SGM.L Regulatory News (SGM)

17 September 2019

AIM: SGM

SIGMA CAPITAL GROUP PLC

("Sigma" or the "Group" or the "Company")

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

Interim Results

For the year ended to 30 June 2019

KEY POINTS

Financial

*excluding £8.4m of cash for land acquisitions paid just after period end

Operational

Outlook

Graham Barnet, CEO of Sigma, commented:

"The effectiveness of our model for large-scale delivery of family homes for the private rental market is now firmly established. In May, we delivered our 1,000th home for the PRS REIT, just two years after its launch and delivery is increasing as development sites complete.

"We expect to commit the balance of the PRS REIT's net funds to further sites over the next few months, and have seven of our own self-funded developments underway. The launch of the Scottish PRS Fund, which is backed by Scottish Government, is exciting and takes us into Scotland, a new geography for our model.

"Demand for high quality rental homes for families remains high and notwithstanding current political uncertainties, we remain confident that Sigma is well-positioned to achieve its targets for both this year and next year. We are also continuing to seek opportunities to broaden our geographies as well as the funds under our management."

Enquiries:

NOTES TO EDITORS

About Sigma Capital Group plc

(www.sigmacapital.co.uk)

Sigma Capital Group plc 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, which launched in May 2017 to invest in new-build family rental homes in the UK. 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.

CHairman's Statement

INTRODUCTION

The effectiveness of our model for large-scale delivery of family homes for the private rental market is now firmly established. While the first half of the year was not without its challenges, by mid-May 2019, our delivery for The PRS REIT plc ("PRS REIT" or "REIT") reached 1,000 completed homes, a significant milestone just two years after the REIT's launch. By the end of the first half, delivery stood at 1,173 completed homes, with a further 3,196 homes contracted. This delivery is across 54 sites, covering most of the major regions of the UK outside London and the gross development cost ("GDC") is £661m. When finished these 4,369 homes will generate an estimated rental income of £41m per annum.

In May 2019, we secured further debt facilities for the REIT, increasing its total funding resource to £900m (gross capital).To date, 91% of the REIT's net funds has been contracted to sites, and we expect to contract the balance to additional new sites over the coming months. The total number of homes we expect to deliver for the REIT is now around 5,400. This figure reflects a combination of factors, including an increasing allocation to sites in the South East. The overall yield target for 2022 at stabilisation remains at 5.5 pence per share.

The launch of the Sigma Scottish PRS Fund ("the Scottish Fund" or "the Fund"), which was announced in the second quarter of the year, represents a significant expansion to Sigma's geographic reach. Backed by the Scottish Government's Building Scotland Fund, it will have initial resources of £43m. Approximately £30m of this will be provided by Building Scotland Fund in the form of revolving credit facilities, with the balance provided by Sigma. The Fund creates the first dedicated vehicle to deliver new, professionally-managed rental homes for families in the private rented sector in Scotland. As with the other new-build homes we are developing, the properties within the Fund will be marketed under our 'Simple Life' lettings brand.

Our self-funded private rented sector activities saw the completion, letting and sale of a 78-unit site in Telford to the REIT, which took the total number of sites that we have self-financed, developed, and sold to the REIT to eight. Currently seven self-funded development sites are under construction, with one due to be completed and sold to the REIT by the year end.

With the growing scale of our housing delivery, Sigma's balance sheet has strengthened considerably. The Company is generating significantly improved cash flows, and we closed the half year with net cash of £12.6m (H1 2018: net debt of £2.7m). Our recurring income from annual asset management fees is also growing. This will make up a material element of Sigma's future earnings when the building programme for the REIT completes and homes are let.

With site development opportunities clearly identified and our PRS property platform working well, the Company is well-placed to achieve its objectives for both the remainder of the current financial year and next. We are also continuing to seek opportunities to broaden our geographies as well as the funds under our management.

FINANCIAL RESULTS

Sigma's revenues in the six months to 30 June 2019 increased by 19% to £5.8m (H1 2018: £4.8m). Managed PRS revenues accounted for substantially all this total at £5.5m (2018: £4.6m), with the rise over the same period last year reflecting the higher level of fees generated from development management and asset management as delivery expanded.

Gross profit rose by 19% to £5.7m over the period (H1 2018: £4.8m) while administrative expenses were lower at £2.6m (H1 2018: £2.8m).

Profit before tax for the period increased by 3% to £4.3m (H1 2018: £4.2m), with Managed PRS activities contributing £2.9m (H1 2018: £1.9m), Self-funded PRS activities contributing £0.7m (H1 2018: £1.7m) and Regeneration activities adding £0.7m (H1 2018: £0.6m).

The Group's basic earnings per share was 4.15p per share (H1 2018: 4.62p per share), which reflected the increased taxation charge of £0.6m compared to £0.08m in the same period last year.

