SGM.L Regulatory News (SGM)

30 April 2020

AIM: SGM

SIGMA CAPITAL GROUP PLC

("Sigma" or "Group")

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

Final Results

for the year to 31 December 2019

and

Change of Accounting Reference Date

KEY POINTS

Financial

*excludes £8.4m drawn down from revolving credit facility for property acquisitions in January 2019

Summary and Prospects

Coronavirus Impact

Operational

Managed PRS activities

Self-funded PRS activities

Ongoing expansion of environmental and social initiatives

Graham Barnet, CEO of Sigma, commented:

"Financial results for the year are very encouraging, and reflected our increasing delivery for The PRS REIT plc, which aims to create an initial portfolio of some 5,300 high quality rental homes for families across the English regions.

"Over the year, we delivered an additional 842 new family rental homes for the PRS REIT through our property platform, We have now completed 1,947 homes for the REIT and a further 3,000 homes are underway at varying stages of the construction process. We also expanded our model into London in the final quarter of last year, acquiring two development sites. This is very exciting and marks the start of greater activity here.

"The current financial year started well, however events have been overtaken by the coronavirus crisis and the national 'lockdown'. We fully supported the decision made by our housebuilding partners to suspend construction activity in March and equally the decision now to resume activity with social distancing measures in place.

"While the magnitude of the current emergency is significant, we are confident that Sigma is well placed to navigate the challenges. The Group is financially very secure, with a strong cash position, highly supportive lending partner in Homes England, and low cost base. Operationally, we have a robust outsourced business model and a highly experienced team.

"There is a structural undersupply of high quality family rental homes across the UK, and our assets continue to perform very well.

"We remain very confident of Sigma's prospects for future growth, and continue to assess growth opportunities."

Enquiries:

NOTES TO EDITORS

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

Sigma Capital Group plc ("Sigma") is a private rented sector, 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. It 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. Its subsidiary, Sigma PRS Management Limited, is Investment Adviser to The PRS REIT plc. In April 2019, Sigma launched the Sigma Scottish PRS Fund, the first dedicated vehicle to focus on the creation of new rental homes for families in the private rented sector in Scotland, and in October 2019 Sigma announced the expansion of its build-to-rent activities in London.

About Sigma PRS Management Ltd

Sigma PRS Management Limited 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 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. It has 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

Sigma's ("Sigma" or the "Group" or the "Company") results show another year of progress, with revenue up 11% to £13.9m (2018: £12.5m), profit before tax up 7% to £13.0m (2018: £12.2m) and cash generation up 27% to £8.0m (2018: £6.3m). Net assets at the year-end were up 16% to £60.5m (2018: £51.9m) or 67.6p per share (2018: 58.1p per share).

The current financial year started well, with home completions in the first quarter accelerating, reflecting the substantial increase in homes under construction and new sites started during 2019. These are predominantly for The PRS REIT plc ("REIT"). We were also progressing new opportunities, in particular the extension of Sigma's geographic reach into London and Scotland. However, the coronavirus global pandemic and subsequent government actions to contain its spread have created an unprecedented situation in which many countries, including the UK, are in 'lockdown'. Like other national house builders, our house building partners reviewed Government guidelines and took the decision to suspend all construction activity in March, a move we fully supported. Our overriding priority remains the safety and welfare of our staff and partners. In late April, some construction activity has recommenced with social distancing measures in place.

The full impact of the coronavirus crisis is difficult to predict, especially while the extent and duration of the 'lockdown' remains unclear. However, Sigma's business model and the management of its finances over the last few years mean that the Company is very well-placed to navigate this exceptional situation. Having completed a review of the Company's financial position relative to the risks that the coronavirus crisis presents as outlined in the Directors Report, the Board is satisfied 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 £20m remaining and being maintained even after this. This is discussed in detail within the coronavirus and going concern review..

The suspension of construction activity has little adverse effect on Sigma's liquidity position since the Company's contractual obligations only provide for payment to house builders in respect of work undertaken and independently certified.

The Company has cash balances of £27.3m at 28 April 2020 and its only lending counterparty is Homes England, the executive, non-departmental public body, sponsored by the Ministry of Housing, Communities & Local Government. The facility arrangement is one of limited recourse and Sigma has a well-established and strong relationship with Homes England, based on the shared objective of bringing much needed new housing to families.

Given the Group's strong financial position, management has no need to furlough staff or make use of Government assistance schemes introduced as a result of the coronavirus crisis. We intend to keep all employees actively working as far as possible and to maintain contractual terms and conditions throughout.

Housing delivery for the REIT was stronger in the second half of the year than the first, as previously reported. Over the year as a whole, 842 new rental homes were delivered to the REIT through the Group's PRS property platform, which provides a professional and secure supply chain for the acquisition, construction and management of rental homes. This took the total number of homes completed through our property platform for the REIT at the year end to 1,617, providing an estimated rental value ("ERV") of £14.9m per annum when fully let.

By the year end, another 528 homes had been contracted through the platform for the REIT, taking the total number of homes contracted for delivery to 3,328. The ERV of these homes is £32.7m per annum once completed and let. The combined total of completed and contracted homes for the REIT at 31 December 2019 was 4,945 amounting to £771m of gross development cost. This is across 62 sites (31 December 2018: 43 sites), in a broad range of different areas across the regions of England.

