SGM.L Regulatory News (SGM)

21 January 2021

AIM: SGM

SIGMA CAPITAL GROUP PLC

("Sigma" or "Group")

The private rented sector ("PRS") and urban regeneration specialist

Final Results

for the nine months to 30 September 2020

KEY POINTS

Financial Results

9-month reporting period following the change of accounting reference date to 30 September

Summary

· Results in line with market expectations

· Business model showed considerable resilience in the face of the coronavirus pandemic

· Strong bounce back after the opening up of the construction and lettings industries in May 2020

· Major joint venture, potentially worth £45m in fee income alone in the first five years, agreed with EQT Real Estate in September; targeting £1bn build-to-rent portfolio in Greater London

Coronavirus Impact

· Disruption of construction activity is estimated to have reduced activity level by 25% over the 9-month period

· No requirement to furlough staff or to use Government assistance schemes

· Rental demand and rent collection remained strong

Managed PRS activities

· A total of 1,017 new rental homes were delivered to the REIT in the 9-month period, taking its portfolio to 2,634 homes at 30 September 2020, with an estimated rental value ("ERV") of £24.3m pa

· The REIT's funding resource of £900m (gross) was fully committed by 31 December 2020 with the acquisition of a fully-let development of 123 suburban new homes. This development had originally been created and developed by Sigma for BlackRock Real Assets

· In Q1 of the new financial year, a total of 529 homes (including from the above acquisition) were added to the REIT's portfolio, taking it to 3,163 completed homes, with an ERV of £29.4m at 31 December 2020

- a further 1,963 homes were contracted, which takes the portfolio to 5,126 homes, with an ERV of £48.8m pa, when completed and let

- delivery of the REIT's 5,000th completed home is expected in late 2021/early 2022

· The Thistle Portfolio and UK PRS Portfolio (together c.1,600 PRS homes) contributed £0.4m and £0.4m of asset management fees respectively in the period

Self-funded PRS activities

· Two self-funded developments were completed and sold to the REIT for a total of £11.9m after independent valuation. Sigma's realised profit was £1.1m.

· Six developments (c.395 homes) are currently under way, with a gross development cost ("GDC") of c.£90.8m and ERV of c.£5.1m. The two London developments will seed the EQT Real Estate joint venture

Post period and Outlook

· ESG manager appointed in November 2020

· New Collaboration Agreement with principal construction partner, Countryside Properties plc, signed in December to deliver up to 5,000 new PRS homes over the next three years

· Investment Advisory Agreement with the REIT was extended from 31 May 2022 to 31 December 2025

· Sigma's interest in the Thistle Portfolio (918 PRS homes) was realised; net cash of £2.9m is £1m ahead of book value

· Q1 trading is line with management expectations and the Board is confident of growth prospects

Graham Barnet, CEO of Sigma Capital Group plc, commented:

"Sigma's final results reflect the impact of the coronavirus crisis and the shorter nine month reporting period, following the change of year end. Nonetheless, we delivered over 1,000 new rental homes for The PRS REIT plc in the period, and delivery momentum has bounced back to almost pre-coronavirus level.

"The launch of our £1bn joint venture with EQT Real Estate, which is targeting 3,000 new London rental homes over the next five years, was a landmark event in September 2020. It sees us advance into a new geography, and adds new long-term income streams. Like the recent high-profile sale of the 'Thistle' portfolio of suburban rental homes, which we created for Gatehouse Bank, it is further recognition of the value our model creates both for partners and for Sigma.

"The business is in a very strong position, financially and operationally. Our new agreements with Countryside Properties, for housing delivery, and with The PRS REIT plc, extending our advisory agreement, create added visibility. Trading in the first quarter of the new financial year is in line with management expectations, and with demand for our rental homes remaining high, the Group is in a strong position to achieve its targets for the financial year."

Enquiries:

NOTES TO EDITORS

About Sigma Capital Group plc(www.sigmacapital.co.uk)

Sigma Capital Group plc ("Sigma") is a PRS, residential development, and urban regeneration specialist, with offices in Edinburgh, Manchester and London. Sigma's principal focus is on the delivery of large scale housing schemes for the private rented sector. The Company has a well-established track record in assisting with property related regeneration projects in the public sector, acting as a bridge between the public and private sectors.

Sigma has created an unrivalled PRS platform, which sources sites and brings together construction resource to develop them, enabling Sigma to deliver an integrated solution to partners. As well as sourcing sites and managing all stages of the planning and development process, Sigma also manages the rental of completed homes through its award-winning rental brand, 'Simple Life'.

The Company's subsidiary, Sigma PRS Management Limited, is Investment Adviser to The PRS REIT plc. In September 2020, the Company launched a joint venture with EQT Real Estate, the real estate platform of global investment firm EQT to establish a £1bn portfolio of high quality, new-build homes for private rental in Greater London.

About Sigma PRS Management Ltd

Sigma PRS Management Ltd is a wholly-owned subsidiary of AIM-quoted Sigma Capital Group plc and is Investment Adviser to The PRS REIT plc. It sources investments and operationally manages the assets of The PRS REIT plc and advises the Alternative Investment Fund Manager ("AIFM") and The PRS REIT plc on a day-to-day basis in accordance with The PRS REIT plc's Investment Policy. The Investment Manager is G10 Capital Limited. Sigma PRS Management Ltd is an appointed representative of G10 Capital Limited, which is authorised and regulated by the Financial Conduct Authority (FRN:648953)

About The PRS REIT plc(www.theprsreit.com)

The PRS REIT plc is a closed-ended real estate investment trust established to invest in the Private Rented Sector and to provide shareholders with an attractive level of income together with the potential for capital and income growth. The Company is investing £0.9bn in a portfolio of high quality homes for private rental across the regions, having raised a total of £500m (gross) through its Initial Public Offering, on 31 May 2017, and a subsequent placing in February 2018. Both fundraisings were supported by the UK Government's Homes England with direct investments.

LEI: 21380037Q91HU97WZX58

CHAIRMAN'S STATEMENT

Introduction

This report presents Sigma's trading results for the nine months ending 30 September 2020 and the comparative figures are for the 12 months ending 31 December 2019. This follows the change in Sigma's financial year end to 30 September, which should result in a reporting cycle that is more compatible with the Company's seasonal trading pattern.

We are very pleased with Sigma's performance, given the unprecedented challenges the coronavirus pandemic presented in the period. The global outbreak has caused significant economic and social turmoil, which still continues. The response shown by our staff and partners to this exceptional situation has been outstanding, and we would like to thank everyone for their care and commitment. They have helped the business to negotiate the difficulties in the period well. Sigma's significant cash resource, which currently stands at £26.2m, positions the business strongly in the face of further disruption, although with the rollout of the mass vaccine programme, we hope to see a more stable situation emerge. The Company's resilience through the crisis reflects both our robust business model and careful financial management. We have increased our resource in order to support growth plans and there was no requirement to furlough staff or take up any Government's assistance.

In September, we were delighted to announce the launch of a major joint venture with EQT Real Estate, the real estate platform of global investment firm EQT. Homes England, the housing agency of the UK government is supporting the venture, which aims to create a £1bn build-to-rent portfolio of c. 3,000 homes in Greater London in this first phase. This new agreement is potentially worth c.£45m in fee income alone over the first five years. We are now advancing the delivery of initial seed assets and progressing development opportunities through our PRS property platform. It provides a professional and secure supply chain for the acquisition, construction and management of rental homes.

We agreed two significant contracts after the year end. First, in December, we signed a new collaboration agreement with Countryside Properties plc ("Countryside"), our principal home building partner, covering the delivery of up to 5,000 new private rental sector ("PRS") homes over the next three years. The new agreement supports both companies' growth ambitions, and enables Sigma to map out housing delivery effectively while Countryside is able to deliver homes more quickly on its larger, mixed tenure sites. Secondly, in January 2021, we agreed terms to extend our Investment Advisory Services with The PRS REIT plc ("the REIT" or "the PRS REIT"). The new agreement has extended our contract from 31 May 2022 to 31 December 2025. This gives us considerable additional visibility, with the extension equating to a potential c.£16m of asset management income.

In addition, after the period end, the Thistle Portfolio, our first large-scale portfolio of 918 PRS homes that was completed in 2017 for £110m for Gatehouse Bank, was sold for c.£150m. The sale has crystallised our beneficial interest at £2.9m net, c.53% above its book value. It is powerful validation of the strength of our model and the value we create for Sigma and our partners. The £2.9m proceeds are expected in the near term.

Government measures to contain the spread of the virus, including lockdowns and other restrictions, set construction activity back by an estimated 600 homes over the nine month period and adversely impacted both fee income and capital growth relating to self-financed assets. Nonetheless we delivered a significant number of new rental homes; 1,017 homes to the PRS REIT in the shortened financial period. This delivery compares to 842 homes in the last full financial year and the quickening pace reflects the increased number of sites under construction and advancing to maturity.

The additional 1,017 homes took the REIT's portfolio of completed homes to 2,634 at 30 September 2020, providing an estimated rental value ("ERV") of £24.3m per annum when fully let. A further 2,369 contracted homes, with an ERV of £23.3m per annum were also under way at that point. Homes are located in most of the major regions of England, providing good geographical diversification. Locations are chosen with care, with proximity to good primary schools a priority.

While Sigma's housing delivery in the period was primarily for the REIT and funded by the REIT, a tranche was funded by Sigma. We completed and sold two self-funded sites to the REIT for a combined £11.9m based on independent valuations, crystallising a realised gain of £1.1m. The sites were fully-let at the point of sale, and comprised 52 homes, with an ERV of £0.6m p.a. A further four self-funded sites are under way for the REIT.

We also acquired a fully-let development of 123 rental homes on behalf of the REIT from BlackRock Real Assets in December 2020. We knew the development well, having created and delivered it for BlackRock Real Assets in 2019. The acquisition of this asset also marked the completion of the commitment of the REIT's funding resource of £900m (gross).

By the end of December 2020, at the close of the first quarter of Sigma's current financial year, a further 529 new homes were delivered to the REIT (which includes the BlackRock Real Assets homes). This took the REIT's portfolio to 3,163 completed homes, with an ERV of £29.4m, and 1,963 contracted homes, at varying stages of development. Together, these 5,126 homes will provide an ERV of £48.8m per annum once completed and let.

Demand for our new rental homes remains high, reflecting their build-quality and location, and the undersupply that exists. Let homes have been performing well, on average 2% above budget.

While uncertainty remains, particularly over the coronavirus situation, Sigma is well-positioned, financially and operationally. We have significantly increased the Company's geographic reach and potential opportunity, and added significant new income streams. The Board therefore views growth prospects very confidently.

Financial Results

Please note that, following the change in Sigma's accounting reference date, the financial period under review comprises the nine months ended 30 September 2020. The comparative period comprises 12 months ended 31 December 2019.

In the nine month period ended 30 September 2020, the Group generated total revenue of £8.0m (2019: £13.9m). However, the period included six weeks when all construction activity was suspended because of the coronavirus pandemic and a further twelve weeks of disruption before activity returned to more normalised levels. Revenue comprised PRS income relating to the REIT, Gatehouse Bank and UK PRS Properties, as well as rental income from completed homes on self-funded sites, prior to the sites' full completion and onward sale.

Profit from operations for the nine months was £3.2m (2019: £12.0m). This included realised and unrealised gains from investment property of £1.3m (2019: £3.9m), and recognition of an unrealised loss on investments of £0.2 million (2019: unrealised gain £0.2 million).

Profit before tax for the nine months was £3.2m (2019: £13.0m) and basic earnings per share was 2.84p (2019: 11.63p).

Net assets at 30 September 2020 stood at £61.1m, equivalent to 68.3p per share (31 December 2019: £60.5m, equivalent to 67.6p per share).

Cash used by operations in the nine months was £1.3m (2019: cash generated from operations £8.0m), reflecting lower creditors as a result of reduced PRS activity.

Cash balances at 30 September 2020 amounted to £25.8m (31 December 2019: £16.8m), and at 19 January 2021 cash balances totalled £26.2m. 

Dividends

The Board is pleased to declare a dividend of 2.0p per share for the nine month financial period (12 months to 31 December 2019: 2.0p), which reflects the Board's confidence in the Company's growth prospects.

The dividend will be paid on 12 March 2021 to shareholders on the register on 26 February 2021.

Business and Operational Overview

Sigma is focused on delivering high-quality new homes for private rental across the UK. The Group's PRS property platform brings together a network of formal and informal relationships. These include construction partners, central government and local authorities. Sigma typically delivers a range of traditional housing through its property platform partners, enabling the Company to cater for a broad spectrum of demand, from young couples to growing families and retirees.

With the launch of the joint venture with EQT Real Estate, from 2021, Sigma's income streams now comprise:

· acquisition fees for the assets that the Group procures and delivers to third parties

· development management fees for the assets the Group procures and delivers to third parties

· asset management fees for the overall management of the assets; and

· development profits on the assets that the Group self-funds and subsequently sells, once completed. Sigma also retains any rental income prior to the sale of a completed site.

