordinary share (pence) 4.02 3.39 0.38 (1.87) (2.57) Sigma Capital Group plc | Annual Report & Financial Statements 2016 55 Proxy Form I/we FULL NAME(S) IN BLOCK CAPITALS of ADDRESS IN BLOCK CAPITALS being a member/members of Sigma Capital Group plc hereby appoint as my/our proxy, to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 10am on 23 June 2017 at 18 Alva Street, Edinburgh, EH2 4QG and at any adjournment thereof, the duly appointed Chairman of the meeting or (see Note 1) My/Our proxy is to vote as indicated by ‘X’ below in respect of the resolutions set out in the notice of the meeting. FOR AGAINST WITHHELD Ordinary Resolutions 1. 2. 3. 4. 5. 6. 7. Receipt of the ﬁnancial statements for the year ended Re-appointment of James Cairns McMahon as a director Re-appointment of Graham Fleming Barnet as a director 31 December 2016 together with the reports of the Directors and the auditor nn nn nn nn nn nn nn Approval of the report on Directors’ remuneration for the year ended 31 December 2016 Re-appointment of the auditor Remuneration of the auditor General authority to allot securities Special Resolutions 8. General disapplication of pre-emption rights Signature(s) or Common Seal nn Date nn nn nn nn nn nn nn nn nn nn nn nn nn nn nn nn FULL NAME (BLOCK CAPITALS) Notes 1. 2, 3. A member may appoint a proxy of his or her choice. If a proxy other than the Chairman is preferred, delete the words “the duly appointed Chairman of the meeting or” and enter the name of your proxy in the space provided. A proxy need not be a member of the Company, but must attend the meeting to represent you. In the case of a corporation, the form of proxy must be either given under its common seal or signed by a duly authorised officer or attorney. In the case of joint holders, the ﬁrst-named holder of the shares must sign the form of proxy. 4. Only members or their proxies may attend the meeting. 5. 6. Completion and return of the form of proxy will not prevent a member from attending and voting in person at the meeting if the member so wishes. Please indicate with ‘X’ in the boxes in the form of proxy how you wish your proxy to vote on each of the resolutions. If no indication is given your proxy will have discretion to vote or to abstain (including on any other matter which may properly come before the meeting) as he/she thinks ﬁt. To be valid the form of proxy must be received by the Company Secretary at 18 Alva Street, Edinburgh, EH2 4QG no later than 10am on 21 June 2017. # 56 Sigma Capital Group plc | Annual Report & Financial Statements 2016 from operations up 877% or £1.63m to £1.82m (2014: £0.19m) > (2014: £0.21m) Profit before tax up nearly 10 times to £2.14m > (2014: 0.38p) Basic earnings per share up 626% to 2.76p > 35.9p (2014: 17.4p) Net assets per share more than doubled to > £5.22m) Cash at year end increased to £25.14m (2014: EDINBURGH: 18 Alva Street Edinburgh EH2 4QG MANCHESTER: Floor 3, 1 St Ann Street Manchester M2 7LR LONDON: Regus House 45 King William Street London EC4R 9AR T: 0333 999 9926 W: www.sigmacapital.co.uk

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