While the Group's housing delivery is primarily for the REIT and funded by the REIT, with Group subsidiary, Sigma PRS Management Ltd, being Investment Adviser, some development is funded by Sigma. These self-funded sites (outside London) are specifically designed to meet the REIT's investment criteria. During 2019, two Sigma-funded sites were completed and sold to the REIT for a combined £20.8m, based on independent valuations.

By the end of 2019, we had contracted over 90% of the net proceeds of the REIT's £900m of gross funding. This was after taking remedial action following the delays to construction schedules in the first half. As previously reported, we changed the composition of the development pipeline for the REIT in order to maximize the delivery of homes (and in turn rental income), and prioritised the allocation of development sites to the REIT, against self-funded development on Sigma's balance.

We had expected to deploy the balance of the REIT's funding, approximately £75m, by the end of March 2020. However, with the onset of the coronavirus crisis and market disruption, we took the decision to strategically defer further deployment while we assess opportunities, particularly for the REIT to acquire completed assets.

As we closed the first quarter of the new financial year, the number of completed homes for the REIT had risen to 1,947, providing an annualised ERV of £17.9m. At present, 1,655 homes were let, generating an annualised rental income of £15.2m. At the end of March 2020, around 3,000 homes were also underway, in varying stages of delivery.

Seven sites (including two in London) are being funded by Sigma with support from Homes England. They have a combined GDC of c.£76.5m, and will yield a total of 303 homes, with an ERV of £4.4m per annum. Currently, 32 of these homes are complete, providing an annualised rental income of c.£400,000.

Demand for new rental homes in the UK remains high, reflecting the structural undersupply, and let homes have been performing well, on average 2% above budget.

While there is significant current macro uncertainty, the Company is in a strong position financially and operationally and the Board therefore continues to view prospects for growth very positively.

Financial Results

Revenue for the year ended 31 December 2019 increased by 11% to £13.9m (2018: £12.5m), and reflected a second full year's contribution from PRS activities related to the REIT, revenue from completed ventures with Gatehouse Bank and UK PRS Properties, as well as the benefit of rental income from Sigma's self-funded sites prior to their sale.

Administrative costs increased slightly to £5.9m (2018: £5.7m), which mainly reflected the expansion in staff numbers to support the ongoing scaling of our activities.

Profit from operations increased by 17% to £12.0m (2018: £10.2m). This included realised and unrealised gains from investment property of £3.9m (2018: £3.7m), and an unrealised gain on investments of £0.2 million (2018: loss of £0.15 million).

Profit before tax increased by 7% to £13.0m (2018: £12.2m) although basic earnings per share decreased to 11.63p (2018: 12.65p). The reduction in earnings per share reflected a higher tax charge, including deferred tax, compared to last year, which benefited from a higher level of brought forward losses being utilised.

The Group's net asset backing continued to strengthen. Net assets at the year-end increased by 16% to £60.5m, which is equivalent to 67.6p per share (31 December 2018: £51.9m and 58.1p per share).

Cash generated from operations rose by 27% to £8.0m (2018: £6.3m), reflecting continued growth in PRS activity.

Cash balances at 31 December 2019 stood at £16.8m (2018: £14.4m), and at 28 April 2020 cash balances totalled £27.3m. The 2018 cash balance excludes the £8.4m of cash for land acquisitions that were made in January 2019.

Dividends

The Board is pleased to propose a final dividend of 2.0p per share for the financial year (2018: 2.0p). This decision has not been made lightly in view of the current situation, and it reflects the Board's confidence in the Company's financial health and growth prospects.

The dividend, which is subject to shareholder approval at the Company's AGM on 25 June 2020, is payable on 30 June 2020 to shareholders on the register on 29 May 2020.

Business and Operational Overview

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 and local authorities. Sigma typically delivers a range of traditional housing through its platform partners, enabling the Company to cater for a broad spectrum of demand, including young couples as well as growing families.

Sigma's income streams are broadly threefold:

· development management fees for the assets the Group procures and delivers to third parties, now almost exclusively the REIT;

· asset management fees for the overall management of the assets, from the REIT, Gatehouse Bank and UK PRS Properties; and

· development profits on the assets 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

The PRS REIT plc

Sigma subsidiaries are Investment Adviser and Development Manager to the REIT, which was launched by Sigma on 31 May 2017. The REIT's objective is to create a substantial portfolio of new-build homes across the UK 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 (combining building contractor partners, local authorities and governmental bodies). As well as sourcing and assessing suitable sites, Sigma PRS manages the planning and development processes as well as the subsequent letting of completed new homes. A minimum of two thirds of the REIT's new properties has already 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. Up to a maximum of a third of new properties will be acquired in this manner. Sigma earns development profits from the sale of such sites, and receives rental income until the point of sale. Completed assets may also be acquired from other third parties.

All sites, whether undeveloped or completed, must satisfy the REIT's investment objectives and are independently valued for the REIT prior to acquisition.

Sigma earns asset management fees for managing the REIT's assets. These are calculated on a percentage of an adjusted net asset value ("NAV") of the REIT's portfolio, on a sliding scale. Sigma earns 1% of the value of the REIT's adjusted net assets up to £250m, with this percentage moving to 0.9% and 0.8% at intermediate thresholds, and then to 0.7% at £1bn and above.

