PRS & Urban
Regeneration
Specialists
ANNUAL REPORT & FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2017
Contents
PAGE
Key Points
Chairman’s Statement 3
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 23
Consolidated Balance Sheet 24
Company Balance Sheet 25
Consolidated Statement of
Changes in Equity 26
Company Statement of
Changes in Equity 27
Consolidated and Company
Cash Flow Statements 28
Accounting Policies 29
Notes to the Financial Statements 35
Five Year Record 58
Proxy Form 59
Company number 03942129
Key Points
SUMMARY
> A pivotal year - successful launch
of The PRS REIT plc (“PRS REIT”)
via an IPO in May 2017:
-
-
it is the first UK-quoted REIT to
focus on PRS investment and is
now Sigma’s main focus
Sigma is responsible for the delivery
of the PRS REIT’s initial goal to
create a £1bn+ portfolio of 10,000+
high-quality, newly-built rental homes
PRS REIT’s resources are targeted to
be c.£900m with gearing, equivalent
to c.6,200 new homes
Sigma’s growth and earnings profile
have been significantly transformed
Sigma today has c.1,383 homes under
construction for delivery to the REIT,
via its unrivalled PRS Platform
-
sites for a further c.4,000 homes
have been identified
Significant and growing demand for rental
homes for families should support Sigma
and the PRS REIT’s long-term prospects
>
>
>
>
Sigma Capital Group plc | Annual Report & Financial Statements 2017 1
FINANCIAL
POST-PERIOD
> Revenue of £4.4m (2016: £5.38m)
>
>
Profit from operations of £3.12m
(2016: £3.37m)
Profit before tax of £4.06m
(2016: £3.67m)
>
Earnings per share of 4.15p (2016: 4.02p)
> Net assets per share of 45.1p (2016: 40.7p)
> Net cash of £6.2m (2016: £6.1m)
OPERATIONAL
>
Sigma committed the PRS REIT’s entire
IPO equity (£250m gross) by early January
2018, well ahead of schedule:
-
this represents c.1,720 properties, with
an estimated rental value (“ERV”) of
£15.7m pa. Construction is underway
across 26 sites in North West, Midlands
and South Yorkshire
>
>
Sites for a further c.1,380 new homes
(GDC of c.£200m) for the PRS REIT were
secured – underpinned by debt facilities
Existing Managed PRS activities – with
Gatehouse Bank and UK PRS Properties –
also progressed well
>
>
>
In February 2018, Sigma completed second
£250m (gross) placing for the PRS REIT
In January 2018, Sigma secured credit-
approved terms for £200m of debt
facilities for the PRS REIT
Further development opportunities, with
GDC of £600m have been identified for the
PRS REIT – represents an additional c. 4,000
new homes (over and above 3,100 homes
already under construction or in planning)
>
PRS Platform deepened and broadened:
-
-
-
new Framework Agreement with
Keepmoat Homes for increased
housing delivery in South Yorkshire
and East Midlands
first collaboration with Galliford Try
Partnerships commenced
discussions underway with Countryside,
key house building partner, to expand
activity
> Homes England remains supportive
>
Three development sites acquired with
a GDC of c.£31.0m with additional
site acquisitions expected in 2018
-
completed and let sites are expected
to be acquired by the PRS REIT
when completed
2 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Key Points (continued)
GRAHAM BARNET
CEO of Sigma, commented:
“ It has been a remarkable year for Sigma. The
successful launch of the PRS REIT, which is the UK’s
first REIT dedicated entirely to investment in new
rental homes, has created a huge opportunity for
the Group to capture, and cements our position
as a leader in the Private Rented Sector.
2017’s results do not reflect the profound change
to Sigma’s growth prospects and earnings profile.
However our financial performance from the new
financial year onwards will reflect the new model.
We are wholly focused on delivering the PRS REIT’s
initial goal of creating 10,000 high-quality new rental
homes for middle-income families, and are confident
that, with our unrivalled PRS Platform, supported
by our house building partners as well as by central
and local government, Sigma is well-placed to
achieve its objectives.”
Sigma Capital Group plc | Annual Report & Financial Statements 2017 3
Chairman’s Statement
Introduction
I am delighted to present Sigma’s results for the year
to 31 December 2017. As we stated in our interim
report, 2017 was a landmark year in the scaling of
our Private Rented Sector (“PRS”) model. The launch
of The PRS REIT plc (“the PRS REIT” or “the REIT”),
on 31 May, and subsequent commencement of our
activities on behalf of the REIT, have transformed
Sigma’s growth prospects and earnings profile. Our
financial results for the year show only the beginnings
of this transition, which should come through more
fully in the new financial year and beyond, as we
support and drive the PRS REIT’s initial target to
create a portfolio of over 10,000 high-quality rental
homes in the UK, predominantly for families.
As of today, through our PRS Platform, we are
responsible for the delivery of hundreds of new
rental homes across multiple sites in multiple regions
of England for the PRS REIT. This number is rising
progressively as we continue to deploy the REIT’s
resources, in line with its investment objectives.
With £500m of equity capital currently in place, once
fully geared, the PRS REIT’s resources are expected
to total approximately £900m, which equates to
some 6,500 new rental homes. Sigma’s Platform has
identified a pipeline of development opportunities
amounting to in excess of £600m gross development
cost (“GDC”) or some 4,000 new homes. We are in the
process of appraising and delivering on this, as well
as advancing the delivery of the original c. 3,100 new
homes planned at the launch of the REIT in May 2017,
which uses the IPO proceeds and £200m of gearing.
With our business now principally focused on driving
the PRS REIT’s growth and investment objectives, the
visibility of the Group’s revenue streams is significantly
greater. Now that the REIT’s capital base is in place,
the main variables for Sigma are not the quantum of
delivery but the timing of development management
fees relative to Sigma’s year end, and the relative mix
of our income streams. Our income streams are
broadly threefold:
>
>
>
development profits on the assets we build,
and subsequently sell;
development management fees for the assets
we procure and deliver; and
asset management fees for the overall
management of the assets.
The new financial year has started well for Sigma.
We are continuing to extend our PRS Platform to
support ongoing growth, and, in March 2018,
commenced our first construction project with
Galliford Try Partnerships, a subsidiary of Galliford
Try plc. This project is seen as a precursor to a broader
relationship. We are also looking to scale existing
relationships with our current Platform partners,
in particular, Countryside Properties.
The rate of our delivery for the PRS REIT remains
strong, and we look forward with confidence to
continuing progress in 2018.
Financial Results
Group revenues for the year ended 31 December 2017
were £4.44m (2016: £5.38m), which includes a first
contribution from activities related to the PRS REIT.
As expected, profit from operations was slightly lower
than last year, at £3.12m (2016: £3.37m). Profit from
operations from Sigma’s self-funded PRS activities
rose by 48% to £3.1m (2016: £2.1m) while managed
PRS activities generated a loss of £0.3m (2016: profit
of £0.6m), and the contribution from regeneration
activities contribution was £nil (2016: £1.5m). The
Group’s non-core venture capital and other holding
activities contributed a profit from operations of
£0.3m (2016: loss of £0.8m).
Administrative expenses increased to £4.3m (2016:
£3.6m) as we increased the number of our employees
to support growth.
Profit before tax rose by 11% to £4.06m (2016:
£3.67m), and basic earnings per share increased
to 4.15p (2016: 4.02p).
The Group’s net asset backing continued to strengthen,
with net assets per share at the year-end up by 11% to
£40.04m (2016: £36.09). This is equivalent to 45.1p
per share (31 December 2016: 40.7p per share).
With ongoing investment in PRS activities, cash at
31 December 2017 only rose slightly to £6.2m
(2016: £6.1m).
4 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Chairman’s Statement (continued)
Operational Overview
The PRS REIT
Following the successful IPO of the PRS REIT in May
2017, Sigma PRS Management Ltd (“Sigma PRS”), a
wholly-owned subsidiary of the Group, was appointed
as Investment Adviser.
The REIT, which has attracted support from Homes
England (previously known as the Homes and
Communities Agency), a public body sponsored by the
Ministry of Housing, Communities & Local Government,
as well as some of the largest institutional investors in
Europe, raised initial equity of £250m at IPO and in the
new financial year, in February 2018, raised an
additional £250m.
The PRS REIT is building its portfolios in two ways:
> Undeveloped Sites
It is acquiring undeveloped sites, sourced by Sigma
PRS, with Sigma PRS managing their subsequent
development, as well as the letting of the newly-
built homes via our PRS Platform. The PRS REIT has
first right of refusal over the Sigma pipeline of
developments and aims to fund a minimum of two-
thirds of the new properties this way.
Sigma earns a development management fee of 4%
of GDC, which in part reflects the value of the PRS
REIT’s exclusive access to Sigma’s PRS platform.
> Completed Sites
The REIT is acquiring fully completed PRS sites
from Sigma (and/or one of its subsidiaries) that
accord with its investment objectives, and satisfy
certain return and occupancy hurdles. The PRS
REIT can fund up to a maximum of a third of new
properties in this manner.
