Preliminary Results - 30 Apr 2008
Operational:
David Sigsworth, Chairman, said:
“2007 was a year of two parts. After a strong first half, the reduction in liquidity in the financing markets materially affected our property activities in the second half of the year with an adverse impact on turnover and profits for the year. However, overall, 2007 has seen a significant strengthening of Sigma’s business model with a substantial increase in contracted funds under management and considerable growth in recurring revenue. The launch of our second 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 the participants.
2008 has got off to a strong start, with business levels high and increasingly more valuable opportunities being seen as a result of the larger funds available to invest from SSEF II and we are already working on some opportunities that have been introduced by our new partners. Our property subsidiary continues to see 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 flows and profits and the quality of our earnings stream continues to rise. Therefore we believe that Sigma is well placed to make progress and to take advantage of the opportunities that continue to exist in its markets.”
Enquiries
Sigma Capital Group plc
Graham Barnet, Chief Executive
Marilyn Cole, Finance Director
Today: 020 7448 1000
T: 0131 220 9444
Biddicks
Katie Tzouliadis
T: 020 7448 1000
Arbuthnot Securities
Tom Griffiths/ Neil Kirton
T: 020 7012 2000
Sigma Capital Group plc
Preliminary Results for the year ended 31 December 2007
Chairman’s Statement
Introduction
2007 was a year of two parts. After a strong first half, the reduction in liquidity in the financing markets materially affected our property activities in the second half of the year with an adverse impact on turnover and profits for the year. However, overall, 2007 has seen a significant strengthening of Sigma’s business model with a substantial increase in contracted funds under management and considerable growth in recurring revenue. The launch of our second 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 the participants. The disappointing close to the year, with the delay in the completion of our seventh property limited partnership should not be allowed to mask the progress we have made in positioning the Company for future growth or the profitability of the business overall. The total revenue we expect to earn from the seventh property partnership remains unchanged at approximately £3.1m but, 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 management business increased revenue from services by 52% whilst revenue from services from property related activity fell by 39%. Total recurring revenue from venture capital 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’s total 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 adversely impacted by the lower level of property investment activity. Excluding the effects of unrealised losses on investments, the venture capital fund management business broke even in 2007 compared to a small loss in 2006. If management fees had been earned from the SSEF II for the whole year, as will be the case in 2008, 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 and Vincent Tchenguiz chose to make direct investments in Sigma. The placings, with Sir Tom’s investment partnership, West Coast Capital, and Elsina Ltd, a vehicle advised 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 the year. Net asset per share attributable to equity holders of Sigma at 31 December 2007 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 Venture Fund, (“Venture Fund”), the Sigma Innovation Fund (East of Scotland) (“Innovation Fund”), the Sigma Sustainable Energies Fund (“SSEF”) and the Sigma Sustainable Energy Fund II (“SSEF II”).
The launch of the SSEF II, the Group’s latest fund, in June 2007 was a major highlight during the year and, following the first and second closings in June and 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 in sustainable energy technologies in the UK and Continental Europe. As well as being larger than the combined total of our first three funds, the SSEF II has attracted four very high quality limited partners, who have invested an aggregate of £42.5m. These limited partners are Scottish and Southern Energy plc (“Scottish and Southern”) (£10m), Bank of Scotland Corporate (£12.5m), West Coast Capital Investments Ltd (£10m), and Dasmella Ltd (£10m), a vehicle advised by Vincent Tchenguiz’s Consensus Business Group.
In addition to its capital commitment, Scottish and Southern is supporting SSEF II by committing resource and expertise. This extends the excellent working relationship we have developed with Scottish and Southern through collaboration on SSEF, our first energy fund.
Currently, the total investment in SSEF II stands at £45m, including Sigma Technology Investment Limited’s investment of £2.5m. However, we are confident of adding further limited partners and the fund will remain open to further investors until December 2008. The gross fees for this fund are 2% of funds raised and further limited partner investment will therefore have a positive impact on the Company’s recurring revenue and profit. It should be noted that any new limited partners will be treated as though they had invested in SSEF II at 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 by a further 1.1% of any funds raised.