In May 2019, we secured £200m of debt facilities for the REIT, taking its total debt facilities to £400m, and its total funding to c.£900m (gross).

As previously reported, while we experienced some planning approval delays in the first half that affected construction schedules, we made significant progress over 2019 nonetheless in deploying the REIT's capital. Proceeds were allocated to additional development sites in the North West, Midlands, Yorkshire and, in the second half of the year, to the REIT's first sites in the South (above the M25). The intention is to create a geographically diverse portfolio of homes for the REIT in order to mitigate risk and generate balanced returns.

During 2019, a total of 19 sites were added to the development pipeline for the REIT, taking the number of sites contracted or completed to 62.

Over the year as a whole, we delivered 842 more homes for the REIT, and the total number of completed homes by 31 December 2019 stood at 1,617, providing an ERV of £14.9m per annum for the REIT. We expect to deliver the 2,000th new rental home for the REIT shortly after construction activity resumes, once it is safe to do so.

Gatehouse Bank and UK PRS Properties

The 918 new homes 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. Both portfolios were delivered through Sigma's PRS property platform.

The homes in the Gatehouse Bank portfolio, which were completed in March 2017, are located in the North of England and generate rental income of about £7.5m per annum for Gatehouse Bank. Sigma earned an asset management fee of approximately £0.48m in 2019 for managing these assets.

The UK PRS Properties portfolio was fully completed in November 2018 and its properties are situated across sites in the North West and West Midlands. They generate approximately £6.2m in annual rental income. Sigma earned £0.42m for its services from this joint venture in 2019.

Sigma also retains a share of the net profits on disposal of the assets, subject to a minimum return to investors.

Self-funded PRS Activities

During the year, Sigma completed the development, letting and sale of two self-funded sites, in Wigan and Telford to the REIT. Comprising 128 homes, the rental income from the properties is about £1.2m per annum. The total sales value of the sites was £20.9m, based on an independent valuations by Savills, and generated a realised profit of about £2.1m for Sigma.

The Company currently has seven self-funded development sites under way, in the North West, Midlands, South and London. These will deliver approximately 303 homes in total and have a combined GDC of £76.5m and an ERV of £4.4m per annum.

The two development sites in London have a total GDC of c.£43.0m 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 underway 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 is a 77-unit development site 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. These first ventures are expected to mark the start of greater activity in London in the near term.

The Sigma Scottish PRS Fund

In April 2019, we announced the launch of the Sigma Scottish PRS Fund ("the Scottish Fund") in partnership with the Scottish Government. This was followed by a Collaboration Agreement with Springfield Properties plc ("Springfield"), a leading housebuilder in Scotland, aimed at creating hundreds of new rental homes for Sigma across major Scottish cities. However, the onset of the current coronavirus crisis has meant we have paused all activities, and will review prospects for continuation with our Partners when the market returns to some form of normality.

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.

In Liverpool, the regeneration of a 19-acre former secondary school at Gateacre into 231 new family homes for open market sale was completed during 2019, with all the homes sold by the end of December 2019. The joint venture with Countryside Properties generated a profit of £1.0m for the year.

As previously reported, together with our development partner, we completed the Lime Street Eastern Terrace redevelopment in Liverpool in March 2019. This was a mixed-use development that included a hotel, student residence, and 30,000 sq. ft. of retail and leisure units.

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 that people will enjoy living in and neighbourhoods that they 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, and 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 have launched a programme of online interactions, including exercise and cookery classes, and provide advice on accessing the Government's assistance packages. We intend to maintain supportive contact with tenants throughout the 'lockdown' period.

The Board and Management

We made a number of staff appointments in the financial year, which have strengthened out teams. This included the appointment of a Regional Managing Director of our operating business, in charge of construction delivery for the REIT. We also established a dedicated London team, working on the delivery of our London activities, and expanded our Group finance team.

In March 2020, we were delighted to appoint Mike McGill 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 will be 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, and 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 Board is committed to maintaining high standards of Corporate Governance, and continues to adopt the Quoted Companies Alliance Code. The Board has considered how each principle 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 a good dialogue with our major shareholders. Our intention going forward is to continue to develop our culture and our dialogue with the wider stakeholder interests.

Change of Accounting Reference Date

The Board has decided to change Sigma's accounting reference date from 31 December to 30 September. The new financial period will therefore cover the nine month period ending 30 September 2020. The Board believes that the change will result in a reporting cycle that is more compatible with the Group's seasonal trading pattern.

Outlook

Sigma made significant progress over 2019 and started the new financial year in an excellent position. Prior to the onset of the coronavirus pandemic, the deployment of the balance of the REIT's funding resource and the delivery of the REIT's 2,000th rental home were on track for delivery before the end of March 2020.

While the coronavirus crisis is causing unprecedented levels of global uncertainty and it remains difficult to estimate its full impact, we remain confident that Sigma is financially and operationally well-equipped to navigate this challenging period successfully. The Group's assessment of the impact of the coronavirus is detailed in the coronavirus and going concern review.

Completed assets are continuing to perform well and the underlying demand for rental homes remains high and we are currently taking reservations as far ahead as September this year. We believe one of the macro economic impacts of coronavirus will be an increased demand for rental homes as people choose the flexibility of renting during a period of uncertainty, and defer purchasing.