Sigma earns development profits from these sites,
and receives rental income until the point of sale. At
sale, sites are valued by Savills, as valuer to the PRS
REIT.
As well as earning development management fees and
development profits, Sigma also earns an asset
management fee. This is calculated as a percentage of
the net asset value (“NAV”) of the PRS REIT’s portfolio,
with a sliding scale applied. Sigma earns 1% of the
value of the REIT’s adjusted net assets up to £250m,
with this percentage moving to 0.9%, 0.8% and 0.7% at
certain thresholds. 0.7% is earned on the value of the
REIT’s adjusted net assets value of over £1bn.
At the start of the new financial year, Sigma PRS had
identified and fully committed the net proceeds of the
PRS REIT’s IPO fundraising, which was ahead of
schedule. The total volume of new homes expected
from this capital is c. 1,720 and the new homes will be
constructed across 26 sites, in the North West,
Midlands and South Yorkshire. Principally, designed for
families, the properties are expected to generate an
estimated rental value (“ERV”) of £15.7m per annum for
the PRS REIT when completed and fully let. Sigma sold
four sites, which it had developed, to the PRS REIT for
£31.7m in 2017, crystallising a profit of c. £2.8m.
In the new financial year to date, a further four
development sites, with a GDC of c.£38.0m, are
currently under construction, and their sale by Sigma
to the REIT is expected by the end of 2018 after the
new homes have been fully completed and let. Sigma
has also acquired three additional new sites in the new
financial year, which will be developed for a total GDC
of c. £31.0m. The homes on these sites are expected to
be completed in 2019.
By 31 March 2018, we delivered an additional 276
homes to the REIT, via our PRS Platform. These new
homes are generating an annualised rental income
stream of £2.4m. As at that date, we had also managed
the delivery of a further 73 homes, which will be sold
to the REIT when the whole sites complete. These
assets comprise the balance of ‘The First Acquisition
Portfolio’ as identified in the REIT’s prospectus of 4
May 2017.
As we have highlighted, our PRS Platform underpins
our activity, and remains pivotal in sourcing and
developing investment opportunities for the PRS REIT.
It comprises our construction partners, including
Countryside Properties, Keepmoat Regeneration and
Engie, as well as local authorities. Homes England also
continues to work closely with us in our common goal
of accelerating new housing delivery in England.
During the year, we continued to open up discussions
with new potential partners in order to expand our
geographic reach, construction and supply chain
resource. I am pleased to report that in the new
financial year, we embarked on a first collaboration
with Galliford Try Partnerships. This project is a 40
home site which should complete in spring 2019.
Galliford Try Partnerships and its national housing
division Linden Homes, both have a reputation for
delivering high quality homes, and we envisage
creating many hundreds of PRS homes, and intend to
open up new geographies, especially in the West and
South West of the England.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 5
We are also in discussions with Countryside, our key
construction partner, to accelerate the volume of
completed new homes over the course of 2018 and
beyond. These homes will be predominantly located
across the North West, East, the Midlands, and the
South of England.
Our activities with Keepmoat Homes and Engie in
Sheffield and South Yorkshire, continue to progress. In
February, we signed a new Framework Agreement with
Keepmoat Homes for increased housing delivery in
South Yorkshire and East Midlands, and we look
forward to expanding our work with both Keepmoat
Homes and Engie over the course of 2018 as both
businesses refocus after corporate activity arising from
the demerger of Engie from the Keepmoat Group.
In the new financial year, in February 2018, the PRS
REIT also secured a second major round of equity
funding, raising £250m gross through a placing. We
are also currently in the process of completing debt
facilities worth a combined £200m on behalf of the
PRS REIT, in accordance with the PRS REIT’s stated
strategy.
Gatehouse Bank (Phase 1)
As we stated in our interim report, we completed the
development of our first PRS activities with Gatehouse
Bank in February 2017, delivering 918 new family rental
homes across multiple sites in the North West of
England in just over two years. The homes are now
generating an annual rental income of approximately
£7.5m for Gatehouse Bank. Sigma earns an asset
management fee of approximately £0.48m from this.
The Company also holds a carried interest element,
subject to agreed hurdle rates, which will be realised
when the properties are sold.
UK PRS Properties (Phase 2)
Our venture with UK PRS Properties, which is
principally backed by the Kuwait Investment Authority
and institutional shareholders from the State of Kuwait,
represented a second phase of PRS activity. We are
delivering a portfolio of 684 new rental properties for
this venture. These homes have a GDC of £94m and
are located across sites in the North West and
Midlands.
To date, we have delivered 508 completed homes
through our PRS Platform, with the remaining 176
currently under construction.
Community Support
Our PRS activities typically take us into the heart of
the communities, and Sigma has often engaged with
schools and charities, to support local projects. We are
now advancing plans to formalise our activities and
look forward to announcing our new initiatives over
the coming months.
Outlook
The PRS REIT has gathered significant momentum
and, when fully geared, its resource base will total
c.£900m. This means that we will be driving the
delivery of c.6,200 high-quality, new homes for rent.
We are progressing well, with an additional £600m of
opportunities identified today over and above our
initial delivery of c.£450m.
The majority of these new homes will be delivered as
‘undeveloped sites’, where our role is to source sites
and manage their development and letting through
our PRS Platform. The remainder will comprise
‘completed sites’, where we acquire and fully develop
sites for onward purchase by the REIT, subject to the
sites meeting the REIT’s required investment returns.
With this roadmap in mind, prospects for Sigma
remain very exciting, and we are working with our
partners to ensure that the full potential of the
opportunity can be realised effectively and efficiently.
Demand for rental homes, especially family homes, is
growing strongly, and the Private Rented Sector as a
new emerging asset class in the UK is increasingly
evident. By 2020, commentators estimate that PRS will
make up some 25% of all households, from
approximately 19% today. Currently there is a pipeline
of an estimated £17 billion of rented stock, with a
forecast requirement of £300 billion over the next five
years leaving a very large gap in delivery.
Sigma is well-placed for continuing growth and we
would like to express our thanks to all stakeholders
who have supported and backed Sigma and the PRS
REIT, and who share our goal of creating high-quality,
new homes for families.
David Sigsworth OBE
Chairman
23 April 2018
6 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Strategic Report
The Directors have pleasure in presenting their
Strategic Report for the year ended 31 December 2017.
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 2017 had five principal wholly-
owned subsidiaries:
> Sigma Capital Property Ltd (“SCP”)
> Sigma PRS Management Ltd (“Sigma PRS”)
> Sigma Inpartnership Ltd (“SIP”)
> Strategic Property Asset Management Ltd
(“SPAM”)
> Sigma Technology Investments Limited (“STI”)
The Group’s PRS activities are carried out by SCP
and its subsidiaries. During 2017, the Group announced
the launch of The PRS REIT plc (“PRS REIT”) and that
it had successfully raised £250m of gross proceeds
through a significantly oversubscribed IPO to invest
in and deliver PRS homes. Sigma PRS is Investment
Adviser to the PRS REIT, with a five year management
contract. It is also development manager to the PRS
REIT. SCP continues to invest in its own self-funded
portfolio of private rented homes and, during the year,
completed the sale of four fully developed and let PRS
sites to the PRS REIT. SCP is active on a further seven
PRS sites, of which four are expected to be completed,
fully let and sold to the PRS REIT during 2018. The
Group’s first PRS joint venture with Gatehouse Bank
plc commenced in November 2014 and in March 2017
completed the delivery of 918 new family homes for
the private rental market with rental levels continuing
to exceed 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 continues to progress well and is currently
active on eight sites for the delivery of 684 new
family rental homes of which 508 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
Homes England to further our PRS activities and
maintain our position at the forefront 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. Commentators estimate that the PRS
sector will make up some 25% of all households by
2020, from approximately 19% today. Currently there
is a pipeline of an estimated £17 billion of rented stock
with a forecast requirement of £300 billion over the
next five years leaving a very large gap in delivery.
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 1,800
homes in a little over three years and our current
overall active pipeline is in excess of 6,200 PRS
homes in the major regions of England.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 7
This PRS model is the key component of our strategy
for 2018 and will continue to be executed through
our dedicated Sigma PRS Platform.
The most exciting element to our strategy going
forward was the flotation in May 2017 of the first ever
UK quoted REIT, specifically focused on investment
in the private rented sector. The PRS REIT raised
£250m of gross equity and in the new financial year,
in February 2018, raised a further £250m of gross
equity via its Placing Programme. This, coupled with
the Homes England debt facility and our expanded
housebuilding partnerships, allows a significant
acceleration of our delivery capability and also
enables Sigma to redeploy 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 significantly more quickly than any
other tenure, 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 and which
are restricted by mortgage availability.
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.
The PRS REIT plc
In May 2017, the PRS REIT raised £250m gross
proceeds through an oversubscribed IPO to invest
and deliver PRS homes. The launch of the PRS REIT
represents a fundamental transformation of Sigma’s
model. The Company has a 5 year management
contract with the PRS REIT as Investment Adviser,
and is also Development Manager. This should
provide a predictable future revenue stream.