Both of our two sustainable energy funds are at an early stage in their investment 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 a total of seven follow on investments in existing investee companies. The performance of the Venture Fund was affected by one investment whose financial position deteriorated in 2008 and which we considered prudent to write off in full in 2007. This, together with the fall in stock market values of the quoted investments held by this fund, accounted for most of the unrealised losses arising on the revaluation of the Group’s investments. One of the Venture Fund’s investments was sold during 2007, with another investment sold in early 2008. The fund booked losses on both of these divestments. The balance of the Venture Fund’s other investments represent more mature and better performing assets from which we expect to see positive cash returns. We are now concentrating on the active disposal of this fund’s portfolio.
Our Innovation Fund made two investments in the year. Of these, one was a new investment and the other was an investment in an existing investee company. The Innovation Fund suffered only a small downwards adjustment as a result of the revaluation of its investments. i-design group plc (which is also an investee company of our Venture Fund), successfully floated on AIM in July 2007 and another investee company was sold in February 2008 to Artilium plc for a mixture of cash and shares. Both of these transactions were at an uplift to the fund’s entry price.
During the year, Sigma exercised the option it holds directly in i-design group plc 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 trading investments, which represents a 16% uplift on cost. Sigma’s two other directly held AIM quoted investments had minimal value at the year end.
Property
The Group’s investment management activity within the property sector is through its subsidiary, Strategic Investment Management Limited, in which Sigma holds a 47.8% interest.
We completed one property transaction in the year. In March 2007, Si Limited Partnership No 6 completed the acquisition of a 5-star hotel in Glasgow managed by Radisson, the global hotel company. The partnership was capitalised at £68m and generated total fees for the Group of £4.0m in 2007.
In November 2007, we launched Si Limited Partnership No 7 which exchanged contracts to acquire the City Wharf development in Aberdeen. The total consideration for this development property is approximately £40m and is being funded 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 consumer confidence, completion has been delayed and therefore no revenue or profit arising 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 this transaction will be recognised in the current financial year to 31 December 2008. The total revenue we will earn remains unchanged at approximately £3.1m but, if completed, will now be received in 2008.
University IP Commercialisation
Sigma has two preferential, long-term university partnerships in place, with the Robert Gordon University and the University of Dundee and helps both universities 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 as Non-executive Chairman and Director of Sigma IP Ltd and Alister Minty has been recruited as Executive Director of Sigma IP Ltd in order to accelerate Sigma’s activities in this area. Alister has substantial experience of IP commercialisation. He is a founding director, seed-investor and Chairman of two technology companies spun out of the universities of Glasgow and Edinburgh, and the University of Strathclyde. Alister was also an early member of Scottish Enterprise’s National High Growth Start-up Unit during which time he mentored over 40 start-up companies and university spin outs from pre-incorporation to investment.
In April 2008, we received our first equity stake in a company spun out of the University of Dundee. As a result, Sigma IP Ltd has a 5% shareholding in Advanced Underwater Surveys Ltd which specialises in high-definition multibeam sonar surveys of archaeological sites. We are currently working on a number of other opportunities with our university partners.
Redemption of Preference Shares
We are proposing to table a resolution at our forthcoming Annual General Meeting to cancel the 749,750 £1 Preference Shares in the share capital of the Company and replace them with new ordinary shares of £0.01 issued at a price of 50 pence per 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 share capital). The cancellation of the Preference Shares will strengthen Sigma’s balance sheet, by removing a liability of £0.75m and increasing share capital and reserves by the same amount. It also removes an obstacle to the future payment of dividends on ordinary shares.
Board Changes
At Sigma’s forthcoming Annual General Meeting, Neil Crabb, Chief Investment Officer, will be stepping down from the Board. On behalf of the Directors, I would like to take this opportunity to thank Neil for his considerable contribution to the Group since its inception. We are delighted though that Neil will continue to remain involved in his role as Non-executive Chairman of Sigma IP Ltd.
As previously reported, on 29 February 2008, I took over the role of Non-executive Chairman of the Group from James Wallace. I joined the Board as a Non-executive Director in June 2007 and am also Chairman of SSEF II and have spent 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 as Chairman 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. We have both increased recurring revenues and forged some important relationships with our business partners. This gives us confidence about the long term prospects for the Group’s business despite the more difficult times in the markets generally which was reflected in the performance of our property investment business in the fourth quarter of 2007.
2008 has got off to a strong start, with business levels high and increasingly more valuable opportunities being seen as a result of the larger funds available to invest from SSEF II and we are already working on some opportunities that have been introduced by our new partners. Our property subsidiary continues to see 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 flows and profits and the quality of our earnings stream continues to rise. Therefore we believe that Sigma is well placed to make progress and to take advantage of the opportunities that continue to exist in its markets.
