30 Sep 2008 07:00
SGM.L
30 September 2008
SIGMA CAPITAL GROUP PLC
("Sigma", "the Group" or "the Company")
Unaudited half year results to 30 June 2008
HIGHLIGHTS
Financial
Revenue from services of £3.3m (2007: 6 months £4.7m; full year £6.0m)
Profit before tax of £0.5m (2007: 6 months £1.6m; full year £0.9m)
Profit before tax, excluding unrealised profits/losses on the revaluation of investments, of £0.8m (2007: 6 months £1.4m; full year £1.0m)
Net assets per share of 16.9p (2007: June 10.4p; December 15.6p)
EPS of 0.21p (2007: six months 1.40p; full year 0.40p)
Operational
Venture capital fund management business:
Total of £1.7m invested in five investments (two new and three follow-on) with additional £2.0m raised from third party investors
Realisation of four investment holdings with further two realisations post period end
Property activity:
Seventh property limited partnership acquired City Wharf in Aberdeen Generated fees of £2.2m in first half of 2008. Further fees of £0.9m expected to be generated in second half of 2008
Property funds under management up by 19% to £223m (2007: £188m)
University IP:
Creation of new subsidiary, Sigma IP Limited, to focus on commercialisation of university IP
Received first equity stakes in two companies spun out of the University of Dundee
David Sigsworth, Chairman, commented:
"Sigma has produced solid results for the first half of the financial year. Despite difficult times in the financial markets, we have continued to grow net assets and to generate profit and cash.
We are optimistic about our business and our ability to continue to move it forward but we must counter that with caution in the wider context of the financial markets within which we operate. We have a strong and growing balance sheet and multiple opportunities to generate value and growth but we would not expect our portfolio companies to be immune to the general decline in investment values. Despite this backdrop we consider that we are well placed to be a beneficiary of any return by the markets to a sense of normality and see the next financial year as a period of opportunity as well as challenge."
Enquiries
| Sigma Capital Group plc | Graham Barnet, Chief Executive Marilyn Cole, Finance Director | T: 0131 220 9444 T: 0131 220 9444 |
| Biddicks | Katie Tzouliadis/ Sophie Lane | T: 020 7448 1000 |
| Arbuthnot Securities | Tom Griffiths/ Neil Kirton | T: 020 7012 2000 |
Company website: www.sigmacapital.co.uk
CHAIRMAN'S STATEMENT
Overview
In what continues to be an extremely difficult economic environment, Sigma has produced solid results for the first half of the financial year. The venture capital side of the business is benefiting from its strategy of increasing funds under management, such that contracted recurring revenue is now meeting most of the venture capital business's overheads. On the property side, the Group completed the acquisition of the City Wharf development in Aberdeen through its seventh property limited partnership. However, this side of the business has been impacted by the negative market sentiment towards commercial property, with the equity raising process taking longer than in prior years.
Results
Total revenue from services for the first half of the year was £3.3m (2007: £4.7m) which generated a profit before tax of £0.5m (2007: £1.6m). The fall in the value of our investments in the period resulted in a downward IFRS adjustment of £0.3m (2007: upward adjustment of £0.2m). Excluding unrealised profits/losses on the revaluation of investments, adjusted profit before tax was £0.8m (2007: £1.4m). The Group's overheads increased to £1.6m (2007: £1.3m). This covers a transitional period when management changes were agreed but did not impact immediately. We expect costs to reduce in the second half with a more significant reduction in venture capital overheads in 2009, as the impact of our initiatives to remove costs take effect.
Earnings per share were 0.21p (2007: 1.40p). Although this is a significant decrease when compared with the prior year period it is considerably better than the second half of 2007 which generated a loss per share of 0.83p.
At the end of June 2008, the 749,750 £1 Preference Shares in the share capital of the Company were redeemed through the issue of new ordinary shares of £0.01 at 50p per share. The removal of this liability from the balance sheet together with the profit generated in the first six months of the year has resulted in an increase in the net asset value per share at 30 June 2008 to 16.9p (2007: 10.4p).