At the end of 2017, the IPO proceeds had been fully
committed and will deliver c.1,720 family homes. Since
the year end, the PRS REIT has agreed debt facilities
with both Scottish Widows and Lloyds Banking Group,
which totals £200m. This will help deliver a further
1,380 PRS homes. In February 2018, the PRS REIT
successfully raised a further £250m of gross equity
funding through its Placing Programme and when
debt funding is applied it is set to deliver c.3,100
additional homes.
Sigma is remunerated by the PRS REIT in two ways.
Firstly, Sigma receives an investment advisory fee
which is based on an adjusted net asset value of the
PRS REIT and secondly it receives a development fee
in respect of sites that are developed directly by the
PRS REIT.
In addition, through a forward purchase agreement,
the PRS REIT will acquire completed and fully let
sites from Sigma, allowing the Company to recognise
any revaluation gains. As at 31 December 2017, a total
of four developed and let sites had been sold to the
PRS REIT.
Sigma Self-funded 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
Homes England, materially up scaling our delivery
of self-funded new rental homes. The initial or ‘First
Acquisition Portfolio’, consisting of eight investment
sites, is earmarked for the PRS REIT and during 2017
the Company successfully sold four developed and let
sites, releasing capital for further investment into new
PRS homes. The Company is currently active on a
further seven investments sites. Four of these are
expected to be completed and let during 2018 with the
remainder ready in 2019. Demand for the properties
continues to be strong, and the properties are letting
quickly and generating gross rental income in excess
of that originally forecast.
2017 saw the continued progression of our PRS brand
‘Simple Life’ (www.simplelifehomes.co.uk), through
which all our sites are be marketed including those
developed by the PRS REIT. The creation of this
consumer brand helps to identify our product to
potential customers and, over time, we are aiming
for Simple Life to be recognised as the ‘gold standard’
for tenant experience.
8 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Strategic Report (continued)
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 in March 2017,
and consists of 918 new privately rented residential
properties in the North West of England, with
construction costs as forecast. The sites continue to
perform well with current occupancy in excess of 95%
let and 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 a renewal rate of over 70% rate with
existing tenants. The properties have been let by
the SDL Group under the brand, ‘DIFRENT’.
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
comprises the construction of 684 family homes over
eight sites in the North West and Midland regions of
England. To date, 508 properties have been delivered
with lettings progressing well and rental levels at or
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 few years, the Council
increased the number of sites under option. The key
sites added have been 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 nearly
complete. 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
2018 we had completed 825 of the homes for sale and
all of the 221 PRS properties are complete and let.
Construction on the former Queen Mary School site,
which is approximately one mile from Norris Green has
completed. 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 and all the 136 open market for
sale homes have been sold.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 9
Construction continues to progress well at Gateacre,
a 19 acre former secondary school. The site consists
of 231 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 7-8 units currently being completed
per month. To date, 164 of the new homes are sold
or reserved, since the show homes opened in
January 2017.
Commercial Projects
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, which is pre-let to
Premier Inn, along with 30,000 sq.ft of retail and
leisure units with completion of the scheme on track
for the summer of 2018. There has been good occupier
interest in the retail and leisure units and we are under
contract with a food and beverage operator for a unit
of 7,500 sq.ft and in addition, legal discussions are
progressing with an occupier of a further unit of
17,500 sq.ft.
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’s strong relationship continues with Salford City
Council to bring additional land for delivery for PRS.
As previously reported 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
have acquired two additional sites in Salford on behalf
of the REIT and we expect to acquire four more over
the coming months.
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.
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 2017
The Group’s revenue decreased by 17.6% to £4,437,000
(2016: £5,383,000) as development schedules were
altered in the short term to provide the PRS REIT with
a significant and immediate pipeline of development
opportunities when it launched. Revenue included
investment management and development
management fees from the PRS REIT, revenues from
our managed PRS activities with Gatehouse and UK
PRS Properties along with rental income from our self-
funded portfolio. Gross profit decreased by 12% to
£4,334,000 (2016: £4,923,000).
The Group made a trading profit in the year of
£66,000 (2016: £1,325,000), with property activities
contributing a trading profit of £105,000 (2016:
£2,196,000). The discontinued venture capital activities
suffered a trading loss of £8,000 (2016: trading profit
of £8,000) 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 provided in note 3 to the
financial statements.
Administrative costs increased to £4,268,000 (2016:
£3,598,000) reflecting the full impact of the increase
in the number of employees as a result of our
increased investment in PRS activities including
the PRS REIT.
Profit from operations reduced slightly by 7.4% to
£3,116,000 (2016: £3,365,000) including gains from
investment property of £2,727,000 (2016: £2,017,000)
and an unrealised gain on investments of £323,000
(2016: £23,000).
10 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Strategic Report (continued)
Profit before tax was £4,057,000 (2016: £3,670,000),
which represents an increase of 10.5%. Profit before
tax for the prior year was adversely affected by an
exceptional item of £428,000. This related to the
Group’s managed PRS activities and the termination of
the Group’s agreement with Torrin Asset Management.
Net assets of the Group increased by 11% to
£40,035,000 at 31 December 2017 (31 December 2016:
£36,087,000). Net assets at 31 December 2017 were
equivalent to 45.1p per share (31 December 2016:
40.7p per share).
Balance sheet
The principal items in the balance sheet are goodwill
of £533,000 (2016: £544,000), investment property
of £29,205,000 (2016: £24,825,000), property and
equipment of £1,123,000 (2016: £1,111,000), accrued
income of £4,756,000 (2016: £5,611,000), loans to
the PRS Fund totalling £nil (2016: £92,000), cash
of £6,167,000 (2016: £6,125,000) and trade and
other payables of £4,898,000 (2016: £4,226,000).
The goodwill relates to the acquisition of SIP and is
reviewed each year for impairment. The investment
property relates to Sigma’s own PRS assets. The
property and equipment principally relates to the
Group’s head office in Edinburgh. Accrued income
includes £1,673,000 expected to be received in 2018
and £3,088,000 which is due greater than one year as
detailed in note 21 to the accounts. The loans to the
PRS Fund of £nil were fully repaid in March 2017. The
trade and other payables of £4,826,000 includes
£3,265,000 in relation to its investment in property
and was paid in January 2018.
The Group’s current assets exceed its current liabilities
by £3,964,000 (2016: £4,492,000). The Group has two
long term liabilities totalling £523,000 (2016: one
long term liability of £481,000). These relate to
a loan provided in relation to its acquisition and
redevelopment of the Group headquarters of
£426,000 and a development facility in respect
of its self-funded PRS of £97,000. Further details
are provided in note 23.
Cash flow
Cash balances improved slightly by £42,000 to
£6,167,000 (2016: decreased by £19,010,000 to
£6,125,000). In 2016, the predominant reason for the
cash outflow was due to the investment in our self-
funded PRS activities. In 2017 this continued, however,
the Company also realised the sale of property
investments. Further details are provided in the
consolidated cash flow statement. The cash inflow
from operating activities was £1,786,000 (2016: inflow
of £2,353,000). The cash outflow from investing
activities was £1,786,000 (2016: outflow of
£21,953,000) along with the cash inflows from
financing activities of £42,000 (2016: £590,000).
Key performance indicators
The key performance indicators are concentrated on
the property activities.
The Group’s key performance indicators include:
2017 2016
£’000 £’000 Change
Revenue – all property
activities 4,424 5,373 (18%)
Operating profit –
property activities 2,832 4,213 (33%)
Realised and unrealised
profit on revaluation of
investment property 2,727 2,017 +35%
Group profit from
operations 3,116 3,365 (7%)
Cash balances 6,167 6,125 +1%
The Board also monitors certain non-financial key
performance indicators including numbers of
properties developed and delivered, the status of
developments in progress and lettings activity for
completed developments. Further details are given
on pages 7 to 9 of the strategic report.
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.
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
Sigma Capital Group plc | Annual Report & Financial Statements 2017 11
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 Group’s own
self-funded portfolio, along with the appointment as
Investment Adviser and Development Manager to the
PRS REIT, 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.
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 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 continued to fulfil its legal
obligation in relation to pension auto-enrolment and
offers 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 major regions
and 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.
Many of our developments are also near to local
primary schools and we will be increasing our
support to much needed school projects such
as the refurbishment of libraries, the provision
of reading pods and computer equipment.
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
GF Barnet
Chief Executive Officer
23 April 2018
12 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Directors
David Sigsworth OBE,
Non-Executive Chairman (Age 71)
Gwynn Thomson, RICS
Property Investment Director (Age 50)
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 54)
Duncan Sutherland
Regeneration Director (Age 66)
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 52)
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, CGMA
Finance Director and Company Secretary (Age 50)
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 68)
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.
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 2017 13
Advisers
Secretary and Registered Office
Malcolm Briselden, ACMA
Floor 3, 1 St. Ann Street
Manchester
M2 7LR
Registrars
Link Asset Services
34 Beckenham Road
Beckenham
Kent
BR3 4TU
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 2017
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 2017.
Results and dividends
The Group made a net profit before tax for the year of
£4,057,000 (2016: £3,670,000). The directors do not
recommend the payment of a dividend (2016: 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 3 to 11.
