Annual Financial Report 30 June 2010

RNS Number : 8578T

Ludgate Environmental Fund Limited

05 October 2010

 

Ludgate Environmental Fund Limited ("LEF" or "the Fund") announces end of year results.

 

Ludgate Environmental Fund Limited

John Shakeshaft +44 (0)1534 609329

 

Ludgate Investments Limited

Nick Pople / Nigel Meir +44 (0)20 7621 5770

 

Media Enquiries

Shared Value Limited

Peter Edsinger +44 (0)20 7321 5038

 

NOMAD

PricewaterhouseCoopers LLP

Melville Trimble +44(0)20 7583 5000

 

Broker

Matrix Corporate Capital LLP

Paul Fincham +44 (0)20 3206 7175

 

 

LUDGATE ENVIRONMENTAL FUND LIMITED

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30TH JUNE 2010

STATEMENT OF INVESTMENT POLICY

The Investment Policy of Ludgate Environmental Fund Limited (the "Company") is to provide capital growth and return through investment in a diverse portfolio of securities issued by cleantech companies over the expected life of the Company.

The cleantech sector includes companies whose businesses operate in the following areas:

* Energy efficient and alternative energy resources;

* Water treatment and management;

* Waste management and recycling (resource recovery);

* Industrial process advances; and

* Emission reduction technologies.

The Company invests in quoted and unquoted securities of companies at the development capital and expansion stages of growth. Earlier stage investments can also be made. The Company seeks to maximize returns and reduce risk through active engagement with the management of investee companies and the holding of substantial and influential minority interests in respect of unquoted investments.

The Company concentrates principally on companies based in Continental Europe and the UK.

No single investment at subscription has a value greater than 15% of the net assets of the Company. No individual holding is reduced or increased due to either relative growth or reductions of the Company's other investments; the board remains conscious of the risk profile and expected returns from the portfolio.

The Company may borrow up to an amount equivalent to 25% of its net assets to finance investments or for any other purpose. The Board does not contemplate making any significant borrowing until and unless the portfolio is substantially invested in financial assets in the cleantech sector.

Seeking to provide significant total return to shareholders over the expected life of the Company to August 2015, the Directors may recommend that there should be a distribution of income received from investment securities by way of dividend as they have for the years ended 30th June 2010 and 2009 and the retention of realised capital gains within the portfolio for further investment.

CHAIRMAN'S STATEMENT

I am pleased to report to shareholders on the performance of Ludgate Environmental Fund Limited (the "Company") in the year to 30th June 2010 and also on certain subsequent developments. The net asset value (NAV) of your company decreased to £45,305,787 (2009: £50,375,963) of which £16,672,333 (2009: £28,259,578) was held in cash and £26,719,866 (2009: £21,156,749) in investments. On 1st August 2010 a further subscription of new capital of £10,000,000 gross of fees was approved at an Extraordinary General Meeting. The unaudited NAV per share at the 30th June 2010 was 98.8p, a dividend approved and paid of 1.65p after year end and the new shares were placed at 97.15p. During the year the Company subscribed £11,341,197 (2009: £7,232,198) for new investments in the sector and a gross amount of £1,738,240 (2009: £1,596,697) was receivable in interest and dividends from loan facilities, debt instruments and equity shares in the portfolio.

In line with our previously stated objectives we were pleased to recommend the payment of a progressive dividend satisfactorily covered by receipted income from invested financial assets. The payment of a progressive dividend is a strategy in fulfilling our objective of achieving high total returns for shareholders from a well diversified portfolio of cleantech and environmental assets over the anticipated life of the Company. The requirement to invest sufficiently in cash yielding securities in our target sector to cover the prospective dividend and overall return expectations also adds discipline to the investment process and distinguishes your company.

The Company was profitable at an operating level. Recognising the unrealised losses on investments in financial assets in accordance with our published valuation principles, your company made a net loss of £4,380,680 (2009: £2,986,039).

The Directors have monitored the performance of the portfolio and its Advisers against expectations at the time of discrete investments and recommendations. The Adviser has modelled the portfolio, the prospective capital requirements of existing assets, the possible timing and value of asset sales and the acquisition schedule for new assets. These were performed by the Adviser to assist the board in assessing the expected return and contribution of both investments and further subscriptions of capital in achieving the target total return to shareholders over the anticipated life of the Company.

Your company has now fully invested capital equivalent in amount to the funds raised at the flotation in August 2007. Over that period our share price, NAV and total return to shareholders have significantly outperformed the environmental fund sector and our peers. However our rate of investment has been consistently slower than expected or sought. We have adhered strictly to our guidelines on the diversification of holdings both by company and type of security and in this period the Company invested in three new companies in different markets at different stages of development and three different classes of securities for a total consideration of £11,341,197. The directors have reassured themselves on the quality, strategy and fair value of each of the investments and the portfolio quarterly before the publication of NAV and at each meeting of the investment committee to consider a recommendation from the Adviser: we thereby seek to understand both fundamental value and expected returns from the portfolio. This has increasingly informed the type of securities purchased and the terms and conditions for our investments. Strategically we have continued to engage actively and formally with the management and boards of our investee companies. We believe that this protects and enhances our interests as minority shareholders and that the sharing of experience and advice is valuable to our investees. We have nominated directors or board observers in all our unlisted companies and procedures have been established to ensure that there is no conflict between the pursuit and representation of the interests of the Company as a shareholder and the fiduciary responsibilities of our nominee as a director. We are long term investors in our assets and consider that active management has deepened the Adviser's knowledge of the sub sectors of cleantech and environmental investments which can only be derived from direct and diversified experience. This should enhance investment opportunities more broadly.

From a portfolio perspective the Company holds excess cash: necessarily this inhibits total return. Our intention is to hold an amount equivalent to no more than 15% of NAV in cash. Treasury policy and the cash deposits have been reviewed throughout the period with regard to institutional, duration and liquidity risks. Interest income on deposits was £302,209 (2009: £989,694) reflecting the investment of cash and the fall in effective interest rates. Historically low interest rates have not been met with significantly reduced credit spreads or increased availability of working capital, lease or project finance for several of our investee companies. The negative effect therefore of low interest rates is pervasive and currently affects the whole portfolio. An improved rate of investment in financial assets is expected and a measured diversification of cash into equivalent and higher yielding liquid instruments within our risk tolerances for expected returns and investment policies in the cleantech and environmental sectors is contemplated and will be implemented soon.

Your company has taken certain measures approved by shareholders, intended to improve management, efficiency and performance. Subject to final approval of the Jersey Financial Services Commission (the "JFSC"), the Company, advised by Ludgate Investments Limited (LIL or the Adviser), now manages its assets directly without a separate management company. The board is responsible for all investment decisions. We have reduced overall administrative costs, principally to the benefit of the Adviser and reduced contractual complexity. We are conscious of the total expense ratio borne by the Company, typical of funds at our stage of development and will continue to seek ways of lowering it. LIL was reorganised during the period to align its corporate strategy more closely with that of the Company and to concentrate on its fund advisory, management and distribution capabilities in the cleantech/environmental sector. Investors experienced in energy and waste management, also founder shareholders of the Company, purchased a controlling interest in LIL and the remaining employees significantly increased their direct holdings. The Company has received an undertaking from LIL in respect of any possible change of control of their business. We have also, as part of the reorganisation, received assurances from LIL on the independence and objectivity of their advice and established procedures to ensure and promote common economic benefit and complementary of interest. HMRC confirmed the Company's reporting fund status during the period; we intend to continue to manage your affairs to maintain this throughout the life of the Company. The board measured the Adviser's performance against a number of internal and external quantitative and qualitative benchmarks, related principally to the management of assets, the ratio of proposals to investments, the administration of fund activities, external relations, the distribution of capital, sectoral analysis and the performance and strategic management of the cleantech environmental portfolio.

The Company is compliant with all the principles of the AIC Corporate Guide for Investment Companies and those of section one of the UK Code on Corporate Governance with the exception of the role of a chief executive, executive directors' remuneration and the need for internal audit. The board considers that these are not relevant to an externally advised investment company. The Company's audit committee has met regularly and reviewed controls over financial reporting and made appropriate recommendations to the board. Regulatory compliance for the JFSC and FSA respectively has been advised by State Street and LIL and overseen by the board. The Company has established consistent and auditable principles of valuation in respect of its assets; these are applied by the Adviser and administrator separately in determining the NAV recommendation for board approval, reviewed by the auditor at the half year in addition to the full year audit. Your board is confident that the stated NAV therefore represents the distributable value of holdings. For a fund with a finite life this is a necessary and conservative policy decision and therefore might be regarded as a statement of fundamental rather than expected value.

After the year end we were pleased to welcome Donald Adamson and David Pirouet to the board. Donald is chairman of the company's former manager (a position which he will relinquish once the manager is liquidated). He brings with him profound knowledge and long professional history in the leadership, financing and management of funds and private equity. David has exceptional experience as a former senior assurance partner at PWC in the governance and auditing of funds and has also carried out work for the States of Jersey. Helen Grant and Douglas Maccabe retired from the board; we are grateful for their counsel and excellent service over the last three years.

We remain cautious in our outlook on the European cleantech and environmental markets. The investment case for holding a diversified portfolio of investments in the sector is stronger, government support for environmentally creditable investment well stated across Europe and new clean technologies being licensed and exploited. In alternative energy where we have holdings related to wind, waste and biogas production there is significant sensitivity in performance and financial viability to politically determined national feed-in tariffs. In recycling where we have interests in agricultural waste, oils, plastics and precious metals there is unmitigable exposure both to commodity and banking cycles. We expect the portfolio to outperform technology and private equity funds. The persistent weakness of new issue markets and the limited number of corporate acquisitions in the sector, despite historic highs in corporate earnings, continue to affect the probability of exits from the portfolio, particularly at exceptional valuations. We consider that our diversified approach to the cleantech/environmental sector building on proven competence in the active management of our corporate interests, conscious of fundamental value and long term holding and looking to provide current yield and capital gain is well placed to deliver significant total return over the life of the Company.

DIRECTOR BIOGRAPHIES

John Shakeshaft - Chairman

John, 56, has 23 years' experience as a corporate finance and capital markets banker. He is currently director of: Tele2 AB listed on the Stockholm Exchange, TT Electronics plc listed on the London Stock Exchange, Xebec Absorption Inc listed on the Toronto Stock Exchange and a supervisory board member of The Economy Bank NV in the Netherlands. He is also advisory director of Corestone, AG, a Swiss Fiduciary investment management company, a director of Valiance Funds, an external member of the Audit Committee of Cambridge University, trustee, Institute of Historical Research, London University and director of The Bush Theatre. He was previously a managing director in financial institutions at ABN AMRO, a partner of Lazard LLC and a managing director at ING Barings. He was educated at Cambridge, Princeton and London University and served for nine years in HM Diplomatic Service.

John is considered by the Company to be an independent director on the basis that he is independent of the Manager and the Adviser.

Matt Christensen - Director

Matt, 41, is the Executive Director of Eurosif, a member-supported association dedicated to European sustainable and responsible investment public policy, research and promotion. He is also a director of Oikocredit, one of the largest private financiers of the microfinance sector worldwide as well as a director for the Munro Fundamental Tracker Fund. Matt is a frequent speaker at international events on sustainable finance matters and is a member of the European Commission's Co-ordination Committee to explore the future of sustainability policy in the EU. He was formerly a European director at The Motley Fool, a leading publisher of information on personal finance and investing. Prior to that, he advised European clients as a strategy consultant with Braxton Associates. He holds masters degrees from Wharton (MBA) and the University of Pennsylvania (MA).

Matt is considered by the Company to be an independent director on the basis that he is independent of the Manager and the Adviser.

Donald Adamson - Director

Donald Adamson, aged 51, is a resident of Jersey and Chairman of the Offshore Committee of the Association of Investment Companies.

He has 28 years' experience of fund management, private equity and corporate finance. He built, with a partner, and sold Graham Investment Managers Limited, a Jersey based fund manager. Through his own specialist consultancy business, he advised NatWest Markets, ABN Amro, Collins Stewart, GE Capital and others. Currently he manages his family's private office and serves on the boards of a number of listed and privately held investment companies. He holds an MA from University College, Oxford, carried out graduate research at Nuffield College, Oxford and is a Member of the Chartered Institute of Securities and Investment.

Donald is currently the Chairman of the Company's former manager, however once that company is liquidated, he will be considered by the Company to be an independent director on the basis that he is independent of the Manager and the Adviser.

David Pirouet - Director

David Pirouet, 56, a Jersey resident, is a qualified accountant. He was an audit and assurance partner for 20 years with PricewaterhouseCoopers CI LLP ("PwC") until he retired in June 2009. He specialised in the financial services sector, in particular in the alternative investment management area. He also led PwC's Channel Islands hedge fund management practice for over four years.