David Sigsworth
Chairman
Prelimiary Results
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 group focused 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
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
- 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
- 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 in liquidity in the financing markets materially affected our property activities in the second half of the year with an adverse impact on turnover and profits for the year. However, overall, 2007 has seen a significant strengthening of Sigma’s business model with a substantial increase in contracted funds under management and considerable growth in recurring revenue. The launch of our second 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 the participants.
2008 has got off to a strong start, with business levels high and increasingly more valuable opportunities being seen as a result of the larger funds available to invest from SSEF II and we are already working on some opportunities that have been introduced by our new partners. Our property subsidiary continues to see 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 flows and profits and the quality of our earnings stream continues to rise. Therefore we believe that Sigma is well placed to make progress and to take advantage of the opportunities that continue to exist in its markets.”
Enquiries
Sigma Capital Group plc
Graham Barnet, Chief Executive
Marilyn Cole, Finance Director
Today: 020 7448 1000
T: 0131 220 9444
Biddicks
Katie Tzouliadis
T: 020 7448 1000
Arbuthnot Securities
Tom Griffiths/ Neil Kirton
T: 020 7012 2000
Sigma Capital Group plc
Preliminary Results for the year ended 31 December 2007
Chairman’s Statement
Introduction
2007 was a year of two parts. After a strong first half, the reduction in liquidity in the financing markets materially affected our property activities in the second half of the year with an adverse impact on turnover and profits for the year. However, overall, 2007 has seen a significant strengthening of Sigma’s business model with a substantial increase in contracted funds under management and considerable growth in recurring revenue. The launch of our second 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 the participants. The disappointing close to the year, with the delay in the completion of our seventh property limited partnership should not be allowed to mask the progress we have made in positioning the Company for future growth or the profitability of the business overall. The total revenue we expect to earn from the seventh property partnership remains unchanged at approximately £3.1m but, 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 management business increased revenue from services by 52% whilst revenue from services from property related activity fell by 39%. Total recurring revenue from venture capital 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’s total 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 adversely impacted by the lower level of property investment activity. Excluding the effects of unrealised losses on investments, the venture capital fund management business broke even in 2007 compared to a small loss in 2006. If management fees had been earned from the SSEF II for the whole year, as will be the case in 2008, 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 and Vincent Tchenguiz chose to make direct investments in Sigma. The placings, with Sir Tom’s investment partnership, West Coast Capital, and Elsina Ltd, a vehicle advised 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 the year. Net asset per share attributable to equity holders of Sigma at 31 December 2007 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 Venture Fund, (“Venture Fund”), the Sigma Innovation Fund (East of Scotland) (“Innovation Fund”), the Sigma Sustainable Energies Fund (“SSEF”) and the Sigma Sustainable Energy Fund II (“SSEF II”).
The launch of the SSEF II, the Group’s latest fund, in June 2007 was a major highlight during the year and, following the first and second closings in June and 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 in sustainable energy technologies in the UK and Continental Europe. As well as being larger than the combined total of our first three funds, the SSEF II has attracted four very high quality limited partners, who have invested an aggregate of £42.5m. These limited partners are Scottish and Southern Energy plc (“Scottish and Southern”) (£10m), Bank of Scotland Corporate (£12.5m), West Coast Capital Investments Ltd (£10m), and Dasmella Ltd (£10m), a vehicle advised by Vincent Tchenguiz’s Consensus Business Group.
In addition to its capital commitment, Scottish and Southern is supporting SSEF II by committing resource and expertise. This extends the excellent working relationship we have developed with Scottish and Southern through collaboration on SSEF, our first energy fund.
Currently, the total investment in SSEF II stands at £45m, including Sigma Technology Investment Limited’s investment of £2.5m. However, we are confident of adding further limited partners and the fund will remain open to further investors until December 2008. The gross fees for this fund are 2% of funds raised and further limited partner investment will therefore have a positive impact on the Company’s recurring revenue and profit. It should be noted that any new limited partners will be treated as though they had invested in SSEF II at 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 by a further 1.1% of any funds raised.
Both of our two sustainable energy funds are at an early stage in their investment 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 a total of seven follow on investments in existing investee companies. The performance of the Venture Fund was affected by one investment whose financial position deteriorated in 2008 and which we considered prudent to write off in full in 2007. This, together with the fall in stock market values of the quoted investments held by this fund, accounted for most of the unrealised losses arising on the revaluation of the Group’s investments. One of the Venture Fund’s investments was sold during 2007, with another investment sold in early 2008. The fund booked losses on both of these divestments. The balance of the Venture Fund’s other investments represent more mature and better performing assets from which we expect to see positive cash returns. We are now concentrating on the active disposal of this fund’s portfolio.