Directors
The current Directors of the Company are listed on
page 13, 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 2017, the Group
had positive cash balances of £6,167,000 (2016:
£6,125,000).
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.
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
(2016: £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
executive Directors and two non-executive Directors.
The Board considers that there is an appropriate
Sigma Capital Group plc | Annual Report & Financial Statements 2017 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, CGMA
Company Secretary
23 April 2018
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 2017
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
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 10
of these financial statements.
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
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 2017 are set out below.
DIRECTOR
GF Barnet
GF Barnet
GF Barnet
GF Barnet
M Briselden
M Briselden
M Briselden
M Briselden
G Hogg
G Hogg
G Hogg
G Hogg
G Hogg
D Sutherland
D Sutherland
D Sutherland
D Sutherland
G Thomson
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
25.05.17
300,000
87.00p 25.05.20 – 24.05.27
14.05.27
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
25.05.17
132,500
87.00p 25.05.20 – 24.05.27
14.05.27
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
25.05.17
250,000
87.00p 25.05.20 – 24.05.27
14.05.27
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
25.05.17
72,500
87.00p 25.05.20 – 24.05.27
14.05.27
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
25.05.17
132,500
87.00p 25.05.20 – 24.05.27
14.05.27
Details of the Company’s option schemes are set out in note 26 to the financial statements.
The market price of the Company’s shares at 31 December 2017 was 87p. The range of market prices during the
year was 65p to 88p.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 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 £713,000. 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 Q4 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 nil. 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%
of the current total entitlement remaining 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%
During the year, the disposal of certain investment
property was completed and the directors received
the following profit shares:
GF Barnet
GR Hogg
G Thomson
M Briselden
£150,000
£150,000
£50,000
£50,000
Directors’ interests - interests in shares
Directors in office at 31 December 2017 had the
following interests in the ordinary shares of 1p each
of the Company:
2017 2016
NUMBER NUMBER
GF Barnet 6,213,237 6,513,237
M Briselden 61,660 61,660
GR Hogg 536,496 536,496
D Sigsworth 671,971 645,304
G Thomson 142,857 142,857
D Sutherland 145,299 145,299
All of the above interests are beneficial. On 31 January
2018, Graeme Hogg exercised options over 118,500
ordinary shares of 1p each and Gwynn Thomson
exercised options over 125,000 ordinary shares of 1p
each. There were no other dealings in the Company’s
shares by any of the Directors between 31 December
2017 and 23 April 2018.
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
the fair value uplift on investment property, the value
D Sigsworth OBE
Chairman
23 April 2018
18 Sigma Capital Group plc | Annual Report & Financial Statements 2017
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 2017 19
Independent Auditor’s Report
to the shareholders of Sigma Capital Group plc
Opinion
Basis for opinion
We have audited the financial statements of Sigma
Capital Group PLC (the “parent company”) and its
subsidiaries (the “Group”) for the year ended 31
December 2017 which comprise the Consolidated
Comprehensive Income Statement, Consolidated
Balance Sheet, Company Balance Sheet, Consolidated
Statement of Changes in Equity, Company Statement
of Changes in Equity, Consolidated Cash Flow
Statement, Company Cash Flow Statement and notes
to the financial statements, including a summary of
significant accounting policies. 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 At 2006.
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 31 December 2017 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.
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.
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those
standards are further described in the Auditor’s
responsibilities for the audit of the financial statements
section of our report. We are independent of the
Group in accordance with the ethical requirements that
are relevant to our audit of the financial statements in
the UK, including the FRC’s Ethical Standard, and we
have fulfilled our ethical responsibilities in accordance
with these requirements. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following
matters in which the ISAs (UK) require us to report
to you where:
>
>
the directors’ use of the going concern basis
of accounting in the preparation of the financial
statements is not appropriate, or
the directors have not disclosed in the financial
statements any identified material uncertainties
that may cast significant doubt about the Group’s
or the parent company’s ability to continue to
adopt the going concern basis of accounting
for a period of at least twelve months from the
date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our
professional judgement, were of most significance
in our audit of the financial statements of the current
period and include the most significant assessed risks
of material misstatement (whether or not due to fraud)
we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in
the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
20 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Independent Auditors’ Report (continued)
Revenue recognition
Our approach to the audit of goodwill was as follows:
Revenue of the Group was mainly derived from
its principal activity, being the management and
regeneration of property within the private
rental sector. This income includes rental income,
development fees, management and advisory fees,
profit shares from a joint venture interest, carried
interest and transaction fees. There is a risk that
revenue is received or earned and not recorded and,
therefore, a potential risk in terms of the completeness
and accuracy of the revenue being recognised. In
addition there is a risk that sales have completed prior
to the year-end but are not recognised in the accounts
and also a further risk in terms of the cut off of this
revenue. Finally, the recognition of carried interest
income requires a degree of judgement and this
increases the risk of misstatement.
Our approach to the audit of revenue was as follows:
> We reviewed the monthly rental reports from
the letting agent and compared the total rental
income expected to the rental income recognised
in the accounting records.
>
>
Critical assessment of the principles and integrity
of the discounted cash flow model, including the
assumptions used by management.
Considered the sensitivity of the valuation model
to the key assumptions through a sensitivity
analysis to assess the impact of each assumption
on the value in use.
Valuation of investment properties
The Group holds investment properties which
comprise properties owned by the Group held for
rental income. Investment properties are valued by
independent external valuers assuming the sites are
fully completed and then the directors calculate the
reporting date fair value based on the stage of
completion. The group’s investment property portfolio
is valued at £29m at the year end. The valuation of
investment properties requires significant judgement
and there is therefore a risk that the properties are
incorrectly valued.
> We reviewed management and advisory service
In this area our audit procedures included:
agreements, established an expectation of the
income to be recognised and compared this to the
fee income recognised in the accounting records.
>
The development framework agreements were
reviewed and expected development and
transaction fees were compared to income
recognised in the accounting records. We also
tested the underlying development costs to
supporting evidence.
> We obtained and reviewed calculations of carried
interest and profit share income with reference to
the underlying agreements and forecast models.
> We obtained and reviewed the independent
valuations and internal stage of completion
valuations carried out at the year end.
> Actual and expected costs were agreed to
relevant documentation and the calculation
of the fair value based on stage of completion
was reviewed.
> We held a discussion with the valuer to gain a
better understanding of their independence
and quality control procedures and their approach
to valuation.
Carrying amount of goodwill
Goodwill relates to the excess of the cost of the
Group’s shares in Sigma Inpartnership Ltd, over the
fair value of the Group’s share of net assets of this
company at the date of acquisition. The Group carries
out an annual impairment review using a discounted
cash flow model. The discounted cash flow model
contained significant levels of judgement over the
assumptions used including the discount rate and
over the assumptions of the cash flow forecasts which
includes future sales. Due to the inherent uncertainty
involved in forecasting and discounting future cash
flows this is one of the key areas of judgement:
Our application of materiality
We set certain thresholds for materiality. These helped
us to determine the nature, timing and extent of
our audit procedures and to evaluate the effect of
misstatements, both individually and on the financial
statements as a whole.
We determined the materiality for the Group financial
statements as a whole to be £461,000, calculated with
reference to a benchmark of the Group’s gross assets,
of which it represents 1%. In addition, we set a specific
materiality level of £57,000 for items within underlying
pre-tax profit calculated at 5% of profit before tax
adjusted for gains on the investment properties.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 21
The parent company overall materiality was
calculated at £41,000 based on a benchmark of
1% of gross assets.
Materiality is the threshold above which missing
or incorrect information in financial statements is
considered to have an impact on the decision
making of users.
We reported to the Audit Committee all potential
adjustments in excess of £23,000 being 5% of the
materiality for the financial statements as a whole.
An overview of the scope of our audit
We considered the risk of the financial statements
being misstated or not prepared in accordance
with the underlying legislation or standards. We
then directed our work toward areas of the financial
statements which we assessed as having the highest
risk of containing material misstatements.
We tested and examined information using both
analytical procedures and tests of detail, to the extent
necessary to provide us with a reasonable basis to
draw conclusions. These procedures gave us the
evidence that we need for our opinion on the Group’s
financial statements as a whole and, in particular,
helped mitigate the risks of material misstatement
mentioned above.
We also documented and reviewed the Group’s
systems, primarily to confirm that they form an
adequate basis for the preparation of the financial
statements, but also to identify the controls operated
to ensure the completeness and accuracy of the data.
Other information
The directors are responsible for the other information.
The other information comprises the information
included in the annual report, other than the financial
statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the
other information is materially inconsistent with the
financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the
financial statements or a material misstatement
of the other information. If, based on the work we
have performed, we conclude that there is a material
misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
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 financial statements are prepared
is consistent with the financial statements; and
the Strategic Report and the Directors’ Report
have been prepared in accordance with applicable
legal requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of
the group and 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.
22 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Independent Auditors’ Report (continued)
Responsibilities of Directors
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, and for such internal control
as the directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of
accounting unless the directors either intend to
liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance
about whether the consolidated financial statements
as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of
these consolidated financial statements.