Since retiring from PwC, Mr. Pirouet has carried out a four month project for the Chief Minister's Department in the States of Jersey, reporting to the Director for International Finance, and he has been appointed as a non-executive director of GCP Infrastructure Investments Ltd, a non-executive director of the General Partner to the CEE Special Situations Fund LP and as a non-executive director of the General Partner to the AEGON Target Healthcare Property Unit Trust.

David is regulated by the JFSC for the provision of services as a non-executive director. Mr. Pirouet has worked in London and Canada as well as the Channel Islands. He is considered by the Company to be an independent director on the basis that he is independent of the Manager and the Adviser.

Sian Hansen - Director

Sian, 46, is the Managing Director of Policy Exchange, the UK's leading centre-right think tank which is an educational charity promoting research and discourse on public policy, including environmental and climatic issues. She is also a director of The Women's Refugee Commission (USA) and a trustee of The Prospero World Charitable Trust in the UK. Sian currently provides a corporate governance proxy management service for fund investors. Sian was formerly Head of Sales for Asian equities at Société Générale. Prior to this Sian was an equity analyst and broker with Enskilda Securities in Europe.

Sian is considered by the Company to be an independent director on the basis that she is independent of the Manager and the Adviser.

Helen Grant - Director

Helen, 44, is a director of Corporate Services for Mourant International Finance Administration. She has worked at Mourant since 1991 and has extensive experience in corporate governance and administration of companies in Jersey and other jurisdictions. She is a director of a large number of Jersey, Irish and Cayman special purpose vehicles participating in capital markets and structured financing transactions for major international institutions. Helen holds a BSc Honours degree from the University of Surrey (Physics with modern Accoustics) and has been an Associate of the Institute of Chartered Secretaries and Administrators since 1992.

Helen is considered by the Company to be an independent director on the basis that she is independent of the Manager and the Adviser.

ADVISER'S REPORT

Highlights and Key Financial Data

• Approximately £30.9 million had been invested (including a working capital facility) into 11 companies to 30th June 2010 (approximately £21.0 million in 8 companies to 30th June 2009).

• A placing of £10 million of new shares announced after the year end.

• Interest and dividend income receivable of approximately £2 million from investments and cash deposits.

• Net Assets decreased to £45.3 million and NAV per share on 30th June 2010 was 98.6p (2009: £50.4 million and 110p).

• Full exit from Azure Dynamics delivering the Fund a 1.8x return.

Market Background

The year was dominated by questions as to whether the global economy was either slowly emerging from or continuing to experience the global economic downturn. Valuations fell across most asset classes significantly and correlatedly. However public equity share prices began to rebound substantially towards the end of December 2009. The first half of 2010, was mixed with strong recovery indicators until April 2010, followed by uncertainty and fears of a second recession towards the end of June 2010.

The recovery from global recession remains uncertain. In the six months ended 30th June 2010 the environmental sector fared better than most. Markets in general have been volatile but driven by uncertainties associated with sovereign debt risks in Europe, falls in consumer confidence in the US and the pace of recovery in the US and China. Despite this, there have been IPO's in the cleantech sector with the electric vehicle company, Tesla and the battery maker, A123, achieving notable successes in their US listings. However, the most positive indicator for the health of the sector has been the growing commitment from large and diverse corporations to commit capital into this sector. For example, during the last six months we have seen Samsung, Sanyo, and ABB, make multi-billion dollar commitments to grow their low carbon business units.

The stimuluses for cleantech investment have remained sound both domestically and internationally throughout the period. The new UK government has continued to support the main market mechanisms, including feed-in-tariffs ("FITs"), which are vital to the growth of the sector.

The demand for energy and security of supply concerns dictate that the market for cleaner energy and energy efficient technologies will remain buoyant in both UK and Europe. Additionally, the environmental rationale for a transition to a low carbon economy was reinforced during the period by the oil spill in the Gulf of Mexico.

Fund Raising

The Company announced on 2nd August 2010, that it had raised £9.8 million, net of expenses, at a price of 97.15p per share, being the unaudited NAV per share as at 30th June 2010 of 98.8p per share less an amount equal to the declared dividend of 1.65p per share, by the placing of 10.3 million new shares. It was encouraging that several of the major shareholders of the Company subscribed alongside two new institutional investors.

Operational Review

The Adviser closely reviews and regularly tests the strategy, performance and liquidity position of each of the Company's investee companies. The regular investment monitoring of portfolio companies provides a critical focus for the Adviser's strategy of active involvement and management of its portfolio companies.

The Adviser has developed a pipeline of potential investments. In the year to 30th June 2010, the Adviser recommended, and the Company completed, investments of £11.3 million, in three companies.

The Company's investments have been made in a broad range of financial instruments including equity, senior preference equity and convertible debt. Current market conditions have resulted in a number of the investments being structured to enhance downside protection through an emphasis on debt like instruments, including convertible loan stock and on minimum return liquidation preferences.

Investments, Interest and Dividends

The table below presents a summary pro forma position of the Company as at 30 June 2010 had both receipt of the placing proceeds and the payment of the dividend occurred prior to the year end.

Currency: £m				Investment Amount £m
Company	Activity	Notes	Equity	Convertible/Other	Total	Fair Value	% of NAV
Agri.capital	Biogas	(a)	6.5	-	6.5	6.5	11.9
New Earth Solutions	Waste Treatment		3.0	2.0	5.0	5.4	10.0
Rapid Action Packaging	Food Packaging	(b)	1.5	3.7	5.2	5.2	9.5
Hydrodec Group	Oil recycling		3.5	3.0	6.5	4.4	8.1
Terra Nova	Electronic waste recycling		2.7	-	2.7	2.7	5.0
STX Services	Environmental broking		0.7	-	0.7	1.6	2.9
Hightex Group	Solar cooling		0.7	-	0.7	0.8	1.4
Phoslock water solutions	Water treatment		0.4	-	0.4	0.5	0.9
Renewable Energy Generation	Wind developer		0.7	-	0.7	0.5	0.9
Emergya Wind Technologies	Turbine manufacturer	(c)	2.7	-	2.7	0.4	0.7
			22.4	8.7	31.1	28.0	21.3
Cash at bank						16.7	30.6
Placing proceeds						9.8	18.0
Dividend payment						(0.8)	(1.4)
Other assets/liabilites						0.8	1.5
			-	-	-	54.5	100.0

Notes to table:

(a) Investment is in the form of (i) €3m Series E 8% Preference Share and (ii) €4.3m Series F 10% Preference Share;

(b) Investment includes the provision of a committed £1.5m working capital facility; as at 30th June 2010 - £1.2m was drawn down

(c) Investment is in the form of (i) €2.0m 8% Pref A shares, (ii) €1.0m 8%Pref B shares, (iii) €251,847 PrefC shares, and (iv) €250,000 Pref D shares. Under IFRS, it is required to state the carrying value of investment at its fair value following conversion of the original loan note to preference shares, this increases the carrying value of investment to £4.5m per the audited financial statements at 30th June 2010 rather than the £2.7m stated in the above table.

The Company generated a gross amount due of £2 million in interest and dividend income during the year. The Adviser has recommended that £0.4 million of this interest is provided for as it is due from EWT and it is not known at this stage whether EWT will be able to repay the interest liability to the Company. Approximately £0.7 million was due from STX in the form of dividends and the balance was interest income received from the Company's structured investments and bank interest. Excluding EWT's interest which remains unpaid, the overall yield on assets under management as at 30th June 2010 (excluding the pro forma position as presented above) is 5.1%.

Future Investments

Due diligence is currently being conducted on the following areas; recycling, energy from waste, waste management, renewable energy, energy efficiency and cash management.

Fund Team

Nick Pople, a co-founder and director of the Adviser has overall responsibility for making investment recommendations, deal structuring and sourcing on behalf of the Company.

Nigel Meir, joined the Adviser in May 2005 as a director and has responsibility for reviewing investment recommendations, sourcing deals on behalf of the Company and for investor and shareholder relations.

Bill Weil joined the Adviser in September 2008 and acts as portfolio manager, with responsibilities including deal sourcing and screening, technical due diligence, deal structuring and portfolio monitoring on behalf of the Company.

Nick Curtis joined the Adviser in September 2009 and acts as portfolio manager, with responsibilities including deal sourcing and screening, due diligence, deal structuring and portfolio monitoring on behalf of the Company.

MAJOR INVESTMENTS

agri.capital GmbH

Biogas Developer, Owner and Operator

Valuation at 30 June 2010 (method): £6.5m (E shares at guaranteed minimum return and F shares at cost)

Investment: €3.0m (£2.5m) (8% Preference E Shares with Detachable Warrants) and €4.3m (£4.0m) (10% Preference F

Shares with Detachable Warrants)

Ownership: N/A

Date(s) of Investment: Q4 2008, Q2/Q3/Q4 2009

Company Summary:

agri.capital is a specialist developer, owner and operator of biogas plants, established in 2004. The business uses manure and crop silage to produce biogas. This methane-rich gas mixture is either burned onsite to create electricity and heat, or is cleaned and fed into the existing natural gas network. The fermentation residue is used as a high-quality fertilizer, returning nutrients to the soil. agri.capital uses proven technology from leading German EPC contractors and can rapidly roll-out fixed-price plants. The Company has secured feedstock contracts to match the off-take tariffs resulting in stable plant revenues.

Investment During The Year:

As part of the Series F funding round, the Company invested a total of €4.3 million structured as 10% yielding preferred equity with detachable warrants. In September and in October 2009, the Company made a further investment into the Series F preferred equity of €1.5 million and €0.7m respectively, bringing the Company's total investment in agri.capital to date to €7.3m.

Recent Highlights Include:

• Largest operator of biogas facilities in Europe with 60 plants in operation and management across 51 sites with an installed capacity of approximately 40.5 MW. As at 30th June 2010, the company had 48 MW in operation or under construction.

• Completed construction of 1 plant with 0.5 MW of capacity, acquired a running biogas plant with a capacity of 1.6 MW and had an additional 7 sites (9.1 MW of capacity) under construction.

• Capacity utilization of operating facilities remained high, at around 92% since December 2009.

• Appointment of Dr. Anton Daubner as CEO, bringing his experience as CEO of several companies, including WestfaliaSurge, the world's second largest company for dairy farm equipment.

• Commissioned its third biomethane injection (gas to grid) plant at Schmargendorf utilising Malmberg's gas cleaning technology.

The Company has the right to nominate an observer seat on the Board of agri.capital. Nick Pople and Bill Weil, of the Investment Adviser, are alternates as the Company observer.

New Earth Solutions Group Limited Waste Treatment and Renewable Energy

Valuation at 30 June 2010 (method): £5.4m (at cost)

Investment: £3.0m (Preferred Ordinary Shares) and £2.0m (8% Convertible Note)

Ownership: 3.896% (equity portion of the investment only)

Date(s) of Investment: Q3 2009

Company Summary:

New Earth Solutions Group Limited ("NESG") is a UK business comprising the waste treatment company, New Earth Solutions Ltd and the renewable energy company New Earth Energy Ltd. New Earth Solutions helps local authorities to meet their obligations to divert waste under the EU Landfill Directive and contributes to composting and recycling rates. It has existing and planned operations in the south and central England and contracts to receive waste from several local authorities. It has pioneered enclosed composting and biological treatment in the UK. New Earth Energy is developing and delivering innovative third party advanced thermal technologies to support the use of waste-derived feedstock for renewable power plants and combined heat and power schemes for public and private customers.

Investment During The Year:

In September 2009, the Company made an investment into NESG structured as £3.0m through the subscription for preferred ordinary shares and £2.0m as a 12 month, 10% Convertible Loan Note. In December 2009, as a result of a further investment into NESG by a third party, the Company was provided a discount of 12.9% to its initial investment price per share made up by a further issue of shares to the Company, resulting in the uplift in value presented in the table on page 57 and above.

Recent Highlights Include:

• NESG raised £13m during the year to fund expansion, including the Company's £5m and achieved financial close on two projects with £20m of investment, including £13.5m of senior debt provided by Norddeutsche Landesbank (NordLB).

• Environmental Permit for 50,000 tonnes per annum facility issued at Cotesbach.

• New Earth Energy submitted preliminary accreditation to Ofgem for Canford plant to install a waste to energy plant. A contract extension for Canford was secured from Bournemouth Borough Council to August 2014.

• Bristol City Council granted planning permission for a 200,000 tonnes pa Mechanical and Biological Treatment (MBT) facility in Avonmouth. Phase I and II of remediation works were completed in May 2010 and the site was handed over for commencement of construction works.

• The planning application for a 7MW renewable energy scheme at Avonmouth to be co-located with the MBT facility was also submitted.

• A series of senior appointments, further strengthening the existing management team, with new Contracts, Finance and Construction Directors.

The Company has the right to nominate a director to the Board of NESG. Nick Pople and Bill Weil, of the Investment Adviser, are acting as observers on the NESG Board.