Managed PRS Activities

EQT Real Estate

In September 2020, the Group announced the launch of a joint venture with EQT Real Estate, the real estate platform of global investment firm EQT, to deliver high quality, new-build homes for private rental in Greater London. The joint venture is being supported by Homes England, the housing agency of the UK government, and is targeting the establishment of an initial portfolio of approximately 3,000 homes with a value in excess of £1bn. Two sites, currently under development by Sigma, at Fresh Wharf, Barking, and Beam Park, Havering will be acquired by the joint venture on practical completion, expected by September 2021.

The PRS REIT plc

Sigma subsidiaries are Investment Adviser and Development Manager to the REIT, which was created and subsequently launched by Sigma on 31 May 2017. The REIT's objective is to establish a substantial portfolio of new-build homes across the regions for the private rental market.

The REIT's portfolio is being built in two ways:

· Undeveloped sites

Sigma's subsidiary, Sigma PRS Management Ltd ("Sigma PRS"), sources sites for the REIT to acquire and develop. Typically sites are sourced though the Group's PRS property platform. As well as sourcing and assessing suitable sites, Sigma PRS manages the planning and development processes and the subsequent letting of completed homes. Two thirds of the REIT's new properties has been funded in this manner.

For these services and the right-of-first-refusal on assets within Sigma's PRS property platform, the REIT pays Sigma a development management fee, equivalent to 4% of the GDC of respective sites.

· Completed sites

The REIT acquires completed PRS sites from Sigma pursuant to a forward purchase agreement. Sigma earns development profits from the sale of such sites, and receives rental income from let homes until the point of sale. Completed assets may also be acquired from other third parties.

All sites must satisfy the REIT's investment objectives and are independently valued for the REIT prior to acquisition.

On 20 January 2021, we were pleased to report that our Investment Advisory Agreement with the REIT had been extended from 31 May 2022 to the end of December 2025, with a one year notice period thereafter.

The agreement sets out Sigma's asset management fees for managing the REIT's assets, with fees calculated on a sliding scale, based on a percentage of the adjusted net asset value ("NAV") of the REIT's portfolio. Sigma earns 1% of the value of the REIT's adjusted net assets up to £250m, with this percentage moving to 0.9% and 0.75% at intermediate thresholds, and then to 0.5% at £1bn and above and 0.4% at £2bn and above. The agreed extension equates to an additional c.£16m in asset management fees.

The total debt facilities available to the REIT at 30 June 2020 comprised a £150 million revolving credit facility with Lloyds Banking Group / RBS and two fixed rate term loans with Scottish Widows for £100 million and £150 million respectively. In September 2020, Sigma negotiated an additional £50 million development debt facility for the REIT with Barclays Bank PLC.

Although the aggregate debt facilities total £450 million, £75 million of the Lloyds Banking Group / RBS facility and the £50 million Barclays Bank PLC debt facility are drawn as development debt facilities to enable a larger number of sites to be developed simultaneously. Following practical completion and stabilisation of lettings on sites partially funded by development debt, the assets are refinanced using the REIT's longer-term investment debt facilities. On that basis, the total borrowings will not exceed the maximum gearing level of 45%.

Delivery of new homes for the REIT in the period under review was severely disrupted by the coronavirus pandemic and, in particular, by the initial national lockdown. Construction activity was suspended for approximately six weeks, from the end of March to early May. Sites were reopened with social distancing and other safety measures in place, and while this has adversely affected the pace of delivery, the new working practices are working well. We estimate that the shutdown and decreased productivity reduced unit delivery in the nine month period by c. 600 homes.

Notwithstanding the disruption, a total of 1,017 homes were completed in the nine month period to 30 September 2020, compared with 842 in the prior 12-month financial year. This reflected the significant increase in the number of sites in the delivery programme. It took the total number of completed homes at 30 September 2020 to 2,634 across six of the eight major regions of England (31 December 2019: 1,617). The ERV of the completed homes at 30 September 2020 was £24.3m per annum (31 December 2019: £14.9m per annum)

On 3 December 2020, the Company announced that it had delivered the 3,000th home for the REIT. Soon after, Sigma completed negotiations for the acquisition of a fully-let development of 123 homes from BlackRock Real Assets, taking the REIT's portfolio at 31 December 2020 to 3,163 homes, with an ERV of £29.4m. The development was well-known to us, having been created and developed by Sigma for BlackRock Real Assets in 2019. Its acquisition also marked the full commitment by Sigma of the REIT's funding resource of £900m (gross).

We are now well into the final stages of delivering the REIT's initial portfolio, which once fully optimized is anticipated to be around 5,200 homes, with an ERV of approximately £50.0m per annum. Delivery of the 5,000th home is currently expected in late 2021/early 2022.

Gatehouse Bank and UK PRS Properties

The 918 new homes, known as the Thistle Portfolio, delivered under our joint venture with Gatehouse Bank, and the 684 properties completed for UK PRS Properties, which is principally backed by the Kuwaiti Investment Authority and institutional shareholders from the State of Kuwait, continued to rent very well.

The homes in the Thistle Portfolio, which we completed in March 2017, are located across 15 sites in the North of England and generate rental income of about £8.3m per annum for Gatehouse Bank. Sigma earned an asset management fee of approximately £0.4m from the portfolio in the nine months to 30 September 2020.

In January 2021, Sigma's beneficial interest in the Thistle Portfolio was realised when the portfolio was sold for a total consideration of c.£150m to Goldman Sachs Merchant Banking Division and Pitmore. Sigma will receive a total net cash payment of £2.9m following completion, which represents its share of total sale profits after certain hurdles. This sum stands at 53% above the book value of £1.9m ascribed to this interest in both these and the Company's 2020 report and accounts.

The Thistle Portfolio has consistently generated attractive returns, with average occupancy over 99% and rent collection in excess of 98%. This includes during the coronavirus pandemic and is in line with the performance of Sigma's own assets and the REIT's portfolio. Its sale marks the first significant sale in the UK of a portfolio of new-build, single-family suburban PRS houses, and provides market evidence for the current and future valuation of the Company's assets, both on its own balance sheet and managed for external parties

The homes in the initial UK PRS Properties portfolio, which we completed in November 2018, are situated across sites in the North West and West Midlands. They generate approximately £6.2m in annual rental income. Sigma earned £0.43m for its services from this joint venture in the period to 30 September 2020. In June 2020, we commenced the delivery of a site of 65 units at Walsall in the West Midlands, which is expected to complete in the spring of 2022.

Self-funded PRS Activities

During the period, Sigma completed the development, letting and sale of two self-funded sites to the REIT, a 21-unit development in Bury St. Edmunds and 31-unit development in Birmingham. The combined rental income from the 52 properties is about £0.6m per annum. The total sales value of the two sites was £11.9m, based on an independent valuations by Savills, and the realised profit for Sigma was £1.1m.

The Company currently has six self-funded development sites under way, in the North West, Midlands, South and London. These will deliver approximately 395 homes in total and have a combined GDC of £90.8m and an ERV of £5.1m per annum.

The two development sites in London have a total GDC of c.£43.1m and are Sigma's first build-to-rent activity in this region. One site is an 80-unit development site at Beam Park, part of a £1 billion regeneration project under way across the London Boroughs of Havering and Barking & Dagenham, on land released by the Greater London Authority as part of its plans for new London homes. The other site is a 77-unit development at Fresh Wharf, a major riverside scheme close to Barking Town centre. Sigma is working with Countryside Properties and L&Q New Homes at the Beam Park scheme, and with Countryside Properties and Notting Hill Developments at Fresh Wharf. Once the properties have achieved practical completion they will be sold to our London joint venture with EQT Real Estate, seeding the venture with its first completed assets.

Opportunity for PRS in Scotland

The Sigma Scottish PRS Fund ("the Scottish Fund") was established in partnership with the Scottish Government to create new rental homes in Scottish cities. To support the venture, a Collaboration Agreement was signed with Springfield Properties plc ("Springfield"), a leading house builder in Scotland. However, this venture was paused with the onset of the coronavirus crisis although we continue to review our options relative to value creation opportunities elsewhere in the UK.

Regeneration Partnerships

Our regeneration activities support our local authority partners and involve taking on projects that fit well with our existing relationships and core PRS activities.

The transformation of a 19-acre former secondary school site at Gateacre in Liverpool, was completed in 2019 and, as a result, the Group dealt with residual matters during 2020. The Group received dividends from its joint venture with Countryside during the period of £4.3m.

Building Communities

The new homes that Sigma is delivering for the REIT's portfolio form new neighbourhoods and communities. We recognise our responsibility towards ensuring that these are well-functioning communities, and our vision is to create homes and neighbourhoods that people will enjoy living in and will feel a part of.

All the homes that we deliver are marketed under our 'Simple Life' brand and, as we have previously stated, our goal is for this brand to be increasingly recognised as representing a gold standard in the private rental market.

In order to help to forge the social links that underpin communities and create a sense of neighbourliness, we organise regular events across our developments to bring people together. We also build links with the wider community. We have supported a number of local primary schools over the past year, with projects including a library refurbishment and the provision of outdoor play equipment. We intend to continue to build on these initiatives, and are moving forward with ideas, big and small, which will help to create a better environment for our tenants and their local communities.

At this difficult time, we have increased our communication with tenants to ensure that tenants feel well- supported by us. At the beginning of lockdown, we launched a programme of online interactions, including exercise, cookery classes, and advice on accessing the Government's assistance packages. We intend to maintain supportive contact with tenants throughout the lockdown period.

The Board and Management

In May 2020, I was delighted to join the Board as Non-executive Chairman. I was previously Group Chief Executive of Countryside Properties plc, and before that I was UK Chief Executive of Taylor Wimpey plc and Chief Operating Officer of SEGRO plc. We are very pleased that David Sigsworth, my predecessor, remains on the Board as Senior Independent Non-executive Director.

In March 2020, Mike McGill was appointed to the Board as Group Chief Financial Officer. As well as taking executive responsibility for the overall financial management of the Group and its subsidiaries, Mike is specifically responsible for financial matters relating to the REIT. Malcolm Briselden, Finance Director of Sigma, remains in operational charge of Sigma's finance team, working closely with Mike. Malcolm is focusing on Sigma's activities outside the REIT, including London.

Mike has over 20 years of experience in senior financial roles at listed and private companies. He has worked across a range of sectors, including residential property. He was previously Group CFO at Baxters Food Group Limited, the international food processing company, CFO at Lomond Capital, the residential asset management company specialising in the UK private rental sector, and Group Finance Director at Murray International Holdings Limited, the property and metals group.

The finance team was further strengthened with the appointment of a Group Financial Planning and Treasury Manager along with a Financial Controller dedicated to the REIT's activities.

Our dedicated London team, which is working on delivery for our joint venture with EQT Real Estate, was strengthened with the appointment of a London-based asset manager and a dedicated financial analyst.

The Board is committed to maintaining high standards of Corporate Governance, and continues to adhere to the Quoted Companies Alliance Code. The Board has considered how each principle of this Code is applied and we provide a full explanation in our Strategic Report section and also on our website www.sigmacapital.co.uk. We have a clear strategy and business model, focused risk management, an effective and experienced Board, appropriate governance structures and effective dialogue with our major shareholders. Our intention is to continue to develop our culture and our dialogue with the wider stakeholder interests.

Outlook

The pace of delivery for the PRS REIT has stepped up significantly over the last six months. This reflects the number of sites under construction and advancing towards maturity. While coronavirus restrictions somewhat slowed activity, there is very good momentum now, and we expect to deliver the 5,000th completed rental home for the PRS REIT in late 2021 or early 2022.

Rent collection and rent demand across all portfolios remains strong. Over the six months to 31 December 2021, the rent collected on the REIT's portfolio was 100% of the rent invoiced during the period while arrears have remained unchanged at only £0.2m. This is less than 1% of annualised ERV of £29.4m on completed homes. At 31 December 2020, 3,045 homes of the 3,163 completed homes were occupied. The recent extension of our Investment Advisory Services contract with the REIT gives us even greater visibility of earnings and allows us to plan effectively for the next stage of the REIT's growth.

The sale of the Thistle Portfolio, Sigma's first large-scale PRS portfolio, for c.£150m proves the value that our model is able to create for partners and for Sigma. We completed this portfolio's delivery in March 2017 for a gross development cost of £110m, and it has consistently delivered returns above expectations, with average occupancy at 99% and average rent collection at 98%. We believe that its sale, in which Sigma's beneficial interest realised £2.9m net, is the first of a large-scale portfolio of single-let family homes in the UK. It will act as a benchmark for the valuations of Sigma's other PRS portfolios.

Our new joint venture with EQT Real Estate launched in September has added another long-term recurring revenue stream and the opportunity for capital growth on self-funded assets. We are also delighted to have Homes England's continuing support with this new venture. We are in the process of acquiring and developing initial seed assets for the targeted 3,000 home portfolio, and are increasing our pipeline of opportunity to more than meet our targets. We estimate that fee income alone from the JV is worth a potential c.£45m to Sigma in the first five years. This is based on a delivery of £1bn in gross development costs.

The new collaboration agreement with Countryside for another 5,000 homes over the next three years further underpins our growth plans.