Our Innovation Fund made two investments in the year. Of these, one was a new investment and the other was an investment in an existing investee company. The Innovation Fund suffered only a small downwards adjustment as a result of the revaluation of its investments. i-design group plc (which is also an investee company of our Venture Fund), successfully floated on AIM in July 2007 and another investee company was sold in February 2008 to Artilium plc for a mixture of cash and shares. Both of these transactions were at an uplift to the fund’s entry price.
During the year, Sigma exercised the option it holds directly in i-design group plc 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 trading investments, which represents a 16% uplift on cost. Sigma’s two other directly held AIM quoted investments had minimal value at the year end.
Property
The Group’s investment management activity within the property sector is through its subsidiary, Strategic Investment Management Limited, in which Sigma holds a 47.8% interest.
We completed one property transaction in the year. In March 2007, Si Limited Partnership No 6 completed the acquisition of a 5-star hotel in Glasgow managed by Radisson, the global hotel company. The partnership was capitalised at £68m and generated total fees for the Group of £4.0m in 2007.
In November 2007, we launched Si Limited Partnership No 7 which exchanged contracts to acquire the City Wharf development in Aberdeen. The total consideration for this development property is approximately £40m and is being funded 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 consumer confidence, completion has been delayed and therefore no revenue or profit arising 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 this transaction will be recognised in the current financial year to 31 December 2008. The total revenue we will earn remains unchanged at approximately £3.1m but, if completed, will now be received in 2008.
University IP Commercialisation
Sigma has two preferential, long-term university partnerships in place, with the Robert Gordon University and the University of Dundee and helps both universities 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 as Non-executive Chairman and Director of Sigma IP Ltd and Alister Minty has been recruited as Executive Director of Sigma IP Ltd in order to accelerate Sigma’s activities in this area. Alister has substantial experience of IP commercialisation. He is a founding director, seed-investor and Chairman of two technology companies spun out of the universities of Glasgow and Edinburgh, and the University of Strathclyde. Alister was also an early member of Scottish Enterprise’s National High Growth Start-up Unit during which time he mentored over 40 start-up companies and university spin outs from pre-incorporation to investment.
In April 2008, we received our first equity stake in a company spun out of the University of Dundee. As a result, Sigma IP Ltd has a 5% shareholding in Advanced Underwater Surveys Ltd which specialises in high-definition multibeam sonar surveys of archaeological sites. We are currently working on a number of other opportunities with our university partners.
Redemption of Preference Shares
We are proposing to table a resolution at our forthcoming Annual General Meeting to cancel the 749,750 £1 Preference Shares in the share capital of the Company and replace them with new ordinary shares of £0.01 issued at a price of 50 pence per 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 share capital). The cancellation of the Preference Shares will strengthen Sigma’s balance sheet, by removing a liability of £0.75m and increasing share capital and reserves by the same amount. It also removes an obstacle to the future payment of dividends on ordinary shares.
Board Changes
At Sigma’s forthcoming Annual General Meeting, Neil Crabb, Chief Investment Officer, will be stepping down from the Board. On behalf of the Directors, I would like to take this opportunity to thank Neil for his considerable contribution to the Group since its inception. We are delighted though that Neil will continue to remain involved in his role as Non-executive Chairman of Sigma IP Ltd.
As previously reported, on 29 February 2008, I took over the role of Non-executive Chairman of the Group from James Wallace. I joined the Board as a Non-executive Director in June 2007 and am also Chairman of SSEF II and have spent 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 as Chairman 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. We have both increased recurring revenues and forged some important relationships with our business partners. This gives us confidence about the long term prospects for the Group’s business despite the more difficult times in the markets generally which was reflected in the performance of our property investment business in the fourth quarter of 2007.
2008 has got off to a strong start, with business levels high and increasingly more valuable opportunities being seen as a result of the larger funds available to invest from SSEF II and we are already working on some opportunities that have been introduced by our new partners. Our property subsidiary continues to see 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 flows and profits and the quality of our earnings stream continues to rise. Therefore we believe that Sigma is well placed to make progress and to take advantage of the opportunities that continue to exist in its markets.
David Sigsworth
Chairman