Rapid Action Packaging Limited

Food Packaging Solutions

Valuation at 30 June 2010 (method): £5.2m (at cost)

Investment: £1.5m (Ordinary Shares), £2.5m (8% Convertible Notes) and £1.2m drawn down of the £1.5m Working

Capital Facility

Ownership: 31.3% (assumes full conversion of Convertible Notes and issue of all Warrants)

Date(s) of Investment: Q2 2008, Q2 2009

Company Summary:

Rapid Action Packaging Ltd ("RAP") designs, manufactures and supplies innovative, ergonomic, cost effective and environmentally responsible packaging systems particularly for the "food on the move" marketplace. RAP's unique packaging solutions combine the benefits of both paper and film technologies to improve packaging as a vital tool in sales growth for food retailers whilst also putting a strong emphasis on environmental performance and responsibility. All RAP's products are available in fully recyclable materials. It has licensed production of certain of its products to third parties in the US and Asia. In Europe, product design, sales and production are based in Ireland and the UK.

Investment During The Year:

In June 2009, the Company committed to provide a £1.0m working capital loan facility to RAP to fund the purchase of equipment, installation costs and planned increased stock levels in advance of a new product launch aimed at Continental Europe and North America in the first half of 2010. In the period, RAP drew down a further £0.7m of the working capital facility reaching the facility's £1.0m headroom. In May 2010, the Company agreed to provide a £0.5m extension to the original working capital facility and as at 30th June 2010 a total of £1.2m had been drawn down.

Recent Highlights Include:

• New manufacturing equipment designed to enable the launch of two new packaging systems was installed in RAP's factory in Ireland within the budgeted cost of €3.3 million and is operating according to expectations.

• The modified atmosphere sandwich packaging system (MA Packaging) has been launched with a major European food manufacturer, with RAP entering into a three year supply agreement.

• Trials of MA Packaging are also underway in the US with three of the fastest growing national convenience stores undertaking regional trials.

• The existing Flexible Food Wrap has also been successfully launched in two UK supermarkets which both introduced a hot range of takeaway food.

The Company has the right to nominate a director on the Board of RAP. Nick Pople, of the Investment Adviser, is a Company director.

Subsequent events

On 3rd August 2010, the Company and all other co-invests in RAP's £4.125 million 8% Convertible Loan Notes ("CLN") agreed to convert into ordinary share capital of RAP. In compensation for the loss of preferential ranking and interest income that the Company and other investors retained through the investment in the CLNs, bonus shares were issued by RAP. Under the terms of the CLN, LEF converted the £2.5 million investments into 5,994 ordinary shares and were issued a further 800 ordinary shares by the way of the bonus share issue.

Hydrodec Group PLC (AIM:HYR)

Specialist Oils Recycling

Valuation at 30 June 2010 (method): £4.4m (Shares at quoted share price and CULS using Black Scholes) Amounts Invested: £3.5m (Ordinary Shares), £3.0m (8% Convertible Loan) Ownership: c. 9.0% (assuming full conversion of the Convertible Loan) Date(s) of Investment: Q4 2007, Q1/Q2/Q4 2008, Q1/Q2 2009

Company Summary:

Hydrodec's technology is a patented sustainable oil refining process that takes existing spent oil as feedstock to produce new speciality oils thus creating a virtuous "green" cycle. The process is closed loop and produces no harmful emissions. Hydrodec's first commercial process re-refines the used transformer oils that insulate and cool utility transformer boxes. It currently has commercially operating plants in New South Wales in Australia and Ohio in the US, the largest market for transformer oil in the world.

Investment During The Year:

No further investments were made during the period.

Recent Highlights Include:

• In June 2009, Neil Gaskell became non-executive Chairman and John Gunn, Deputy Chairman.

• Interim results to June 2009 - US plant now achieving consistent production levels of c. 60,000 litres per day (c. 75% capacity) and generating positive net cash flow. Progress made on the Japanese joint venture, a significant growth driver for the future with completion of the first site in Japan anticipated by 2012.

• Announced in December 2009 an agreement with one of its largest existing customers for the supply of 11.4 million litres of SUPERfine from Canton during 2010.

• Announced in December 2009 that Hydrodec raised £2.1m before expenses at 12p per share.

• Announced in January 2010 that the technical committee of the Waste Management Foundation, on behalf of the Japanese Environment Ministry, granted national approval for the use of Hydrodec's technology in Japan for the treatment of PCB contaminated transformer oils.

• Announced in January 2010 record quarterly SUPERfine sales for Q4 2009 of 4.4m litres (Q3 2009 3.7m litres) with plants operating well and margins improving gradually during the quarter.

• Announced an important agreement with its Japanese partner, Kobelco Eco-Solutions of the Kobe Steel Group, for a 50/50 joint venture to exploit the Hydrodec technology in Japan and across the wider East Asian market. The agreement was signed at the end of April 2010.

• The Company's working capital position was affected by lower than anticipated sales and margins from December 2009 to February 2010 and reduced trade credit terms from certain US feedstock suppliers. Addressing the working capital shortfall, Hydrodec raised £2.0 million in March 2010 before expenses at 10p per share. Re-refined transformer oil sales in the first quarter of 2010, were expected to be about 25% lower than the Q4 2009 amount of 4.4m litres reflecting the continuing weak market.

• Announced in April 2010 that conditions in the transformer oil market had improved with prices appearing to enter an upward trend. Allowing Hydrodec some modest improvements in margins. Current cash generation was sufficient for Hydrodec to meet its next interest payment on the CULS. Re-refined transformer oil sales increased from 3.8m litres in 2008 to 11.8m litres in 2009.

• Announced in July 2010 record Q2 sales volumes of SUPERfine, up 79% to 6.0m litres on Q1 2010 (3.4m litres) and up 36% on its previous high in Q4 2009 (4.4m litres) - revenues also rose to a record US$4.7m during Q2 2010. Hydrodec announced the appointment of a new FD and COO to the Board.

 

Terra Nova SAS

Electronic Waste Recycling

Valuation at 30 June 2010 (method): £2.7m (at cost) Investment: £2.7m (Preference Shares) Ownership: c.25% Date(s) of Investment: Q4 2009

Company Summary:

Terra Nova is a French company established to develop a printed circuit board treatment and recycling business. The team behind Terra Nova has extensive experience in the metals industry having worked together for a number of years at Metaleurop, a quoted lead, zinc and precious metal processor. Terra Nova has commenced construction of a 30,000 tonnes per annum pyrolysis plant to pre-treat printed circuit boards for the major metal smelters. The new facility will help meet the requirements of the EU Waste from Electrical and Electronic Equipment (WEEE) Directive, easing the pressure to export harmful waste to the developing world. Terra Nova is located within the Arcelor-Mittal industrial site at Isbergues (Pas-de-Calais), France.

Investment During The Year:

In December 2009, the Company led a total of €8.1m funding round into Terra Nova with an initial investment of €3.0m.

Recent Highlights Include:

• Construction of the pre-treatment and recycling plant for printed circuit boards in Northern France continues to be on time and on budget.

• Positive discussions with potential customers with overall improvements in the price of the off-take product.

• Discussions have already commenced for production volumes greater than the capacity of the plant.

• Operations are expected to start by end of Q1 2011 as planned.

• R&D efforts continue to show promise for future operational enhancements.

The Company has the right to nominate a director and, additionally, has the right to nominate an observer to the Board of Terra Nova. Charles des Forges, a member of the Investment Adviser's Advisory Panel, has been nominated as Chairman of the Supervisory Committee and Bill Weil and Nick Curtis, of the Investment Adviser, are alternate observers.

STX Services B.V. Environmental Product Broking

Valuation at 30 June 2010 (method): £1.6m (PAT multiple)

Investment: €0.8m (£0.7m) (Ordinary Shares)

Ownership: 24.9%

Date(s) of Investment: Q4 2007, Q1/Q2 2008

Company Summary:

STX is a broker in Amsterdam of environmental financial products with a particular focus on the carbon markets. STX has mostly been active in broking EU Emission Allowances ("EUAs") but has diversified into transactions in Certified Emission Reduction ("CERs"), Biofuel Tickets, Green Certificates and other environmental financial products. STX is active across the European markets.

Investment During The Year:

No further investments were made during the year. However, the percentage ownership that the Company owns has increased from 19.2% to 24.9%, as a result of a share reorganisation. Following the share reorganisation, the managing director will own a similar percentage to the other three main shareholders.

Recent Highlights Include:

• The uncertainty in the run-up to Copenhagen in December 2009 and a reduction in EUA trading, in particular, impacted the STX's profitability for the year ending 31 March 2010, leading the Investment Adviser to adjust STX's fair value in line with a consistent valuation approach to its earnings.

• Range of revenue generating products expanding to include: EUAs, ERUs, AAUs, VERs and CERs (spot and forward); RECs, LECs, GOOS, and Green Certificates (spot and forward); biofuel tickets; physical biofuel; biofuel feedstock; Green Gas Certificates and NOX.

• The EU statement that it might cut the allocation of allowances toward the end of Phase II in December 2012, and that it still might look to increase its target cut in emissions in Phase III (to 2020) from 20% to 30%, is expected to benefit the carbon markets.

• The team has expanded and two new junior traders and a back office employee joined the team in Q1 2010. Following these new hires, STX will comprise 13 brokers, 3 support staff and 2 directors.

The Company has the right to nominate a representative on the Supervisory Board and on the Credit Committee of STX. Nigel Meir, of the Investment Adviser, is a member of the Supervisory Board and of the Credit Committee.

Emergya Wind Technologies Wind Turbine Manufacturing

Valuation at 30 June 2010 (method): £0.4m (re-valued at €0.03 per share based on latest Preference Share Issue)

Investment: £2.2m (8% Preference Shares) and £0.5m (Preference Shares with Warrants)

Ownership: 2.5%

Date(s) of Investment: Q4 2007, Q3 2008, Q2/Q4 2009

Company Summary:

EWT is a Dutch-based manufacturer and supplier of wind turbines and turnkey wind parks. It specialises in the development and manufacture of advanced direct-drive (gearless) wind turbines. EWT was established in 2004 by the acquisition of the intellectual property of Dutch wind turbines manufacturer Lagerwey. The current product consists of the 750 KW and the 900 KW series and EWT is also developing 2 MW wind turbines for onshore applications.

Investment During The Year:

In December 2009, LEF made an investment of €250,000 into Preferred Shares of EWT at a price of €0.03 per share. LEF's investment was part of a €10.0m funding round providing support for the continued turnaround and expected growth of EWT in 2010. LEF has maintained a pro rata percentage (approximately 2.5%) ownership of EWT and participated alongside all major current shareholders. Following the funding round completed on 15 December 2009 and LEF's investment, the carrying value of EWT has decreased to €0.03 per share, valuing the investment at £0.4m.

Recent Highlights Include:

• January 2010 - Eric Bakker previously responsible for the creation of BP Alternative Energy, and for the development of some 600 MW of wind energy in the US, has taken steps to solve the issues that have impacted EWT negatively under the close scrutiny of the Investor's Steering Committee.

• February 2010 - 54 of the 55 wind turbines for the first Chinese project have been erected, electrical installation has been partially completed, with the majority of the wind turbines commissioned.

• September 2010 - EWT is seeking further funding and the outcome is not yet known.

REPORT OF THE DIRECTORS

The Directors present their report and the audited financial statements for the year ended 30th June 2010.

INCORPORATION

Ludgate Environmental Fund Limited (the "Company") was incorporated in Jersey, Channel Islands on 7th June 2007.

ACTIVITIES

The Company is a closed-ended investment company investing in the cleantech sector including energy efficient and alternative energy sources, waste treatment and management, waste management and recycling, industrial process advances and emission reduction technologies.

RESULTS AND DIVIDENDS

The net decrease in net assets attributable to shareholders from operations before dividends for the year amounted to £4,380,680 (2009: £2,986,039).

The Directors recommended and the Company paid a dividend for the year ended 30th June 2009 of 1.5 pence per share in issue as at 18th September 2009.

Subsequent to the balance sheet date, the Directors have recommended a dividend for the year ended 30th June 2010 of 1.65 pence per share in issue as at 30th June 2010.

GOING CONCERN

The Directors are of the opinion that the Company is a going concern, and the financial statements have been prepared on that basis.

CORPORATE GOVERNANCE

As a Jersey incorporated company and under the AIM Rules for Companies, the Company is not required to comply with the Combined Code published by the Financial Reporting Council (the "2006 FRC Code"). However, it is the Company's policy to comply with best practice on good corporate governance that is applicable to investment companies.

The Board has therefore considered the principles and recommendations of the AIC's Code of Corporate Governance (the 'AIC Code') by reference to the AIC Corporate Governance Guide for Investment Companies (the 'AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues specific to investment companies.

The Board considers that it is appropriate to report against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Combined Code) and that the Company has complied with the principles and recommendations throughout the accounting period, except where indicated below and compliance in respect of the chief executive, executive directors' remuneration and an internal audit function as per page 3. The following statement describes how the relevant principles of governance are applied to the Company.

THE BOARD

The Board up to 2nd August 2010 consisted of five non-executive Directors and the Chairman is John Shakeshaft. The Directors consider that the Chairman is independent for the purposes of the AIC Code. During the year, Douglas Maccabe was a director of the Company and of the Investment Manager.