We would like to thank all our partners for their ongoing support, in particular Homes England which shares our vision for the growth of this tenure both in the Regions and in London.

Looking beyond the current period, we retain our positive view of prospects for the Group and will continue to invest in the business for the future.

We see further opportunities to expand our business model and despite the unparalleled circumstances we all find ourselves in, we view the Company's future with confidence.

David Sigsworth OBE

Chairman

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 be 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 has now been designated a "pandemic". Despite significant mitigating action including self-isolation for people suspected of having the virus, and an effective lockdown through social distancing for all but essential workers, the impact of the virus looks likely to be significant in terms of extent and timing. This represents a significant risk to house building and letting activity together with the operations of the Company as a whole.

Coronavirus has the potential to impact 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 construction work on sites due to a combination of the effective lockdown 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 due to a combination of the effective lockdown or as staff are unable to work or are absent from work;

· Income reduction and potential bad debts as tenants may struggle to maintain rental payments resulting from a loss of income due to a combination of the effective lockdown 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 due to workers unable to work or 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; and

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

The absence of Company staff 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 the coronavirus lockdown. The Company does not intend to furlough 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.

A greater issue has been in relation to house building and letting activity where the effective lockdown has all but ceased construction activity in the short term. This has resulted in numerous partners furloughing employees and is understandably preventing homes from being completed, let and occupied.

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 insurance for at least the first year of new lettings. 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 in a responsible and reasonable manner during the crisis. The adaptation of our technology has meant that this important tenant interaction and engagement can continue 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.

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 £27.3 million of cash balances with no associated borrowings;

- Cessation of construction activities for a period of 12 months from the end of March 2020 albeit current indications suggest that a 3 month cessation might be more realistic;

- Development fees generated from construction activities in The PRS REIT plc modelled as not being earned during the 12 month period of the cessation of construction activities;

- Absence of rental income on properties owned by Sigma for a period of 3 months with no subsequent recovery thereof;

- 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.

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 £20 million remaining and being maintained even after this time.

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 year ended 31 December 2019. The Board is therefore of the opinion that the going concern basis adopted in the preparation of the consolidated financial statements for the year ended 31 December 2019 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 year ended 31 December 2019. 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 is 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 PRS sector but also encompass urban regeneration and property asset management.

At 31 December 2019, 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 also secured £400 million of debt facilities. Sigma PRS is Investment Adviser to the PRS REIT, having signed a five year management contract in May 2017. It is also Development Manager to the REIT, and holds an equity interest in it.

By the end of 2019, the Group's PRS property platform had completed 1,617 homes for the REIT. This number is anticipated to grow to about 5,300 homes once all the net proceeds of the REIT's £900 million (gross) of funding have been deployed.

Through SCP, Sigma also funds the development of new PRS homes and, during 2019, completed and subsequently sold two fully-developed and let PRS sites to the PRS REIT. This brought the total number of completed self-funded sites to nine since 2015 when self-funded PRS activity started. SCP currently has a further seven PRS sites underway. This includes two sites in London, at Fresh Wharf, Barking, and Beam Park, Dagenham. Both were acquired in 2019 and marked the commencement of the Group's build-to-rent activities in London.

The Group's first PRS joint venture was launched in November 2014 with Gatehouse Bank plc. Comprising 918 new family homes it was completed in March 2017 and proved the effectiveness of the Group's PRS property platform. A further programme of 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). This second phase was completed during 2018. Rental and occupancy levels across both these ventures have consistently performed well.

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 now 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 has 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, funding partners, including Homes England. The Board believes that the Group is emerging as one of the leading operators in the private rented sector in the UK, and a leading player in family homes.

The build-to-rent sector is growing and currently accounts for around 20% of all housing stock. Most build-to-rent activity in the UK to date has been focused on the development of flats in London and regional city centres, with little development elsewhere in the regions. The current pipeline of built-to-rent homes in both London and the regions remains modest at c.157,000 homes, with only just over 40,000 complete, presenting the Group with a significant growth opportunity.

Sigma's growth strategy remains focused on extending its activities so as to be in a position to deliver homes across multiple regions in the UK through its PRS property platform. Diversifying home 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 2019, the Group expanded its delivery within the regions, including the South of England above the M25 motorway, and entered into London.

Sigma has now delivered c.3,600 PRS homes in five and a half years through its PRS property platform. This includes the 1,602 homes we delivered for Gatehouse Bank and UK PRS Properties, as well as the homes we are delivering 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 5,300 homes that make up the REIT's expected initial portfolio, reviewing opportunities for the acquisition of completed units, especially within key strategic geographies, and extending its platform relationships. Management believes that the Group remains in a very strong position for continuing growth.

Sigma generates earnings through fees, both development management and asset management, as well as through development profits on assets built and subsequently sold to the REIT.

Overview of the Business

Private Rented Sector Residential Portfolio

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.

From a local authority perspective, a key advantage Sigma offers is that it can deliver large-scale, high quality housing, which helps to meet both local housing need and regeneration objectives. Efficiency is another major attraction since the 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 both attractive to and synergistic for our house building partners as it offers 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. Debt facilities of £400 million have been subsequently secured with Scottish Widows, Lloyds Banking Group and The Royal Bank of Scotland plc. The REIT therefore has a gross funding resource of £900 million. As previously stated, the launch of the REIT represented a fundamental transformation of Sigma's model. The Company has a five year management contract with the REIT as Investment Adviser, and is also Development Manager.