I would like to thank all our staff and partners, particularly Countryside, for their ongoing support in a difficult period for us all. We look forward to an exciting year of further growth and development.

Trading in the first quarter of the new financial year is in line with management expectations, and with construction activity now closer to normal levels, the Group is in a strong position to achieve its targets for the financial year.

Ian Sutcliffe

Chairman

20 January 2021

Coronavirus and going concern review

Coronavirus and Going Concern

This going concern review begins with a summary of the risks that coronavirus poses to the Company together with actions we have already taken and continue to take to ensure that not only does the business weather the storm, but will also well placed to emerge from the crisis in a position of financial strength.

Countries around the world have been hit by coronavirus. The virus has spread on a global basis and is designated a "pandemic". Despite significant mitigating action including self-isolation for people suspected of having the virus, and a combination of an effective lockdown through social distancing for all but essential workers and the imposition of varying degrees of restrictions on social interaction across the country, the impact of the virus has been significant in terms of extent and timing. This represents a material risk to house building and letting activity together with the operations of the Company as a whole.

Coronavirus has impacted the Group in the following areas:

· Company staff operating from home or otherwise unable to work or absent from work;

· House builders unable to continue with construction work on sites or forced to reduce or suspend construction work on sites due to a combination of the effective lockdown and restrictions or as staff are unable to work or are absent from work;

· Letting agents unable to progress activities in respect of lettings, repairs and maintenance or only able to operate a limited service due to a combination of the effective lockdown and restrictions or as staff are unable to work or are absent from work;

· Income reduction and doubtful debts as some tenants struggle to maintain rental payments resulting from a loss of income due to a combination of the effective lockdown and restrictions or as individuals are without work, unable to work or are absent from work;

· Disruption to the supply chain as raw materials and construction products are not produced or imported as workers are unable to work or are absent from work;

· General disruption to employees, house builders, letting agents and the supply chain due to restrictions on the movement of goods and people;

· Impact of the virus on the economy and market sentiment; and

· Further waves of the coronavirus and potential for further national lockdowns or significant localised restrictions on social interaction.

The absence of Company staff from the office workplace has been mitigated by remote working from home. We have adapted our technology to facilitate remote working throughout the business in order to keep our operations and projects as on track as practically possible during coronavirus pandemic. The Company has not furloughed staff or made use of any of the Government schemes providing support to companies or individuals in financial difficulty during or because of the crisis. Sigma's intention is still to keep all employees actively working as far as possible and to maintain contractual terms and conditions throughout.

A greater issue has been in relation to house building and letting activity where the effective lockdown ceased construction activity in the short term from the end of March up until May when lockdown restrictions began to ease. Even then, construction activity only began to resume comprehensively in June and has subsequently been adjusted to reflect continuing requirements for social distancing and guidance around public transport meaning that construction levels have not fully returned to pre-lockdown levels. A further complication has been the introduction of varying degrees of localised lockdown restrictions in response to outbreaks of coronavirus in particular areas.

Importantly, the Company's contractual obligations only provide for payment to house builders in respect of work undertaken and independently certified. The absence of construction activity thereby negates development expenditure thus mitigating cash outflows.

In relation to income and doubtful debts, the Company carefully vets prospective tenants and typically obtains rent insurance for at least the first year of new lettings where there is limited covenant history or if the employment sector is considered to be at greater risk. To date, coronavirus related arrears have been managed by agreeing payment plans with tenants encountering difficulties. The insurer has been notified of this in order to preserve rights of claim but policies ultimately pay out in the event that arrears are not recovered through payment plans. This, together with the geographic spread of multiple sites will help mitigate against the inevitable bad debts.

Preserving the employment of staff, rather than furloughing, also enables Sigma to work with letting agents as we proactively assist and support those tenants encountering difficulty during the crisis in a responsible and reasonable manner. The adaptation of our technology has meant that this important tenant interaction and engagement has continued through a variety of telephone, e-mail and social media.

In terms of supply chain disruption, significant efforts and contingencies had already been put in place in respect of Brexit through securing additional inventory of supplies, including timber. In addition, all of our suppliers have worked quickly to adapt to new ways of working in accordance with government guidelines to enable all areas of the business to continue, although at a slower rate than before.

The coronavirus has had a major impact on the economy and market sentiment. During August, announcements indicated that the UK has technically entered a severe recession as a result of two successive quarters of negative GDP growth. The Bank of England has recently signalled that another technical recession is likely following the most recent round of restrictions. However, there is a structural under supply of new family homes in the UK and indications suggest that the pandemic and recession may have increased demand for the Group's high quality but affordable product across multiple regions.

There is a risk of reduced property valuations due to changes in rental levels, bad and doubtful debt risk and sector attractiveness impacting yields. Having experienced the first lockdown, the Group and Company has a good understanding of how to react quickly to adapt to further lockdowns. New systems are in place, which enable the Company to better support tenants e.g. with online repairs and maintenance assistance. It presently appears that varying degrees of lockdown measures look likely to continue pending broad vaccination coverage. Given the geographic spread of sites and reflecting government's desire to maintain as much economic activity as is reasonably possible, the Group is likely to be able to continue construction and lettings activity, particularly in those regions unaffected by restrictions. As mentioned above, cessation of construction work on development sites would reduce short-term cash outflows although practical completion and lettings schedules would be delayed.

There remains the risk of further waves of coronavirus unless and until the wider vaccination programme is implemented, and greater potential for further national and local lockdowns or restrictions. Having experienced the initial lockdowns, the Group and Company have a good understanding of how to react quickly to adapt to additional lockdowns.

Coronavirus Stress Tests

In light of the above, the Company has performed a prudent financial stress test geared towards ensuring that it has sufficient cash resources to weather the pandemic and subsequently emerge in a strong enough condition to continue to implement the focused build to rent strategy. The stress test incorporated the following sensitivities:

- A starting point of £25.8 million of cash balances with no associated borrowings;

- Cessation of construction activities for a period of 3 months from the end of December 2020 albeit currently construction is continuing on all sites;

-

- For investment property developed by Sigma a delay of 3 months to current expected forecast sale date;

- Development fees generated from construction activities in The PRS REIT plc modelled as not being earned during the 3 month period of the cessation of construction activities;

- Reduction of rental income on properties owned by Sigma by 20% with no subsequent recovery therefore reflecting potential on going coronavirus issues;

- Inclusion of only contracted revenue and does not include any additional revenue from any new potential sources;

- Continuation of employment costs as currently contracted without any reduction for cost saving initiatives, mitigating action or contribution from any Government backed furlough scheme;

- Maintenance of the Company's overhead base of c.£7million per annum without reduction from cost saving initiatives or mitigating action; and

- Prudent assumptions in relation to tax liabilities and the timing of payment in respect thereof.

In addition, the Group's limited recourse development facility of £45m with Homes England is due for repayment on 30 September 2021. We are currently in discussions with Homes England regarding this and based on our long standing relationship and strong partnership with Homes England, reasonably expect the facility to be renewed. The relationship is reflected not just in the provision of the development facility to Sigma Group but also in the role of Homes England as a cornerstone investor in the PRS REIT and lender to the Company's joint venture in London with EQT. However, for going concern purposes the Company has assessed that in the highly unlikely event that the facility is not renewed, it will have enough cash resources, after the agreed sale of its London assets to its joint venture with EQT Real Estate, for the facility to be repaid if required.

Conclusion of Coronavirus Stress Tests

The conclusion of our stress test is that the business has more than adequate cash resources to sustain an extended cessation of construction and disruption to letting activity lasting at least 12 months with estimated funding resources of more than £24 million remaining and being maintained even after this time. Without any income or costs saving measures whatsoever, which is neither commercial nor realistic, this would represent more than three years' worth of total overheads for the business.

Therefore, the Directors believe the Group is well placed to manage its business risks successfully and the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future and for a period of at least 12 months from the date of the approval of the Group's consolidated financial statements for the period ended 30 September 2020. The Board is therefore of the opinion that the going concern basis adopted in the preparation of the consolidated financial statements for the period ended 30 September 2020 is appropriate.

Coronavirus Conclusion

Overall, coronavirus remains a real and existing risk which requires careful monitoring and a management in conjunction with our house building partners and Letting Agents in order to mitigate the likely issues as much as possible pending the restoration of a more normal working and living environment. As one would expect the Company will continue to objectively review and assess the impact of the coronavirus outbreak and government response on both its strategy and focus of activities. Importantly, however, the pandemic will ultimately pass and the Company is well placed to thrive thereafter.

STRATEGIC REPORT

The Directors have pleasure in presenting their Strategic Report for the period ended 30 September 2020. This report must be read in conjunction with the Chairman's Statement, the Stakeholder Engagement and S172 Statement and the Principal Risks and Uncertainties.

Coronavirus

The impact of the coronavirus and the Company and Group's Going Concern Review are discussed above.

Business Activities and Group Structure

Sigma is a public limited liability holding company incorporated in England and is listed on AIM, the London Stock Exchange's international market for smaller growing companies. Its activities, including those of its subsidiaries, are principally focused on the Private Rented Sector, but also encompass urban regeneration and property asset management.

At 30 September 2020, Sigma had four principal and wholly-owned subsidiaries:

- Sigma Capital Property Ltd ("SCP")

- Sigma PRS Management Ltd ("Sigma PRS")

- Sigma Inpartnership Ltd ("SIP")

- Sigma Technology Investments Limited ("STI")

The Group's PRS activities are carried out by SCP, its subsidiaries, and Sigma PRS. In May 2017, the Group announced the launch of The PRS REIT plc ("PRS REIT" or "REIT") on the Specialist Fund Segment of the Main Market of the London Stock Exchange. At the same time, £250 million gross was raised through an Initial Public Offering of REIT shares, with the net funds to be used to create a substantial portfolio of new-build PRS homes. In February 2018, a further £250 million (gross) was raised through a Placing Programme and, since then, the REIT has secured £400 million of debt facilities. Sigma PRS is Investment Adviser to the REIT, having signed a five year management contract in May 2017. This contract was extended in January 2021 from 31 May 2022 to 31 December 2025, with a one year notice period thereafter. Sigma PRS is also Development Manager to the REIT, and holds an equity interest in it.

Over the period, Sigma added 1,017 homes to the REIT's portfolio, taking it to 2,634 homes at 30 September 2020. On 3 December 2020, the 3,000th home was completed, and on 21 December 2020, Sigma announced it had negotiated the acquisition of a development of 123 fully-let units from Blackrock Real Assets. This took the total number of completed homes in the REIT's portfolio to 3,163 on 31 December 2020. The acquisition also marked the full commitment of the REIT's funding resource of £900m (gross). The REIT's portfolio, once fully optimised, is anticipated to grow to about 5,200 homes and delivery of the 5,000th home is currently expected in late 2021/early 2022.

In September 2020, the Group announced the launch of a residential joint venture with EQT Real Estate to deliver high quality, new-build homes for private rental in Greater London. The joint venture is being supported by Homes England, the housing agency of the UK Government, and is targeting the establishment of an initial portfolio of approximately 3,000 homes with a value in excess of £1 billion.

Through SCP, Sigma also funds the development of new PRS homes and, during period to 30 September 2020, completed and subsequently sold two fully-developed and let PRS sites to the REIT. This brought the total number of completed self-funded sites to eleven since 2015 when self-funded PRS activity started. SCP currently has a further six self-funded PRS sites underway. This includes two sites in London, at Fresh Wharf, Barking, and Beam Park, Havering. Once completed, these sites will be acquired by the EQT Real Estate joint venture, thereby seeding the initial portfolio with assets.

The Group's first PRS joint venture (the Thistle Portfolio), was launched in November 2014 with Gatehouse Bank plc. Comprising 918 new family homes, the portfolio was completed in March 2017 and proved the effectiveness of the Group's PRS property platform. A venture targeting 684 PRS homes, across eight sites, was launched in December 2015 with UK PRS Properties (a fund principally backed by the Kuwait Investment Authority and institutional shareholders from the State of Kuwait). Construction was completed in 2018, and, in June 2020, we commenced the development of a new site for UK PRS Properties in the West Midlands. This site comprises 66 rental units and is scheduled to complete in the Spring of 2022.

Rental and occupancy levels across both these ventures have consistently performed well.

In January 2021, Sigma's beneficial interest in the Thistle Portfolio was realised when the Portfolio was successfully sold by Gatehouse Bank. Sigma's share of total sale profit, after certain hurdles, is £2.9m cash (net). This is 53% above the book value of £1.9m ascribed to Sigma's interest in the Thistle Portfolio as at 30 September 2020. The highly successful sale strongly validates Sigma's strategy and demonstrates the value that our model is capable of creating.

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 has two partnerships, with Liverpool City Council and Salford City Council.

The Group has equity interests in a venture capital fund and in an unquoted company, both held by STI.

Growth Strategy

The Group's core strategy is to utilise its property and capital raising expertise to further its PRS activities and deliver family housing. The geographies in which we deliver assets have steadily expanded, and we have also diversified the financial instruments that we manage to deliver those assets. We work with central and local authorities, house builders and funding partners, including Homes England. The Board believes that the Group is one of the leading operators in the private rented sector in the UK, and a leading player in family homes.

