RNS Number:3797V Sigma Capital Group PLC 24 April 2007
Sigma Capital Group plc
("Sigma" or "the Company")
Adoption of International Financial Reporting Standards (IFRS)
2006 Income statement and balance sheet
Sigma Capital Group plc is a specialist asset management and advisory focused on venture capital, university IP and property.
Sigma is today presenting information to show the effect of adopting IFRS for the year ended 31 December 2006 in preparation for the adoption of IFRS for its accounting period commencing 1 January 2007.
Financial effect on 2006 results
#'000 UK GAAP IFRS
Revenue 8,279 8,129
Profit before tax 1,867 1,719
Retained profit for the year 548 400
Shareholders' funds 4,106 4,121
The most notable change to Sigma's financial statements is that its investments are carried at fair value and are classified in the balance sheet as either "available for sale" under non-current assets or as "held for sale" under current assets. The fair value of quoted investments is taken as the bid price. Movements in fair value are taken through the income statement. As shown above, Sigma's total revenue in 2006 is less under IFRS than under UK GAAP. This is due to the effect of revaluing one of its direct quoted investments at bid price at 31 December 2005, which was higher than cost, and moving the unrealised gain into 2005. This investment was sold during 2006 at a similar price to the fair value at 31 December 2005 and so the effect on revenue in 2006 under IFRS was minimal.
The adjustments that have been made to the balance sheet at 1 January 2006, the income statement for 2006 and the balance sheet at 31 December 2006 to convert from UK GAAP to IFRS are attached together with Sigma's accounting policies that will be adopted under IFRS.
Contact
Sigma Capital Group plc
Graham Barnet, Chief Executive Officer 0131 220 9444
Marilyn Cole, Finance Director 0131 220 9444
Buchanan Communications Diane Stewart/Isabel Podda/Karen Morrison 0207 466 5000
Sigma Capital Group plc IFRS Conversion As at 1 January 2006
UK GAAP Reclassifications Adjustments IFRS Note
01.01.06 01.01.06
#'000 #'000 #'000 #'000
ASSETS
Non-current assets Intangible assets -
Goodwill 60 60
Property and equipment 69 69
Available for sale
investments 1,913 50 1,963 1
Deferred tax asset 298 298 2
2,042 298 50 2,390
Current assets
Trade receivables 332 332
Other current assets 387 387
Deferred tax asset 298 -298 2
Trading investments 374 112 486 3
Cash and cash equivalents 1,995 -207 1,788 4
Deposits 0 207 207 4
3,386 -298 112 3,200
Total assets 5,428 162 5,590
LIABILITIES
Current liabilities Minority interests -
non-equity 1,255 1,255
Trade and other payables 496 496
Current tax payable 179 179
1,930 0 0 1,930
Non-current liabilities
Preference share capital 750 750
Total liabilities 2,680 0 0 2,680
Net assets 2,748 0 162 2,910
EQUITY
Equity attributable to equity holders of the parent
Called up share capital 381 381
Share premium account 14,043 14,043
Merger reserve -249 -249
Share based payment
reserve 27 27
Capital reserve -7 -7
Retained earnings -11,399 162 -11,237 1, 3
2,796 162 2,958
Minority interest - equity
interest -48 -48
Total equity 2,748 0 162 2,910
NOTES
1. Under IFRS, unquoted investment assets are valued at fair value,
under UK GAAP these had been valued at the lower of fair value and cost
less any impairments.
2. Under IFRS, deferred tax is classified as a non-current asset.
3. Under IFRS, quoted investment assets are valued at bid price, under
UK GAAP these had been valued at the lower of cost and mid market price.
4. Under IFRS, any longer term cash deposit balances are included in
'Deposits'.
Sigma Capital Group plc IFRS Conversion For the year ended 31 December 2006
UK GAAP Reclassifications Adjustments IFRS Note
31.12.06 31.12.06
#'000 #'000 #'000 #'000
Revenue
Revenue from services 7,979 7,979
Other operating revenue Realised profits on disposal of equity
investments 143 -141 2 2
Unrealised losses on the revaluation on
investments 1 -10 -9 1,2,
3
Dividend income 7 7
Rental income 150 150
Total revenue 8,279 1 -151 8,129
Cost of sales -4,214 -4,214
Gross profit 4,065 1 -151 3,915
Administrative expenses -2,174 -1 3 -2,172 3,4
Profit from operations 1,891 0 -148 1,743
Finance income 97 97
Finance costs -121 -121
Profit before tax 1,867 0 -148 1,719
Income tax expense -590 -590 5
Profit after tax and profit
for the year 1,277 0 -148 1,129
Attributable to: Equity holders of the
parent 548 0 -148 400
Minority interest 729 0 0 729
1,277 0 -148 1,129
NOTES
1. Under IFRS, unquoted investment assets are valued at fair value, under
UK GAAP these had been valued at the lower of fair value and cost less
any impairments.