From 2nd August 2010, Douglas Maccabe resigned from the Board and Donald Adamson and David Pirouet were appointed as non-executive Directors. Donald Adamson is the Chairman of the Investment Manager until such time as that company is liquidated. Helen Grant resigned from the Board with effect from 3rd August 2010.

The Company has no executive directors and no employees. However, the Board has engaged external companies to undertake the investment management, administrative activities of the Company and the production of the Annual Report and Financial Statements which are independently audited. Clear documented contractual arrangements are in place between these firms that define the areas where the Board has delegated responsibility to them. Whilst the Board delegates responsibility, it retains accountability for the functions it delegates and is responsible for the systems of internal control.

The Board meets at least four times a year and between these formal meetings there is regular contact with the Manager, Adviser, Nomad and Broker. The Directors are kept fully informed of investment and financial controls, and other matters that are relevant to the business of the Company and should be brought to the attention of the Directors. The Directors also have access to the Secretary and, where necessary in the furtherance of their duties, to independent professional advice at the expense of the Company.

The Board has a breadth of experience relevant to the Company and they have access to independent professional advice at the Company's expense where they deem it necessary to discharge their responsibility as Directors. The Directors believe that any changes to the Board's composition can be managed without undue disruption. With any new appointment of a Director to the Board, consideration will be given as to whether a formal induction process is appropriate and if any relevant training is to be offered.

The Board considers agenda items laid out in the notice and agenda which are formally circulated to the Board in advance of a meeting as part of the Board papers and therefore Directors may request any agenda items to be added that they consider appropriate for Board discussion. Additionally, each Director is required to inform the Board of any potential or actual conflicts of interest prior to Board discussion.

All members of the Board are expected to attend each Board meeting and to arrange their schedules accordingly, although non-attendance is unavoidable in certain circumstances.

During the period 16 board and 3 audit committee meetings were held each of which were attended by the necessary quorum of Directors.

The Board has been continuously engaged in a review of the Company's strategy with the Adviser and Manager to ensure the employment of appropriate strategies under prevailing market, political and economic conditions at any particular time, within the overall investment restrictions of the Company.

To support the review of the strategy, the Board has focused at Board Meetings on a review of individual investments and returns, country exposure, the overall portfolio performance and associated matters such as gearing and pipeline investment opportunities. Additionally a strong focus of attention is given to marketing/investor relations, risk management and compliance, peer group information and industry issues.

The Board evaluates each Director's own performance on an annual basis and believes that the mix of skills, experience, ages and length of service are appropriate to the requirements of the Company and in accordance with the AIC Code. Directors shall retire and stand for re-election at intervals of no more than three years. Each Director is appointed subject to the provisions of the Articles of Association in relation to retirement.

BOARD RESPONSIBILITIES

The Board meets at least four times a year to consider, as appropriate, such matters as:

• The overall objectives for the Company;

• Risk assessment and management, including reporting, monitoring, governance and control;

• Any shifts in strategy that may be appropriate in light of changes in market conditions;

• The appointment, and ongoing monitoring, through regular reports and meetings of the Investment Manager, administrator and other service providers;

• Review of the Company's investment performance;

• Share price performance;

• Statutory obligations and public disclosure;

• The shareholder profile of the Company; and

• Transactional and other general matters affecting the Company

These matters are discussed by the Board to clearly demonstrate the seriousness with which the Directors take their fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of their actions.

COMMITTEES OF THE BOARD

The Board has not deemed it necessary to appoint a nomination or remuneration committee as, being comprised wholly of non-executive Directors, the whole Board considers these matters.

AUDIT COMMITTEE

The Board operates an Audit Committee which consists of Matt Christensen, Helen Grant (up to 3rd August 2010), Donald Adamson (from 2nd August 2010), David Pirouet (from 2nd August 2010), Sian Hansen and John Shakeshaft. The Audit Committee operates within defined terms of reference as agreed by the Board which are available from the Company Secretary upon request. The Audit Committee function is to ensure the Company's financial performance is properly reported on and monitored and the Committee reviews the following:

• The annual and interim financial statements;

• Results;

• Internal control systems and procedures;

• Accounting policies of the Company;

• The auditor's effectiveness and independence;

• Announcements; and

• The auditor's remuneration and engagement, as well as any non-audit services provided by them.

When required the Audit Committee meetings are also attended by the Administrator and the Company's Auditors. The number of meetings of the Audit Committee attended by each Director is set out above.

INTERNAL CONTROLS

The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report and Financial Statements. In line with general market practice for investment companies, the Directors do not conduct a formal annual review of the internal controls. However, the Board does conduct an annual review of the financial reporting procedures and corporate governance controls and feels that the procedures employed by the service providers adequately mitigate the risks to which the Company is exposed.

The key procedures which have been established to provide effective internal controls are as follows:

• The Directors of the Company clearly define the duties and responsibilities of their agents and advisers in the terms of their contracts;

• The Board reviews financial information produced by the Adviser on a regular basis; and

• The Company does not have an internal audit department. All of the Company's management functions are delegated to independent third parties and it is therefore felt that there is no need for the Company to have an internal audit facility.

The internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

RELATIONSHIPS WITH SHAREHOLDERS

The Directors and the Adviser maintains a regular dialogue with major shareholders, the feedback from which is reported to the Board. In addition, Board members will be available to respond to shareholders' questions at the Annual General Meeting.

The Board monitors the trading activity and shareholder profile on a regular basis.

Shareholder sentiment is also ascertained by the careful monitoring of the premium/discount that the shares are traded in the market when compared to those experienced by similar companies. Major shareholders are contacted directly by the Adviser on a regular basis.

The Company reports formally to shareholders twice a year and a proxy voting card is sent to shareholders with the Annual Report and Financial Statements. Additionally, current information is provided to shareholders on an ongoing basis through the Company's website. The Secretary monitors the voting of the shareholders and proxy voting is taken into consideration when votes are cast at the Annual General Meeting. Shareholders may contact the Directors via the Company Secretary.

DIRECTORS

The Directors who held office during the year and subsequently (except where stated) were:-S. Hansen M. Christensen

H. Grant (resigned 3rd August 2010)

D. Maccabe (resigned 2nd August 2010)

D. Adamson (appointed 2nd August 2010)

D. Pirouet (appointed 2nd August 2010)

J. Shakeshaft

COMPANY SECRETARY

The Company Secretary is State Street Secretaries (Jersey) Limited (formerly Mourant & Co. Secretaries Limited) of 22 Grenville Street, St. Helier, Jersey, JE4 8PX.

INDEPENDENT AUDITORS

BDO Alto Limited have expressed their willingness to continue in office.

REGISTERED OFFICE

22 Grenville Street

St. Helier

Jersey

JE4 8PX

BY ORDER OF THE BOARD

Tracy Barnes

Authorised Signatory

State Street Secretaries (Jersey) Limited (formerly Mourant & Co. Secretaries Limited)

Secretary

Date 29 September 2010

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards, as adopted by the European Union.

Company (Jersey) Law 1991 requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

* select suitable accounting policies and then apply them consistently;

* make judgements and estimates that are reasonable and prudent;

* state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

* prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements have been properly prepared in accordance with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors have taken all steps that they ought to have taken to make themselves aware of the information needed by the Company's auditors for the purpose of their audit and to ensure that the auditors are aware of that information. The Directors are not aware of any relevant information of which the auditors are unaware.

 

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF LUDGATE ENVIRONMENTAL FUND LIMITED

 

We have audited the financial statements of Ludgate Environmental Fund Limited (the 'Company') for the year ended 30 June 2010 which comprise the balance sheet, the statement of comprehensive income, the statement of changes in net assets attributable to shareholders, the cash flow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union.

 

This report is made solely to the Company's members, as a body, in accordance with Article 110 of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of directors and auditors

 

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made by the directors and the overall presentation of the financial statements.

 

Opinion on the financial statements

 

In our opinion the financial statements:

·; give a true and fair view of the state of the Company's affairs as at 30 June 2010 and of its loss for the year then ended;

·; have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and

·; have been prepared in accordance with Companies (Jersey) Law 1991.

 

Report on other legal and regulatory requirements

 

We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises the statement of investment policy, chairman's statement, directors' biographies, manager and adviser's report, major investments report and directors' report.

 

Philip Braun FCA

For and on behalf of BDO Alto Limited

Chartered Accountants

Jersey, Channel Islands

30 September 2010

 

 

Note:

The maintenance and integrity of the Ludgate Environmental Fund Limited web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that occur to the financial statements or financial information due to their posting on the web site

 

BALANCE SHEET

AS AT 30TH JUNE 2010

				Notes		2010					2009
ASSETS
Non-current assets
Financial assets at fair value through profit or loss				7,22		26,719,866					20,646,179
Loans receivable				10		-					510,570
						26,719,866					21,156,749
Current assets
Derivatives at fair value through profit or loss				8		682,737					194,334
Loans receivable				10		1,200,000					-
Trade and other receivables				11		261,208					976,003
Cash and cash equivalents				9		16,672,333					28,259,578
						18,816,278				29,429,915
TOTAL ASSETS					£	45,536,144		£		50,586,664
LIABILITIES
Non-current liabilities
Retention of performance fees				13		186,164				183,853
Current liabilities
Trade and other payables				12		44,193				26,848
TOTAL LIABILITIES						230,357				210,701
NET ASSETS ATTRIBUTABLE TO EQUITY SHAREHOLDERS				14		45,305,787				50,375,963
TOTAL LIABILITIES AND NET ASSETS ATTRIBUTABLE TO EQUITY SHAREHOLDERS					£	45,536,144		£		50,586,664
						£				£
Net asset value per ordinary share outstanding						14						0.99						1.10
These financial statements on pages 23 to 57 were approved and authorised for issue by the Board of Directors on the 29th day of September 2010 and were signed on its behalf by:
Director: David Pirouet

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH JUNE 2010

				Notes			2010			2009
INCOME:
Deposit interest income							302,209			989,694
Income on financial assets at fair value through profit or loss							1,738,240			1,596,697
Loan facility interest							461			2,523
Other income							-			1,229
Gain on sale of financial assets at fair value through profit or loss					7			107,441			-
Placement fees							-			16,941
Movement on foreign exchange							(166,997)			307,512
							1,981,354			2,914,596
EXPENSES:
Loss on financial assets and derivatives at fair value through profit or loss				7, 8			4,589,458			4,394,769
Legal fees							41,816			3,231
Professional fees							169,003			161,500
Investment management fees				18			967,807			838,495
Provision for interest receivable				11			357,988			-
Administration and accountancy fees							89,875			58,528
Directors' fees and expenses				4			102,968			71,214
Transaction cost							7,148			-
Audit fees							32,265			9,750
Issue costs							-			360,000
Miscellaneous fees							3,706			3,148
							6,362,034			5,900,635
TOTAL COMPREHENSIVE INCOME						£	(4,380,680)		£	(2,986,039)
Loss per ordinary share				6			£(0.10)			£(0.07)

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

FOR THE YEAR ENDED 30TH JUNE 2010

 

		Ordinary shares and warrants issued	Change in net assets attributable to equity shareholders	Total net assets attributable to equity shareholders
FOR THE YEAR ENDED 30TH JUNE 2010
Opening balance as at 1st July 2009		47,729,427	2,646,536	50,375,963
Total comprehensive income		-	(4,380,680)	(4,380,680)
Dividends paid to equity shareholders		-	(689,496)	(689,496)
Balance as at 30th June 2010	14	£ 47,729,427	£(2,423,640)	£ 45,305,787
FOR THE YEAR ENDED 30TH JUNE 2009
Opening balance as at 1st July 2008		29,729,431	5,632,575	35,362,006
Issue of ordinary shares		17,999,996	-	17,999,996
Total comprehensive income		-	(2,986,039)	(2,986,039)
Balance at 30th June 2009	14	£47,729,427	£2,646,536	£50,375,963

CASH FLOW STATEMENT

			Notes		2010		2009
Cash flows from operating activities			17		( 1,080,420)		( 1,386,495)

 

Cash flows from investing activities
Purchase of investments			7		( 11,341,197)		( 7,232,198)
Sale of investments			7		297,089		-
Interest and dividends received					2,083,206		1,213,110
Loan finance provided			10		( 900,000)		( 532,750)
Loan finance repaid			10		210,570		399,361
Net cash used in investing activities					( 9,650,332)		( 6,152,477)
Cash flows from financing activities
Dividends paid to equity shareholders					( 689,496)		-
Proceeds from issue of ordinary shares during the year			14		-		17,999,996
Net cash generated from financing activities					( 689,496)		17,999,996
Net (decrease)/increase in cash and cash equivalents					( 11,420,248)		10,461,024
Effects from changes in exchange rates on cash and cash equivalents					( 166,997)		329,692
Cash and cash equivalents at beginning of the year					28,259,578		17,468,862
Cash and cash equivalents at end of the year			9	£	16,672,333	£	28,259,578

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

1. REPORTING ENTITY

The Company was registered as a public company on 7th June 2007 with registered number 97690 under the Companies (Jersey) Law 1991. The Company joined the Alternative Investment Market ("AIM") on the 2nd August 2007. The registered office of the Company is 22 Grenville Street, St Helier, Jersey, JE4 8PX.