The private rental sector currently accounts for around 25% of all housing stock, up from around 19% in 2015. The institutionally owned and managed build-to-rent sector represents under 4% of this total, which according to Savills, has the potential to grow to c.1.5m households or a third of all available rental stock. Most build-to-rent activity in the UK to date has been focused on the development of higher value flats in London and regional city centres, with little development elsewhere in the regions. The current pipeline of build-to-rent homes in both London and the regions remains modest at c.172,000 homes, with just over 51,000 complete. This provides a significant growth opportunity for the Group, particularly with our focus on single-family homes in the regions and at the "affordable" end of the spectrum of market rent.

Sigma's growth strategy remains focused on extending its activities so as to deliver homes across multiple regions in the UK through its PRS property platform. Diversifying delivery in this way mitigates the risk associated with a narrower geographic concentration. In addition, locations near to large employment centres, local transport infrastructure and good primary schooling are fundamental to Sigma's PRS model.

During the period to 30 September 2020, the Group expanded and enhanced its delivery into London with the announcement of the joint venture with EQT Real Estate. In December 2020, we also entered into a new Collaboration Agreement with Countryside for a further c.5,000 new homes over the next three years. This new agreement comes after our previous collaboration fulfilled its target of 5,000 homes.

Sigma has now delivered c.4,800 PRS homes in six years since creating its PRS property platform. This includes the 1,602 homes delivered for Gatehouse Bank and UK PRS Properties, as well as the homes we have delivered for the REIT and for ourselves.

Over the course of the new financial year and beyond, Sigma will be focused on continuing the delivery of the balance of the 5,200 homes that make up the REIT's expected initial portfolio as well as progressing its joint venture with EQT Real Estate, and extending its platform relationships. Management believes that the Group remains in a very strong position for continuing growth.

Overview of the Business

Private Rented Sector Residential Portfolio

The Group's PRS model enables it to purchase residential land assets with planning permission, predominately sourced from local authority partnerships and house building relationships, for its fund structures.

From a local authority perspective, a key advantage that Sigma offers is that it can deliver large-scale, high-quality housing that helps to meet both local housing need and regeneration objectives. Efficiency is another major attraction since Sigma's PRS model can deliver new homes at a rate that is some four to five times faster than the rate at which 'market-for-sale' homes are typically built. 'Market for-sale' homes tend to be constructed at the pace of sales demand, which can be restricted by mortgage availability. Furthermore, local authorities benefit from increased council tax receipts from new homes and, in England, from the Government's New Homes Bonus Scheme.

The rapidity of delivery provided by our PRS property platform is also attractive to our house building partners as it offers the opportunity of an enhanced return on capital as well as de-risking and quickly maturing those sites on which there is a mix of 'market-for-sale' and PRS homes. The control and pace of this delivery is without doubt the biggest challenge in our business.

The PRS REIT plc

In 2017, the PRS REIT raised £250 million (gross) through an IPO to invest in new PRS homes and in February 2018, a further £250 million (gross) was raised via a Placing Programme. Investment and development debt facilities totalling £450 million have been secured with Scottish Widows, Lloyds Banking Group, The Royal Bank of Scotland plc and Barclays Bank plc with maximum gearing of 45%. This took the REIT's funding resource to £900 million (gross). As previously stated, the launch of the REIT in 2017 fundamentally transformed Sigma's model. The Company has a management contract with the REIT as Investment Adviser, and is also Development Manager. In January 2021, the term of this contract was extended from 31 May 2022 to 31 December 2025, with a one year notice period thereafter.

Sigma is remunerated by the REIT in two ways. Firstly, Sigma receives development management fees in respect of sites that are developed directly by the REIT and, secondly, it receives an investment advisory fee, which is based on an adjusted net asset value of the REIT's portfolio. In addition, the REIT may acquire completed and let sites from Sigma, through forward purchase agreements, subject to those sites meeting its investment criteria. Sites are independently valued on behalf of the REIT and Sigma recognises any revaluation gains.

As at 30 September 2020, the number of completed and contracted homes for the PRS REIT stood at 5,003 with a total ERV of c.£47.6m. At 31 December 2020, this had grown to c. 5,126, with a total ERV of £48.8m.

London joint venture with EQT Real Estate

In September 2020, the Group announced the launch of a joint venture with EQT Real Estate, the real estate platform of global investment firm EQT, to deliver high-quality, new-build homes for private rental in Greater London. The joint venture is being supported by Homes England, the housing agency of the UK government, and is targeting the establishment of an initial portfolio of approximately 3,000 homes with a value in excess of £1bn. Two sites, currently under development by Sigma, at Fresh Wharf, Barking and Beam Park, Havering will be acquired by the joint venture on practical completion. This is expected by September 2021.

Sigma Self-funded PRS - regions

The Company has been funding its own PRS assets since 2015, when it raised £20 million (gross) from a share placing in order to create a substantial portfolio of new rental homes. In 2016, the Group agreed a £45 million revolving credit facility with Homes England, which materially increased its ability to scale its delivery of self-funded homes.

During 2020, two development sites were completed, let and then acquired by the REIT, thereby releasing capital for further investment. This takes the number of sites that the Company has successfully developed and sold to the REIT to eleven. All sites acquired by the REIT are independently valued. The Company is currently active on a further six sites, including two in London.

Sigma Self-funded PRS - London

In September 2019, Sigma acquired two sites in London from Countryside Properties plc at Fresh Wharf, Barking, and Beam Park, Havering. They have a total development cost of c.£43.0 million and will yield a total of 157 units. We expect both assets to be completed and then sold to our joint venture with EQT Real Estate.

Beam Park is an 80-unit development site that is part of a £1 billion regeneration project that is under way across the London Boroughs of Havering on land released by the Greater London Authority. Fresh Wharf is a 77-unit development site forming part of a major riverside scheme near to Barking.

'Simple Life' Letting Brand (www.simplelifehomes.co.uk).

All of Sigma's PRS sites, including those we deliver for the REIT, are marketed under our build-to-rent brand, 'Simple Life'. Our objective is to position 'Simple Life' as the 'gold standard' in the private rented sector offering a high quality, long-term rental solution for those wanting to benefit from the flexibility of renting. We take a proactive approach to monitor the needs of both our residents and the wider rental market.

The brand is dedicated to 'making life simple' for residents, whether this is through new technology, such as our FixFlo maintenance reporting software, our new resident portal, or through helpful initiatives such as our 'how to' videos and teams of 'Handymen'. Additionally, we are strongly focused on promoting a sense of community for residents of Simple Life homes. We do this both by creating opportunities for neighbours to get together through the many events that we run throughout the year, and by forging links with the wider community, especially through our support for schools and local charities. Our focus on residents' health and wellbeing and our efforts to support residents through the challenges of the coronavirus has further demonstrated the customer-centric approach our brand represents.

New tracking processes implemented in 2020, has allowed the Company to build a greater understanding of the sources of enquiries, with our website generating the greatest number of leads. Recommendations from existing customers was one of the biggest reasons for visiting the Simple Life website*

Results from the last 12 months of our customer satisfaction surveys (below) indicate a high level of satisfaction among tenants and there are a number of customer testimonial videos available to watch on our dedicated YouTube channel: https://www.youtube.com/channel/UCsZTzlt2UuzQF_ypvTpWD1Q.

*Based on Ascend data 2020

In 2021, we plan to expand our brand into London as part of our new joint venture with EQT Real Estate. The same 'gold standard' approach will be applied in this market.

Joint Ventures with Gatehouse Bank plc and UK PRS Properties

Launched in November 2014 and completed in March 2017, our joint venture with Gatehouse Bank helped to prove the effectiveness of our PRS model. The venture delivered 918 high-quality, single-family homes (mainly houses) across 15 sites in the North West of England, for a total gross development cost of c.£110m (the Thistle Portfolio). Homes were built on land procured by Sigma, using its local authority partnerships. Access to good schooling, transport links and other amenities were priorities when selecting sites. Gatehouse Bank, a leading London-based Shariah compliant investment bank, delivered the equity element of the venture whilst Barclays Bank plc provided the debt financing.

The Thistle Portfolio has consistently performed well, with high occupancy levels in excess of 95%. It generates approximately £8.3 million per annum in rental income

In January 2021, the Thistle portfolio was sold to Goldman Sachs Merchant Banking Division and Pitmore for a total consideration of c.£150m. This crystallised Sigma's beneficial interest, generating a total net cash payment of £2.9m to Sigma, after certain hurdles. This was 53% above book value of £1.9m at 30 September 2020. The Thistle Portfolio generated c.£0.5m in annual asset management fees, which following the sale will no longer apply.

Our joint venture with UK PRS Properties completed its initial portfolio of 684 family homes across eight sites in the North West and Midlands in November 2018. This portfolio has also performed very well, and Sigma earns annual asset management fees of c.£0.4m per annum. In June 2020, we commenced the delivery of a site of 65 units at Walsall in the West Midlands for UK PRS Properties. The site is due to complete in the spring of 2022

Sigma continues to retain a share of the net profits on disposal of the assets of UK PRS Properties, subject to a minimum return to investors.

Urban Regeneration

Liverpool Partnership (also referred to as Regeneration Liverpool)

The 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. During 2019, the final element of the regeneration project was completed and the Group no longer expects to earn fees as a result of this partnership.

The transformation of a 19-acre former secondary school site at Gateacre in Liverpool, was completed in 2019 and, as a result, the Group dealt with residual matters during 2020. The Group received dividends from its joint venture with Countryside during the period of £4.3m.

Salford Partnership (also known as Higher Broughton Partnership)

The Salford Partnership is our partnership with Salford City Council and The Royal Bank of Scotland plc.

During the year, we continued to deal with residual matters arising from previous residential and commercial projects of the Salford Partnership and no further fees are anticipated from this partnership.

Sigma's relationship with Salford City Council remains productive, and continues to provide PRS development opportunities.

Venture Capital Activities

Sigma continues to be a limited partner in one venture fund, which was transferred to Shackleton Ventures Limited in 2013. Sigma's investment in the fund is held by STI. Sigma also holds an investment in an unquoted company.

Financial Review of 2020

Figures for the period under review are for the nine month period to 30 September 2020, following the change in the Group's accounting reference date. The comparative figures are for a 12 month period to 31 December 2019.

The Group's revenue in the nine month period totalled £8 million (2019: £13.9 million), and reflected the impact of the coronavirus pandemic and shorter accounting period. The majority of the Group's income is from development and investment advisory fees in respect of the REIT. In addition, revenues included fees from our managed PRS activities with Gatehouse Bank and UK PRS Properties, and rental income from our self-funded portfolio. Gross profit was £7.9 million (2019: £13.8 million).

The Group made a trading profit in the period of £2.2 million (2019: £7.9 million), with property activities contributing a trading profit of £2.2 million (2019: £8.0 million). The venture capital activities contributed a trading loss of £6,000 (2019: profit £13,000). Full detail of the results for the period by business segment is provided in note 3 to the financial statements.

Administrative costs were £5.7 million (2019: £5.9 million). This reflected the recruitment of additional employees to support the Company's continuing growth and £0.4m of non-recurring costs.

Profit from operations was £3.2 million (2019: £12.0 million) including gains from investment property of £1.3 million (2019: £3.9 million) and an unrealised loss of investments of £0.2 million (2019: profit £0.2 million).

Profit before tax for the nine months was £3.2 million (2019: £13.0 million).

The Group's net assets increased to £60.8 million at 30 September 2020 (2019: £60.5 million). This equates to 67.9p per share (2019: 67.6p per share).

Balance sheet

The principal assets in the consolidated balance sheet are investment property of £66.0 million (2019: £53.8 million) as detailed in note 15, cash of £25.8m (2019: £16.8m), and investments held of £4.9 million (2019: £9.9 million) as detailed in notes 18, 19 and 20, which together account for 92% (2019: 92%) of total assets.

The main current liability is the Homes England development loan of £42.7 million (2019: £19.2 million), which represents 88% (2019: 67%) of total liabilities and as detailed in note 23.

Cash flow

Cash balances increased by £9.0 million to £25.8 million (2019: reduced by £6 million to £16.8 million). The increase during the period is primarily attributable to dividends of £4.3m received from our joint venture Countryside Sigma and cash realised from the disposal of historic investment property transactions, partially offset by the dividend paid to shareholders. Further details are provided in the consolidated cash flow statement.

The cash outflow from operating activities was £1.3 million (2019: inflow £8.0 million). The cash outflow from investing activities was £11.6 million (2019: £28.8 million) along with the cash inflows from financing activities of £21.8 million (2019: £14.8 million).

Key performance indicators

The key performance indicators are concentrated on the property activities.

The Group's key performance indicators include:

The Group's main source of revenue is from its property activities and movements are an indication of changes in recurring revenues. Revenue from this sector has decreased from the prior year largely due to the effect of the coronavirus and the reduction in the length of the accounting period. An analysis of revenue by property segment is detailed in note 3.

As well as revenue from its managed property activities, the Group develops investment property for capital appreciation and rental income. The Group's realised and unrealised profit on the revaluation of investment property is derived from development of eleven investment properties, two of which were sold to the REIT during the period. The two disposals realised a cash profit of £1.1m (2019: two disposals, £2.1m). Further details are provided in notes 6 and 15.