Sigma is remunerated by the REIT in two ways. Firstly, Sigma receives an investment advisory fee, which is based on an adjusted net asset value of the REIT's portfolio, and, secondly, it receives development management fees in respect of sites that are developed directly by the REIT.

In addition, the REIT may acquire completed and let sites from Sigma, through forward purchase agreements, dependent on those sites meeting its investment criteria. Sites are independently valued on behalf of the REIT and Sigma recognises any revaluation gains.

As at 31 December 2019, the gross development cost of sites either completed or contracted to the REIT stood at £771 million, equating to c.4,945 homes.

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 2019, two development sites were completed, let and then acquired by the REIT, taking the number of sites that the Company has successfully developed and sold to the REIT to nine, and thereby releasing capital for further investment. All sites acquired by the REIT are at independently determined market values. The Company is currently active on a further seven 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, Dagenham. They have a total development cost of £43.0 million and will yield a total of 157 units. We expect both assets to be completed in early 2021, subject to the restriction on construction activity being lifted.

Beam Park is an 80 unit development site which is part of a £1 billion regeneration project underway across the London Boroughs of Havering and Barking & Dagenham 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. Given the REIT's focus on sites outside London, these assets are not being developed for sale to the REIT.

This venture represents Sigma's first step into the London market where the Board believes there is significant opportunity for the Group.

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

We wish to create a new experience for tenants in the rental market, and all 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.

The brand is dedicated to 'making life simple' for tenants, whether this is through our new improved communication tools, online 'how to' videos or the speed at which repairs can be carried out by our dedicated maintenance teams or 'Handymen'. Additionally, we are also strongly focused on promoting a sense of community for those who move into Simple Life homes. We aim to 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.

We are pleased that results from recent surveys indicate a high level of satisfaction among tenants and there are customer testimonial videos available to watch on our dedicated YouTube channel:

https://www.youtube.com/channel/UCsZTzlt2UuzQF_ypvTpWD1Q.

Joint Ventures with Gatehouse Bank plc and UK PRS Properties

Our joint venture with Gatehouse Bank, which launched in November 2014 and completed in March 2017, helped to prove the effectiveness of our PRS model. The project delivered 918 new rental properties across sites in the North West of England, with homes built on land procured by Sigma, using its local authority partnerships. Gatehouse, a leading London-based Shariah compliant investment bank with a real estate portfolio across the UK and Europe, delivered the equity element of the venture whilst Barclays Bank plc provided the debt financing.

Our joint venture with UK PRS Properties completed in November 2018 and delivered 684 family homes across eight sites in the North West and Midlands.

Both ventures continue to perform well and current occupancy levels across both portfolios are in excess of 95%. Renewal rates are also performing well on properties that have been let for in excess of 12 months. All properties have been let under the brand, 'DIFRENT'.

Sigma continues to earn fees from both ventures in the form of a quarterly asset management fee and also retains a share of the net profits on disposal of the assets, subject to a minimum return to investors.

Urban Regeneration

Liverpool Partnership (also referred to as Regeneration Liverpool)

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. The Group no longer expects to earn fees as a result of this partnership however as at 31 December 2019, fees of £1.3 million were outstanding and were subsequently received in April 2020.

The transformation of a 19-acre former secondary school site at Gateacre in Liverpool, was completed in 2019. The site delivered 231 new family homes for open market sale, ranging from two and three bedroom townhouses to five bedroom executive detached homes. All of the new homes were sold by the end of 2019.

Working with Liverpool City Council and our commercial development partner, ION Developments, we completed the redevelopment of Lime Street Eastern Terrace, Liverpool in 2019. The mixed-use development incorporated a c.400 bedroom student residence, a c.100 bedroom hotel, let to Premier Inn, along with 30,000 sq. ft. of retail and leisure units. The majority of the retail space has been let to Lidl in 2018 and Green King in 2019.

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 continues to be productive, and provides PRS development opportunities. As previously reported, a total of four sites comprising 206 units were developed as part of our joint venture with Gatehouse, and a further two sites consisting of 220 units have been completed as part of the joint venture with UK PRS Properties. We have acquired four additional sites in Salford on behalf of the REIT and there is potential to acquire further sites.

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 2019

The Group's revenue increased by 11% to £13.9 million (2018: £12.5 million) as a result of the continued growth in investment advisory fees and development management fees from the REIT. In addition there were revenues from our managed PRS activities with Gatehouse and UK PRS Properties along with rental income from our self-funded portfolio. Gross profit increased by 11% to £13.8 million (2018: £12.4 million).

The Group made a trading profit in the year of £7.9 million, up 18% year-on-year (2018: £6.7 million), with property activities contributing a trading profit of £8.0 million (2018: £7.1 million). The venture capital activities contributed a trading profit of £13,000 (2018: trading loss of £0.9 million). Full detail of the results for the year by business segment is provided in note ‎3. .

Administrative costs increased to £5.9 million (2018: £5.7 million) reflecting the recruitment of additional employees to support the Company's continuing growth.

