SGM.L Regulatory News (SGM)

30 Apr 2008 07:01

Sigma Capital Group PLC30 April 2008 SGM Sigma Capital Group plc ("Sigma" or "the Company") Preliminary Results for the year ended 31 December 2007 Sigma Capital Group plc is a specialist asset management and advisory groupfocused on venture capital, property and commercialisation of university IP. Key Points Financial: • Revenue from services of £5.98m (2006: £7.98m) • Profit before tax of £0.86m (2006: £1.72m) adversely impacted by delay in completion of property transaction • EPS of 0.40p of (2006: 1.05p) • Net operational cash generation of £1.0m (2006: £1.0m) • Share placings in July 2007 raised £3.4m in total • Net cash balances of £6.2m* at 31 December 2007 (2006: £2.4m) • Net asset per share of 16.0p (2006: 9.0p) • Venture capital funds under management up by 155% to £74m (2006: £29m) • Property funds under management up by 57% to £188m (2006: £120m) • Recurring revenue grew by 75% on an annualised basis to £1.91m • £3.1m of revenue expected in 2007 now moved into 2008 subject to completion of property transaction *excluding cash due to third parties Operational: • Venture capital fund management business: - funds under management rose by 155% to £74m from £29m - annualised recurring revenue now at £1.91m, a 75% increase on last year - launch of Sigma Sustainable Energy Fund II ("SSEF II") in July 2007. £45m raised to date, including some very high profile investors - 10 transactions completed with further investment of £3.2m in venture capital funds portfolio with additional £28.2m from third party investors • Property activity: - Sixth property limited partnership completed - acquired 5-star hotel in Glasgow operated by Radisson. Generated fees of £4m in 2007 - Seventh property limited partnership launched in November 2007 although completion delayed into current financial year. Potential fees of £3.1m expected in 2008 Post year end : • Creation of new subsidiary, Sigma IP Ltd, in March 2008 to focus on commercialisation of university IP • Further investment of £1.3m in venture capital funds portfolio with additional £1.4m from third party investors David Sigsworth, Chairman, said: "2007 was a year of two parts. After a strong first half, the reduction inliquidity in the financing markets materially affected our property activitiesin the second half of the year with an adverse impact on turnover and profitsfor the year. However, overall, 2007 has seen a significant strengthening ofSigma's business model with a substantial increase in contracted funds undermanagement and considerable growth in recurring revenue. The launch of oursecond sustainable energy fund, SSEF II in June 2007 was a milestone for Sigma,not only because of the size of the fund but also for the quality of theparticipants. 2008 has got off to a strong start, with business levels high and increasinglymore valuable opportunities being seen as a result of the larger funds availableto invest from SSEF II and we are already working on some opportunities thathave been introduced by our new partners. Our property subsidiary continues tosee opportunities although as a result of the correction in the property market,we anticipate that the financing of these opportunities will be more demanding. Overall, we have a strong balance sheet and are generating healthy cash flowsand profits and the quality of our earnings stream continues to rise. Thereforewe believe that Sigma is well placed to make progress and to take advantage ofthe opportunities that continue to exist in its markets." Enquiries Sigma Capital Group plc Graham Barnet, Chief Executive Today: 020 7448 1000 Marilyn Cole, Finance Director T: 0131 220 9444 Biddicks Katie Tzouliadis T: 020 7448 1000 Arbuthnot Securities Tom Griffiths/ Neil Kirton T: 020 7012 2000 Company website: www.sigmacapital.co.uk Chairman's Statement Introduction 2007 was a year of two parts. After a strong first half, the reduction inliquidity in the financing markets materially affected our property activitiesin the second half of the year with an adverse impact on turnover and profitsfor the year. However, overall, 2007 has seen a significant strengthening ofSigma's business model with a substantial increase in contracted funds undermanagement and considerable growth in recurring revenue. The launch of oursecond sustainable energy fund, SSEF II in June 2007 was a milestone for Sigma,not only because of the size of the fund but also for the quality of theparticipants. The disappointing close to the year, with the delay in thecompletion of our seventh property limited partnership should not be allowed tomask the progress we have made in positioning the Company for future growth orthe profitability of the business overall. The total revenue we expect to earnfrom the seventh property partnership remains unchanged at approximately £3.1mbut, if completed, will now be received in 2008. Results Revenue from services for the year was £5.98m (2006: £7.98m), a reduction of 25%compared with the prior year. Within this, the venture capital fund managementbusiness increased revenue from services by 52% whilst revenue from servicesfrom property related activity fell by 39%. Total recurring revenue from venturecapital fund management has now increased on an annualised basis by 75% to£1.91m (2006: £1.09m). The downward revaluation of the Group's