The Company will have a life of approximately eight years from admission to AIM, expiring on 30th June 2015 (the "Proposed Wind-up Date"). The Directors may, not less than three months prior to the Proposed Wind-Up Date, propose a special resolution to extend the life of the Company by four years. Further such resolutions may then be proposed in the same manner not less than three months prior to the expiry of each such four year period.

2. ACCOUNTING POLICIES

a) Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union and International Accounting Standards Board ("IASB"), and its predecessor body, as well as interpretations issued by the International Financial Reporting Interpretation Committee ("IFRIC") and its predecessor body. The more significant policies are set out below:-

New accounting standards, amendments to existing standards and interpretations that are effective for the current year

The following new accounting standards, amendments to existing accounting standards and/or interpretations of existing accounting standards are mandatory for the current year and have been adopted by the Company. All other new standards, amendments to existing standards and new interpretations that are mandatory for the current year have no bearing on the operating activities and disclosures of the Company. The Company has not adopted any new standards or interpretations that are not mandatory. The Directors of the Company anticipate that the adoption of these standards and interpretations in the current or future periods will have no material impact on the financial statements of the Company.

IAS 1 (revised), 'Presentation of financial statements'. The revised standard prohibits the presentation of items of income and expenses (i.e. 'non-owner changes in equity') in the statement of changes in equity. It requires non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The revised standard also requires entities which restate or reclassify comparative information to present a restated statement of financial position as at the beginning comparative year, in addition to the current requirement to present statements of financial position at the end of the current year and comparative year. The Company has applied IAS 1 (revised) from 1st January 2009, and has elected to present solely a statement of comprehensive income. Adoption of this revised standard has not resulted in any significant changes to the presentation of the Company's performance statement, as the Company has no elements of other comprehensive income.

- IAS 32 (Revised) Financial Instruments: Presentation and IAS 1 Presentation of financial statements - Puttable financial instruments and obligations arising on liquidation (Effective for periods beginning on or after 1st January 2009). Adoption of this revised standard has resulted in ordinary shares being classified as equity rather than debt. This reclassification had no impact on the Company's results as per the statement of comprehensive income or the NAV and therefore no reconciliation is presented in these financial statements.

IAS 39 (amendment), 'Financial instruments: Recognition and measurement'. The definition of financial asset or financial liability at fair value through profit or loss as it relates to items that are held for trading was amended. This now clarifies that a financial asset or liability that is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-term profit taking is included in such a portfolio on initial recognition. Adoption of this revised standard has had no impact on the Company's financial statements.

IFRS 7 (amendment) 'Financial instruments: Disclosures'. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements into a three level fair value measurement hierarchy. The adoption of the amendment results in additional disclosures, but has no impact on the Company's reported financial position or performance. The additional disclosure are included in notes 7 and 16. Comparative information has not been presented as it is not required.

IFRS 8, 'Operating Segments'. The IASB issued this new accounting standard in November 2006, with adoption being mandatory for accounting periods beginning on or after 1st January 2009. The standard requires segmental disclosure based on the components of the entity that management monitors in making decisions about operating matters. This "management approach" differs from IAS 14, which currently requires the disclosure of two sets of segments, business and geographical segments, based on a desegregation of information contained in the financial statements. Under IFRS 8 operating segments become reportable based on threshold tests related to revenues, results and assets. In the opinion of the Directors of the Company, the Company has only one reportable operating segment. Consequently, adoption of this new standard has had no significant impact on the Company's financial statements. See note 15 for additional IFRS 8 disclosures.

New accounting standards, amendments to existing standards and interpretations that are effective for the current year but are not applicable to the Company

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Company's accounting periods beginning on or after 1st July 2009 or later periods but are not relevant for the Company's operations:

- IFRS 2 (Amendment) Share based payments (Effective for periods beginning on or after 1st January 2009).

- IFRS 3 (Revised) Business Combinations and IAS 27 consolidated and separate financial statements (Effective for periods beginning on or after 1st July 2009).

- IAS 23 (Revised) Borrowing Costs (Effective for periods beginning on or after 1st January 2009).

- IAS 39 (Revised) Financial Instruments: Recognition and Measurement - Eligible Hedged Items (Effective for periods beginning on or after 1st July 2009).

- IFRIC 13 Customer Loyalty Programmes (Effective for periods beginning on or after 1st July 2009).

- IFRIC 14/IAS 19 The limit on defined benefit asset, minimum funding requirements and their interaction (Effective for period beginning on or after 1st January 2009).

- IFRIC 15 Agreements for the construction of real estate (Effective for periods beginning on or after 1st January 2009).

- IFRIC 16 Hedges of Net Investment in a Foreign Operation (Effective for periods beginning on or after 1st October 2008).

- IFRIC 17 Distributions of Non-cash Assets to Owners (Effective for periods beginning on or after 1st July 2009).

- IFRIC 18 Transfer of assets from customers (Effective for periods beginning on or after 1st July 2009).

Applicable new accounting standards, amendments to existing standards and interpretations that are not mandatory for the current year and have not yet been adopted

IFRS 9 (Replacement of IAS 39), "Financial Instruments: Recognition and Measurement": IFRS 9 is mandatory for accounting periods commencing from 1st January 2013. However, IFRS 9 may be early adopted at any time from 12th November 2009 onwards. The main changes resulting from the replacement of IAS 39 by IFRS 9 are changes to the permitted classifications and subsequent measurement of financial instruments. However, in the opinion of the Directors, adoption of IFRS 9 would result in no material changes to the Company's financial statements.

IAS 24 (Revised) Related party disclosures (Effective for periods beginning on or after 1st January 2011). Provides a partial exemption for government related entities.

b) Basis of measurement

These financial statements have been prepared on a historical cost basis except for the below. The policies have been consistently applied to both periods presented.

Financial instruments at fair value through profit or loss and derivatives at fair value though profit and loss are measured at fair value and changes therein are recognised in the Statement of Comprehensive Income. Information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised within the financial statements are included in Section O of Note 2 'Determination of fair values'.

c) Functional and presentation currency

These financial statements are presented in sterling, which is the Company's functional and presentation currency.

d) Use of estimates and judgements

The preparation of financial statements in accordance with IFRS requires the Board to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

e) Foreign currencies

Transactions in foreign currencies, other than sterling, are translated at the foreign currency exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to sterling at the foreign currency closing exchange rate ruling at the balance sheet date. Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are recognised in the statement of comprehensive income. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to sterling at the foreign currency exchange rates ruling at the dates that the values were determined. Foreign currency differences arising on retranslation are recognised in the statement of comprehensive income.

f) Financial instruments

Financial assets and financial liabilities are initially recognised on the Company's balance sheet when the Company becomes party to the contractual provisions of a given instrument.

Regular way purchases and sales of financial instruments are recognised on the trade date. Gains and losses are recognised from that date.

Financial assets cease to be recognised when the contractual rights to cash flows from the assets expire or the Company transfers the financial assets and substantially all of the risks and rewards of ownership have been transferred. Financial liabilities cease to be recognised when the liabilities are extinguished.

Financial instruments comprise investments in equity and debt securities, warrants, loans receivable, trade and other receivables, cash and cash equivalents, trade and other payables and performance fees retained.

Financial instruments are recognised initially at fair value. Subsequent to initial recognition financial instruments are measured as described below.

Financial assets at fair value through profit or loss

An instrument is classified at fair value through profit or loss if it is held for trading or designated as such upon initial recognition. The Company has designated its investment holdings as at fair value through profit or loss as permitted by International Accounting Standard 39 Financial Instruments: Recognition and Measurement. These financial assets are designated on the basis that they form part of a group of financial assets which are managed and have their performance evaluated on a fair value basis. Upon initial recognition attributable transaction costs are recognised in the statement of comprehensive income when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in the statement of comprehensive income.

Derivatives at fair value through profit or loss

The warrants held by the Company are classified as derivative financial instruments held for trading. Therefore they are recognised at fair value, with realised and unrealised gains and losses being recognised in the statement of comprehensive income. The derivatives are derecognised when the rights to receive cash flows from it have expired or the Company has transferred substantially all risks and rewards of ownership.

Loan and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus directly attributable transaction costs and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence that the Company will be unable to collect all of the amounts due under the terms of the receivable. The Company's loans and receivables comprise loans receivable, trade and other receivables and cash and cash equivalents.

Financial liabilities

All liabilities are classified as other financial liabilities and are measured at amortised cost using the effective interest rate method.

Cash and cash equivalents

Cash comprises fixed deposits, cash balances and call deposits with banks. Cash equivalents are short-term highly-liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

Ordinary shares

Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial liability.

The Ordinary Shares of the Company are treated as equity as it entitles the shareholder to a pro rata share of the Company's net assets in the event of the Company's liquidation.

g) Provisions

A provision is recognised if, as a result of a past event, the Company has a legal or constructive obligation that can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to that liability.

h) Revenue and expenses

Revenue is recognised to the extent that it is possible that economic benefits will flow to the Company and the revenue can be reliably measured. Expenses are accounted for on an accruals basis.

i) Finance income and expenses

Finance income comprises interest income on funds invested (including debt securities at fair value through profit or loss), interest income and loan interest income. Interest income and loan interest income are recognised as they accrue in the statement of comprehensive income, using the effective interest rate method. Dividend income is recognised in the statement of comprehensive income on the date the Company's right to receive payments is established which is usually the ex-dividend date.

Finance expenses comprise interest expense on borrowings and unwinding of discounts on provisions.

Foreign currency gains and losses are reported in the statement of comprehensive income on a net basis.

j) Earnings per share ("EPS") and net asset value ("NAV") per share

The Company presents basic EPS and NAV data for its ordinary shares. Basic EPS is calculated by dividing the comprehensive income attributable to equity shareholders from operations by the weighted average number of ordinary shares in issue during the year. (For further details see note 6). NAV per equity share is calculated by dividing net assets attributable to equity shareholders by the number of equity shares outstanding at the year end.

k) Transaction costs

Expenses incurred by the Company that are directly attributable to the offering of new shares have been expensed to the statement of comprehensive income.

l) Taxation

With effect from the 2009 year of assessment Jersey abolished the exempt company regime for existing companies. Profits arising in the Company for the 2009 year of assessment and future periods will be subject to Jersey Income Tax at the rate of 0%. In the prior year the Company was exempt from taxation under the provision of Article 123A of the Income Tax (Jersey) Law 1961 as amended.

The Company was registered under the Reporting Fund regime Regulation 51 of The Offshore Fund (Tax) Regulations 2009 in the United K ingdom effective 1st July 2009.

m) Dividends payable

Dividends payable to ordinary shareholders are accounted for when a legal obligation arises.

Dividends payable, if any, on ordinary shares are recognised in the statement of changes in net assets attributable to equity shareholders.

n) Offsetting

Financial assets and liabilities are offset and the net amount is reported within assets and liabilities where there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

o) Determination of fair values

A number of the Company's accounting policies and disclosures require the determination of fair values for the financial assets and liabilities. Fair value is the amount for which an asset or liability could be exchanged or settled between knowledgeable, willing parties in an arms length transaction. Fair values have been determined for disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Financial assets for which quoted closing prices are available from a third party in a liquid market are valued on the basis of quoted bid prices. Where there are no available quoted prices the fair values will be determined in accordance with International Private Equity and Venture Capital Valuation Guidelines ("IPEVCV") as amended from time to time.

As at the balance sheet date, the fair values of quoted equities are based on quoted bid prices at the year end. Unquoted equities and unquoted securities are valued using a variety of methods as follows:

- Rapid Action Packaging Limited Ordinary Shares are valued at cost.

- Rapid Action Packaging Limited Convertible Loan Notes are valued at cost.

- Agri.capital Class F Preference Shares are valued at cost.

- Agri.capital Class E Preference Shares have been valued based on a defined valuation uplift.

 

- Hydrodec Group plc Convertible Bonds are valued using the Black Scholes option valuation method which is carried out by an independent broker.

- STX Services B.V. shares have been valued based on a multiple of profit after tax for the year, within IPEVCV guidelines.

- Emergya Wind Technologies B.V. Preference Shares have been valued at the latest transaction price per share as per IPEVCV guidelines.

- New Earth Solutions Ordinary Shares and Convertible Loan Notes are valued at cost.

- Terra Nova SAS A shares are valued at cost of €1,260 per share. Terra Nova SAS B shares represent founder shares issued to the Company at €10 per share as a result of a working capital adjustment and are valued at the same cost of the A shares.

The fair value of financial liabilities is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date.