Cash balances at 30 June 2008 stood at £3.6m (2007: £4.0m). At 31 December 2007, cash balances stood at £6.2m, excluding cash due to third parties. The reduction in the Group's cash balances since December 2007 is due in part to the Group's £0.5m investment in Si Limited Partnership No 7 (the "Partnership") in May 2008. Additionally, Sigma made a £2m loan to the Partnership to enable the completion of the acquisition of City Wharf in Aberdeen before the equity fundraising had been completed. This loan had been reduced to £1.5m at 30 June 2008 and currently stands at £0.8m. We expect it to be fully repaid by the end of this year.
At 30 June 2008, the Group also had accrued income of £2.1m of which £1.7m is in respect of the Partnership and will be paid once the final tranche of equity is raised for the Partnership. Without the loan and Partnership accrued income at 30 June 2008, amounting to £3.2m in aggregate, cash balances at 30 June 2008 would have been ahead of the 2007 year end figure, which would be after the £0.5m investment in the Partnership and £0.1m of investments made by the venture capital arm.
Operational Review
The Group's activities fall into three areas, venture capital fund management, property investment and university IP commercialisation.
Venture Capital Fund Management
Venture capital funds under management as at 30 June 2008 total £74m. The Group continues to market the Sigma Sustainable Energies Fund II which currently has £45m under management. This fund remains open to new investors until the end of the year and all fees from any additional investment in this fund will be backdated to the first closing date, which was 14 June 2007. Despite the clearly difficult economic background, a number of detailed discussions are in progress with potential limited partners and we are confident of adding further limited partners to this fund prior to the year end.
During the period, the funds managed by Sigma made investments totalling £1.7m. Of these investments two were new and three were follow-on in existing investee companies. A summary of these investments is included in the notes accompanying this statement. Additionally, a total of £2.0m was invested by third party investors alongside the investments made by the funds managed by Sigma.
The funds managed by Sigma also realised four holdings in investee companies during the period, with a further two realisations negotiated after the period end. There continues to be disposal activity within the historic portfolio.
Property Investment
In May 2008, the Group's seventh property partnership acquired the City Wharf development in Aberdeen. This generated fees of £2.2m in the first half of the year and further fees of £0.9m are expected to be generated in the second half of the year. If insufficient investor equity is raised to enable full payment of the Group's fee in cash, any balance remaining will be subscribed in the Partnership. Any resulting investment would be subject to the Group's normal impairment reviews at each period end. The establishment of the Partnership resulted in the Group's property funds under management increasing by 19 per cent to £223m (2007: £188m).
The Group's property subsidiary is currently raising further funds from its existing shareholders by way of a rights issue. This fundraising is a mixture of shares and loan notes and is expected to raise at least £0.2m of new money for the Group. Following the closing of this fundraising, Sigma's interest in the property subsidiary may increase from our current 47.8% holding.
While the latter half of 2007 and the first half of 2008 have been difficult for our property subsidiary, it is clear that with access to capital, there is significant opportunity in the market for acquisitions and we expect to see a significant upturn in activity in 2009. We anticipate that 2008 will be a profitable year for the property subsidiary and are involved in discussions for accessing capital to allow us to drive the growth of the business in 2009.
University IP Commercialisation
In March 2008, a new subsidiary, Sigma IP Limited, was established to focus on the commercialisation of university IP. This company has its own management team with Neil Crabb as non-executive Chairman and Alister Minty as Managing Director. In April, the Group received an equity stake of 5% in Advanced Underwater Surveys Limited followed in June by an equity stake of 2.6% in Aridhia Informatics Limited, both companies being spin outs from the University of Dundee. The Board is currently reviewing various options for the future direction of Sigma IP Limited.
Outlook
Despite difficult times in the financial markets, we have continued to grow net assets, generate profit and cash and more clearly define our strategy across the three areas of our business. Our core activity, the venture capital business, is establishing itself as one of the few key investors in the cleantech arena in the UK and Europe. We continue to grow our funds and expertise in that area which is now the main focus of our venture capital business. We are significantly rationalising our cost base in this division, the full impact of which will become apparent in 2009. This will create a platform of profitability based on a relatively fixed cost base with our contracted revenue growing in excess of that.