A further description of our responsibilities for the
audit of the consolidated financial statements is
located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Timothy West (Senior Statutory Auditor)
for and on behalf of Moore Stephens LLP
Statutory Auditor
150 Aldersgate Street
London
EC1A 4AB
23 April 2018
Sigma Capital Group plc | Annual Report & Financial Statements 2017 23
Consolidated Comprehensive
Income Statement
for the year ended 31 December 2017
2017 2016
NOTES £’000 £’000
Revenue 3 4,437 5,383
Cost of sales 4 (103) (460)
Gross profit 4,334 4,923
Unrealised gain on revaluation of investment property 14 1,915 2,017
Realised gain on revaluation of investment property 14 812 -
Unrealised profit on the revaluation of investments 19 323 23
Administrative expenses 6 (4,268) (3,598)
Profit from operations 3,116 3,365
Finance income 7 285 290
Finance costs 8 (196) -
Share of profit of joint venture 17 852 443
Exceptional items 9 - (428)
Profit before tax 4,057 3,670
Taxation 11 (378) (105)
Profit for the year 3,679 3,565
Profit per share attributable to the equity holders of the Company:
Basic profit per share 12 4.15p 4.02p
Diluted profit per share 12 4.10p 3.97p
There was no other comprehensive income in either year other than that included in the comprehensive income
statement. The accompanying notes are an integral part of this consolidated comprehensive income statement.
24 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Consolidated Balance Sheet
at 31 December 2017
2017 2016
NOTES £’000 £’000
ASSETS
Non-current assets
Goodwill and other intangibles 13 533 544
Investment property 14 29,205 24,825
Property and equipment 15 1,123 1,111
Investment in joint venture 17 1,744 892
Fixed asset investments 18 2 2
Financial assets at fair value through profit and loss 19 899 576
Trade and other receivables 21 3,088 4,126
36,594 32,076
Current assets
Trade receivables 21 950 323
Other current assets 21 2,403 2,622
Cash and cash equivalents 6,167 6,125
9,520 9,070
Total assets 46,114 41,146
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings 23 523 481
Current liabilities
Trade and other payables 22 4,826 4,226
Interest bearing loans and overdrafts 23 55 55
Current tax liability 22 72 -
Deferred tax liability 24 603 297
Total liabilities 6,079 5,059
Net assets 40,035 36,087
Equity
Called up share capital 25 887 887
Share premium account 25 31,885 31,885
Capital redemption reserve 34 34
Merger reserve (249) (249)
Capital reserve (7) (7)
Retained earnings 7,485 3,537
Equity attributable to equity holders of the Company 40,035 36,087
The accompanying notes are an integral part of this consolidated balance sheet.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 25
Company Balance Sheet
at 31 December 2017
2017 2016
NOTES £’000 £’000
ASSETS
Non-current assets
Property and equipment 15 33 43
Investment in subsidiaries 16 2,921 2,921
Trade and other receivables 21 - 23,218
2,954 26,182
Current assets
Trade receivables 21 27,105 215
Other current assets 21 43 61
Cash and cash equivalents 83 3,395
27,231 3,671
Total assets 30,185 29,853
LIABILITIES
Current liabilities
Trade and other payables 22 1,736 1,659
Total liabilities 1,736 1,659
Net assets 28,449 28,194
Equity
Called up share capital 25 887 887
Share premium account 25 31,885 31,885
Capital redemption reserve 34 34
Retained earnings (4,357) (4,612)
Total equity 28,449 28,194
The accompanying notes are an integral part of this balance sheet.
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 £14,000 (2016: £739,000).
The financial statements on pages 23 to 57 were approved by the Board of Directors and authorised for issue on
23 April 2018 and were signed on its behalf by:
GF Barnet
Chief Executive Officer
23 April 2018
Registered number 03942129
26 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Consolidated Statement of Changes in Equity
for the year ended 31 December 2017
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 2016 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
Transactions with owners
in their capacity as owners
Issue of shares - - - - - - -
Comprehensive income
for the year - - - - - 3,679 3,679
Share-based payments - - - - - 269 269
At 31 December 2017 887 31,885 34 (249) (7) 7,485 40,035
Sigma Capital Group plc | Annual Report & Financial Statements 2017 27
Company Statement of Changes in Equity
for the year ended 31 December 2017
SHARE CAPITAL
SHARE PREMIUM REDEMPTION RETAINED TOTAL
CAPITAL ACCOUNT RESERVE EARNINGS EQUITY
£’000 £’000 £’000 £’000 £’000
At 1 January 2016 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
Loss for the year - - - (14) (14)
Share-based payments - - - 269 269
At 31 December 2017 887 31,885 34 (4,357) 28,449
28 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Consolidated and Company
Cash Flow Statements
for the year ended 31 December 2017
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
NOTES £’000 £’000 £’000 £’000
Cash flows from operating activities
Cash received/(used in) from operations 29 1,786 2,353 (3,317) (20,244)
Net cash generated from/(used in) operating activities 1,786 2,353 (3,317) (20,244)
Cash flows from investing activities
Purchase of property and equipment (37) (1,102) - (50)
Purchase of investment property (35,925) (22,808) - -
Proceeds from the sale of investment property 34,273 - - -
Repayment of loans by PRS Fund 92 1,667 - -
Finance cost net of finance income (189) 290 5 73
Net cash (invested in)/generated
from investing activities (1,786) (21,953) 5 23
Cash flows from financing activities
Bank and other loans 42 536 - -
Issue of shares - 54 - 54
Net cash generated from financing activities 42 590 - 54
Net increase/(decrease) in cash and cash equivalents 42 (19,010) (3,312) (20,167)
Cash and cash equivalents at beginning of year 6,125 25,135 3,395 23,562
Cash and cash equivalents at end of year 6,167 6,125 83 3,395
The accompanying notes are an integral part of this cash flow statement.
Reconciliation of changes in liabilities arising from financing activities
GROUP GROUP
2017 2016
£’000 £’000
Opening balance of loans at 1 January 536 -
New loans (55) (14)
Repayment in the year 97 550
578 536
Further details are provided in note 23.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 29
Accounting Policies
for the year ended 31 December 2017
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 £6,167,000
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 and
investment property.
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 2016. Except for some additional
disclosures under IAS 7, 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 2017. 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.
IFRS 15 – Revenue from contracts with customers
The standard is effective for periods beginning on
or after 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.
30 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Accounting Policies (continued)
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. Based on a review of all the transactions
impacting the current financial year and future known
transactions, the Group does not expect the adoption
of IFRS 15 to have a material impact on the Group’s
reported results. However, we will continue to assess
new transactions as they arise to the date of adoption.
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.
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). The Group’s
operating leases are disclosed in note 28. Adoption of
IFRS 16 is not expected to have a material impact on
the Group’s reported results
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.
The Company has guaranteed the liabilities of
certain subsidiaries included within note 18. Where
the Company has guaranteed the liabilities of the
subsidiary and they are included within the
consolidated financial statements the subsidiaries
were exempt from the requirements of audit under
Section 479A of the Companies Act 2006.
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% equity 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, initially
at cost, and the carrying amount is increased or
decreased to reflect the Group’s share of the profit
Sigma Capital Group plc | Annual Report & Financial Statements 2017 31
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 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 cost including related transactions costs. After initial
recognition, investment property is carried at fair
value. The investment properties are initially valued
by Savills who are qualified valuation experts and hold
a recognised and relevant professional qualification.
Subsequently, investment properties are valued by
the Directors of the Company. The valuations are
undertaken by a Director of the Company who is a
qualified chartered surveyor. 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 14 and in the
Market Risk section below.
Property and equipment
Property and equipment are stated at cost less
depreciation and any provision for impairment.
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
prior years. 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.
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.
Acquired intangible assets
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.
32 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Accounting Policies (continued)
Depreciation
Financial instruments
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:
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.
Leasehold improvements
over the term of the lease
Fixtures and office equipment
25% per annum
Trade and other receivables
Computer equipment
33-50% per annum
The freehold property is not depreciated as the
residual value of the building approximates its cost.
Interests in joint ventures
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
of 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.
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.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 33
Trade payables
Share-based payments
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.
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
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. Investment advisory
fees are recognised monthly based on an adjusted Net
Asset Value of The PRS REIT plc.
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.
34 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Accounting Policies (continued)
Retirement benefit costs
Exceptional items
The Group manages 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.
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.
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.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 35
Notes to the Financial Statements
for the year ended 31 December 2017
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. The capital structure of the Group consists of cash
and cash equivalents, equity and debt. The Group meets its objectives by aiming to achieve a steady growth
by mitigating risk, which will generate regular and increasing returns to the shareholders. The group also
seeks to minimise the cost of capital and optimise its capital structure. At 31 December 2017 the Group had
short term debt of £55,000 (2016: £55,000). 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 2017, 65% (2016:
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 2017, the fund held 7 investments (2016: 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 £67,000 (2016: £57,000).
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%
36 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
1.