The fair value of derivatives at fair value through profit or loss is derived using the Black Scholes Option Pricing Model.

p) Non-consolidation

The Directors do not believe that the Company had the power to exercise control over the investments as set out in the provisions of paragraph 12 of International Accounting Standard 27 (Consolidated Financial Statements and Accounting for Investments in Subsidiaries), or under the Standard Interpretations Committee pronouncement Number 12 (SIC 12 - Consolidation: Special Purpose Entities). The Directors have arrived at this opinion because the Company in any of its investments:

- do not hold a controlling stake;

- do not have the power to govern the financial and operating policies;

- do not have the power to remove the majority of the members of the board of directors; and

- do not have the power to cast the majority of votes at meetings of the board of directors.

q) Associates

Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.

As the Company operates as a venture capital organisation it uses the scope exemption of IAS 28 'Investment in Associates' and designates upon initial recognition some investments that would otherwise be equity accounted as investments at fair value through profit or loss with subsequent changes in fair value recognised in the statement of comprehensive income in the period of the change.

r) Segmental reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. The Directors perform regular reviews of the operating results of the Company and make decisions using financial information at the entity level only. Accordingly, the Directors believe that the Company has only one reportable operating segment.

The Directors are responsible for ensuring that the Company carries out business activities in line with the transaction documents. They may delegate some or all of the day to day management of the business, including the decisions to purchase and sell securities, to other parties both internal and external to the Company. The decisions of such parties are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Directors. Therefore, the Directors retain full responsibility as to the major allocation decisions of the Company.

3. PERFORMANCE FEES RETAINED AND PAYABLE

	2010	2009
Performance fees payable	£nil	£nil

Performance fees are payable to the Adviser with reference to the increase in adjusted net asset value per share over the course of each performance period. The Adviser becomes entitled to receive a performance fee if the following conditions are met:

- The adjusted net asset value per share at the end of the performance period exceeds the Performance Hurdle. The Performance Hurdle is an amount equal to the placing price increased at a rate of 8% per annum on a compounded basis up to the end of the relevant performance period; and

- The adjusted net asset value per share at the end of the performance period exceeds the High Watermark. The High Watermark is the highest previously recorded adjusted net asset value per share at the end of a performance period for which a performance fee was last earned.

If the above conditions are met the Adviser is entitled to receive a fee equal to 20% of the amount by which the adjusted net asset value exceeds the higher of (i) the performance hurdle and (ii) the relevant High Watermark multiplied by the time-weighted average number of shares in issue since the end of the last performance period for which a performance fee was earned.

The conditions for payment of performance fees were not met for the performance periods which ended on 30th June 2010 and 30th June 2009.

20% of performance fees earned by the Adviser shall be retained and deposited in a Reserve Account (see note 9). The Reserve Amount shall only be released on the final calculation date when the Administrator will calculate the Reserve Release Amount in accordance with Schedule 1 of the Management Agreement.

From time to time members of the Ludgate group may provide corporate financial services to the Company and investee companies. The directors ensure that such services are pre-approved, provided on an arms length basis and market terms and that any possible conflicts of interest are disclosed. Further details supplied in Note 16.

Ludgate also provided services to certain portfolio companies. The total paid by portfolio companies to Ludgate for the year ended 30th June 2010 was £374,000.

4. DIRECTORS' REMUNERATION AND INTERESTS

	2010	2009
Directors' fees	91,100	68,054
Directors' expenses	11,968	3,160
	£102,968	£71,214

As at the balance sheet date, the following ordinary shares and warrants of the Company were held by the Directors, the Directors of the Adviser, the Investment Adviser and the Principals of the Investment Adviser.

30TH June 2010	Ordinary Shares	Warrants	Manager Warrants
J. Shakeshaft	115,445	12,500	-
M. Christensen	10,000	2,500	-
D. Adamson	50,000	10,000	25,000
N. Meir (including S. Meir's holding)	150,500	37,500	95,000
N. Pople	50,000	12,500	95,000
Ludgate Investment Limited	-	-	775,250
30TH JUNE 2009
J. Shakeshaft	60,000	12,500	-
M. Christensen	10,000	2,500	-

5. DIVIDENDS

The Directors recommended and paid a dividend during the year (relating to the year ended 30th June 2009) of 1.5 pence per share in issue as at 18th September 2009.

The Directors recommended and paid a dividend subsequent to the year end (relating to the year ended 30th June 2010) of 1.65 pence per share in issue as at 30th June 2010.

6. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following information:

 

	2010	2009
Total comprehensive income	£(4,380,680)	£ (2,986,039)
	Number	Number
Weight average number of equity shares for the purpose of basic earnings per share	45,996,419	39,933,026
Basic and diluted loss per equity share	£( 0.10)	£(0.07)

 

Outstanding warrants are anti-dilutive for both years presented as the exercise price of the warrants exceeded the average market price of ordinary shares issued.

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

As noted above the Company has designated its investment holdings in cleantech companies at fair value through profit or loss. Financial assets are initially recognised on the Company's balance sheet at fair value when the Company becomes party to the contractual provisions of a given instrument and changes thereafter are recognised in the statement of comprehensive income.

Investments:	2010	2009
Opening cost of investments	20,445,152	11,284,106
Cost of Loan notes converted into Preference Shares	(210,570)	(1,884,115)
Purchase/(disposals) during the year:
New investments acquired	11,341,197	7,232,198
Conversions	210,570	3,812,693
Investments sold	(167,081)	-
Closing cost of investment	£31,619,268	£20,445,152
	2010	2009
Opening fair value of investments	20,646,179	18,003,084
Cost of Loan notes converted into Preference Shares	(210,570)	(3,812,963)
Purchase/(disposals) during the year:
New investments acquired	11,341,197	7,232,198
Conversions	210,570	3,812,963
Investments sold	(189,650)	-
Fair value movement	(5,077,860)	(4,589,103)
Closing fair value of investments	£26,719,866	£20,646,179

Further details of the investments held can be found in Note 22 to these financial statements.

The Company adopted the amendment to IFRS 7, effective 1st January 2009. This requires the Company to classify fair value measurements using a three level fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs for the asset or liability that are not based on observable market data.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table analyses within the fair value hierarchy the Company's financial assets measured at fair value at 30th June 2010.

	Level 1 £	Level 2 £	Level 3 £	Total £
Financial assets at fair value through profit or loss	2,829,321	3,302,820	20,587,725	26,716,866
Derivatives at fair value through profit or loss	-	1,129	681,608	682,737

 

 

Financial assets whose values are based on quoted market prices in active markets, and therefore classified within Level 1, include mainly actively listed equities. The Company does not adjust the quoted market price for these.

Financial assets that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 includes mainly convertible bonds. As Level 2 bonds are not traded in an active market, valuations are based on an option valuation method which was carried out by an independent broker.

Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 includes equities and convertible loan notes. As the observable prices are not available for these equities and convertible loan notes, the Company has used valuation methods as described in Note 2 (o).

The movement in Level 3 financial assets for the year ended 30th June 2010 by class of financial assets were as follows:

		Derivatives		Unquoted equities		Unquoted securities		Total
Opening balance		191,607		10,870,935		2,500,000		13,562,542
Total losses (realised/unrealised) included in the statement of comprehensive income		490,001		(2,981,742)		-		(2,491,741)
Purchases, sales, issuances, and settlements (net)		-		8,198,532		2,000,000		10,198,532
Closing balance	£	681,608	£	16,087,725	£	4,500,000	£	21,269,333

For unquoted equities, if the multiple used or the recent market transaction price used in the valuation had increased by 5%, this would have resulted in an increase in value of £123,135. A decrease of 5% would have resulted in a decrease in value of £123,135.

 

	Evidence of title of financial assets at fair value through profit or loss are held by the following parties:
										2010				2009
	Walker Crips Stockbrokers Limited									5,535,465				2,910,184
	State Street (Jersey) Limited									21,184,401				17,735,995
									£	26,719,866			£	20,646,179
8.	DERIVATIVES AT FAIR VALUE THROUGH PROFIT AND LOSS									2010				2009
	Rapid Action Packaging Limited										211,440			113,211
	Emergya Wind Technologies B.V.									-			78,396
	Agri Capital									470,168			-
	Phoslock Water Solutions Limited									1,129			2,727
									£	682,737			£	194,334
	As noted above, the warrants have been valued using the Black Scholes Option Pricing Model.
	Emergya Wind Technologies warrants were cancelled on 11th December 2009.
9.	CASH AND CASH EQUIVALENTS									2010				2009
	Royal Bank of Scotland International - current account GBP									65,752				270,878
	Royal Bank of Scotland International - current account EUR									186,437				98,805
	Royal Bank of Scotland International - current account AUD									269				1,494
	Royal Bank of Scotland International - escrow account GBP									6				6
	Royal Bank of Scotland International - escrow account EUR									2				2
	Barclays/Royal Bank of Scotland International - reserve account									185,698				183,482
	Walker Crips Stockbrokers Limited									184,278				-
	Cash held on fixed term deposit:
	Fixed term deposits held with Bank of Scotland									2,500,000				5,000,000
	Fixed term deposits held with Barclays (GBP)									4,307,627				3,903,743
	Fixed term deposits held with Barclays (EUR)									683,414				-
	Fixed term deposits held with UBS									-				6,000,000
	Fixed term deposits held with ABN AMRO (GBP)									1,500,369				4,038,314
	Fixed term deposits held with ABN AMRO (EUR)									1,823,778				-
	Fixed term deposits held with AIB (GBP)									-				1,050,600
	Fixed term deposits held with AIB (EUR)									-				2,555,149
	Fixed term deposits held with Royal Bank of Scotland International									5,234,703				5,157,105
									£	16,672,333			£	28,259,578

The Company has permission to borrow sums equivalent to 25% of the net asset value in accordance with its Articles of Association. At the balance sheet date no such facility had been entered into (2009: £nil). The Board of Directors and Management of the Company have taken care to minimise the credit risk associated with cash and cash equivalents. The cash held in fixed term deposits has been diversified across a number of reputable financial institutions.

The cash held on the Reserve Account represents 20% of the performance fees earned by the Adviser to date. The balance on this account can only be released on the final calculation date when the Administrator will calculate the Reserve Release Amount in accordance with Schedule 1 of the Management Agreement.

 

Bank/Broker	2010	2009
Walker Crips Stockbrokers Limited	184,278	-
Royal Bank of Scotland International	2,487,169	3,903,743
Barclays	5,176,739	3,903,743
UBS	-	6,000,000
ABN AMRO	3,324,147	7,644,063
Bank of Scotland	2,500,000	5,000,000
	16,672,33	28,259,578

 

 

 

10.	LOAN RECEIVABLE												2010				2009
Rapid Action Packaging Limited														1,200,000				300,000
Emergya Wind Technologies														-				210,570
													£	1,200,000			£		510,570

 

 

The Company has entered into a £1,000,000 Loan Facility Agreement dated 30th June 2009 with Rapid Action Packaging Limited ("RAP") which was increased to £1,500,000 during the year. The loan is unsecured, bears interest at 8% per annum, payable semi-annually in arrears commencing 31st December 2009 and is repayable on the Final Repayment Date of 20th May 2011. A commitment fee and arrangement fee was paid to the Company on the date of entering into the Loan Facility and was satisfied by the receipt of warrants issued by RAP, allowing the Company to purchase 500 shares and 200 shares, respectively, at an exercise price of £417.03 per share.

A further commitment and arrangement fee was paid to the Company on the date the extension of £0.5million to the Loan Facility was agreed, satisfied by the receipt or warrants issued by RAP, allowing the Company to purchase 250 shares and 100 shares, respectively, at an exercise price of £417.03 per share. A drawdown fee is also payable to the Company and is satisfied by the receipt of warrants issued by RAP allowing the Company to purchase 1 share in RAP in respect of each £1,250 drawdown at an exercise price of £417.03 per share.

As at 30th June 2010 £1,200,000 (2009: £300,000) has been drawn under the facility and the Company had been issued 2,010 (2009: 940) warrants in RAP. RAP is entitled to drawdown the remaining £300,000 before the Final Drawdown Date of 30th September 2010.

The Company had entered into a Convertible Warranted Loan Facility Agreement (the "EWT Loan Agreement") dated 3rd April 2009 with Emergya Wind Technologies Holdings N.V. ("EWT"). Under the terms of the EWT Loan Agreement the Company agreed to lend EWT up to a maximum of €232,750.

Under the terms of the EWT Loan Agreement the Company converted its participation in the loan into Class C Cumulative Preference Shares in EWT (the "Preference Shares"). The number of Preference Shares is equal to the amount in euros of the participation in the loan outstanding on the issue date together with any accrued interest multiplied by ten.

During the year the Company exercised their option to convert the loan into Class C Cumulative Preference shares at €0.03 per share.