As a result of the impact of coronavirus and the shorter accounting period, basic earnings per share decreased.

As at 30 September 2020 the Group's investment in property had increased to £66.0 million across six sites including the two in London. The Group's property portfolio is discussed further in the strategic report and an analysis is provided in note 15 of the accounts.

The Group's financial assets decreased to £4.5m (2019: £5.2m). This decrease is primarily due to the reduction in the price of PRS REIT shares during the period. Further details are provided in note 20.

Trade and other receivables of less than one year decreased to £2.1m (2019: £4.0m) mainly as a result of the payment of outstanding fees that were due at 31 December 2019.

The cash balances remained strong as a result of the recurring nature of the Group's revenue as well as the receipt of dividends from its joint venture, Countryside Sigma, and realisation of historic profits from the disposal of investment property.

Trade and other payables less than one year decreased to £3.8m (2019: £6.6m). This is largely as a result of the reduced construction costs outstanding due at the end of the period. The majority of construction costs are paid in the month following in which they are invoiced.

The Group's net debt borrowings compared to its net assets shows a gearing of 28.3% (2019: 4.5%). This, in part, reflects the increased utilisation of the revolving debt facility with Homes England. The amount of facility outstanding as at 30 September 2020 was £42.7m (31 December 2019: £19.2m).

Net assets per share at the year-end improved to 68.3p, a rise of 1% (2019: 67.6p) reflecting the combination of the profit after tax made during the nine months and reserve movements, including the dividend.

The Board monitors certain non-financial key performance indicators, including the number of properties developed and delivered, the status of developments in progress, and lettings activity for completed developments. Further details on these are given in the Strategic Report.

This strategic report was approved by the Board on 20 January 2021 and signed on behalf of the Board by

Graham Barnet

Chief Executive Officer

20 January 2021

STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT

Stakeholder Engagement

Sigma is focused on delivering new homes for private rental across the UK, with family homes its key target market. The Group's PRS property platform brings together a network of formal and informal relationships, which include construction partners, central government, local authorities, customers and communities. As a sustainable business, Sigma is providing an innovative build-to-rent solution to address a national, market and societal demand for quality family homes.

Across the UK, Sigma engages with a range of interest groups to ensure we listen and understand the interests and concerns of all stakeholders, as well as seeking to deliver sustainable value for them.

Effective engagement with stakeholders at Board level and throughout our business is crucial to fulfilling Sigma's goal to deliver family PRS homes across the UK. While the importance of giving due consideration to our stakeholders is not new, we continue to explain in more detail how the Board engages with our stakeholders. We adopt a collaborative approach with all stakeholder groups including employees, customers, partners, house builders, suppliers, local authorities, regulators, funders and investors. This necessarily involves listening to and taking account of their views and feedback, while also being open to change.

Section 172 Statement

The following serves as our section 172 statement and should be read in conjunction with the Strategic report. Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders in their decision making. The Directors continue to have regard to the interests of the Company's employees and other stakeholders, including the impact of its activities on the community, the environment and the Company's reputation, when making decisions. Acting in good faith and fairly between members, the Directors consider what is most likely to promote the success of the Company for its members in the long term. The Directors are therefore fully aware of their responsibilities to promote the success of the Company in accordance with section 172 of the Companies Act 2006.

To ensure the Company continues to operate in line with good corporate practice, all Directors are frequently provided with refresher guidance on the scope and application of section 172 from the Company's legal and financial advisors. This allows Board members to reflect on how the Sigma engages with its stakeholders and identify opportunities for enhancement in the future.

The Board regularly reviews our principal stakeholders and how we engage with them. The stakeholder voice is constantly brought into the boardroom through information provided by management and advisers, including the Company's brokers, and also by direct engagement with stakeholders themselves. The relevance of each stakeholder group may increase or decrease depending on the matter or issue in question, so the Board seeks to consider the needs and priorities of each stakeholder group during its discussions and as part of its decision making.

Throughout these financial statements, we provide examples of how this engagement with stakeholders takes place to ensure that we can appropriately consider their interests in assessing, considering and implementing particular courses of action.

Employees

We work to attract, develop and retain quality talent, equipped with the right skills for the future. Our people have a crucial role in delivering against our strategy and creating value. As Sigma comprises a relatively small overall team, and with direct employee interaction, the Board can readily identify and respond to changes in requirements in respect of resource, skills and experience. This is reflected in the staff appointments made during the period to strengthen the team.

Reflecting the investment made in and quality of the Company's employees, Sigma has not furloughed staff or make use of any of the Government schemes providing support to those companies or individuals in financial difficulty during or because of the crisis. Sigma's intention is to keep all employees actively working as far as possible and to maintain contractual terms and conditions throughout. This reflects the Company's long-term commitment to its workforce and would appear to be appropriate given the strong financial position of Sigma.

Customers and Communities

The creation of functioning neighbourhoods and thriving communities is core to our beliefs. This starts with site selection and our contention that all sites should be close to good transport links, strong areas of employment and good quality primary schooling, thereby providing our customers with access to a social and economic framework upon which a new community can be built. Whilst it is critical that the houses we create are fit for purpose, varied enough to be suitable to a wide range of occupiers and life stages as well as providing the flexibility for the increasing need to work from home, we make great efforts to forge linkages between their occupants and the wider community. By organising regular customer events in each of our neighbourhoods as well as working with local schools and charities we endeavour to forge friendships and familiarity between our customers to enable them to feel at home, but also for that home to integrate with the wider community. In what has been an unprecedented 2020, our charitable donations have focussed on organisations most relevant to the pandemic and we asked our customers to tell us how to distribute those funds, emphasising that a Simple Life customer's relationship with us does not begin and end at the front door of their home.

Environment

We are aware of our responsibility to the environment and ensuring that the development that we manage is done so in a responsible and sustainable way. We look to our development partners to have policies demonstrating their commitment to the environment through a responsible approach to development as well as the custody and integrity of their supply chain. As we move forward we will look to audit these facts.

We announced last year that our main construction partner, Countryside Properties has opened a new modular panel factory in Warrington capable of manufacturing up to 1,500 homes per year using sustainable timber from certified forests whilst the factory generates no waste to landfill. By August this year we had taken 527 homes from the factory and are now consistently using this technology with Countryside to deliver a more sustainable approach to development.

To assist in identifying and implementing additional further opportunities to improve social and environmental aspects of the Group's work and impact on stakeholders, Sigma recently appointed an Environmental, Social and Governance Manager. This is a newly created position in the Company and recognises our commitment to engagement and implementation of action in this area.

Local Authorities, House builders and Funders

The Group's core strategy is to utilise its property and capital raising expertise to further its PRS activities and deliver family housing. The geographies in which we deliver assets has steadily expanded, and we have also diversified the financial instruments that we manage to deliver those assets. The Group's PRS model enables it to move residential land assets with planning permission, predominately sourced from local authority partnerships and house building relationships, to its fund structures.

This requires four separate parties involving local authorities, house builders and funding partners, with Sigma performing the roles of facilitator and co-ordinator. Regular and collaborative communication and dialogue is essential with all of these parties to ensure success. Without this, Sigma could not develop, establish and maintain the partnership relations it has, let alone forge new ones.

The creation of new partnerships is also key. Given that sites will typically take well in excess of 24 months to identify, plan, develop and let, it is imperative that Sigma constantly has a focus on future sites through regular dialogue with multiple parties.

Regulators

The Group is subject to statutory reporting requirements and to rules and responsibilities prescribed by the London Stock Exchange. The Board has a balanced range of complementary skills and experience, with independent non-executive directors who provide oversight, and challenge decisions and policies as they see fit. The Board believes in robust and effective corporate governance structures and is committed to maintaining high standards and applying the principles of best practice.

Compliance is maintained through the utilisation of recognised professional advisers and the Board would not hesitate to seek input in this regard from the listing authority.

Shareholders

The Board welcomes the opportunity to engage with our shareholders and with the capital markets more generally. We have a high level of investor communication through our financial calendar activity, through investor meetings, roadshows, site visits and our AGM.

Sigma's Chairman takes overall responsibility for ensuring that the views of our shareholders are communicated to the Board and that our Directors are made aware of shareholders' issues and concerns so these can be fully considered. The Board achieves this through:

· Active dialogue with shareholders, prospective shareholders and analysts, led by the Chief Executive Officer and Group Chief Financial Officer;

· Regular dialogue between the Company's broker and NOMAD and shareholders; and

· Chairman and the Chair of the Audit Committee being available to meet institutional shareholders.

Feedback from any such meetings is shared with all Board members including a feedback report prepared by the Company's brokers following investor presentations and discussions.

The Chairman and the Board consider that there are appropriate mechanisms in place to listen to the views of shareholders and communicate them to the Board without it being necessary for the Chairman or Chair of the Audit Committee to attend all meetings with shareholders. The Board believes that this approach is consistent with the 2016 Code on dialogue with shareholders and is in line with good corporate governance.

Major investor relations engagement activities carried out during the period and prior year are set out below:

· Numerous meetings, presentations and conference calls hosted with institutional investors or prospective investors; and

· Frequent site visits, whenever possible.

Investors, prospective investors and analysts can contact the Chairman or Chief Executive Officer or access information on our corporate website. The Board believes that appropriate steps have been taken during the year so that all members of the Board, and in particular the non-executive Directors, have an understanding of the views of major shareholders.

Dividend

The Board's proposal on the dividend for the 2020 financial period of 2.0p per share (12 months to 31 December 2019: 2.0p) reflects a combination of factors in relation to the Company's finances and operations both in the short and long-term. This includes the Company's revenue, earnings and cash reserves together with the Board's confidence in Sigma's growth prospects. As outlined in the Chairman's Statement, this decision has not been made lightly in view of the current situation, and the Coronavirus and Going Concern Review detailed above formed part of these dividend deliberations. As the conclusion to this review states however, the pandemic will pass and the Company is well placed to thrive thereafter. The dividend proposal therefore reflects the Board's confidence in the Company's long-term financial health and growth prospects and provides a return to the shareholders who have invested funds with the Board and the Company.

Environmental, Social and Governance

Introduction

Recognising, reacting and responding to the sustainability and ethical impacts of all we do is the basis behind Environmental, Social and Governance ("ESG"). With this in mind, and to help focus and better direct our ESG efforts, Sigma has signed up to the UN Global Compact, and commits to complying and adhering to its 10 core principles, based on human rights, labour, environmental and anti-corruption factors. Our management structure operates with clear policies and practices, to identify, address and manage ESG issues effectively throughout the lifecycle of our managed PRS assets. The appointment, in November, of a dedicated ESG Manager is designed to enhance and develop further our commitment to and engagement in this area.

Reflecting the growing importance of ESG globally, the Company intends to seek external assessment and recognition of its achievements in these areas. It is currently working towards submissions to achieve a rating from GRESB, a globally recognised benchmark for reporting real estate ESG performance, and to join the European Public Real Estate Association (EPRA) which represents the real estate sector by providing better information to investors and promoting best practice.

To support these efforts, the Company has appointed EVORA, a leading sustainability consultant specialising in real estate solutions, to undertake a Gap Analysis of our current ESG performance, which will help direct strategies, plans and decisions going forward.

Operational approach

Sigma recognises that the PRS investments, which it undertakes and manages on behalf of its funders, have an impact on the environment and can also affect the lives of our employees, service providers, supply chain, residents and the wider community, indeed all with whom we engage and interact. We therefore incorporate ESG factors into decision-making processes and the way in which we operate.

Our practices are based on the following policy approaches:

Opportunity review

· ESG risks are assessed, reviewed and monitored, and strategies for enhancement and mitigation are set based on the understanding and recognition of the value assigned in the emerging national and international frameworks such as climate change and associated social need; and

· Mitigation plans are identified

Investment decision

· ESG issues are listed and addressed in a summary investment paper that informs decision-making at the Investment Committee stage; and

· ESG costs, particularly ongoing community and charitable involvement, continue to be determined and factored into the investment decision process

Asset management

· Appropriate governance structures are established;

· Relevant laws and regulations are adhered to;

· COVID-19 Guidelines issued - structures, reviews and support in place;

· Ongoing monitoring and management of ESG issues is established;

· Impacts on the natural habitat surrounding PRS assets are managed;

· Local community engagement and support plans are established, reviewed and developed;

· Due diligence is performed on third parties;

· Policy reviews and updates ongoing;

· Good practice is established;

· Continued research and review of carbon reduction opportunities are ongoing;

· Investment restrictions are screened; and

· Investment's ability to comply with the ESG standards is assessed.

Sigma strongly believes that all three elements of ESG are intertwined and are viewed as one entity, but for the purposes of this report, each element is reported separately below, with clear overlaps evident.

Environmental

We are all aware that our world is a rapidly changing environment, and as industry leaders in the provision of private rental homes, Sigma recognises the role it plays in helping to lead the way forward. This changing landscape is illustrated by the recent announcement of the Government's 10 Point Plan for a green industrial revolution, in which energy, nature, transport and innovation goals were revised to reflect the country's targets in relation to eradicating climate change. The Company is acutely aware of the intense need for action on areas such as energy and water consumption, non-fossil fuel heating provision, biodiversity and the global goals for 2030 and 2050. The Net Zero Emissions agenda, and target, continues to be a focus for the Company, and we aim to work with partners who share the same outlook and are aligned with our commitments.