Cash flow from operating activities increased substantially to £2.9m (H1: £0.04m) and net assets per share at 30 June 2019 increased by 21% to 60.3p (30 June 2018: 49.8p). Net cash at 30 June 2019 stood at £12.6m (30 June 2018: net debt of £2.7m), a £15.3m turnaround.

DIVIDENDS

The Board will propose a final dividend with Sigma's full year results, in line with the Company's progressive dividend policy.

BUSINESS AND OPERATIONAL REVIEW

The Company is delivering new rental homes across the regions of the UK, with a particular focus on houses for families. Its PRS property platform provides a professional and secure supply chain for the acquisition, construction and management of rental homes. This platform brings together a network of formal and informal relationships, including construction partners, central government and local authorities.

Sigma typically delivers traditional housing, with differing housing types and sizes, to cater for a broad spectrum of demand.

The Company's income streams are broadly threefold:

MANAGED PRS ACTIVITIES

The PRS REIT plc

Sigma's PRS property platform is now principally being used to support the PRS REIT's objective of creating a large-scale portfolio of new-build homes for the private rental market across the UK (outside London). Sigma's subsidiaries were appointed as Investment Adviser and Development Manager following the REIT's launch in May 2017, and they source all investments and subsequently manage the REIT's assets in line with the REIT's investment policy.

During the period, we delivered a further 398 homes for the PRS REIT through our property platform, taking the total number of completed homes at 30 June 2019 to 1,173. These homes are generating approximately £10.7m of rental income per annum.

While we experienced some planning approval delays that affected construction schedules, by the end of June 2019, 54 sites across the major regions of England were either completed or contracted. Their gross development cost amounts to £661m, and once they are fully completed and let, the number of rental homes delivered for the REIT will stand at 4,369, with the combined rental value expected to be £41m per annum.

Of the homes delivered in the period, one site comprising 78 homes, was bought from Sigma. As with all self-funded sites that Sigma develops and sells to the REIT, it was independently valued prior to its sale. Further details are provided below.

In May, we secured a further £200m of debt facilities on behalf of the REIT, taking its total debt facilities to £400m and its total gross funding to c.£900m. Currently, we have contracted 91% of the net funds to sites and expect to be fully contracted on the balance over the next few months. Taking into account our increasing geographical diversification, including our move into the South East, as well as other factors, we estimate that these funds should give rise to approximately 5,400 homes, with a combined rental value of approximately £55m per annum, generating a stabilised dividend yield of 5.5 pence per annum.

As of 31 August 2019, excluding those Sigma-funded development sites that are under forward-purchase agreements with the REIT, we had 35 development sites underway for the REIT, with a combined GDC of c. £542m. The sites are located in the North West, North East, Yorkshire, the Midlands, South East, and East of England, and will create c.3,502 homes when completed. The ERV of these homes is c.£34m per annum.

Gatehouse Bank and UK PRS Properties

We completed our rental housing programmes for Gatehouse Bank and UK PRS Properties, which is principally backed by the Kuwait Investment Authority and institutional shareholders from the State of Kuwait, in March 2017 and November 2018 respectively. The combined delivery, executed through our PRS platform, amounted to 1,602 new rental homes (918 of which were developed for the Gatehouse Bank, and the balance of 684 for UK PRS Properties). The homes are located in the North West of England and the Midlands, and we are pleased to report that the occupancy rates remain very high and that rental levels for both portfolios continue to be ahead of original forecasts.

The rental homes now generate asset management fees for the Company, and Sigma also retains a share of the net profits on disposal of the assets, subject to a minimum return to investors. We are currently in discussions to develop a few selected sites for UK PRS Properties, with these sites to be sourced by Gatehouse Bank.

SELF-FUNDED PRS ACTIVITIES

During the first half of the year, we completed the development of a 78-unit site in Telford, which, when fully let, was sold to the PRS REIT in June 2019, for c.£12.7m, following an independent valuation by Savills. This takes the number of self-funded sites sold to the REIT since its establishment in May 2017 to eight. Comprising 496 homes, they provide rental income of c. £4.5m per annum.

As of today, we have seven self-funded sites under construction, which will be purchased by the PRS REIT, subject to the fulfilment of contracted terms. One of the sites is expected to be completed over the next few months.

Sigma receives rental income from completed PRS homes up until each site is fully completed and let, and then typically acquired by the PRS REIT.

All our self-funded homes and those offered for rental by the PRS REIT are marketed under our 'Simple Life' brand (www.simplelifehomes.co.uk). This brand helps to identify our product to potential customers and our objective is to position 'Simple Life' as the 'gold standard' experience for tenants.

REGENERATION PARTNERSHIPS

In March 2019, along with our development partner, we completed the redevelopment of the Lime Street Eastern Terrace, in Liverpool. This mixed use development included a student residence, hotel, and retail and leisure units. The remaining project that we are currently involved with is the regeneration of a 19-acre former secondary school site in Gateacre, Liverpool. The site is being converted into 231 family homes for open market sale. Ranging from two and three bedroom townhouses to five bedroom executive detached homes, the development is nearly complete. At the end of June 2019, only 12 properties remained to be sold, with 219 homes already completed and sold. Any future regeneration work with our local authority partners will complement existing PRS activity.