11.	TRADE AND OTHER RECEIVABLES											2010				2009
	Fixed deposit interest receivable											16,830				385,659
	Investment income receivable (net of provision)											237,554				582,520
	Prepayments and other receivables											6,824				7,824
											£	261,208			£	976,003
	Investment income receivable is net of provision for EWT of £357,988 (2009: £nil).
12.	TRADE AND OTHER PAYABLES											2010				2009
	Directors' fees and expenses payable											8,500				7,423
	Professional fees payable											1,873				1,375
	Audit fees payable											15,000				6,550
	State Street (formerly Mourant & Co.) fees payable											18,820				11,500
											£	44,193			£	26,848
	All expenses are payable on presentation of an invoice.
13.	PERFORMANCE FEE RETENTION											2010				2009
	Retention of performance fees										£	186,164			£	183,853
	For further details please refer to note 3.
14.	STATED CAPITAL ACCOUNT									2010				2009
	AUTHORISED:
	Ordinary shares of no par value each									Unlimited				Unlimited
	The authorised stated capital of the Company comprises an unlimited number of voting, ordinary shares which are neither redeemable nor convertible and which have no par value.
										No. of				No. of
						No. of				investor				management
						ordinary shares				warrants				warrants
	Opening balance at 1st July 2009					45,966,419				6,683,775				1,285,250
	Balance at 30th June 2010					45,966,419				6,683,775				1,285,250
	Opening balance at 1st July 2008					29,408,610				6,683,775				1,285,250
	Issued during the year					16,557,809				-				-
	Balance at 30th June 2009					45,966,419				6,683,775				1,285,250

 

 

 

 

 Two Founder Shares of £1.00 each were issued on incorporation. The initial public offering of Ordinary Shares on 2nd August 2007 was priced at £1.00 per share. Subscribers for the ordinary shares received one investor warrant for every four ordinary shares subscribed. Each investor warrant entitles the holder to subscribe for additional shares in the Company at a subscription price of £1.50 until the final subscription date of 31st October 2012.

A second placing of shares occurred on 22nd February 2008. 2,673,509 Ordinary Shares of no par value were issued at a price of £1.12 per share. On 10th November 2008 a further issue of 16,557,807 Ordinary Shares were placed at a price of £1.09 per share. No warrants were attached to these shares. The Ordinary Shares and warrants are listed and traded on AIM.

Ludgate Fund Management (Environmental) (Jersey) Limited (the "Manager") received 1,285,250 unlisted Manager Warrants entitling the Manager to subscribe for additional shares in the Company at a subscription price of £1.75 until the subscription date of 31st October 2012.

The Ordinary Shares and Founder Shares carry the right to vote at general meetings, dividends and the surplus assets of the Company on winding-up. All holders of the Ordinary Shares and Founder Shares have the same voting rights.

 

							2010		2009
							Stated capital		Stated capital
							£		£
	Opening balance						47,729,427		29,729,431
	Issued during the year						-		17,999,996
	Closing balance					£	47,729,427	£	47,729,427
	WARRANTS:						2010		2009
	Investor Warrants:
	Issue of warrants at IPO (1:4 exercisable for ordinary shares)				Number		6,683,775		6,683,775
	Exercise price						£1.50		£1.50
	Management Warrants:
	Issue of Manager Warrants at IPO				Number		1,285,250		1,285,250
	Exercise price						£1.75		£1.75

The Investor Warrants entitle the holder to subscribe for one ordinary share in the Company at a price of £1.50 up to the Final Subscription Date of 31st October 2012. Investors who subscribed for Shares pursuant to the placing received one Investor Warrant for every four shares acquired.

The Management Warrants were issued in registered form and entitle the holder to subscribe for one share at a price of £1.75 until the Final Subscription Date of 31st October 2012.

The subscription right of all warrants may only be exercisable during the 28 days following the date of publication of the Company's annual audited financial statements for any of the financial periods/years ended 30th June 2008 to 2011 inclusive and/or during the 28 days prior to the Final Subscription Date of 31st October 2012.

15. SEGMENT INFORMATION

 

Geographical informatiom

 

The Company's country of domicile is Jersey, Channel Islands. All of the Company's revenues are generated from outside the Company's country of domicile.

 

Non-current assets

 

The Company has no non-current assets other than financial instruments and loans receivable in the prior year.

 

Major investment company

 

For management purposes, the Company is organised into one main operating segment, which invests in quoted and unquoted equity and unquoted debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.

16. FINANCIAL RISK MANAGEMENT

The Board of Directors is responsible for the establishment and oversight of the Company's risk management framework. Policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. These are reviewed regularly to reflect changes in market conditions and the Company's activities.

The Company maintains positions in a variety of financial instruments dictated by its investment management strategy. The Company's investment portfolio comprises quoted and unquoted equity investments, unquoted debt securities and cash which the Company intends to hold for an indefinite period (subject to the life of the Company). Asset allocation is determined by the Board who manages the distribution of the assets to achieve the investment objectives.

The Directors are aware that substantially all of the business of the Adviser is accounted for in the services provided to the Company under the Advisory Agreement. A significant proportion of the business of the Adviser is accounted for in the services provided to the Company under the Advisory Agreement and other, principally corporate finance, services provided from time to time to the Company. In reviewing the performance of the Adviser, the Directors have paid particular attention to the risks to the Company of the reputation, financial standing, compliance and operation of each. They are satisfied that there are sufficient controls in place to ensure that officers of the Adviser cannot exercise undue influence over financial reporting and that it is a going concern.

The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below.

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Company's income and or the value of its holdings in financial instruments. The Adviser is responsible for monitoring, measuring and reporting market risk.

The Company's exposure to market risk comes mainly from movements in the value of its investments.

The Company's strategy on the management of investment risk is driven by the Company's investment objective. The Company's investment objective is to deliver to investors a significant level of capital growth in the medium to long term by building a diverse portfolio of investments in cleantech companies. The Company's market risk is managed by the Adviser in accordance with the policies and procedures in place.

The Company seeks to achieve its investment objective and minimise investment risk through the identification of appropriate technologies and companies within the cleantech sector using a rigorous review and selection process; by adding value to companies in the portfolio through active support at all stages of their growth and by focusing on maximising returns for shareholders by assisting companies in achieving an appropriate and timely exit.

Potential investments are screened to ensure that investments comply with the investment criteria, as described in the Admission Document and described in the Investment Policy. A full review and due diligence are undertaken before a potential investment can be submitted for approval by the Screening Committee, Investment Committee and the Adviser.

Monitoring of the portfolio is carried out on a quarterly basis by the Adviser who reviews the investments against technology developments, commercial progress, financial and trading results including management accounts, management assessment, market intelligence and anticipated planning and exit. Investment risk is also reviewed at the time of any investment proposal, the publication of the net asset values and any capital raising.

The Company's overall market positions are reviewed quarterly by the Board of Directors. Details of the Company's investment portfolio composition as at the balance sheet date are disclosed in Note 22 to these financial statements.

Interest Rate Risk

To the extent the Company incurs indebtedness, changes in interest rates can affect the Company's net interest income, which is the difference between the interest income earned on interest-bearing assets and the interest expense incurred on interest-bearing liabilities. Changes in the level of interest rates can also affect, among other things, the Company's ability to acquire loans and investments, the value of its investments and the Company's ability to realise gains from the settlement of such assets. Interest rate risk is mitigated by a policy of holding diversified instruments with varied counterparties.

The majority of the Company's financial assets are fixed rate or non-interest bearing and all of the Company's financial liabilities are non-interest bearing. Therefore, the Directors believe that the Company's exposure to interest rate risk is minimal. Any excess cash and cash equivalents are invested in fixed term deposits with maturities of 12 months or less. Investments in debt securities are in fixed rate instruments and therefore the Company has limited exposure to prevailing interest rates. Any adverse movement in interest rates would negatively affect the return on cash deposits over time. The amount of cash held on fixed term deposits is expected to reduce over the forthcoming years in accordance with the Company's stated investment objectives.

The Company's overall interest rate risk is reviewed by the Board on at least a quarterly basis.

 

Interest Rate Profile:			30th June 2010
			Interest charging basis		Effective interest rate		Amount
Financial assets:
Cash and cash equivalents			Fixed		1.81%		16,672,333
Financial assets at fair value though profit or loss:
Unquoted securities			Fixed		8.00%		7,802,820
Quoted equities			Non-interest bearing		n/a		2,829,321
Unquoted equities			Non-interest bearing		n/a		9,238,127
Unquoted equities			Fixed		8.00%		2,768,700
Unquoted equities			Fixed		10.00%		3,702,473
Unquoted equities			Fixed		8.16%		378,425
Derivatives at fair value through profit or loss			Non-interest bearing		n/a		682,737
Loan receivable			Fixed		8.00%		1,200,000
Trade and other receivables			Non-interest bearing		n/a		261,208
						£	45,536,144
Financial liabilities:
Trade and other payables			Non-interest bearing		n/a		44,193
Retention of performance fees			Floating		0.70%		186,164
						£	230,357
			30th June 2009
			Interest charging basis		Effective interest rate			Amount
Financial assets:
Cash and cash equivalents			Fixed		3.50%			28,259,578
Financial assets at fair value though profit or loss:
Unquoted securities			Fixed		8.24%			6,865,060
Quoted equities			Non-interest bearing		n/a			2,910,184
Unquoted equities			Non-interest bearing		n/a			4,534,658
Unquoted equities			Fixed		8.00%			2,686,101
Unquoted equities			Fixed		10.00%			1,890,137
Unquoted equities			Fixed		8.16%			1,760,039
Derivatives at fair value through profit or loss			Non-interest bearing		n/a			194,334
Loan receivable			Fixed		8.00%			510,570
Trade and other receivables			Non-interest bearing		n/a			976,003
						£		50,586,664
Financial liabilities:
Trade and other payables			Non-interest bearing		n/a			26,848
Retention of performance fees			Floating		1.59%			183,853
						£		210,701

 

 

 

 

 Interest rate sensitivity

IFRS 7 Financial Instruments: Disclosures ("IFRS 7") requires a sensitivity analysis for each type of risk to which the entity is exposed at the balance sheet date, showing how the profit or loss and equity would have been affected by changes in the relevant risk variable that are reasonably possible.

As disclosed above, the majority of the Company's financial assets and financial liabilities are non-interest bearing or fixed rate. During the year, the Company's interest income from fixed deposit was £302,209 (2009: £989,694) of which £16,830 (2009: £385,659) is outstanding at the end of the year. Had interest rates been 50 basis points higher throughout the year the Company would have decreased its loss by £83,362, with a corresponding extra loss being recognised had interest rates been 50 basis points lower (2009: £140,689).

Currency Risk

The Company may invest in financial instruments and enter into transactions that are denominated in currencies other than its functional currency, sterling. Consequently the Company is exposed to risk that the exchange rate of its functional currency relative to other foreign currencies may change in a manner that has an adverse effect on the value of that portion of the Company's assets and liabilities denominated in currencies other than sterling.

The Company's policy is to accept a limited amount of currency risk within the portfolio. It does not hedge either the fair value of its foreign currency investments nor the cashflows, if any, arising from such investments. Any gain or loss, recognised as a result of the Company's investment and valuation policies is recognised in the statement of comprehensive income. When the Company has entered into a definitive contract to purchase or sell securities denominated in foreign currency it purchases forward contracts; any ineffectiveness in this hedging would also be recognised in the statement of comprehensive income. The Company's overall currency risk and exposure is monitored on a quarterly basis by the Board of Directors. The Directors intend to keep this policy under quarterly review as the portfolio becomes more invested. The Directors further consider that investment in currencies is a separate asset class and not as such part of the normal trading business of the Company.

As at the balance sheet date the Company had the following currency risk exposure:

Financial assets at fair value through profit or loss					2010		2009
Unquoted equities denominated in Euro					11,143,445		9,370,935
Quoted equities denominated in AUD					471,179		327,205
				£	11,614,624	£	9,698,140
Loan receivable:
Loan receivable denominated in Euro				£	-	£	210,570

 

			2010		2009
Cash and cash equivalents
Cash and cash equivalents denominated in EUR			2,693,631		2,653,956
Cash and cash equivalents denominated in AUD			269		1,494
		£	2,693,900	£	2,655,450
Trade receivables:
Trade receivables denominated in Euro £			11,216	£	388,131

Currency sensitivity

As at 30th June 2010 if GBP had strengthened against the Euro by 5%, with all other variables held constant, the loss for the year as per the statement of comprehensive income would have increased and the net assets of the Company would have decreased by £659,441 (2009: £601,123). A 5% weakening of GBP against the Euro would have resulted in a decrease in the loss for the year as per the statement of comprehensive income and an increase in net assets of the Company of £728,859 (2009: £664,400), with all other variables held constant.

As at 30th June 2010 if GBP had strengthened against the AUD by 5%, with all other variables held constant, the loss for the year as per the statement of comprehensive income would have increased and the net assets of the Company would have decreased by £22,450 (2009: £15,652). A 5% weakening of GBP against the AUD would have resulted in a decrease in the loss for the year as per the statement of comprehensive income and an increase in the net assets of the Company of £24,813 (2009: £17,300), with all other variables held constant.