investments,combined with a realised loss on one investment adversely affected the Group'stotal revenue. The net impact was to reduce total revenue by £0.17m to £5.83m. Profit before tax for the year was £0.86m (2006: £1.72m) and was adverselyimpacted by the lower level of property investment activity. Excluding theeffects of unrealised losses on investments, the venture capital fund managementbusiness broke even in 2007 compared to a small loss in 2006. If management feeshad been earned from the SSEF II for the whole year, as will be the case in2008, rather than six and a half months, this would have contributed a further£0.35m to the net profit of the venture capital fund management business. In July 2007, we undertook two placings of new shares when Sir Tom Hunter andVincent Tchenguiz chose to make direct investments in Sigma. The placings, withSir Tom's investment partnership, West Coast Capital, and Elsina Ltd, a vehicleadvised by Vincent Tchenguiz's Consensus Business Group, raised a total of£3.4m. Both the Group's net asset position and cash position strengthened over theyear. Net asset per share attributable to equity holders of Sigma at 31 December2007 is 16.0p (2006: 9.0p) and Sigma's cash balances increased to £6.17m (2006:£2.39m), excluding cash due to third parties. Operational Review Sigma's activities fall into three areas, venture capital fund management,commercialisation of university IP and property. Venture Capital Fund Management Sigma manages and is an investor in four funds, the Sigma Technology VentureFund, ("Venture Fund"), the Sigma Innovation Fund (East of Scotland)("Innovation Fund"), the Sigma Sustainable Energies Fund ("SSEF") and the SigmaSustainable Energy Fund II ("SSEF II"). The launch of the SSEF II, the Group's latest fund, in June 2007 was a majorhighlight during the year and, following the first and second closings in Juneand July 2007 respectively, venture capital funds under management grew by 155%to £74m from £29m. SSEF II is a ten-year fund, with a mandate to provide funding for companies insustainable energy technologies in the UK and Continental Europe. As well asbeing larger than the combined total of our first three funds, the SSEF II hasattracted four very high quality limited partners, who have invested anaggregate of £42.5m. These limited partners are Scottish and Southern Energy plc("Scottish and Southern") (£10m), Bank of Scotland Corporate (£12.5m), WestCoast Capital Investments Ltd (£10m), and Dasmella Ltd (£10m), a vehicle advisedby Vincent Tchenguiz's Consensus Business Group. In addition to its capital commitment, Scottish and Southern is supporting SSEFII by committing resource and expertise. This extends the excellent workingrelationship we have developed with Scottish and Southern through collaborationon SSEF, our first energy fund. Currently, the total investment in SSEF II stands at £45m, including SigmaTechnology Investment Limited's investment of £2.5m. However, we are confidentof adding further limited partners and the fund will remain open to furtherinvestors until December 2008. The gross fees for this fund are 2% of fundsraised and further limited partner investment will therefore have a positiveimpact on the Company's recurring revenue and profit. It should be noted thatany new limited partners will be treated as though they had invested in SSEF IIat first closing in June 2007 in terms of commitment to pay management fees.This will increase revenues in the current financial year to 31 December 2008 bya further 1.1% of any funds raised. Both of our two sustainable energy funds are at an early stage in theirinvestment cycle and so all investments are held at cost at 31 December 2007.However, each of SSEF and SSEF II made one investment in the year. Our Venture Fund is closed to new investment but during the year, it made atotal of seven follow on investments in existing investee companies. Theperformance of the Venture Fund was affected by one investment whose financialposition deteriorated in 2008 and which we considered prudent to write off infull in 2007. This, together with the fall in stock market values of the quotedinvestments held by this fund, accounted for most of the unrealised lossesarising on the revaluation of the Group's investments. One of the Venture Fund'sinvestments was sold during 2007, with another investment sold in early 2008.The fund booked losses on both of these divestments. The balance of the VentureFund's other investments represent more mature and better performing assets fromwhich we expect to see positive cash returns. We are now concentrating on theactive disposal of this fund's portfolio. Our Innovation Fund made two investments in the year. Of these, one was a newinvestment and the other was an investment in an existing investee company. TheInnovation Fund suffered only a small downwards adjustment as a result of therevaluation of its investments. i-design group plc (which is also an investeecompany of our Venture Fund), successfully floated on AIM in July 2007 andanother investee company was sold in February 2008 to Artilium plc for a mixtureof cash and shares. Both of these transactions were at an uplift to the fund'sentry price. During the year, Sigma exercised the option it holds directly in i-design groupplc and took payment of some of its fees due from i-design group plc in