What we report in the following demonstrates our commitment and determination to support strategies and actions in these areas going forward, and highlights the good work being done at present in all areas of ESG in the Company.

Processes and strategies

The Company's activities can be viewed in two parts in relation to the environment, at construction and post-construction stages. Throughout, we take account of the potential impact of current and potential business partners, ensuring that partners with whom we elect to operate share our values and can demonstrate a clear and tangible commitment to working sustainably. Ongoing engagement and dialogue is key to ensuring that the practices and policies of those partners reflect the Company's ESG needs and expectations. Partners are required to share their policies on the management and origination of their supply chain, the usage of resources and their approach to biodiversity, and to integrate efficient design into the homes they build in partnership with the Company. Indeed, they are selected on this basis. Going forward, as part of our interaction and collaboration we will review delivery in this area to ensure necessary adjustments and progress is maintained.

Partnerships

Sigma works with many partners, large and small, in the course of our business, and ensuring these partnerships share our ESG values and goals is important to us.

We announced last year that Countryside Properties, a FTSE4Good Index member, had opened a new modular panel factory in Warrington capable of manufacturing up to 1,500 homes per year using sustainable timber (100% certified Forestry Stewardship Council or Programme for the Endorsement of Forest Certification), whilst the factory generates no landfill waste. This brought with it clear environmental benefits of reduced traffic flow and waste on site. Construction of these modular frames has enabled us to contribute positively to considerable diversion of waste from landfill. Positive outcomes include: recycling of timber and general waste; use of plasterboard waste for animal bedding and new plasterboard; and plastics recycled as Damp Proof Course (DPC) and Damp Proof Membrane (DPM) products. By August 2020 we had taken 527 homes from the factory and are now consistently using this technology with Countryside to deliver a more sustainable approach to development.

Vistry Group, with whom we also work reported 10% overall improvement for NHBC Construction Quality. In 2019, Vistry Group increased their overall level of recycling to 96% and drive further improvements through monthly waste performance reports. Waste diverted from landfill increased to 25,133 tonnes (2018: 23,972 tonnes) and this will continue to be a focus going forward. Vistry Group have committed to a review of long-term ESG strategy, including undertaking a review of the Group's sustainability strategy. They will assess in line with the Task Force on Climate-related Financial Disclosure (TCFD), the United Nations' Sustainable Development Goals (UN SDG) and ESG indices. Through consultation they will gather data to better understand their carbon footprint, a goal we will follow with interest. Such commitments and other examples of partner focus on ESG is shared within this document as relevant.

Energy & Power

Ahead of the Government's pledge to ban gas boilers by 2025, and possibly as early as 2023, together with the expected transitional challenges, the Company is committed to meeting this requirement through proactive discussion and planning with our partners. The current provision of electric heating and hot water from District Heating (DH) systems at our London developments is a positive step in this transition, and a definite demonstration of the Company's focus in this area. Investment in new technologies in energy saving, such as the addition of Green and Brown Roof and Dwelling solar panels at suitable communities, further highlights the Company's path going forward.

Advice for residents on gas and electricity efficiency is also available, and homes have been fitted with energy efficient white appliances rated A or B in line with best practice. Meters are generally provided by British Gas for dual fuel, and British Gas provide electronic monitors as standard; though these can be changed to suit residents' choice. As part of their commitment to sustainable homes, Countryside reported the Standard Assessment Procedure (SAP) average rating for the 2019 reporting year as 85/100 (EPC rating B) (2018: 92/100 EPC rating A) for the Energy Rating of Dwellings, a reduction as a direct result of the addition of historical buildings, which are typically less energy efficient by virtue of their inherent structure, into the portfolio. SAP calculates the energy performance in buildings and is used to provide energy ratings in homes. The Company is committed to fitting its homes with EPC energy rated A or B appliances, in line with our commitment to more energy efficient homes.

To further drive high standards, and encourage energy efficiency, at least 75% of all light fittings in our homes are classified as low energy. The provision of solar panels is provided where planning currently dictates, and those on apartment developments support energy needs in communal areas. Inclusion of time sensitive switch operated and energy efficient LED ensures efficiency is a key consideration in our construction. In line with this drive, Countryside site energy use has been reduced through the fitting of passive infrared sensor (PIR) lighting, with generator switch to energy-efficient mode facility, during site closures. Alongside the obvious energy saving benefits, benefits to our residents in terms of light reduction and security is clear.

Water

We all understand the importance of responsible water use, and therefore 100% of our homes completed in the last year have been fitted with a water meter, flow restrictors on taps and dual flush cisterns, in line with current building regulations. Residents are given guidance on the basic principles for water conservation such as shower over bath, half kettle basics, and efficient tap use. Our Countryside partners, share this commitment to water saving procedures, reducing company site water use in the last reporting year, for the third consecutive year, to 22,816 cubic metres (2018: 33,414m cubic meters), through regular inspections and the utilization of water-saving fittings.

Maintenance Support

The use of online FixFlo maintenance services, launched in February 2020, further supports our goals towards greater efficiency by centralising this provision thereby reducing call out traffic and emissions from a range of suppliers. Residents are guided through and encouraged to self-fix, and data is monitored, helping to direct future planning and support. Review and evaluation of how this system can be delivered, improved and developed, is currently ongoing.

Printing

Pink Sheep, our printing partner, has sustainability at the heart of their business, and has measures in place to offset printing requirement by teaming with Trees for Life, a programme which involves planting trees and re-wilding the Scottish Highlands. Their recently published Sustainability Whitepaper, Lead Your Business through the Sustainability Minefield, illustrates their awareness and commitment to leading the way positively. It aims to help educate and make clear the impact of choices made when selecting products and services, by stating sustainability credentials on all products. Going forward Pink Sheep will report our monthly carbon offsetting and tree planting data, and audit our sustainability picture, based on printing and marketing activity, helping us to make informed decisions for the future.

Physical environment

The Company is mindful and aware of our responsibility to the environment and we are committed to ensuring that our management of this valuable resource is done in a responsible and sustainable way. We appreciate the health and wellbeing benefits of green spaces to people and the environment, and are focussed on the planting of trees and developing areas rich in biodiversity within our communities. We are working with landscapers to broaden our tree planting programme and implement a wildflower planting scheme that will promote a greater volume of invertebrate life. This will in turn support the wild bird population and greater overall biodiversity. As part of our focus on such initiatives we will work closely with our partners to target this area such as Vistry's installation of hedgehog highways in all their communities, having joined forces with the British Hedgehog Preservation Society, and Countryside's partnership with NatureSpace Partnership in research on the protection of the endangered great crested newt, and their installation of bat and bird boxes to further protect local ecology on sites. All of these efforts support our commitment in this regard.

Recent challenges with movement restrictions, and the importance of outdoor space alongside projects such as Planting Britain, and fostering links with The Woodland Trust, will be an ESG focus going forward. We regularly address and discuss options to further enhance the physical environment to encourage, and support, a healthy lifestyle, in respect of access to communal spaces and public transport links. Going forward we are committed to enhancing the physical environment in all our communities, to promote the best possible experience for our residents and the wider community.

Clothes banks

Our goal is to install clothes banks close to all units, and to encourage residents to act sustainably. Collected garments are either redistributed to good causes or recycled, and we have forged a link with the charity White Rose Fashion Cycle, supporting The Aegis Trust, in this regard. There are currently 4 developments with active banks, and others due for installation as communities are completed. By the end of 2021 the target is to have 15 communities with clothes banks in place.

As a result of these efforts we have raised £5,746 for this charity, saved 1,045kg from landfill and a carbon offset 3,762kg, representing a positive start upon which to build. We also include reusable shopping bags and water flasks in the 'Welcome' boxes provided to new residents.

Promotion of electric cars and transport policy

The Company has a forward-thinking Electric Vehicle Policy, with attractive incentives for employees to switch away from fossil fuels, facilitating access to electric vehicles, supported through a salary sacrifice scheme. Given the Government's ambitious step towards Net Zero Emissions with an end to petrol and diesel car sales by 2030, this generous and impactful Company initiative is extremely proactive. Countryside Properties also introduced options such as hybrid transport, cycle schemes, home working and promotion of public transport to reduce travel emissions further. Our contractor partners have also agreed to the adoption of targets to electrify their workforce transport. Looking ahead, the Company strives to look towards the possibility of providing electric charging stations within its communities. Currently, residents can request installation of a personal vehicle charging point, and we have installed charging station facilities for our residents at some units. All properties benefit from ease of location to public transport facilities, encouraging reduction in vehicle use and resulting emissions.

We look to all our partners to have policies demonstrating their commitment to the environment through a responsible approach to development as well as the custody and integrity of their supply chain. As we move forward, we will audit the implementation and delivery of these.

Social

Strong social values underpin the Company's engagement with residents and the local communities in which the Company's homes are situated, and the Company is very proud of its achievements and positive impact in this area of ESG. These values include integrity, trust and respect for others. We see our Simple Life brand as representing a new, higher standard of rental experience, and our aim is for residents to feel secure with us and enjoy their home and neighbourhood with total peace of mind.

Schools and Education

We strongly believe in, and are committed to, investing in our wider communities, and the schools and education opportunities close to us are key focal points. We continue to have strong links with 10 primary schools across the country, and have enjoyed seeing the impact funding has had on the learning environment and wellbeing of the children, and indeed adults, in these schools. Long-term connections are being forged and we look forward to following the stories and completed projects from these schools, on the benefits and opportunities created from our close links. Projects such as enhanced outdoor facilities for exercise, gardening and planting, and increased IT facilities, could not have been more relevant this past year, with opportunities for outdoor classroom space and the daily mile reported as highly successful and beneficial.

Feedback from the Head Teacher, Ian Mason, at Mills Hill Primary School in Middleton on the benefits their Daily Mile running track has made, illustrates the positive impact the Company's community engagement can have. He comments:

"The children's daily walks around the playground eventually developed into them running three times a week and it's brilliant to see that fitness levels have improved."

"We encourage our children to be both active physically and to be creative with their environment. The much-needed money from Sigma has transformed our playground and facilities and allowed our pupils to reap the benefits of keeping fit."

Having access to outdoor space is known to have a positive impact on mental health and well-being, and Daniel Gauld, Head Teacher at River View Primary School in Salford, confirms this importance in his feedback on the benefits for the children at River View from the pond regeneration project we supported. His comments:

"We're really grateful for the second donation from Sigma. Nature and being outdoors is brilliant for the children's mental health and wellbeing and the new pond area is brilliant."

"The outdoor greenhouse built from the first donation allows us to associate reading time within playtime and has made a huge difference to the school."

This also highlights the real benefit of ongoing support and collaboration, building a strong and lasting relationship with our wider communities. Having the opportunity to play, learn and simply be outdoors is so important to developing a sense of place, building strong communities, and understanding the importance of our responsibility in creating Places for People. The benefits are well documented, particularly during the coronavirus pandemic and we look forward to further support with current and new initiatives in this area going forward.

Full details of the schools involved and the wonderful work they have been doing, is detailed in the Corporate Social Responsibility (CSR) 2020 report on our website:

https://www.sigmacapital.co.uk/investor-relations/results-reports-presentations/ 

The Salford Foundation

Supporting young people beyond school is also key to establishing strong links and community relationships. Commitment to supporting this move from school into the workplace is a developing area through our work with The Salford Foundation. Company members are delighted to be able to offer experience and time mentoring students on topics as diverse as self-image and careers in property, alongside the provision of guidance through mock interviews for those about to enter the world of work. To continue this support during the recent COVID-19 challenges, some members of staff filmed short videos about their career path and job role for the children to watch during lockdown. Many children took the opportunity to raise follow-up questions with those staff members to learn more. Building further on this work we have 6 team members signed up to help conduct virtual mock interviews over the next 6-12 months.

Charities

The Company continues its ongoing support of and work with charities, full details of which are available to read in the Corporate and Social Responsibility Report on the website. Our work with charities including: Park Palace Ponies, in Liverpool; Loaves and Fishes in Salford; and The Big Help Project in Knowsley; Food banks, in the North West and the Midlands, and our involvement and support of local sports clubs near our developments including Sale Girls Football Club, Sale U18 Rugby Club, and Wolverhampton Tennis Club.,

COVID-19 has hardened the resolve of the Company to offer support where it can. This year has seen considerable challenges for many people. In response to this and in consultation with our residents, the Company donated £100,000 to a further four charities all reflecting the real impact of the pandemic. The charities selected from this shared consultation process were Trussell Trust (£17,700) - a charity building a Hunger Free Future, Women's Aid (£25,480) - a charity supporting victims of domestic violence, Centrepoint (£24,840) - a charity fighting homelessness amongst young people and Mind UK (£31,980) - a charity supporting better mental health. Each charity was gifted an initial donation of £12,500, with proportion of the remaining £50,000 allocated through a resident engagement and poll.