2. Under IFRS, quoted investment assets are valued at bid price, under UK
GAAP these had been valued at the lower of cost and mid market price.
3. Under IFRS, unrealised losses on the revaluation of investments are
shown under Other operating revenue. Under UK GAAP, unrealised losses
were included in Administrative expenses.
4. Under IFRS, goodwill is reviewed for impairment annually. Any
impairment is recognised immediately in the income statement and is not
subsequently reversed. The value of goodwill was not found to be
impaired at 1 January 2006 or at 31 December 2006. Under UK GAAP,
goodwill is amortised over its useful economic life. The adjustment is
the write back of amortisation charged under UK GAAP during the year
ended 31 December 2006.
5. There was no impact on the tax charge arising from the IFRS adjustments.
Sigma Capital Group plc IFRS Conversion As at 31 December 2006
UK GAAP Reclassifications Adjustments IFRS Note
31.12.06 31.12.06
#'000 #'000 #'000 #'000
ASSETS
Non-current assets
Goodwill 57 3 60 1
Property and equipment 63 63
Available for sale
investments 2,293 19 2,312 2
Deferred tax asset 10 10 3
2,413 10 22 2,445
Current assets
Trade receivables 698 698
Other current assets 852 852
Deferred tax asset 10 -10 3
Trading investments 80 -7 73 4
Cash and cash equivalents 2,388 2,388
4,028 -10 -7 4,011
Total assets 6,441 0 15 6,456
LIABILITIES
Current liabilities Minority interests -
non-equity 502 502
Trade and other payables 778 778
Current tax payable 305 305
1,585 1,585
Non-current liabilities
Preference share capital 750 750
Total liabilities 2,335 2,335
Net assets 4,106 0 15 4,121
EQUITY
Equity attributable to equity holders of the parent
Called up share capital 384 384
Share premium account 14,104 14,104
Merger reserve -249 -249
Share based payment reserve 43 43
Capital reserve -7 -7
Retained earnings -10,851 15 -10,836 1,
2,4
3,424 15 3,439
Minority interest - equity 682 682
Total equity 4,106 0 15 4,121
NOTES
1. Under IFRS, goodwill is reviewed for impairment annually. Any impairment
is recognised immediately in the income statement and is not
subsequently reversed. The value of goodwill was not found to be
impaired at 1 January 2006 or at 31 December 2006. Under UK GAAP,
goodwill is amortised over its useful economic life. The adjustment is
the write back of amortisation charged under UK GAAP during the year
ended 31 December 2006.
2. Under IFRS, unquoted investment assets are valued at fair value, under
UK GAAP these had been valued at the lower of fair value and cost less
any impairments.
3. Under IFRS, deferred tax is classified as a non-current asset.
4. Under IFRS, quoted investment assets are valued at bid price, under UK
GAAP these had been valued at the lower of cost and mid market price.
Sigma's accounting policies under IFRS
The following is a list of Sigma's accounting policies that will be adopted on the implementation of IFRS.
Basis of accounting
The financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union.
The financial statements have been prepared on the historical cost basis, except where IFRS requires an alternative treatment. The principal variations from historical cost relate to financial instruments (IAS 39).
Basis of consolidation
The Group financial statements consolidate the financial statements of Sigma and its subsidiary undertakings. Sigma Technology Management Ltd ("STM") is consolidated using merger accounting and all other subsidiary undertakings are consolidated from the date of acquisition. The Group has taken advantage of the exemption under IFRS 1 First-time Adoption of International Financial Reporting Standards not to adopt IFRS 3 retrospectively and hence has used merger accounting for STM which was first consolidated into the Group in 2000.
Sigma, together with one of its directors, Graham Barnet, controls more than 50% of the voting rights of Strategic Investment Management Ltd ("Si Management"). Sigma's interest in Si Management is therefore accounted for as a subsidiary.
Three Group companies each manage as general partner the three limited partnerships, the Sigma Technology Venture Fund ("Venture Fund"), the Sigma Innovation Fund (East of Scotland) ("Innovation Fund") and the Sigma Sustainable Energies Fund ("Sustainable Energies Fund) (together "the Funds"). The Group has an equity interest of 11.76% in the Venture Fund, 10.83% in the Innovation Fund and 6.67% in the Sustainable Energies Fund. The directors consider that the Group neither exercises control nor has the potential to control these Funds and acts in a fiduciary capacity as fund manager on behalf of third party investors. Therefore, having regard to IAS 27 Consolidated and separate financial statements, these Funds are excluded from the Group consolidation. The interests in the Funds are accounted for as available for sale investments within non-current assets, in accordance with the accounting policy for investments set out below. In the opinion of the directors, this is the fairest method to reflect the Group's interest in the Funds.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.