shares.At 31 December 2007, this investment is included at £0.12m in tradinginvestments, which represents a 16% uplift on cost. Sigma's two other directlyheld AIM quoted investments had minimal value at the year end. Property The Group's investment management activity within the property sector is throughits subsidiary, Strategic Investment Management Limited, in which Sigma holds a47.8% interest. We completed one property transaction in the year. In March 2007, Si LimitedPartnership No 6 completed the acquisition of a 5-star hotel in Glasgow managedby Radisson, the global hotel company. The partnership was capitalised at £68mand generated total fees for the Group of £4.0m in 2007. In November 2007, we launched Si Limited Partnership No 7 which exchangedcontracts to acquire the City Wharf development in Aberdeen. The totalconsideration for this development property is approximately £40m and is beingfunded by bank debt together with £13.6m of third party investor equity.Completion of the acquisition had been expected by the end of 2007. However,reflecting the downturn in the property sector and a reduction in consumerconfidence, completion has been delayed and therefore no revenue or profitarising from this transaction has been included in the Group's results for 2007.The delay means that, if completed, all revenue and profit arising from thistransaction will be recognised in the current financial year to 31 December2008. The total revenue we will earn remains unchanged at approximately £3.1mbut, if completed, will now be received in 2008. University IP Commercialisation Sigma has two preferential, long-term university partnerships in place, with theRobert Gordon University and the University of Dundee and helps bothuniversities identify and progress commercialisation opportunities In March 2008, we announced the establishment of a new subsidiary, Sigma IP Ltd,through which we will drive Sigma's university IP commercialisation activities.Neil Crabb, Sigma's Chief Investment Officer, has been appointed asNon-executive Chairman and Director of Sigma IP Ltd and Alister Minty has beenrecruited as Executive Director of Sigma IP Ltd in order to accelerate Sigma'sactivities in this area. Alister has substantial experience of IPcommercialisation. He is a founding director, seed-investor and Chairman of twotechnology companies spun out of the universities of Glasgow and Edinburgh, andthe University of Strathclyde. Alister was also an early member of ScottishEnterprise's National High Growth Start-up Unit during which time he mentoredover 40 start-up companies and university spin outs from pre-incorporation toinvestment. In April 2008, we received our first equity stake in a company spun out of theUniversity of Dundee. As a result, Sigma IP Ltd has a 5% shareholding inAdvanced Underwater Surveys Ltd which specialises in high-definition multibeamsonar surveys of archaeological sites. We are currently working on a number ofother opportunities with our university partners. Redemption of Preference Shares We are proposing to table a resolution at our forthcoming Annual General Meetingto cancel the 749,750 £1 Preference Shares in the share capital of the Companyand replace them with new ordinary shares of £0.01 issued at a price of 50 penceper share. This will result in the issue of 1,499,500 new ordinary shares of£0.01 fully paid up (equivalent to 3.2% of the Company's enlarged sharecapital). The cancellation of the Preference Shares will strengthen Sigma'sbalance sheet, by removing a liability of £0.75m and increasing share capitaland reserves by the same amount. It also removes an obstacle to the futurepayment of dividends on ordinary shares. Board Changes At Sigma's forthcoming Annual General Meeting, Neil Crabb, Chief InvestmentOfficer, will be stepping down from the Board. On behalf of the Directors, Iwould like to take this opportunity to thank Neil for his considerablecontribution to the Group since its inception. We are delighted though that Neilwill continue to remain involved in his role as Non-executive Chairman of SigmaIP Ltd. As previously reported, on 29 February 2008, I took over the role ofNon-executive Chairman of the Group from James Wallace. I joined the Board as aNon-executive Director in June 2007 and am also Chairman of SSEF II and havespent over ten years as a main board director of FTSE 100 utility companies.Most recently, I was on the Board of Scottish and Southern and my appointment asChairman reflects Sigma's growing profile in the sustainable energy sector. Outlook We have made very good progress over the year in building our business model. Wehave both increased recurring revenues and forged some important relationshipswith our business partners. This gives us confidence about the long termprospects for the Group's business despite the more difficult times in themarkets generally which was reflected in the performance of our propertyinvestment business in the fourth quarter of 2007. 