Our Residents

We place our residents and communities at the heart of our business. We strive to be a visible and engaging partner, and place value and importance on feedback and communication. It is through this community engagement and dialogue that we aim to build strong and lasting relationships, and communities where People matter.

Residents are invited to complete surveys throughout their time with us, and we use this feedback to plan and direct change and improvements. Examples of positive change and impact from such resident engagement can be seen in the removal of our standard pet premium charge on agreements. A review of the end-of-tenancy work costs, established little variance in the costs of rectification works from households with pets and those without. This response for our residents is one of the first taken by a PRS landlord.

Events and activities on-site and on-line have generated increased community engagement, with consultation with residents ensuring provision encouraged involvement across whole community demographics.

An example of the well supported events include an Autumn visit from The Wood Fired Pizza Company, for communities with apartment homes giving neighbours an opportunity to meet and socialise over a slice of pizza. In addition, prior to Christmas Santa visited children in 20 communities across Manchester, Merseyside, Cheshire, West Midlands, Shropshire and South Yorkshire, exchanging 2,000 bags of chocolate money for some carefully composed Christmas lists!

During the challenges of COVID-19 lockdown period earlier this year, the Easter Egg Hunt took on an on-line virtual guise, with 12 eggs hidden across the 'Simple Life' website. Residents followed clues that took them to the four corners of the site, with a mix of 'quick wins' and 'brain teasers' to keep the hunt interesting. There were over 130 entries over the course of the week and while all entrants were rewarded with a branded chocolate bar, 10 winners received a chocolate hamper from Love Cocoa, a sustainable chocolate company.

The Summer 2020 ice-cream dash was bigger than ever before. Over the course of six days the 'Simple Life' branded ice-cream van visited 29 communities across England.

The second 'Simple Life' Annual Resident Newspaper was delivered to all residents in June 2020. The publication gives residents a roundup of the previous 12 months, including events, competitions, campaigns, testimonials, charitable donations and school initiatives. It also informs residents of plans for the months ahead.

The 'Simple Life' resident portal went live in August 2020. It enables residents to access many services including: online payments; tenancy documents; 'how-to' guides; news; offers; and an open forum with other residents. The portal also incorporates an online maintenance reporting tool, FixFlo. As well as enabling residents to access online tutorials, it offers a simple, streamlined approach for residents to report, discuss and remain updated about any maintenance issues they may have. We are aware of the enormous potential from this portal and are thrilled to see residents supporting local businesses and events through this medium. As resident numbers have grown, so has engagement with 'Simple Life' on social media. There was a significant increase in resident 'Simple Life' Instagram home accounts being set up, all dedicated to making their 'Simple Life' rental house their home. This has encouraged residents to form a community online, sharing their best home-style tips.

Such events, support and activities serve to foster friendly and engaged neighbourhoods, and promote social interaction across age ranges. The positive impact of online and social media has been clearly evident and effective during this difficult year, with increasing engagement through Instagram and Facebook, alongside the residents' online portal, ensuring regular communication and engagement has been maintained. It has never been more important to stay connected, and it is hoped that we can build upon this going forward.

There are a number of exciting initiatives at the planning stage, for our residents and wider communities to enjoy in the coming year and we look forward to providing an update on their success in due course.

Supporting Our Communities

2020 was without doubt a challenging year for many and our commitment to a shared sense of community has been so important. In the early stages of the COVID-19 pandemic we anticipated that a proportion of our residents were likely to experience some degree of financial distress, whether as a result of being placed on furlough, losing their job or families having to fall back to one income in order to facilitate childcare whilst schools were closed.

At an early stage we sent out communication to our residents, through various channels of our awareness of the challenges, opening up pathways for dialogue should they experience difficulty paying their rent during the period of lockdown. We offered support and reassurance that we were willing to help, and encouraged residents to contact us.

As cases appeared, these were reviewed sensitively and we deferred rents for the initial three months of lockdown, where required. The amount deferred was very much addressed on an individual basis, but for those furloughed a 20% deferral was typically agreed and this rose to 50% for those harder hit. In some cases we extended the deferral period to 4 months to help with transition back to work. To date support has been granted to 80 residents out of a portfolio of c.1,200 lettings at the onset of the lockdown

The annual 'Peace of Mind' month took place in April 2020. Residents were encouraged to nominate a loved one whom they felt deserved a little 'peace of mind'. In total, over 50 entries were obtained with eight deserving winners selected to receive a spa day for two, and a 'peace of mind' prize tailored to their preferences. Prizes included shopping vouchers, holiday cottage vouchers, DJ equipment, football tickets and motorbike lessons.

During lockdown, 'Peace of Mind' month was extended with a special 'health and wellbeing' series aimed at helping residents to keep mentally and physically healthy. A great sense of community developed as residents were encouraged to stay connected online. A number of videos were posted on social channels, created for 'Simple Life' by professionals, partners and even residents, across a range of themes, including meditation, make-up, pilates and baking.

These 2020 challenges and focus on the human aspects of people and enhanced awareness of mental health has also been evident in the work of our partners. Countryside introduced mental health first aiders into the Group as part of their commitment to wellbeing, and aim to have a mental health first aider present on every site in the year ahead, with 33 currently trained, whilst Vistry rolled out a programme entitled Mental Health First Aid across the Vistry Group, including training for all line managers.

Research

As part of our commitment to providing quality homes and communities where people enjoy living, Sigma commissioned a report into the Private Rented Sector, with the objective of gaining an up-to-date picture of current consumer behaviour and attitudes towards renting and the rental experience. Such independent in-depth qualitative and quantitative data collection, from over 2,000 renters across England, highlighted some key insights. Research was gathered from a broad representation of the renting community, and not limited to our residents. Such research and results will help direct and guide future planning and activities, ensuring we are well informed, keeping up to date with and providing for the market needs.

The full report, 'The Rental Experience: Setting the Standard' can be viewed and downloaded on the Sigma website http://www.sigmacapital.co.uk/our-prs-model/the-private-rented-sector-marketplace/ 

Awards

Our aim is to deliver high quality long-term rental solutions for our residents, which go above and beyond the rental industry standards. Whilst awards are not the focus, recognition of the work and care of all involved is of course appreciated, and the awards we have been shortlisted for and won over the course of the last year reflects our ambition to build a sector leading product and service. The strength of partnerships we have created with our home builders and investors alike, further illustrates this focus on quality and commitment.

Health and Safety

In order to maintain high standards of health and safety for those working on our sites, we commission monthly checks by independent project monitoring surveyors to ensure that all potential risks are identified and mitigated. These checks supplement those undertaken by our development partners. The data is reported to the Board on a quarterly basis in the event of a nil return, and immediately in the event of an incident. We are pleased to announce that there have been no reportable incidents in the year.

Equality

Sigma is committed to creating and sustaining a positive and inclusive working environment for all of our employees. Our aim is to ensure that employees are equally valued and respected and that our organisation is representative of all members of society. We define diversity as valuing everyone as an individual and this is reflected within our values and behaviours and our leadership habits that provide a collaborative and supportive working environment for all employees. A key part of this is that equality of opportunity is a core value and our goal is to ensure that the best person for any role has the opportunity to apply for and excel in it.

Commitment to equality, diversity and inclusion

The Board considers that all stakeholders stand to benefit when diversity of thoughts, ideas and ways of working from individuals with different backgrounds, experiences and identities are embraced. To this end, the Board is focused on the following:

· Creation of an environment in which individual differences and the contribution of all team members are recognised and valued;

· No tolerating any form of unacceptable behaviour, harassment, discrimination, bullying (including cyber bullying) or victimisation in any area of employment or in the provision of our services to our customers;

· Encourage anyone who feels they have been subject to or witnessed discrimination to raise their concerns in an appropriate forum;

· Make every person aware of their personal responsibility for implementing and promoting equal opportunities in their day to day dealings with people and encourage employees to treat everyone with dignity and respect;

· Regularly review all our employment practices, policies and procedures to ensure compliance with the requirements of this statement;

· To monitor the effectiveness of our commitment to diversity and inclusion and the supporting policies and procedures at least annually.

The Board of Directors has overall responsibility for ensuring that we operate within a framework of equality of opportunity. Senior management have overall management responsibility, delegated to all managers throughout the organisation.

All employees have a duty to support and uphold the principles of our commitment to equality, diversity and inclusion and its supporting policies and procedures.

As part of a wider review, the Directors have again assessed whether they have both the breadth and depth of skills and experience to fulfil their roles. Full biographical details of the directors and their skills and experience can be found at https://www.sigmacapital.co.uk/investor-relations/board-of-directors 

The Directors who have been appointed to the Company have been chosen because of the range of skills and experience they offer and which are appropriate for the strategy and objectives for the Company. The Nominations Committee assists the Board in determining the composition and make-up of the Board. It is responsible for periodically evaluating the balance of skills, experience, independence and knowledge of the Board.

The Board recognises that its membership currently has limited diversity and this will continue to form a part of any future recruitment consideration. At a senior management level there is however considerably more diversity and recent appointments to the PRS REIT Head of Finance, ESG Manager and Group Financial Planning & Treasury Manager have all been female, reflecting the policy outlined above.

The Company encourages continuing education of its directors, officers and employees where appropriate in order to ensure that they have the necessary skills and knowledge to meet their respective obligations to the Company. This includes supporting personnel through external examination and qualification programmes ranging from ACCA to Company Secretarial to Association of Corporate Treasurers.

Governance

The Group is subject to statutory reporting requirements and to rules and responsibilities prescribed by the London Stock Exchange. The Board has a balanced range of complementary skills and experience, with independent non-executive directors who provide oversight, and challenge decisions and policies as they see fit. The Board believe in robust and effective corporate governance structures and are committed to maintaining high standards and applying the principles of best practice.

The Board has adopted the Quoted Companies Alliance (QCA) Corporate Governance Code in line with the AIM Rules requiring all AIM-listed companies to adopt and comply with a recognised corporate governance code. As part of the appointment of Ian Sutcliffe as Chairman, the Board of Directors reviewed the Company's performance against the QCA guidelines and updated Sigma's Corporate Governance Statement accordingly. An independent consultant with governance experience within a FTSE100 company was engaged to assist the Board in this regard.

The Board considers that the Company continues to comply with the QCA Code in all respects but following the review has made a number of changes to enhance disclosure and transparency of its operations in line with the spirit of the QCA code. These areas include the following:

· Clarifying principles for the appointment, service and independence of Directors on appointment and during their tenure

· Appointment of a Senior Independent Non-Executive Director

· Additional disclosure around the decision-making of the Remuneration Committee set out as part of the Directors remuneration report

· Inclusion of an Audit Committee report.

· Refresh of corporate policies on the following topics which will shortly be shared with employees as part of a consultation process:

- Whistleblowing Policy

- Anti-bribery and Corruption Policy

- Remuneration Policy

- Share Dealing Code

Consistent with the QCA code, the various policies and procedures are subject to continuous review and updating by the Board of Directors.

Principal risks and uncertainties

The Board of Directors recognise that there are a number of risks which could have an impact on the Company's strategy and investment objectives. The below list sets out the current identifiable principal risks and uncertainties which the Board are monitoring:

Coronavirus

Countries around the world have been hit by coronavirus. The virus has spread on a global basis and has been designated a "pandemic". Despite significant mitigating action including self-isolation for people suspected of having the virus, and a combination of an effective lockdown through social distancing for all but essential workers and the imposition of varying degrees of restrictions on social interaction across the country, the impact of the virus has been significant in terms of extent and timing. This represents a risk to housebuilding and letting activity together with the operations of the Company as a whole.

Coronavirus has impacted the Group in the following areas:

· Company staff operating from home or otherwise unable to work or absent from work;

· House builders unable to continue with construction work on sites or forced to reduce or suspend construction work on sites due to a combination of the effective lockdown and restrictions or as staff are unable to work or are absent from work;

· Letting agents unable to progress activities in respect of lettings, repairs and maintenance or only able to operate a limited service due to a combination of the effective lockdown and restrictions or as staff are unable to work or are absent from work;

· Income reduction and doubtful debts as some tenants struggle to maintain rental payments resulting from a loss of income due to a combination of the effective lockdown and restrictions or as individuals are without work, unable to work or are absent from work;

· Disruption to the supply chain as raw materials and construction products are not produced or imported as workers are unable to work or are absent from work;

· General disruption to employees, house builders, letting agents and the supply chain due to restrictions on the movement of goods and people;

· Impact of the virus on the economy and market sentiment; and

· Further waves of the coronavirus and potential for further national lockdowns or significant localised restrictions on social interaction.

The absence of Company staff from the office workplace has been mitigated by remote working from home. We have adapted our technology to facilitate remote working throughout the business in order to keep our operations and projects as on track as practically possible during coronavirus pandemic. The Company has not furloughed staff or made use of any of the Government schemes providing support to companies or individuals in financial difficulty during or because of the crisis. Sigma's intention is still to keep all employees actively working as far as possible and to maintain contractual terms and conditions throughout.