Our property subsidiary has clearly experienced a difficult twelve months but it should have another profitable year. We are in the process of strengthening the team and are in discussions with equity providers. Expanding the capital base of this business while also partnering with equity providers to facilitate transactions should create significant opportunities in 2009.
Our university IP commercialisation activity is conducted by our subsidiary, Sigma IP Limited, with its own separate management team. Our strategy is to seek to have this business funded independently of the Group as it is at a different stage of its development from our core activities, and this should allow it to develop more rapidly as a result.
We are optimistic about our business and our ability to continue to move it forward but we must counter that with caution in the wider context of the financial markets within which we operate. We have a strong and growing balance sheet and multiple opportunities to generate value and growth but we would not expect our portfolio companies to be immune to the general decline in investment values. Despite this backdrop we consider that we are well placed to be a beneficiary of any return of the markets to a sense of normality and see the next financial year as a period of opportunity as well as challenge.
David Sigsworth
Chairman
29 September 2008
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2008
| Notes | Six months ended 30 June 2008 (unaudited) £'000 | Six months ended 30 June 2007 (unaudited) £'000 | Year ended 31 December 2007 (audited) £'000 | |
| Revenue | ||||
| Revenue from services | 3,308 | 4,716 | 5,980 | |
| Other operating income | ||||
| Realised losses on disposal of equity investments Unrealised (losses)/profits on the revaluation of investments Rental income | - (266) - | - 165 55 | (50) (168) 63 | |
| Total revenue | 3,042 | 4,936 | 5,825 | |
| Cost of sales | (1,073) | (2,145) | (2,508) | |
| Gross profit | 1,969 | 2,791 | 3,317 | |
| Administrative expenses | (1,596) | (1,293) | (2,728) | |
| Profit from operations | 373 | 1,498 | 589 | |
| Finance income | 139 | 91 | 283 | |
| Finance costs | (6) | (17) | (17) | |
| Profit before tax | 506 | 1,572 | 855 | |
| Taxation | 2 | (176) | (466) | (311) |
| Profit after tax and profit for the period | 330 | 1,106 | 544 | |
| Attributable to: | ||||
| Equity holders of the company | 95 | 536 | 165 | |
| Minority interests | 235 | 570 | 379 | |
| 330 | 1,106 | 544 | ||
| Basic earnings per share | 3 | 0.21 | 1.40 | 0.40 |
| Diluted earnings per share | 3 | 0.21 | 1.38 | 0.39 |
All of the operations of the Group are continuing.
CONSOLIDATED BALANCE SHEET
At 30 June 2008
|
| Notes | As at 30 June 2008 (unaudited) £'000 | As at 30 June 2007 (unaudited) £'000 | As at 31 December 2007 (audited) £'000 |
| ASSETS | ||||
| Non-current assets | ||||
| Goodwill | 44 | 44 | 44 | |
| Property and equipment | 76 | 59 | 84 | |
| Available for sale investments | 4 | 2,760 | 2,555 | 2,383 |
| Deferred tax asset | 10 | 10 | 10 | |
| Non-current cash | 1,250 | - | 1,250 | |
|
| 4,140 | 2,668 | 3,771 | |
| Current assets Trade receivables Other current assets Trading investments Short term loan Cash and cash equivalents | 5 6 | 549 2,411 96 1,517 2,347 | 252 757 65 - 3,963 | 612 549 165 - 6,052 |
| 6,920 | 5,037 | 7,378 | ||
| Total assets | 11,060 | 7,705 | 11,149 | |
| LIABILITIES | ||||
| Current liabilities | ||||
| Trade and other payable | 1,400 | 980 | 2,018 | |
| Current tax payable | 487 | 765 | 308 | |
| 1,887 | 1,745 | 2,326 | ||
| Non-current liabilities | ||||
| Preference share capital | - | 750 | 750 | |
| Total liabilities | 1,887 | 2,495 | 3,076 | |
| Net assets | 9,173 | 5,210 | 8,073 | |
| EQUITY | ||||
| Equity attributable to equity holders of the parent Called up share capital Share premium account Merger reserve Share based payment reserve Capital reserve Retained earnings | 468 18,195 (249) 92 (7) (10,576) | 385 14,114 (249) 61 (7) (10,300) | 453 17,460 (249) 72 (7) (10,671) | |