Financial risk management (continued)
The impact of changes to the significant unobservable inputs are:
2017 2017 2016 2016
INCOME BALANCE INCOME BALANCE
STATEMENT SHEET STATEMENT SHEET
IMPACT IMPACT IMPACT IMPACT
£’000 £’000 £’000 £’000
Improvement in yield by 0.125% 1,155 1,155 656 656
Worsening in yield by 0.125% (1,130) (1,130) (622) (622)
Improvement in gross to net by 1% 515 515 306 306
Worsening in gross to net by 1% (550) (550) (306) (306)
The above sensitivities are the average values in respect of all investment property fair valued at 31
December 2017 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. The Group also has limited interest rate risk on its loan from Homes England
which is utilised to fund property investment. At 31 December 2017, the total loan outstanding was £97,000
(2016: £nil). 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. See note 23 for details of loans.
Credit risk
The Group’s credit risk is primarily attributable to its trade receivables and other current assets.
During the year ended 31 December 2017, the Group’s cash and cash equivalents were held with the Bank of
Scotland and Royal Bank of Scotland 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.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 37
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 Joint Ventures with Gatehouse Bank plc and UK PRS
Properties 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 Joint Ventures with Gatehouse Bank plc
and UK PRS Properties and are earned based on the number of residential units that have reached
practical completion.
Development fees earned in respect of the group’s PRS activities with The PRS REIT plc are based on
actual development spend in a month and is paid monthly in arrears.
Investment advisory fees are based on an adjusted net asset value of the PRS REIT and are paid monthly
in arrears.
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:
2017 2016
£’000 £’000
Property management fees due to Sigma Inpartnership Ltd 24 44
Development management fees due to Sigma Capital Property Ltd 240 264
Development management fees due to Sigma PRS Management Ltd 305 -
Investment advisory fees due to Sigma PRS Management Ltd 208 -
Other property management fees 174 15
Other debtors 498 378
Other debtors - loan to PRS Fund - 92
Other prepayments 132 139
Other accrued income 4,760 5,610
Social security and other taxes 100 529
6,441 7,071
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 Ltd were paid in
January 2018. The development management fees and investment advisory fees due to Sigma PRS
Management Ltd were also paid in January 2018.
38 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
1.
Financial risk management (continued)
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. As at the 31 December 2017 the
Group’s amount of current financial assets was in excess of the its financial liabilities by £3,441,000.
The below summarises the maturities of the Group’s non-derivative financial liabilities as at 31 December 2017:
LESS THAN 1 TO 5
ONE YEAR YEARS
£’000 £’000
Trade, other payables and current tax 4,898 -
Loans 55 523
4,953 523
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
the 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 and in the assessment of Market Risk set out in note 1.
(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 13.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 39
3.
Segmental information – business segments
At 31 December 2017 the Group has just one business activity, property.
The Group had six significant customers in the year. Thistle Limited Partnership was a significant customer
with profit share and carried interest earned of £620,000 (2016: £1,549,000), UK PRS (Jersey) Properties I
Limited with fees and carried interest of £716,000 (2016: £1,247,000), Countryside Sigma Limited with
development management fees and profit share earned of £nil (2016: £954,000), Countryside Properties
(UK) Limited with fees and sale of land totalling £nil (2016: £548,000), ION Developments with fees totalling
£nil (2016: £577,000) and The PRS REIT plc with development and investment advisory fees earned of
£2,370,000 (2016: £nil).
The revenue from services from the Group’s Owned PRS property represents £488,000 (2016: £66,000)
of gross rental income. Rental operating costs attributable to the gross rental income for the year were
£103,000 (2016: £16,000).
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.
The segment analysis for the year ended 31 December 2017 is as follows:
MANAGED OWNED PRS VENTURE HOLDING INTRA GROUP
REGENERATION PROPERTY PROPERTY CAPITAL COMPANY ADJUSTMENTS TOTAL
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Revenue from services 38 3,898 488 13 - - 4,437
Trading profit/(loss) (11) (269) 385 (8) (20) (11) 66
Unrealised gain on
revaluation of
investment property - - 1,915 - - - 1,915
Realised profit on
revaluation of
investment property - - 812 - - - 812
Unrealised gain on
revaluation of investments - - - 323 - - 323
Profit/(loss) from
operations (11) (269) 3,112 315 (20) (11) 3,116
Finance income 186 92 1 1 5 - 285
Finance costs - (14) (182) - - - (196)
Share of associate 852 - - - - - 852
Profit/(loss) before tax 1,027 (191) 2,931 316 (15) (11) 4,057
Total assets 7,134 5,621 31,674 3,787 33,436 (35,538) 46,114
Total liabilities (265) (8,635) (26,748) (1,678) (4,987) 36,234 (6,079)
Net assets 6,869 (3,014) 4,926 2,109 28,449 696 40,035
Capital expenditure - 37 - - - - 37
Depreciation - 15 - - 10 - 25
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.
40 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
3.
Segmental information – business segments (continued)
The segment analysis for the year ended 31 December 2016 is as follows:
MANAGED OWNED PRS VENTURE HOLDING INTRA GROUP
REGENERATION PROPERTY PROPERTY CAPITAL COMPANY 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
4.
Cost of sales
2017 2016
£’000 £’000
PRS activities 103 16
Costs in relation to the development at North Arran Way - (25)
Costs in relation to sale of land - 514
Other - (45)
103 460
5.
Profit on disposal of Investment property
Investment property is regarded as sold when the significant risks and returns have been transferred to the
buyer. This is deemed to be on legal completion. In line with IAS 40, the Group fair values its investment
properties and any adjustment is shown as an unrealised gain or loss in the profit and loss account. During
the year the group disposed of investment properties crystallising a realised gain of £2.83m of which £2.02m
was recognised as fair value uplift in the prior year.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 41
6.
Expenses by nature
Expenses included in administrative expenses are analysed below.
2017 2016
£’000 £’000
Administrative expenses
Employee costs (salaries and national insurance) 2,864 2,288
Employers pension contributions 122 100
Share based payments 269 213
Other employee related costs 33 104
Consultancy 75 84
Travel and entertainment 221 233
Depreciation 25 24
Amortisation 11 17
Operating lease rentals:
- plant and machinery 12 14
- land and buildings (net) 76 122
Other premises costs 71 38
Audit services:
- Fees payable to Company auditor for the audit
of the parent company and consolidated accounts 23 23
- the audit of the Company’s subsidiaries pursuant to legislation 32 31
Non-audit services:
- tax services 20 25
- other accountancy services 4 5
Other legal, professional and financial costs 345 229
Administration costs 65 48
4,268 3,598
7.
Finance income
2017 2016
£’000 £’000
Interest income on short-term deposits and loans 7 79
Unwinding of discount 278 211
285 290
8.
Finance costs
2017 2016
£’000 £’000
Other interest 20 -
Non-utilisation fees 176 -
196 -
42 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
9.
Exceptional items
2017 2016
£’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 prior year giving rise to a settlement of £428,000. The Group considers
this an exceptional item due its size and non-recurring nature.
10. Directors and employees
The average monthly number of employees, including executive Directors, employed by the Group during the
year was:
2017 2016
Property 18 17
Administration 8 8
26 25
The aggregate remuneration was as follows:
2017 2016
£’000 £’000
Wages and salaries 2,544 2,035
Social security 320 253
Pension costs – defined contribution plans 122 100
Share based payment charge - equity settled 269 213
3,255 2,601
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.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 43
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
________________ ________________ ________________ ________________ ________________
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Executive
GF Barnet 404 395 93 - - - 497 395 - -
M Briselden 138 128 - - 6 6 144 134 14 12
G Thomson 133 130 - - - - 133 130 13 13
G Hogg 295 225 73 - 5 5 373 230 28 22
D Sutherland 98 96 10 - 5 5 113 101 5 5
W MacLeod - 76 - - - - - 76 - -
Non-executive
D Sigsworth 50 55 - - - - 50 55 - -
J McMahon 40 40 - - - - 40 40 - -
1,158 1,145 176 - 16 16 1,350 1,161 60 52
The annual incentives paid to both Graham Barnet and Graeme Hogg were payable on the successful raising
of £250m gross proceeds for The PRS REIT plc of which the Group is appointed as both Investment Adviser
and Development Manager.
Four of the directors, subject to certain performance conditions may be entitled to a share of the total profit
on disposal in relation to the Group’s self-funded PRS properties. During the year, the total carried interest
realised in respect of the directors was £400,000 (2016: £nil). Further details are provided in the Directors
Remuneration report.
Certain directors have been allocated a share of the carried interest in respect of the PRS joint ventures with
Gatehouse and UK PRS properties. The carried interest recognised in the year was £nil (2016: £nil)
Details of the carried interest arrangements are contained in the Directors’ remuneration report.
11.
Taxation
2017 2016
£’000 £’000
UK corporation tax on profit for the year 72 -
Deferred tax – origination and reversal of timing differences 306 105
Tax on profit on ordinary activities 378 105
44 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
11.
Taxation (continued)
The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are
explained below.