Property and equipment
Property and equipment are stated at cost less depreciation and any provision for impairment.
Depreciation
Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful life. The rates of depreciation are as follows:
Leasehold improvements over the term of the lease
Fixtures and office equipment 25% per annum
Computer equipment 33%-50% per annum
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash
Cash and cash equivalents comprise cash at bank and in hand.
Investments
Investments are recognised and derecognised on the trade date. Investments are classified as either held for trading or available for sale. Investments classified as held for trading are initially measured at cost. Investments classified as available for sale are initially measured at cost, including transaction costs.
Investment in subsidiary companies are stated at cost less provision for any impairment in value.
Subsequent measurement of all investments is at fair value. The fair values of listed investments are based on bid prices at the balance sheet date.
The fair value of unlisted investments is established using British Venture Capital Association (BVCA) guidelines. The valuation methodology used commonly by the Group is the "price of recent investment" contained in the BVCA valuation guidelines. The following considerations are used when calculating the fair value using the "price of most recent investment" guidelines:
*Where the investment being valued was itself made recently, its cost will
generally be a good indication of fair value;
*Where there has been any recent investment by third parties, the price of
that investment will provide a basis of the valuation;
*If there is no readily ascertainable value from following the "price of
recent investment" methodology, the Group considers alternative
methodologies in the BVCA guidelines being principally discounted cashflows
and price-earnings multiples requiring management to make assumptions over
the timing and nature of future earnings and cash flows when calculating
fair value; and
*Where a fair value cannot be estimated reliably, the investment is
reported at the carrying value at the previous reporting date unless there
is evidence that the investment has since been impaired.
When managing its investments, the Group aims to profit from the receipt of interest and dividends and changes in the fair value of equity investments. Accordingly, all quoted and unquoted equity investments are designated as at fair value through profit or loss and are subsequently recorded in the balance sheet at fair value. Any gains and losses arising from changes in fair value are included in net gains or losses for the period.
Investments classified as "held for sale" are recognised as non-current assets. Investments classified as "available for sale" are recognised as current assets.
Financial liability and equity
Financial liabilities and equity are classified according to the substance of the financial instrument's contractual obligations rather than the financial instrument's legal form. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
The preference shares of the Company are classified as a liability as these are redeemable for a fixed amount as soon as the Company has distributable reserves to enable it to do so. The non-equity minority interests are classified as a liability as these are redeemable for a fixed amount at a fixed date.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Taxation
The charge for current tax is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Share-based payment
The Group has applied the requirements of IFRS 2 Share-based Payment from 1 January 2006. In accordance with the transition provisions, IFRS 2 has been applied to all grants made after 7 November 2002 that were unvested as of 1 January 2006.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares or options that will eventually vest.
Fair value is measured using the Black Scholes-Merton pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Revenue recognition
Fees for services provided by the Group are measured at the fair value of the consideration received or receivable, net of value added tax.
Fund management fees, directors' fees, retainers, operator fees and property management fees are recognised when the service is provided. Fees for corporate finance work are recognised when the service is provided subject to completion of the respective transaction being certain. Fees earned from the establishment of limited partnerships are recognised based on the proportion of services rendered during the year. Fees earned on the sale of property held by a limited partnership are recognised once the sale is contractually binding. Revenue generated under technology licensing agreements with third parties is recognised when the Group becomes entitled to a receipt under the licensing agreement.
Foreign currencies
Transactions denominated in currencies other than sterling are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on exchange are included in the income statement for the period.
Operating leases
Amounts due under operating leases are charged to the income statement in equal annual instalments over the period of the lease.
Retirement benefit costs
The Group operates a defined contribution retirement benefit scheme. The amount charged to the income statement in respect of retirement benefit costs are the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either prepayments or accruals in the balance sheet.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its property and equipment and intangible assets with finite lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Goodwill arising on acquisition is allocated to cash-generating units. The recoverable amount of the cash-generating unit to which goodwill has been allocated is tested for impairment annually, or on such other occasions that events or changes in circumstances indicate that it might be impaired.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. However, impairment losses relating to goodwill may not be reversed.
Sources of estimation uncertainty
The preparation of the financial statements requires the Group to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The directors base their estimates on historical experience and various other assumptions that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Significant judgments
The Group believes that the most significant judgment area in the application of its accounting policies is establishing the fair value of its unlisted investments. The matters taken into account when assessing the fair value of the unlisted investments are detailed in the accounting policy on Investments above.
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