Profit from operations increased by 18% to £12.0 million (2018: £10.2 million) including gains from investment property of £3.9 million (2018: £3.7 million) and an unrealised profit on investments of £0.2 million (2018: loss of £0.2 million).

Profit before tax was £13.0 million (2018: £12.2 million), which is an increase of 7%.

The Group's net assets increased by 17% to £60.5 million at 31 December 2019 (2018: £51.9 million). This is equivalent to 67.6p per share (2018: 58.1p per share).

Balance sheet

The principal assets in the consolidated balance sheet are investment property of £53.8 million (2018: £23.6 million) as detailed in note 15, cash of £16.8m (2018: £22.8m), and investments held of £9.9 million (2018: £5.9 million) as detailed in notes 18, 19 and 20, which together account for 92% (2018: 90%) of total assets.

The main non-current liability is the Homes England development loan of £19.2 million (2018: £2.60 million) which represents 67% (2018: 31%) of total liabilities and as detailed in note 23.

The Group's current assets exceed its current liabilities by £14.0 million (2018: £21.2 million).

Cash flow

Cash balances reduced by £6 million to £16.8 million (2018: increased by £16.6 million to £22.8 million). In 2018, the predominant reason for the cash inflow was due to realisation of the sale of investment property less the re-investment in further self-funded PRS activities. Further details are provided in the consolidated cash flow statement.

The cash inflow from operating activities was £8.0 million (2018: £6.3 million). The cash outflow from investing activities was £28.8 million (2018: inflow of £7.7million) along with the cash inflows from financing activities of £14.8 million (2018: £2.6 million).

Key performance indicators

The key performance indicators are concentrated on the property activities.

The Group's key performance indicators include:

*When comparing the cash balances, the 2018 figure has been reduced by £8.4m representing the amount drawn in advance for property acquisitions in January 2019.

**Adjusted for £8.4m cash drawn in advance for property acquisitions in January 2019

The Groups main source of revenue is from its property activities and therefore its growth is important and an indication of the increase in its recurring revenues. Revenue from this sector has increased by 11% from the prior year largely due to the Group's second full year of activity in relation to the PRS REIT from which it earns development management and investment advisory fees. 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 nine investment properties, two of which were sold to the REIT during the year. The two disposals realised a cash profit of £2.06m (2018: 3 disposals, £3.93m).

The basic earnings per share has decreased slightly. Although the Group's profit before tax shows improvement over the prior year the profit after tax has fallen. The Group has previously been able to benefit from the utilisation of brought-forward tax losses but now as this are largely used the current year tax charge has increased to £2.6m (2018: £0.9m),

As at 31 December 2019 the Group's investment in property had increased to £53.8 million across seven sites including two in London. The Group's property portfolio is discussed further in the strategic report.

The Group's financial assets had increased to £5.2m (2018: £2.2m). This increase is mainly due to the acquisition of shares in the REIT during the year.

Trade and other receivables of less than one year increased to £4.0m (2018: £1.9m) mainly as a result of a previous non-current trade receivable becoming due in the next twelve months.

The cash balances, on a like-for-like basis remain strong as a result of the recurring nature of the Group's revenue.

Trade and other payables less than one year increased to £7.6m (2018: £4.6m). This is largely as a result of the increased construction costs outstanding due to the Group's continuing growth in investment in property sites and development. The majority of construction costs are paid in the month following in which they are invoiced.

The ratio between current assets and current liabilities allows the Group to monitor the requirement to pay its current liabilities when they fall due. Although this KPI has decreased during the year it remains strong at 2.8. The decrease is due to reasons outlined above.

The Group's net debt borrowings compared to its net assets shows a gearing of 4.5% (2018: £nil). This, in part, reflects the efficient utilisation of the revolving debt facility with Homes England.

Net assets per share at the year-end improved to 67.6p, a rise of 16% (31 December 2018: 58.1p). This increase is due to the profit after tax made during the year.

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 are given in the Strategic Report.

This strategic report was approved by the Board on 29 April 2020 and signed on behalf of the Board by

Graham Barnet

Chief Executive Officer

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 are taking the opportunity this year to explain in more detail how the Board engages with our stakeholders. We continue to be collaborative with all stakeholder groups including employees, customers, partners, house builders, suppliers, local authorities, regulators, funders and investors. This approach 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 on pages 12 to 17. 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 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 decision making.

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 year to strengthen the team.

Reflecting the investment made in and quality of the Company's employees, Sigma does not intend to furlough 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 new homes that Sigma is delivering form new neighbourhoods and communities and we recognise our responsibility towards ensuring that these communities function well. Our vision is to create homes that people will enjoy living in and neighbourhoods that they feel a part of. In order to help to forge the social links that underpin these communities and create a sense of neighbourhood, we organise regular events across our developments that help to bring people together. We also build links with the wider community, and, over the past year we have supported a number of local primary schools, 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 customers and their local communities. These measures are facilitated by direct customer engagement with the utilisation of technology, particularly social media, to enable two-way interaction.

Environment

Whilst the Company's activities do not directly impact the environment, it takes account of the potential impact of its key business partners. The house builder with whom we work most closely, Countryside Properties, has a strong track record in sustainable development. In its last reporting year, Countryside Properties diverted 99.4% of its waste away from landfill.