2017 2016
£’000 £’000
Profit before tax 4,057 3,670
Profit before tax at the effective rate of corporation tax in the UK of:
19.25% (2016: 20%) 781 734
Effects of:
Expenses not deductible for tax purposes 143 59
Share of joint venture profit after tax (164) (89)
Capital allowances in excess of depreciation (1) (28)
Utilisation of losses (546) 176
Gains on revalued properties not recognised in deferred tax (60) (408)
Other short term timing differences not recognised in deferred tax 299 (208)
Effect of reduction in deferred tax rate (74) (102)
Other adjustments - (29)
Tax charge for the year 378 105
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% (2016: 17%).
2017 2016
£’000 £’000
Unrelieved management expenses and other losses 2,614 2,634
Unrelieved capital losses 167 689
Chargeable gains (325) (343)
Excess of depreciation over capital allowances 1 -
Other timing differences - (297)
2,457 2,683
12. Profit per share
The calculation of the basic profit per share for the year ended 31 December 2017 and 31 December 2016 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 2017 3,679 88,715,715 4.15
Year ended 31 December 2016 3,565 88,649,088 4.02
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
Sigma Capital Group plc | Annual Report & Financial Statements 2017 45
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 2017 of 89,700,931 (2016: 89,750,427). For the
year ended 31 December 2017, the diluted earnings per share is 4.10 pence (2016: 3.97 pence).
13. Goodwill and other intangible assets
OTHER
GOODWILL INTANGIBLES TOTAL
£’000 £’000 £’000
Cost
At 31 December 2016 and 31 December 2017 656 105 761
Amortisation and impairment
At 1 January 2016 123 77 200
Amortisation charge - 17 17
At 31 December 2016 123 94 217
Amortisation charge - 11 11
At 31 December 2017 123 105 228
Carrying value
At 31 December 2017 533 - 533
At 31 December 2016 533 11 544
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 Inpartnership
2017 2016
£’000 £’000
Goodwill 533 533
Intangible assets - 11
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. It would require a 22% increase in the discount rate for an
impairment to be considered.
46 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
14.
Investment property
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Cost
At 1 January 2017 22,808 - - -
Additions during the year 35,925 22,808 - -
Disposals during the year (31,443) - - -
At 31 December 2017 27,290 22,808 - -
Fair value adjustment
At 1 January 2017 2,017 - - -
Revaluation during the year 2,727 2,017 - -
Disposals during the year (2,829) - - -
At 31 December 2017 1,915 2,017 - -
Net book value
At 31 December 2017 29,205 24,825 - -
Investment property, including that which is being constructed for future use as investment property, is
measured initially at cost including related transactions costs. After initial recognition, investment property is
carried at fair value. The investment properties are initially valued by Savills who are qualified valuation
experts and hold a recognised and relevant professional qualification. Subsequently, investment properties
are valued by the Directors of the Company. The valuations are undertaken by a Director of the Company
who is a qualified chartered surveyor. 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.
Rental income from investment properties during the current year amounted to £498,000 and direct
operating expenses were £103,000 during the current year.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 47
15. Property and equipment
FIXTURES
FREEHOLD LEASEHOLD AND OFFICE COMPUTER
PROPERTY IMPROVEMENTS EQUIPMENT EQUIPMENT TOTAL
£’000 £’000 £’000 £’000 £’000
GROUP
Cost
At 1 January 2016 - 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
Additions 31 - 2 4 37
Disposals - - - (6) (6)
At 31 December 2017 1,059 44 47 22 1,172
Depreciation
At 1 January 2016 - 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
Charge for the year - 8 10 7 25
Disposals - - - (6) (6)
At 31 December 2017 - 14 20 15 49
Net book value
At 31 December 2017 1,059 30 27 7 1,123
At 31 December 2016 1,028 38 35 10 1,111
48 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
15. Property and equipment (continued)
FIXTURES
LEASEHOLD AND OFFICE
IMPROVEMENTS EQUIPMENT TOTAL
£’000 £’000 £’000
COMPANY
Cost
At 1 January 2016 7 15 22
Additions 44 6 50
Disposals (7) (12) (19)
At 31 December 2016 44 9 53
Additions - - -
Disposals - - -
At 31 December 2017 44 9 53
Depreciation
At 1 January 2016 7 15 22
Charge for the year 6 1 7
Disposals (7) (12) (19)
At 31 December 2016 6 4 10
Charge for the year 8 2 10
Disposals - - -
At 31 December 2017 14 6 20
Net book value
At 31 December 2017 30 3 33
At 31 December 2016 38 5 43
Sigma Capital Group plc | Annual Report & Financial Statements 2017 49
16.
Investment in subsidiaries and partnerships
COMPANY COMPANY
2017 2016
£’000 £’000
At 31 December 2016 and 31 December 2017 2,921 2,921
Subsidiaries and partnerships
The Company has investments in the following subsidiaries and partnerships as at 31 December 2017:
COMPANY NAME COUNTRY OF INCORPORATION % HOLDING PRINCIPAL ACTIVITY
Sigma Capital Property Ltd Scotland 100 Property*
Sigma Inpartnership Ltd Scotland 100 Property*
Strategic Property Asset Management Ltd 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 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 IX Limited England 85 Property**
Sigma PRS Investments (Baytree) Limited England 85 Property**
Sigma PRS Investments (Cable Street) Limited England 85 Property**
Sigma PRS Investments (Cable Street II) Limited England 85 Property**
Sigma PRS Investments (Carr Lane) Limited England 85 Property**
Sigma PRS Investments (Carr Lane II) Limited England 85 Property**
Sigma PRS Investments (Darlaston) Limited England 85 Property**
Sigma PRS Investments (Darlaston II) Limited England 85 Property**
Sigma PRS Investments
(Newton Le Willows) Limited England 85 Property**
Sigma PRS Investments
(Newton Le Willows II) Limited England 85 Property**
50 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
16.
Investment in subsidiaries and partnerships (continued)
COMPANY NAME COUNTRY OF INCORPORATION % HOLDING PRINCIPAL ACTIVITY
Sigma PRS Investments (Our Lady’s) Limited England 85 Property**
Sigma PRS Investments (Romanby Shaw) Limited England 85 Property**
Sigma PRS Investments (Whitworth Way) Limited England 85 Property**
Sigma PRS Investments (Whitworth Way II) 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 Ltd England 100 Property**
Sigma PRS Property Investments LP England 100 Property**
Liverpool Inpartnership Limited England 100 Property**
Solihull Inpartnership Limited England 100 Property**
Salford Inpartnership Limited Scotland 100 Property*
Inpartnership (LP) Limited Scotland 100 Property*
City Spirit Regeneration Ltd 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**
Sigma PRS Properties LP Scotland 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
Sigma Capital Group plc | Annual Report & Financial Statements 2017 51
The Company has guaranteed the liabilities of the following subsidiaries exempt from audit under Section
479A of the Companies Act 2006. The names and company registration numbers are below:
COMPANY NAME COMPANY REGISTRATION NUMBER
Sigma Technology Founder Partners Limited 04080037
Sigma Technology Management Limited 03289432
Sigma Property Partners Limited SC488231
Salford Inpartnership Limited SC220873
Solihull Inpartnership Limited 05094769
Blackburn Inpartnership Limited SC266115
Inpartnership (LP) Limited SC260339
Inpartnership (CS) Limited 06529901
City Spirit Regeneration Limited 03278486
City Spirit Regeneration (Salford) Limited 04911111
Burrell Inpartnership Limited SC287397
17.
Investment in joint venture
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
At 1 January 2017 892 449 - -
Share of profits 852 443 - -
At 31 December 2017 1,744 892 - -
Group share of net assets 1,744 892 - -
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 and its registered address
is Countryside House, The Drive, Great Warley, Brentwood, Essex CM13 3AT. The results for 12 months to
31 December 2017 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 expected to be realised at the end
of the development by Countryside Sigma.
The following is the summarised financial position of Countryside Sigma Limited as at 30 September:
2017 2016
£’000 £’000
Profit for the financial year after taxation 1,489 798
Net assets at the end of the financial year 3,186 1,697
18. Fixed asset investments
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
At 1 January 2017 2 2 - -
Additions - - - -
At 31 December 2017 2 2 - -
This relates to the Group’s investment in UK PRS (Jersey) I Limited Partnership.
52 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
19. Financial assets at fair value through profit and loss
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
At 1 January 2017 576 553 - -
Additions - - - -
Disposals - - - -
Fair value write up 323 23 - -
At 31 December 2017 899 576 - -
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 £233,000 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
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Financial assets at fair value through profit and loss:
- the venture capital funds 96 23 - -
- Unquoted securities 227 - - -
323 23 - -
20. Stocks
The following is included in the net book value of stocks:
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Land and development properties - - - -
The value of stocks expensed during the year and included in cost of sales was £nil (2016: £509,000).