THE BOARD

In early September, Graeme Hogg, Chief Operating Officer, stepped down from the Board and the Company after eight years with the business. On behalf of the Board, I would like to thank him for his valuable contribution to Sigma over this time. We have no plans to change the current composition of the Board. Graeme's responsibilities have now been absorbed by the existing management team.

CORPORATE AND SOCIAL RESPONSIBILITY

Sigma is seeking to use its 'Simple Life' brand to help establish a new, higher standard for tenants in the private rented market. The brand aims to provide customers with total 'peace of mind', from assurance on the quality of housing provided to its ongoing care and maintenance. Customer service teams are available on a twenty-four hour basis, seven days a week and we have dedicated 'handymen' teams. We also wish to create a sense of community within the developments that we help to create, and run initiatives and 'get-togethers' to encourage and foster social engagement. Alongside this, we are reaching out into the local community, and have become involved with many schools and charities within the areas in which we operate.

We intend to build on these efforts and increase our contribution as the Company grows, and are proud that in a recent customer satisfaction survey, 92% of respondents said that they would recommend 'Simple Life' to a friend.

OUTLOOK

The second half of the year has started well and in line with management expectations.

The number of completions is rising as development activity progresses. At 31 August 2019, the number of completed homes across both our self-funded and managed PRS activities stood at 1,289, and the number of completed and contracted homes at 4,718, across 59 sites. These homes have a GDC of £734m and an ERV of approximately £46m per annum.

The professionally-managed, high quality homes that we deliver appeal to a broad spectrum of middle-income households, from young couples and families to retirees, and rental demand remains strong, with properties letting quickly.

We look forward to ongoing growth, and continue to explore further opportunities to expand our model.

David Sigsworth

Chairman

CONSOLIDATED Statement of COMPREHENSIVE INCOME

For the six months ended 30 June 2019

All of the Group activities are classed as continuing and there were no comprehensive gains or losses in any period other than those included in the statement of comprehensive income. 

CONSOLIDATED STAtement of Financial Position

At 30 June 2019

The accompanying notes are an integral part of this consolidated balance sheet.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For six months ended 30 June 2019

Consolidated Statement of Cash Flows

For the six months ended 30 June 2019

Notes to the Financial Statements

For the six months ended 30 June 2019

1. General information

The Company is a limited liability company incorporated in England and with its registered office at Floor 3, 1 St. Ann Street, Manchester, M2 7LR. The Company's trading office is situated at 18 Alva Street, Edinburgh, EH2 4QG.

The Company is quoted on AIM.

This condensed consolidated interim financial information was approved and authorised for issue by a duly appointed and authorised committee of the Board of Directors on 16 September 2019.

This condensed consolidated interim financial information has not been audited or reviewed by the Company's auditor.

2. Basis of presentation

This condensed consolidated interim financial information for the six months ended 30 June 2019 has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting". The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

This condensed consolidated interim financial information does not constitute statutory accounts within the meaning of s434 of the Companies Act 2006. The comparatives for the full year ended 31 December 2018 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 sections 498(2) or 498(3) of the Companies Act 2006.

3. Accounting policies

The accounting policies applied by the Group in these unaudited half year results are consistent with those applied in the annual financial statements for the year ended 31 December 2018 as described in the Group's Annual Report for that year and as available on the Company's website (www.sigmacapital.co.uk).

No new standards that have become effective in the period have had a material effect on the Group's financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

4. Segmental information

At 30 June 2019, the Group has just one business activity, property. The segment analysis for the period ended 30 June is as follows:

5. Taxation

Current taxation charge is recognised based on management's best estimate of the weighted average annual tax rate expected for the full financial year and after considering losses carried forward from previous years. Deferred taxation is calculated based on management's best estimate of future taxation rates.

The taxation charge for the period to 30 June 2019, 30 June 2018 and 31 December 2018 is as follows:

6. Earnings per share

The calculation of the basic earnings per share is for the six months ended 30 June 2019 (six months ended 30 June 2018; year ended 31 December 2018) and 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 earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Company has only one category of dilutive ordinary shares, those share options granted where the exercise price is less than the average price of the Company's shares during the period. Diluted earnings 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 six months ended 30 June 2019 of 90,747,618 (2018: six months 90,846,221; full year 91,044,281). For the period ended 30 June 2019, the diluted earnings per share was 4.09 pence (2018: six months 4.53 pence, full year 12.38 pence).

7. Net assets

8. Cash used in operations

9. Copies of the interim financial statements

The Half Yearly Report 2019 is available on the Company's website (www.sigmacapital.co.uk).