Countryside opened a new modular panel factory in Warrington during 2019 capable of manufacturing up to 1,500 homes per year. The homes are produced with sustainable timber from certified forests and the factory does not generate any landfill.

The Company planted 1,000 trees over the course of 2019 and intends to plant a further 1,000 trees over the course of 2020. The initiative makes a positive environmental contribution as well as enhancing our developments and the local neighbourhood. We are also working with landscapers to commence a programme of wildflower planting in our developments that will promote a greater volume of invertebrate life, which will support the wild bird population and greater overall biodiversity.

These actions all demonstrate practical measures geared towards benefitting the environment in the long-term.

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 believe 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; and

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

Feedback from any such meetings would be shared with all Board members.

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 year are set out below:

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

· regular site visits

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 final dividend for the 2019 financial year of 2.0p per share (2018: 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 and earnings 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 on pages 10 and 11 of these financial statements 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

We recognise that funded activities, have an impact on the environment and can also affect the lives of our tenants and the wider community. We therefore incorporate environmental, social and governance factors into decision-making processes and the way in which we operate. In order to better direct our ESG efforts, we have signed up to the UN Global Compact, and committed to its 10 core principles, based on human rights, labour, environment and anti-corruption. We deploy a robust management structure to manage ESG issues effectively throughout the lifecycle of our managed PRS assets. This is summarised below.

Opportunity review

· ESG risks are assessed, based on commitment, capacity, track record and features of the site

· 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

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

Asset management

· Appropriate governance structures are established

· Relevant laws and regulations are adhered to

· 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

· Due diligence is performed on third parties

· Anti-corruption and money-laundering policies are established

· Good practice is established

· Carbon reduction opportunities are sought

· Investment restrictions are screened

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

Environmental

Processes and strategies

Whilst the Company's activities do not directly impact the environment, it takes account of the potential impact of its key business partners. We therefore work with partners who share our values and can demonstrate a commitment to working sustainably. We require all of our delivery partners to have policies on the management and origination of their supply chain, usage of resources and approach to biodiversity, and to integrate effective design into the houses and developments they build on the Company's behalf.

Countryside Properties, with whom we work most closely, has a strong track record in sustainable development. In its last reporting year, Countryside Properties diverted 99.4% of its waste away from landfill. As a result of its approach to ESG, it features in the FTSE4Good Index Series, which measures the performance of companies demonstrating strong ESG practices.

Physical environment

The Company planted 1,000 trees over the course of 2019 and intends to plant a further 1,000 trees over the course of 2020. The initiative makes a positive environmental contribution as well as enhancing our developments and the local neighbourhood. We are also working with landscapers to commence a programme of wildflower planting in our developments that will promote a greater volume of invertebrate life, which will support the wild bird population and greater overall biodiversity.

An exciting development in 2019 was the opening of Countryside's new modular panel factory in Warrington. At full capacity, the factory will be capable of manufacturing up to 1,500 homes per year. The homes are produced with sustainable timber from certified forests, and as the homes are constructed in a factory setting, tracking and quality control processes are more efficient. The factory does not generate any landfill, with 96.4% of waste recycled and the remainder used as refuse-derived fuel in power generation. By the end of the financial year, over 350 of these modular homes had been deployed into our managed PRS developments. An added advantage of employing this new construction methodology is that the homes are quicker to construct once on site and require less labour than a traditionally built home. They also create fewer vehicular movements, reducing greenhouse gas emissions.

Clothes banks

We have initiatives in place to encourage tenants to act sustainably. Notably, we are establishing clothes banks on each completed development, with collected garments either redistributed to good causes or recycled. We also include reusable shopping bags and water flasks in the 'Welcome' boxes provided to new tenants.

Promotion of electric cars and transport policy

During 2020, we plan to introduce a subsidised electric vehicle car policy to encourage staff to switch away from fossil fuels, and all our contractor partners have agreed to the adoption of targets to electrify their workforce transport.

Social

Strong social values underpin the Company's engagement with tenants and the local communities in which the Company's developments are situated. These values include integrity, trust and respect for others. We intend the Simple Life brand to represent a new, higher standard of rental experience, and our aim is for tenants to feel secure in their tenancy and enjoy their home and neighbourhood with total peace of mind.

We also believe in investing in the wider community. We are funding projects across ten schools that are close to a number of our developments. Over £66,000 has been provided to equip these schools with facilities, including sensory rooms, playground landscaping, ponds, fitness and play equipment. We look forward to assisting further schools and projects in due course.

We continue to support a range of charities, including: Park Palace Ponies, a charity that enables young children in Liverpool to experience horse riding; Loaves and Fishes, a homeless charity based in Salford; and The Big Help Project, an anti-poverty charity based in Knowsley. We also support three food banks, in the North West and the Midlands, and various local sports clubs near our developments, including The Albert Tennis Club in Wolverhampton, Sale Rugby Club U18's and Sale United Football Club.

Our calendar of events for our customers is growing and this year our pizza nights, ice cream dashes and visits from Santa Claus and his reindeer will reach over 3,000 households across over 30 sites. The Easter egg hunt, one of the most popular annual events as been affected by coronavirus, but rather than cancel, it has been moved on-line and prizes will be posted rather than collected on the day. These activities foster friendly and engaged neighbourhoods, and promote social interaction across the age ranges.