| 7,923 | 4,004 | 7,058 | ||
| Minority equity interest | 1,250 | 1,206 | 1,015 | |
| Total equity | 7 | 9,173 | 5,210 | 8,073 |
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2008
| Notes | Six months ended 30 June 2008 (unaudited) £'000 | Six months ended 30 June 2007 (unaudited) £'000 | Year ended 31 December 2007 (audited) £'000 | |
| Cash flows from operating activities | ||||
| Cash (used in)/generated from operations | 8 | (1,746) | 2,081 | 2,559 |
| Interest paid | - | (17) | (92) | |
| Tax paid | 3 | - | (303) | |
| Net cash (used in)/generated from operating activities | (1,743) | 2,064 | 2,164 | |
| Cash flows from investing activities | ||||
| Purchase of property and equipment | (12) | (19) | (72) | |
| Purchase of available for sale investments | 4 | (574) | (80) | (299) |
| Disposal of available for sale investments | - | 10 | 12 | |
| Purchase of trading investments | - | - | (94) | |
| Short term loan | 6 | (1,517) | - | - |
| Interest received | 141 | 91 | 280 | |
| Net cash (used in)/generated from investing activities | (1,962) | 2 | (173) | |
| Cash flows from financing activities | ||||
| Proceeds from issue of ordinary shares | 750 | 11 | 3,425 | |
| Redemption of preference shares in holding company | (750) | - | - | |
| Redemption of preference shares in subsidiary company | - | (502) | (502) | |
| Net cash (used in)/generated from financing activities | - | (491) | 2,923 | |
| Net (decrease)/increase in cash and cash equivalents | (3,705) | 1,575 | 4,914 | |
| Cash and cash equivalents at beginning of period | 7,302 | 2,388 | 2,388 | |
| Cash and cash equivalents at end of period | 3,597 | 3,963 | 7,302 |
NOTES
1. Basis of presentation
The unaudited condensed consolidated interim financial results have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and in accordance with International Accounting Standard 34 "Interim Financial Reporting".
The same accounting policies, presentation and methods of computation are followed in these condensed consolidated interim financial results as were applied in the preparation of the Group's Annual Report for the year ended 31 December 2007 as available on our website www.sigmacapital.co.uk.
These unaudited condensed consolidated interim financial results were approved and authorised for issue by a duly appointed and authorised committee of the Board of Directors on 29 September 2008.
The unaudited condensed consolidated interim financial results do not comprise statutory accounts for the purpose of s240 of the Companies Act 1985. The comparatives for the full year ended 31 December 2007 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under section 237(2) or 237(3) of the Companies Act 1985.
The unaudited condensed consolidated interim financial results have not been audited or reviewed by the Company's auditor.
2. Taxation
| Six months ended 30 June 2008 (unaudited) | Six months ended 30 June 2007 (unaudited) | Year ended 31 December 2007 (audited) | |
| £'000 | £'000 | £'000 | |
| Current tax | 176 | 466 | 311 |
| Deferred tax | - | - | - |
| 176 | 466 | 311 |
The taxation charge has been based on the estimated effective tax rate for the full year.
3. Earnings per share
The calculation of earnings per share is based on the profit attributable to equity holders of Sigma Capital Group plc for the six months ended 30 June 2008 of £95,000 (2007: 6 months £536,000; full year £165,000) and on the weighted average number of ordinary shares in issue during the six months ended 30 June 2008 of 45,326,608 (2007: 6 months 38,412,886; full year 41,573,577). The calculation of diluted earnings per share is based on the same profit figures and on the weighted average diluted number of ordinary shares in issue during the six months ended 30 June 2008 of 45,383,683 (2007: 6 months 38,978,504; full year 42,294,700).