A greater issue has been in relation to house building and letting activity where the effective lockdown ceased construction activity in the short term from the end of March up until May when lockdown restrictions began to ease. Even then, construction activity only began to resume comprehensively in June and has subsequently been adjusted to reflect continuing requirements for social distancing and guidance around public transport meaning that construction levels have not fully returned to pre-lockdown levels. A further complication has been the introduction of varying degrees of localised lockdown restrictions in response to outbreaks of coronavirus in particular areas.

Importantly, the Company's contractual obligations only provide for payment to house builders in respect of work undertaken and independently certified. The absence of construction activity thereby negates development expenditure thus mitigating cash outflows.

In relation to income and bad debts, the Company carefully vets prospective tenants and typically obtains rent insurance for at least the first year of new lettings where there is limited covenant history or if the employment sector is considered to be at greater risk. To date, coronavirus related arrears have been managed by agreeing payment plans with tenants encountering difficulties. The insurer has been notified of this in order to preserve rights of claim but policies ultimately pay out in the event that arrears are not recovered through payment plans. This, together with the geographic spread of multiple sites, will help mitigate against the inevitable bad debts.

Preserving the employment of staff, rather than furloughing, also enables Sigma to work with letting agents as we proactively assist and support those tenants encountering difficulty during the crisis in a responsible and reasonable. The adaptation of our technology has meant that this important tenant interaction and engagement has continued through a variety of telephone, e-mail and social media.

In terms of supply chain disruption, significant efforts and contingencies had already been put in place in respect of Brexit through securing additional inventory of supplies, including timber. In addition, all of our suppliers have worked quickly to adapt to new ways of working in accordance with government guidelines to enable all areas of the business to continue, although at a slower rate than before.

The coronavirus has had a major impact on the economy and market sentiment. During August 2020, announcements indicated that the UK has technically entered a severe recession as a result of two successive quarters of negative GDP growth. The Bank of England has recently signalled that another technical recession is likely following the most recent round of restriction. However, there is a structural under supply of new family homes in the UK and indications suggest that the pandemic and recession may have increased demand for the Group's high quality but affordable product across multiple regions.

There is a risk of reduced property valuations due to changes in rental levels, bad and doubtful debt risk and sector attractiveness impacting yields. Having experienced the first lockdown, the Group and Company has a good understanding of how to react quickly to adapt to further lockdowns. New systems are in place, which enable the Company to better support tenants e.g. with online repairs and maintenance assistance. It presently appears that varying degrees of lockdown measures look likely to continue for the foreseeable future, pending broad vaccination coverage. Given the geographic spread of sites and reflecting government's desire to maintain as much economic activity as is reasonably possible, the Group is likely to be able to continue construction and lettings activity, particularly in those regions unaffected by restrictions. As mentioned above, cessation of construction work on development sites would reduce short-term cash outflows although practical completion and lettings schedules would be delayed.

There remains the risk of further waves of coronavirus unless and until the wider vaccination programme is implemented, and greater potential for further national and local lockdowns or restrictions. Having experienced the initial lockdowns, the Group and Company have a good understanding of how to react quickly to adapt to additional lockdowns.

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Overall, coronavirus remains a real and existing risk which requires careful monitoring and a management in conjunction with our house building partners and Letting Agents in order to mitigate the likely issues as much as possible pending the restoration of a more normal working and living environment. As one would expect the Company will continue to objectively review and assess the impact of the coronavirus outbreak and government response on both its strategy and focus of activities. Importantly, however, the pandemic will ultimately pass and the Company is well placed to thrive thereafter.

Strategic Risks 

Site selection

The principal drivers for the valuation of the Group's property assets are land purchase, cost to build, rental income, gross to net income deductions and yield. Small variations in these can have a material impact on the valuation of any property. The selection of sites which match the investment criteria in terms of cost to purchase and build, rentals, gross net to income deductions and yield is therefore critical to the success of individual developments.

Detailed appraisal and assessment of all aspects of a site such as location, access, transport links, education, amenities and employment are necessary to formalise a view on the likely viability and profitability as a build-to-rent development. This necessarily involves expert third party guidance from valuers, house builders and lettings agents.

The Group's process on site assessment and appraisal necessarily involves a number of individuals with different skill sets to ensure a balance of views and full consideration of all factors. There is also an ultimate sign off by Site Director, Investment Director, Lettings Director, Finance Director, Group Chief Financial Officer and Chief Executive Officer. In the unlikely eventuality that the dynamics on a site, particularly rental demand and/or rental value given that land cost and design & build cost are previously fixed, transpire differently from anticipated then this would only impact the valuation and financial returns on that site. The portfolio approach adopted by the Group means that while there are likely to be some sites that do not materialise as expected, the selection criteria and approach should generate more winners than losers. On this basis, the approach adopted should mitigate the associated risks.

Diversifying income streams

The group's business is focused on build-to-rent in the private residential housing sector. Build to rent is exposed to variations in supply, demand, costs, funding and valuation as a result of changes in macro-economic conditions. These could impact customer, funder and investor appetite and sentiment towards the sector. Focus on build to rent in the private residential sector therefore represents a potential concentration exposure in terms of the Group's strategy.

Through focusing on the build to rent private residential sector in the UK, the Group has made a deliberate strategic decision to utilise its experience to target an underdeveloped market with good financial fundamentals, strong investor appetite, tenant demand, supplier demand and a national requirement for growth in the number of homes to buy or let as occupier demand continues to outstrip supply. Within this, the Company has a number of income streams - rental income, development management fees, investment management fees and gains on asset valuation. Some are of these are contracted for long periods.

At present, there are no signs that the underlying dynamics are changing. Indeed, it could be argued that the market fundamentals support continued growth in the requirement for properties to meet demand for rental units. On this basis, the Group would manage this risk by monitoring market and economic developments to identify any change in circumstances and then adapt strategy accordingly.

Personnel and Succession planning

Group structure and operations presently have a low number of employees relative to the gross value of assets under management and profit before tax. There is a reliance on a small number of individuals who could be regarded as critical to the business operations and performance with limited back-up or cover. Recruitment, retention and succession planning are therefore key to successful implementation of the Group strategy.

The Board continually assesses and monitors the strength, depth and experience of the management team. During 2020 a number of senior additions have been made including a new non-executive Chairman and ESG Manager. The Head Office Finance Function has appointed a Group Chief Financial Officer along with a Group Financial Planning and Treasury Manager as well as the segregation of the Group finance function into teams dedicated respectively to the Group and the PRS REIT.

The announcement of our London joint venture with EQT Real Estate has meant that our separate team with responsibility for the London assets has grown with the appointment of an Asset Manager.

The recently strengthened financial management includes the implementation of improved structure, financial reporting, forecasting and governance framework which reflects the size, scale and operations of the Group. Finance systems and data management processes are being upgraded with a full review of IT systems and infrastructure also underway. Notwithstanding the above changes, ensuring that the growth of the business is matched by the quantum and skills of the workforce, both presently and in the future, will require constant monitoring and review.

Political risk

Although the Company does not export to the EU, Brexit has a number of potential impacts on the business. Exposures include supply chain reliance on EU imports, labour availability due to changes in immigration and the economic and market impact of leaving the EU. Although a trading agreement between the UK and EU has been agreed, there remain some uncertainties surrounding the implementation of this in practice. Pending clarification through the passage of time, there will continue to be some doubts around the potential impact of the exit.

The Group's activities are focused on the build-to-rent private residential sector in the UK with no EU or international assets. Within this focus, the debt funding, equity investment, rent levels, tenant demand and yields could all be impacted by market and economic factors potentially influenced by Brexit albeit there are defensive attributes in relation to a downturn or recession that would likely mitigate this.

The largest risk is in respect of the potential impacts on the physical movement of goods from the EU for housebuilding and/or tariffs/duties imposed on such goods. The impact would only apply to new design and build contracts - with existing contracts being fixed price with pricing risk effectively borne by the house builder.. Uncertainty surrounding the practical implementation of the trade agreement means that this area requires careful monitoring and represents a significant risk pending clarity.

Similarly, although there is a risk in respect of labour resource due to changes in immigration, house building partners consider that there is sufficient qualified and experienced labour within the UK. However, the uncertainty surrounding the nature and detail of immigration policy together with the practical impact of the trade agreement means that this area also requires careful monitoring and represents a risk pending clarity.

Operational risk

Development fee income

The Group's development fee income streams are dependent on continued development of new sites and assets. Maintaining and expanding on the number and quantum of new sites is therefore key to managing development fee income for the Group.

The vast majority of the related assets and sites are being managed by the Company meaning that it has a strong degree of visibility over income streams. A potential risk to the Group is that development management fees represent the majority of the Group's income and are effectively driven by the acquisition and development of new sites. Maintaining and growing the number of new sites for acquisition and development is therefore key to securing the majority of future revenue.

The Company has also sought to mitigate this risk through establishing additional revenue sources and reducing the proportion of the income emanating from the PRS REIT. The launch of the London joint venture with EQT Real Estate represents an example of an additional revenue stream from diversification. While this will necessarily involve further development management fees in the short-term, it will grow to represent an additional source of long-term recurring asset management fees.

Counterparty risk

The Group undertakes property investment with a number of partner relationships exposing it to counterparty risk such as house builders for design and build contracts and lettings agents for tenant management.

The Group maintains relationships with a number of councils and house builders. In terms of cost effectiveness and efficiency, the Group presently utilises two Lettings Agents. As we reported last year the incumbent Lettings Agent had been served notice and we continue the transitioning across to the new party. During the intervening period, it requires to be recognised that the exiting and new Lettings Agent will both require careful management in order to reduce risk.

In terms of house building, although a majority of site developments are undertaken by one party, Countryside, this represents a true partnership arrangement. Contrary to the situation with the Lettings Agent, where the size and scale of the operation merits the involvement of one party, there remains opportunity to utilise alternative house builders and to develop greater partnerships with others. While monitoring the relationship remains key, the Countryside partnership presently works very well.

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

for the nine month period ended 30 September 2020

The accompanying notes are an integral part of this consolidated comprehensive income statement.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 September 2020

The accompanying notes are an integral part of this consolidated statement of financial position.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the nine month period ended 30 September 2020

Consolidated and company Cash Flow Statements

for the nine month period ended 30 September 2020

The accompanying notes are an integral part of this cash flow statement.

Reconciliation of changes in liabilities arising from financing activities

NOTES

1. This final results announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 20 January 2021.

2. The financial information set out in this announcement does not constitute statutory financial statements for the nine month period ended 30 September 2020 or the year ended 31 December 2019. The Audit Reports of the Auditor on the statutory financial statements for each of the nine month period ended 30 September 2020 and year ended 31 December 2019 were (i) unqualified; (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006. The statutory financial statements for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The statutory financial statements for the nine month period ended 30 September 2020 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

While the financial information included in this final results announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as endorsed for the use in the European Union, this announcement does not itself contain sufficient information to comply with IFRS.

3. Segmental information - business segments

At 30 September 2020 the Group has just one business activity, property.

The Group had three significant customers in the period:

- Thistle Limited Partnership: profit share earned in the £0.4 million (Year to 31 December 2019: £0.5 million);

- UK PRS (Jersey) Properties I Limited: fees, £0.4 million (Year to 31 December 2019: £0.4 million); and

- The PRS REIT: development and investment advisory fees, £6.8 million (Year to 31 December 2019: £12.5 million).

The revenue from services from the Group's Owned PRS property for the period amounted to £0.3m (Year to 31 December 2019: £0.4m) of gross rental income. Rental operating costs attributable to the gross rental income for the period were £52,000 (Year to 31 December 2019: £69,000).

The Directors regard the Group's reportable segments of business to be property (Regeneration, Managed and Owned PRS), venture capital 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.

Segmental assets

Net assets of the Group's Regeneration activities consists mainly of its investment in a joint venture and contract receivables in respect of property projects. The Group's Owned PRS Property consists of Investment property measured at fair value. Venture Capital net assets represent an historic investment in one venture fund together with cash.

The segmental analysis for the nine month period ended 30 September 2020 is as follows:

The segmental analysis for the year ended 31 December 2019 is as follows:

4. Realised and unrealised gains on the revaluation of investment property

The total realised and unrealised gains during the year relating to investment property through profit and loss are set out below:

5. Unrealised profits on the revaluation of investments

The total fair value adjustments made during the year relating to financial assets at fair value through profit and loss are set out below:

6. Taxation

There is a current and deferred taxation charge in the year.

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.

7. Profit per share

The calculation of the basic profit per share for the year ended 30 September 2020 and 31 December 2019 is based on the profits attributable to the shareholders of the Group company divided by the weighted average number of shares in issue during the period.

Diluted profit per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially 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 period/year. Diluted profit per share is calculated by dividing the same profit attributable to equity holders of the Company as above by the adjusted number of ordinary shares in issue during the nine month period ended 30 September 2020 of 90,718,190 (Year ended 31 December 2019: 90,770,246). For the nine month period ended 30 September 2020, the diluted earnings per share is 2.81 pence (Year ended 31 December 2019: 11.45 pence).

8. Cash flows from operating activities

9. Available of statutory financial statements

Copies of the full statutory financial statements will be available from the Company's offices at 18 Alva Street, Edinburgh, EH2 4QG no later than 24 February 2021 and are available on its website at www.sigmacapital.co.uk