There are a number of additional initiatives being planned to run on behalf of our tenants and wider communities in the coming year and we look forward to providing an update on their success in due course.

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

As an employer, Sigma aims to provide a collaborative and supportive working environment for all of their employees. Equality of opportunity is a core value and we wish to ensure that the best person for any role has the opportunity to apply for and excel in it.

Governance

Strong governance is essential to ensuring that risks are identified and managed, and enabling the delivery of returns in line with expectations whilst protecting the interests of shareholders.

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.

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 now been designated a "pandemic". Despite significant mitigating action including self-isolation for people suspected of having the virus, and an effective lockdown through social isolation for all but essential workers, the impact of the virus looks likely to be significant in terms of extent and timing. This represents a significant risk to housebuilding and letting activity together with the operations of the Company as a whole.

Coronavirus has the potential to impact 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 construction work on sites due to a combination of the effective lockdown 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 due to a combination of the effective lockdown or as staff are unable to work or are absent from work;

· Income reduction and potential bad debts as tenants may struggle to maintain rental payments resulting from a loss of income due to a combination of the effective lockdown 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 due to workers 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; and

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

The absence of Company staff has been mitigated by remote working from home. A greater issue has been in relation to house building and letting activity where the effective lockdown has all but ceased construction activity, resulting in our partners furloughing employees and preventing homes being completed, let and occupied.

Importantly, the Company's contractual obligations only provide for payment to house builders in respect of work undertaken and independently certified thus mitigating cash outflows. In relation to income and bad debts, the Company carefully vets prospective tenants and obtains insurance for the first year of new lettings. This, together with the geographic spread of multiple sites will help mitigate against the inevitable bad debts.

In terms of supply chain disruption, significant efforts and contingencies had already been put in place in respect of Brexit through securing supplies.

Overall, coronavirus remains a real and existing risk which requires careful monitoring and a management in conjunction with our housebuilding 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.

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. Concentration 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 growth in the requirement for properties to meet demand for rental properties. 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. It has recently re-assigned responsibility for management of the appointed Lettings Agent to a senior employee, splitting the role away from the Investment Director. In addition, a number of senior additions have been made to the Manchester based team and the Head Office Finance Function, including the appointment of a Group Chief Financial Officer.

A separate team has also taken responsibility for the London assets with plans to diversify the skills of this team and expand the knowledge base as this asset base grows. We have appointed a Contracts Manager to assist with the control, management and collation of documentation relating to planning, construction, warranties and other documents, with this task being of increasing importance in respect of funder demands.

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 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. Pending clarification of the exact means and associated impact of exiting the EU there is considerable supply chain, economic and market uncertainty.

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. If there is not free movement of goods and/or there are tariffs/duties on EU imports post Brexit, then it may be possible to defer the financial impact by funding stock building of products likely to be impacted. This, however, would simply delay the impact from the absence of free movement or introduction of tariffs or duties. Ability to recover any tariffs or duties through rent inflation or yield post Brexit could represent a risk to the viability of projects, at least in the short-term, until the likely inflationary impact of Brexit settled. Uncertainty surrounding the nature and detail of any trade agreement or trading relationship post Brexit 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 any trade agreement or trading relationship post Brexit means that this area 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.

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 utilises one Lettings Agent. The Group has recently re-assigned responsibility for management of the appointed Lettings Agent to a senior employee and following a tender process also served notice on the incumbent Lettings Agent. An alternate has been appointed and the Group is transitioning across to this party over the next 10 months. 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 year ended 31 December 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2019

Consolidated and company Cash Flow Statements

for the year ended 31 December 2019

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 29 April 2020.

2. The financial information set out in this announcement does not constitute statutory financial statements for the year ended 31 December 2019 or 31 December 2018. The Audit Reports of the Auditor on the statutory financial statements for each of the years ended 31 December 2019 and 31 December 2018 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 2018 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 December 2019 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 31 December 2019 the Group has just one business activity, property.

The Group had three significant customers in the year:

- Thistle Limited Partnership: profit share earned of, £0.5 million (2018: £0.5 million);

- UK PRS (Jersey) Properties I Limited: fees, £0.4 million (2018: £0.6 million); and

- The PRS REIT: development and investment advisory fees, £12.5 million (2018: £10.6 million).

The revenue from services from the Group's Owned PRS property represented £0.4m (2018: £0.5 m) of gross rental income. Rental operating costs attributable to the gross rental income for the year were £69,000 (2018: £67,000).

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 includes a historic investment in one venture fund and cash.

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

The segmental analysis for the year ended 31 December 2018 is as follows:

The analysis for 2018 has been updated to reflect the Directors best assessment of reportable operating segments.

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 31 December 2019 and 31 December 2018 is based on the profits attributable to the shareholders of Sigma Capital Group plc divided by the weighted average number of shares in issue during the year.

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 year. Diluted profit per share is calculated by dividing the same profit attributable to equity holders of the Company as above by the adjusted number of ordinary shares in issue during the year ended 31 December 2019 of 90,770,246 (2018: 91,044,281). For the year ended 31 December 2019, the diluted earnings per share is 11.45 pence (2018: 12.38 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 25 May 2020 and are available on its website at www.sigmacapital.co.uk