2008 has got off to a strong start, with business levels high and increasinglymore valuable opportunities being seen as a result of the larger funds availableto invest from SSEF II and we are already working on some opportunities thathave been introduced by our new partners. Our property subsidiary continues tosee opportunities although as a result of the correction in the property market,we anticipate that the financing of these opportunities will be more demanding. Overall, we have a strong balance sheet and are generating healthy cash flowsand profits and the quality of our earnings stream continues to rise. Thereforewe believe that Sigma is well placed to make progress and to take advantage ofthe opportunities that continue to exist in its markets. David Sigsworth Chairman 29 April 2008 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2007 Unaudited Audited Notes 2007 2006 £'000 £'000RevenueRevenue from services 5,980 7,979Other operating incomeRealised (losses)/profits on disposal of equityinvestments (50) 3Unrealised losses on the revaluation ofinvestments (168) (8)Dividend income - 7Rental income 63 150 -------- --------Total revenue 5,825 8,131Cost of sales (2,508) (4,214) -------- --------Gross profit 3,317 3,917Administrative expenses (net) (2,728) (2,172) -------- --------Profit from operations 589 1,745Finance income 283 97Finance costs (17) (121) -------- --------Profit before tax 855 1,721Taxation 4 (311) (590) -------- --------Profit for the year 544 1,131 ======== ======== Attributable to:Equity holders of the company 5 165 402Minority interests 5 379 729 -------- -------- 544 1,131 ======== ======== Earnings per share attributable to the equity holdersof the Company:Basic earnings per share 0.40p 1.05pDiluted earnings per share 0.39p 1.04p ======== ======== All of the operations of the Group are classed as continuing and there were norecognised gains and losses in either year other than those included in theincome statement. CONSOLIDATED BALANCE SHEETAt 31 December 2007 Unaudited Audited 2007 2006 £'000 £'000ASSETS Non-current assets Goodwill 44 60Property and equipment 84 63Available for sale investments 2,383 2,312Deferred tax asset 10 10Non-current cash 1,250 - -------- -------- 3,771 2,445 -------- --------Current assets Trade receivables 612 698 Other current assets 549 852Trading investments 165 73Cash and cash equivalents 6,052 2,388 -------- -------- 7,378 4,011 -------- --------Total assets 11,149 6,456 -------- -------- LIABILITIES Current liabilities Minority interests - non-equity - 502Trade and other payable 2,018 783Current income tax payable 308 300 -------- -------- 2,326 1,585Non-current liabilitiesPreference share capital 750 750 -------- --------Total liabilities 3,076 2,335 -------- --------Net assets 8,073 4,121 ======== ======== EQUITY Called up share capital 453 384Share premium account 17,460 14,104Merger reserve (249) (249)Share based payment reserve 72 43Capital reserve (7) (7)Retained earnings (10,671) (10,836) -------- --------Equity attributable to equity holders of the parent 7,058 3,439Minority equity interest 1,015 682 -------- --------Total equity 8,073 4,121 ======== ======== CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2007 Share capital Share premium Merger reserve Capital reserve Share- based Profit and loss Total account payment reserve account £'000 £'000 £'000 £'000 £'000 £'000 £'000At 1 January2006 381 14,043 (249) (7) 27 (11,238) 2,957Issue of shares 3 61 - - - - 64Profit forthe year - - - - - 402 402 Share-basedpayments - - - - 16 - 16 ------- -------- ------- ------- -------- ------- --------At 31 December2006 384 14,104 (249) (7) 43 (10,836) 3,439 ------- -------- ------- ------- -------- ------- --------Issue of shares 69 3,356 - - - - 3,425Profit forthe year - - - - - 165 165Share-basedpayments - - - - 29 - 29 ------- -------- ------- ------- -------- ------- --------At 31 December 2007 453 17,460 (249) (7) 72 (10,671) 7,058 ------- -------- ------- ------- -------- ------- -------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007 Unaudited Audited 2007 2006 £'000 £'000 Cash flows from operating activities Cash generated from operations 2,559 1,205Interest paid (92) (46)Income tax paid (303) (178) -------- --------Net cash generated from operating activities 2,164 981 -------- -------- Cash flows from investing activities Purchase of property and equipment (72) (34)Purchase of available for sale investments (299) (285)Disposal of available for sale investments 12 -Purchase of trading investments (94) -Disposal of trading investments - 345Interest received 280 97Dividends received - 7 -------- --------Net cash (used)/generated in investing activities (173) 130 -------- -------- Cash flows from financing activities Proceeds from issue of ordinary shares 3,425 35Redemption of preference shares in subsidiary company (502) (753) -------- --------Net cash generated/(used) in financing activities 2,923 (718) -------- -------- Net increase in cash and cash equivalents 4,914 393 Cash and cash equivalents at beginning of year 2,388 1,995 -------- --------Cash and cash equivalents at end of year 7,302 2,388 ======== ======== Cash generated from operations Profit before income tax 855 1,721Adjustments for: Share-based payments 29 16 Depreciation 51 40 Net finance (income)/costs (266) 24 Dividend income on trading investments - (7) Fair value loss/(gain) on financial assets at fair value through profit or loss 50 (3)Changes in working capital: Trade and other receivables 362 (803) Other financial assets at fair value through profit or loss 168 8 Trade and other payables 1,310 209 -------- -------- 2,559 1,205 ======== ======= NOTES 1. This preliminary announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 29 April 2007. 