4. Available for sale investments
The purchase of available for sale investments of £574,000 in the six month period to 30 June 2008 (2007: £80,000) comprises additional investment in the venture funds of £74,000 (2007: £80,000) and investment in Si Limited Partnership No 7 of £500,000 (2007: nil).
The investments made by three of the venture funds, the Sigma Technology Venture Fund, the Sigma Innovation Fund (East of Scotland) and the Sigma Sustainable Energy Fund II, in the six months ended 30 June 2008 are set out below. The Sigma Sustainable Energies Fund did not make any investments in the period.
| Total amount invested | % holding (fully diluted) | |
| £'000 | % | |
| Sigma Technology Venture Fund | ||
| B1 Medical Limited | ||
| Commercialisation of technology in the field of medical devices for orthopaedics. Follow-on investment £100,000 by way of convertible loan. | 900 | 20.0 |
| Sigma Innovation Fund (East of Scotland) | ||
| AviIT Limited | ||
| Design and implementation of software solutions for the aviation sector. Follow-on investment £50,000 by way of convertible loan. | 300 | 22.2 |
| DataPA Limited | ||
| Data rationalisation tool. Follow-on investment of £195,000. | 445 | 45.4 |
| Factonomy Limited | ||
| Software that enables the rapid development of web enabled solutions for corporates. Investment of £300,000. | 300 | 18.9 |
| Sigma Sustainable Energy Fund II | ||
| Onzo Limited | ||
| Home energy monitoring and home energy display manufacture. Investment of £985,000. | 985 | 23.0 |
5. Other current assets
| Six months ended 30 June 2008 (unaudited) £'000 | Six months ended 30 June 2007 (unaudited) £'000 | Year ended 31 December 2007 (audited) £'000 | |
| Prepayments and accrued income | 2,073 | 656 | 200 |
| Deferred costs | - | 88 | - |
| Other debtors | 338 | 13 | 349 |
| 2,411 | 757 | 549 |
6. Short term loan
In order to facilitate the acquisition of City Wharf, Aberdeen, by Si Limited Partnership No 7, Sigma Capital Group plc loaned the partnership £2 million. The loan is being repaid as further investor equity is raised for this partnership and by 30 June 2008 it had reduced to £1.5 million. As at 29 September 2008, the loan has been further reduced to £0.8 million.
7. Statement of changes in equity
| Six months ended 30 June 2008 (unaudited) | Six months ended 30 June 2007 (unaudited) | Year ended 31 December 2007 (audited) | |
| £'000 | £'000 | £'000 | |
| Total equity at the beginning of the period | 8,073 | 4,120 | 4,120 |
| Issue of equity | 750 | 11 | 3,425 |
| Share based payments | 20 | 18 | 29 |
| Retained profit for the period | 330 | 1,106 | 544 |
| Increased holding in subsidiary - reduction in minority interest | - | (45) | (45) |
| Total equity at the end of the period | 9,173 | 5,210 | 8,073 |
8. Cash used in/generated from operations
| Six months ended 30 June 2008 (unaudited) £'000 | Six months ended 30 June 2007 (unaudited) £'000 | Year ended 31 December 2007 (audited) £'000 | |
| Profit before tax | 506 | 1,572 | 855 |
| Adjustments for: | |||
| Share-based payments | 20 | 18 | 29 |
| Depreciation | 20 | 22 | 51 |
| Net finance income | (133) | (74) | (266) |
| Fair value loss/(gain) on financial assets at fair value through profit or loss | - | - | 50 |
| Changes in working capital: | |||
| Trade and other receivables | (1,801) | 511 | 362 |
| Other financial assets at fair value through profit or loss | 266 | (165) | 168 |
| Trade and other payables | (624) | 197 | 1,310 |
| (1,746) | 2,081 | 2,559 |
9. Copies of the interim financial statements
Copies of the interim financial statements will be sent to shareholders and copies are available on request from the Company's office at 41 Charlotte Square, Edinburgh EH2 4HQ and on the Company's website, www.sigmacapital.co.uk.