Sigma Capital Group plc | Annual Report & Financial Statements 2017 53
21. Trade receivables and other current assets
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Trade receivables 950 323 - 2
Receivables from Group undertakings – current - - 27,105 213
Receivables from Group undertakings – non current - - - 23,218
Social security and other taxes 100 529 - 17
Other debtors 499 471 3 4
Prepayments and accrued income 1,804 1,622 40 40
Prepayments and accrued income – non current 3,088 4,126 - -
6,441 7,071 27,148 23,494
Less receivables from Group undertakings - non current - - - (23,218)
Less prepayments and accrued income – non current (3.088) (4,126) - -
Current portion 3,353 2,945 27,148 276
Trade receivables
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Trade receivables not due 943 321 - 2
Trade receivables past due 1-30 days 3 - - -
Trade receivables past due 31-60 days 3 2 - -
Trade receivables past due 61-90 days 1 - - -
Trade receivables past due over 90 days - - - -
Gross trade receivables at 31 December 2017 950 323 - 2
Provision for bad debt at 1 January 2017 - - - -
Debt provisions reversed in the year - - - -
Provision for bad debt at 31 December 2017 - - - -
Net trade receivables at 31 December 2017 950 323 - 2
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 (2016: £nil) in respect of the PRS Fund which was repaid in
full during the prior year and a loan of £nil (2016: £92,000) also in respect of the PRS Fund which was paid
in March 2017. The loan of £92,000 attracted 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 £1,242,000 (2016: £2,294,000)
which will be paid between 2018 and 2020, carried interest of £1,846,000 (2016: £1,832,000) which is
expected to be paid no earlier than 2019.
54 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
22. Trade, other payables and current taxation
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Trade payables 3,352 3,103 32 61
Payables to Group undertakings - - 1,607 1,552
Social security and other taxes 141 84 47 -
UK Corporation tax 72 - - -
Accruals and deferred income 1,333 1,039 50 46
4,898 4,226 1,736 1,659
The Directors consider that the carrying amount of trade payables approximates to their fair value.
23.
Interest – bearing loans and overdrafts
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Current liabilities
Bank loans 55 55 - -
Non-current liabilities
Bank loans 426 481 - -
Development facility 97 - - -
523 481 - -
Total interest bearing loans and overdrafts 578 536 - -
The bank 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.
The development facility is utilised to fund the Group’s investment in private rented sector property.
The total facility is £45m and interest is charged at commercial rates. The facility is held by Sigma PRS
Investments LP, a subsidiary of the Company, and is secured on a number of investment properties.
A cross guarantee is provided by the Company.
Sigma Capital Group plc | Annual Report & Financial Statements 2017 55
24. Deferred tax liability
GROUP COMPANY
2017 2017
£’000 £’000
Amounts due to be paid within one year 603 -
The movement in the year and prior year in the Group and Company
net deferred tax liability position was as follows:
Opening position as at 1 January 2016 192 -
Charge to statement of comprehensive income for the year 105 -
At 31 December 2016 297 -
Charge to statement of comprehensive income for the year 306 -
At 31 December 2017 603 -
25. Share capital and share premium
Group and Company
NUMBER ORDINARY SHARE
OF SHARES SHARES PREMIUM TOTAL
£’000 £’000 £’000
At 31 December 2016 and at 31 December 2017 88,715,715 887 31,885 32,772
The total authorised number of ordinary shares is 130,000,000 (2016: 130,000,000) with a par value of 1p
per share (2016: 1p). All issued shares are fully paid.
26. 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 1,805,856 options over ordinary shares (2016: 1,885,774)
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:
2017 2016
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
IN PENCE PER OPTIONS IN PENCE PER OPTIONS
SHARE (‘000S) SHARE (‘000S)
At 1 January 2017 66.4 4,128 43 2,545
Granted 87.0 1,806 93.5 1,886
Exercised - - 25.7 (214)
Expired / lapsed 89.2 (43) 68.0 (89)
At 31 December 2017 72.6 5,891 66.4 4,128
Of the 5,891,000 outstanding options (2016: 4,128,000), 3,251,000 had vested at 31 December 2017 (2016: 1,031,000).
56 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Notes to the Financial Statements (continued)
26. Share options (continued)
Share options outstanding at the end of the year have the following expiry date and exercise prices:
EXERCISE PRICE
PENCE PER 2017 2016
EXPIRY DATE SHARE NUMBER NUMBER
2021 8.0 250,000 250,000
2021 7.5 369,500 369,500
2023 26.25 411,190 411,190
2024 68.0 1,189,684 1,211,741
2026 93.5 1,864,383 1,885,774
2027 87.0 1,805,856 -
There were 1,805,856 (2016: 1,885,774) 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 19.8p 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
0.42%. Future volatility has been estimated based on comparable information rather than historical data.
27. 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 2017 and 2016 is set out in the Consolidated and Company Statements of Changes in Equity.
28. 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:
2017 2016
PLANT AND LAND AND PLANT AND LAND AND
MACHINERY BUILDINGS MACHINERY BUILDINGS
£’000 £’000 £’000 £’000
The Group
Within 1 year 12 30 14 30
From 2-5 years 26 60 32 90
After 5 years - - - -
38 90 46 120
The Company
Within 1 year - 30 - 30
From 2-5 years - 60 - 90
After 5 years - - - -
- 90 - 120
Sigma Capital Group plc | Annual Report & Financial Statements 2017 57
29. Cash flows from operating activities
GROUP GROUP COMPANY COMPANY
2017 2016 2017 2016
£’000 £’000 £’000 £’000
Profits/(loss) after tax 3,679 3,565 (14) (739)
Adjustments for:
Share-based payments 269 213 269 213
Depreciation 25 23 10 7
Amortisation 11 17 -
Finance costs net of finance income 189 (290) (5) (73)
Fair value (profit)/loss on financial assets
at fair value through profit or loss (323) (23) - -
Share of associate profit (852) (443) - -
Unrealised profit on revaluation of investment property (1,915) (2,017) - -
Realised profit on sale of investment property (812) - - -
Changes in working capital:
Decrease in stocks - 509 - -
Trade and other receivables 538 (398) (3,654) (22,970)
Trade and other payables 977 1,197 77 3,318
Cash flows from operating activities 1,786 2,353 (3,317) (20,244)
30. Capital commitments
The Group have entered into contracts with unrelated parties for the construction of residential housing with
a total value of £31,380,000 (2016: £38,457,000). As at 31 December 2017, £11,544,000 (2016: £21,878,000)
of such commitments remained outstanding.
31. 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 £406,000 (2016: £425,000). At 31 December 2017, Sigma was owed
£9,000 (2016: £16,000).
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 £375,000 (2016: £1,041,000). The Group also received interest of
£3,000 (2016: £434,000) 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 £1,009,000 (2016: £797,000). At the year end, Sigma
were owed £236,000 (2016: £268,000). The group also sold land and development property to UK PRS
(Jersey) I LP for £nil (2016: £548,000).
During the year, the Group paid fees of £nil (2016: £680,000) 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 (2016:
£nil).
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. Details of the carried interest arrangements and the carried interest crystallised to date are
contained in the Directors’ remuneration report.
58 Sigma Capital Group plc | Annual Report & Financial Statements 2017
Five Year Record
2017 2016 2015 2014 2013
£’000 £’000 £’000 £’000 £’000
Revenue 4,437 5,383 6,724 3,868 5,808
Cost of sales (103) (460) (1,621) (660) (3,555)
Gross profit 4,334 4,923 5,103 3,208 2,253
Other operating income 3,050 2,040 (26) 170 54
Administrative and other expenses (4,268) (3,598) (3,259) (3,192) (2,662)
Profit/(loss) from operations 3,116 3,365 1,818 186 (355)
Net finance income 89 290 319 28 10
Share of profits from joint
ventures/associate companies 852 443 449 - 20
Exceptional item - (428) - - (531)
Profit/(loss) before tax 4,057 3,670 2,586 214 (856)
Taxation (378) (105) (192) - -
Profit/(loss) for the year 3,679 3,565 2,394 214 (856)
Attributable to:
Equity holders of the Company 3,679 3,565 2,394 214 (856)
3,679 3,565 2,394 214 (856)
Net assets employed 40,035 36,087 32,255 10,620 2,636
Basic earnings/(loss) per ordinary share (pence) 4.15 4.02 3.39 0.38 (1.87)
Sigma Capital Group plc | Annual Report & Financial Statements 2017 59
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 22 June 2018 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.
8.
Receipt of the financial statements for the year ended
Reappointment of Gwynn Galloway Thomson as a director
Reappointment of Duncan William Sutherland as a director
Reappointment of Malcolm Douglas Briselden as a director
31 December 2017 together with the reports of the Directors and the auditor n
n
n
n
n
n
n
n
Approval of the report on Directors’ remuneration for the
year ended 31 December 2017
Re-appointment of the auditor
Remuneration of the auditor
General authority to allot securities
Special Resolution
9.
General disapplication of pre-emption rights
Signature(s) or Common Seal
n
Date
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
n
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.
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 20
June 2018.
60 Sigma Capital Group plc | Annual Report & Financial Statements 2017
EDINBURGH:
18 Alva Street
Edinburgh
EH2 4QG
MANCHESTER:
Floor 3, 1 St Ann Street
Manchester
M2 7LR
LONDON:
Office 106, 1st Floor
40 Gracechurch Street
London EC3V 0BT
T: 0333 999 9926
W: www.sigmacapital.co.uk