2. Basis of preparation The results for the year ended 31 December 2007 have been extracted from unaudited financial statements. The financial information set out in this announcement does not constitute statutory financial statements for the year ended 31 December 2007 or 31 December 2006. The financial information for the year ended 31 December 2006 is derived from the statutory financial statements for that year which were prepared under UK GAAP as adjusted for the subsequent adoption of IFRS as explained in note 3 below. The report of the auditor on the statutory financial statements for the year ended 31 December 2006 was (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 237(2) or (3) of the Companies Act 1985. We do not anticipate that any modification will be contained in the auditor's report to be included in the annual financial statements for the year ended 31 December 2007. The statutory financial statements for the year ended 31 December 2006 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 December 2007 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. 3. IFRS The preliminary statement of the Group has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. This is the first year of adoption of IFRS. The accounting policies adopted, reconciliation of net assets as at transition date of 1 January 2006, the income statement for the year ended 31 December 2006 and the net assets at that date have been provided in the announcement on 24 April 2007. 4. Taxation The charge to taxation is arrived at as follows: 2007 2006 £'000 £'000 UK corporation tax - current tax on profits of the year 311 600 Deferred tax - short term timing differences - (10) -------- -------- Income tax on profit on ordinary activities 311 590 -------- -------- The Group's deferred tax assets, other than those relating to short term timing differences, are not recognised in accordance with Group policy. 5. Earnings per share Earnings per share is calculated by dividing the profit attributable to equity holders of Sigma Capital Group plc of £165,000 (2006: £402,000) by the weighted average number of ordinary shares in issue during the year ended 31 December 2007 of 41,573,577 (2006: 38,136,458). 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 options granted where the exercise price is less than the average price of the Company's shares during the year. 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 year ended 31 December 2007 of 42,294,700 (2006: 38,600,062). 6. Available for sale investments The investments made by the venture funds, the Venture Fund, the Innovation Fund, the SSEF and the SSEF II in the year ended 31 December 2007 are set out below. Total % holding amount (fully invested diluted) £'000 % Sigma Technology Venture Fund DEM Solutions Limited Developed a particle mechanics simulation tool to simulate and analyse the behaviour of particulate matter. Follow on investment £250,000 792 20.9 Managed Information Group Limited Installation, maintenance, configuration and project management for IT hardware, in particular ATMs and EPOS machines. Follow on investment - £51,000 equity and £100,000 convertible loan 1,251 56.2 McLaren Software Ltd Its product suite manages key document centric business processes with a focus on high risk areas of cost and compliance within large programmes of work. Follow on investment £160,000 1,747 28.5 i-design Group plc Provides ATM advertising solutions and user-interface design to the financial self service market. Follow on investment £200,000 643 11.5* Pentland Systems Ltd Supplier of application critical sub-systems for radar systems. Loan of £35,000 to provide working capital for the company whilst negotiations for the sale of business and assets was being concluded. Loan together with premium repaid on sale. 930 Sold SFX Technologies Ltd Developed a patented sound delivery technology. Follow on investment £250,000 1,100 34.4 Tenison Technology EDA Limited Software tools to enable and facilitate the system level design, testing and verification of large, complex system on chip integrated circuits. Follow on investment of £60,000 was made to 1,487 Sold provide working capital for the company whilst negotiations for the sale of the entire share capital of the company were being concluded. Sigma Innovation Fund (East of Scotland) i-design Group plc Provides ATM advertising solutions and user-interface design to the financial self service market. Follow on investment £50,000 300 8.8* Pelamis Wave Power Limited (previously Ocean Power DeliverY Limited) Wave energy conversion. First investment by this fund of £257,000. SSEF previously invested £500,000. 257 0.5% Sigma Sustainable Energies Fund St Andrew's Fuel Cells Ltd Development of new solid oxide fuel cell. Investment of £250,000 250 16.0 Sigma Sustainable Energy Fund II Acquamarine Power Ltd Development of wave energy conversion and tidal energy devices. Investment of £1,500,000 1,500 7.1 * based on issued share capital 7. Availability of statutory financial statements Copies of the full statutory financial statements will be available from the Company's offices at 41 Charlotte Square, Edinburgh EH2 4HQ no later than 31 May 2008 and will also be available on its website at www.sigmacapital.co.uk. 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