The movement in foreign exchange, excluding foreign exchange movements on financial assets at fair value through profit or loss which are reflected in the statement of comprehensive income as part of losses or gains on financial assets at fair value through profit or loss, for the year ended 30th June 2010 was a loss of £166,997 (2009: gain of £307,512). This movement has been largely caused by the variance in the EUR:GBP exchange rate during the year on deposits held in Euro. The EUR:GBP exchange rate moved from 1.1741 as at 1st July 2009 to 1.2214 as at 30th June 2010.

Other price risk

Market price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices (other than those arising due to currency risk or interest rate risk) whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As the majority of the Company's financial instruments are held at fair value with changes in fair value being recognised in the statement of comprehensive income, all changes in market conditions will directly affect the profit for the period and the Company's net assets. Price risk is monitored and reviewed by the Directors on a quarterly basis, at any valuation event and at each investment committee meeting, whichever is the more frequent.

Risk is mitigated in a thematic portfolio diversified by securities, assets, geography and industrial sector. No single investment can account for more than 15% of ungeared NAV at investment. No single investment held for short term trading can be more than £750,000. The following table breaks down the investment assets held by the Company:

					2010		2009
Financial assets at fair value through profit or loss					percentage of net assets		percentage of net assets
Equity investments:
Quoted					6.24%		5.78%
Unquoted					35.51%		21.58%
Debt investments:
Unquoted					17.22%		13.63%

 

8.83% of the Company's investment assets are listed on European stock exchanges (2009: 12.51%). 1.76% of the Company's investments are listed on the Australian stock exchange (2009: 1.58%). A 10% increase in stock prices as at 30th June 2010 would have decreased the loss for the year and would have increased the net assets of the Company by £282,932 (2009: £291,018). An equal change in the opposite direction would increase the loss and decrease the net assets of the Company by an equal but opposite amount.

Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The carrying amount of financial assets best represents the maximum exposure at the balance sheet date. At the reporting date the Company's financial assets exposed to credit risk amounted to the following:

					2010		2009
Preference share holdings					9,580,251		6,336,277
Unquoted securities					7,802,820		6,865,060
Loan receivable					1,200,000		510,570
Trade and other receivables					261,208		976,003
Cash and cash equivalents					16,672,333		28,259,578
Total financial assets exposed to credit risk				£	35,516,612	£	42,947,488

The Company is subject to credit risk with respect to its unquoted securities. The Company and its Adviser seek to mitigate credit risk by actively monitoring the underlying credit quality of the Company's investment holdings. As noted above, monitoring of the portfolio is carried out on a quarterly basis by the Investment Adviser who will review the investments against milestones of technology developments, commercial progress, financial and trading results including management accounts, management assessment, market intelligence and anticipated planning and exit. Any indications of credit risk will be reported to the Board who will also review the portfolio and the related credit risk on a quarterly basis. The Company holds no hedges or insurance against counterparty risk. The Directors believe that the purchase of credit insurance would expose the Company to an unapproved asset class of derivatives.

The Company holds fixed term deposits of varying maturities with a number of banks each with a minimum long term credit rating from Standard and Poors, Moody's, or Fitch of AA- through a pooled account. This service is titled "Cash2". All transactions are in the name of State Street (Jersey) Limited (formerly: Mourant & Co. Limited) Client Nominee, advised by State Street (Jersey) Limited (formerly: Mourant & Co. Limited) . The Company is the beneficial owner of these deposits. There is no additional payment, liquidity, or settlement risk associated with the pooling.

The Company analyses the credit concentration based on the counterparty, industry and geographical location of the financial assets that the Company holds. The Company's financial assets exposed to credit risk were concentrated in the following industries:

2010 2009

Cleantech industries 53.06% 22.81%

Banks/financial services 46.94% 77.19%

All of the Company's financial assets which were held at the balance sheet date are European with the exception of Phoslock Water Solutions Limited which is Australian. None of the financial assets are either past due or impaired.

Concentration Risk

The Company may be exposed at any given time to a degree of concentration risk. To the extent that the Company's investments are concentrated in any one sub-sector of the cleantech sector, country or asset class downturns affecting the source of concentration may result in total or partial loss on such investments, which will reduce the Company's net asset value. The Directors consider the sector a diversified asset class and that effective hedging could be achieved by replication in purchasing differentiated securities but that the cost of these transactions would negate the value of the protection. The Company's investments are concentrated as follows:

2010 2009

Investments in cleantech industries 100.00% 100.00%

Geographical area - Europe 98.24% 98.42%

Geographical area - Australia 1.76% 1.58%

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.

The Company may face liquidity risks. Most of the investments in which the Company invests are relatively illiquid i.e. private companies which require a long-term capital commitment. A substantial amount of the Company's funds are concentrated in a limited number of investments subject to legal and other restrictions on resale, transfer, pledge or other disposition or that are less liquid than publicly traded securities. The illiquidity of these investments may make it difficult to sell investments if the need arises or the Investment Adviser determines that such a sale would be in the Company's interests.

The Directors monitor liquidity risk at least quarterly and perform going concern tests before the semi-annual publication of the financial statements. As an operating practice the Company is expected to hold at least sufficient working capital for a year's continuous operation on a rolling basis. The Company also holds sums equivalent to three months' forward operating expenses in call accounts. The Directors review this policy regularly. The Company also has permission to borrow sums equivalent to 25% of NAV in accordance with the terms of its Articles of Association.

Maturity profile

The tables below show the maturity of the current borrowings under the facilities, rather than the maturity over the whole life of the facilities and the expected maturity of the securities, rather than the legal maturity date.

	2010				2009
	Within one year		One to five years		Within one year		One to five years
Financial assets:	£		£		£		£
Cash and cash equivalents	16,672,333		-		28,259,578		-
Financial assets at fair value through profit or loss	-		26,719,866		-		20,646,179
Derivatives at fair value through profit or loss	211,440		471,297		81,123		113,211
Loans receivable	1,200,000		-		-		510,570
Trade and other receivables	261,208		-		976,003		-
	-
	18,344,981		27,191,163		29,316,704		21,269,960
Financial liabilities:
Trade and other payables	44,193		-		26,848		-
Retention of performance fees	-		186,164		-		183,853
	44,193		186,164		26,848		183,853

Financial instruments by category

 

Amounts recognised in balance sheet according to IAS 39

 

				Fair value
		Carrying	Amortised	recognised in
Category in accordance with IAS 39		amount	Cost	profit or loss	Fair value
		£	£	£	£
At 30th June 2010
Loans and receivables		18,133,541	18,133,541	-	18,133,541
Fair value through profit or	loss	27,402,603	-	27,402,603	27,402,603
Other liabilities		230,357	230,357	-	230,357
At 30th June 2009:
Loans and receivables		29,746,151	29,746,151	-	29,746,151
Fair value through profit or	loss	20,840,513	-	20,840,513	20,840,513
Other liabilities		210,701	210,701	-	210,701
Disclosure of material income, expenses,		gains and losses resulting from financial assets and financial liabilities:
				Fair value	Financial
			Loans and	through	liabilities at
			receivables	profit or loss	amortised cost
			£	£	£
30th June 2010
Net loss			-	( 4,589,458)	-
Interest income			302,670	1,261,701	-
Dividend income			-	476,539	-
Foreign exchange loss			( 166,997)	-	-
Gain on disposal			-	107,441	-
Net result for the year			135,673	( 2,743,777)	-
30th June 2009:
Net loss			-	( 4,394,769)	-
Interest income			992,217	1,029,906	-
Dividend income			-	566,791	-
Foreign exchange gain			307,512	-	-
Net result for the year			1,299,729	( 2,798,072)	-

 

The Company is an investment company listed on the AIM in London. Capital can only be increased either by the issue of new shares at net asset value or by borrowing up to the disclosed limit of 25% of NAV. Capital can only be reduced by the repurchase and cancellation of shares or the payment of special dividends both of which require shareholder resolution. The Company seeks to provide long term capital return in accordance with its stated investment policy from a diversified portfolio of securities of cleantech companies. The Company does not hold or intend to hold any derivatives other than those which may be embedded in or between the assets in the portfolio.

The Company will at all times maintain sufficient liquidity to cover at least twelve months' anticipated operating expenses. The Directors will also assure themselves that the NAV of the Company is sufficient for the cost effective management of the portfolio and the Company's objectives.

17.	CASH GENERATED FROM OPERATIONS						2010			2009
Total comprehensive income						(4,380,680)			(2,986,039)
Adjustments for:
Unrealised loss on financial assets at fair value through profit or loss						4,589,458			4,394,769
Gain on sale of investments						(107,441)			-
Movement on foreign exchange: loans provided						-			22,180
Movement on foreign exchange: cash and cash equivalents						166,997			(329,692)
Interest and dividends on investments receivable						(1,738,240)			(1,596,697)
Decrease/(increase) in trade and other receivables						369,829			(108,933)
Decrease in trade and other payables						17,346			782,538)
Increase in retention of performance fees						2,311			455
CASH FLOW FROM OPERATIONS					£	(1,080,420)		£	(1,386,495)
NON-CASH MOVEMENTS						2010			2009
Purchase of investments:
Conversions						210,570			3,812,963
					£	210,570		£	3,812,963

 

 

18. RELATED PARTY DISCLOSURE

H. Grant was an employee of a subsidiary of Mourant Limited up to 1st April 2010. Affiliates of Mourant Limited provided ongoing administrative services to the Company at commercial rates. Directors remuneration and expenses payable for the year ended 30th June 2010 are disclosed in note 4.

On 1st April 2010 Mourant Limited sold its interest in certain affiliates to State Street Corporation ("SSC") and H. Grant is an employee of a subsidiary of SSC, affiliates of which provide ongoing administration services to the Company at commercial rates.

The terms and conditions of any transactions with key management personnel and their related parties are no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm's length basis.

Under the Investment Management Agreement the Manager is entitled to receive a management fee from the Company at a rate of 2% per annum of the Company's net asset value calculated for each three month period ending on 31 March, 30th June, 30th September and 31 December each year on the basis of the Company's net asset value at the end of the preceding period and payable quarterly in arrears.

During the year the management fee was £967,807 (2009: £838,495). No accrued management fees were outstanding as at year end (2009: £ Nil).

There were no placing fees payable to the Corporate Finance Division of Ludgate Investments Limited during the year (2009: £345,000). Such fees are charged on normal commercial terms.

Under the terms of the Investment Management Agreement the Manager is also entitled to a performance fee which is payable in arrears in respect of each annual period ending 30th June. The first calculation period began on the admission date and ended on 30th June 2008. The performance fee is dependent on the Company's performance and amounted to £nil for the year ended 30th June 2010.

During the year the adviser's fee and expense was £1,408 (2009: £345,479). No accrued adviser fees were outstanding as at year end (2009: £ Nil).

During the year the Adviser received £374,000 from investee companies.

19. IMMEDIATE HOLDING COMPANY AND ULTIMATE CONTROLLING PARTY

In the opinion of the Directors there is no single ultimate controlling party since the criteria contained within the definition of "control" in IAS 24 - Related Party Disclosures are not satisfied by any one party.

20. SUBSEQUENT EVENTS

The Directors recommended and paid a dividend subsequent to the year end (relating to the year ended 30th June 2010) of 1.65 pence per share in issue as at 30th June 2010.

On 1st August 2010, a further subscription of new capital of £10,000,000 was approved.

On 2nd August 2010, Ludgate Fund Management (Environmental) (Jersey) Limited resigned as fund manager. On the same date, Ludgate Investments Limited was appointed as Adviser directly to the Company. These changes were approved by the shareholders.

On 3rd August 2010, the Company and all other co-invests in RAP's £4.125 million 8% Convertible Loan Notes ("CLN") agreed to convert into ordinary share capital of RAP. In compensation for the loss of preferential ranking and interest income that the Company and other investors retained through the investment in the CLNs, bonus shares were issued by RAP. Under the terms of the CLN, LEF converted the £2.5 million investments into 5,994 ordinary shares and were issued a further 800 ordinary shares by way of a bonus share issue.

21. SHAREHOLDERS' INTERESTS

As at the balance sheet date, the registered holdings of the Company of at least 3% of the total share capital included:

AS AT 30TH JUNE 2010				Ordinary shares held	Percentage shareholding
Morstan Nominees Limited				8,019,271	17.45%
The Bank of New York (Nominees) Limited (468641)				5,509,635	11.99%
HSBC Global Custody Nominee (UK) Limited (786698)				4,000,000	8.70%
Quintain Estates and Development PLC				4,000,000	8.70%
Chase Nominees Limited				3,777,439	8.22%
Flintshire County Council				3,732,615	8.12%
HSBC Global Custody Nominee (UK) Limited (771096)				2,639,757	5.74%
BNY (OCS) Nominees Limited				2,228,397	4.85%
Ocean Capital Holdings II B.V.				1,839,797	4.00%
AS AT 30TH JUNE 2009				Ordinary shares held	Percentage shareholding
Morstan Nominees Limited				8,019,271	17.45%
The Bank of New York (Nominees) Limited (468641)				4,759,635	10.36%
HSBC Global Custody Nominee (UK) Limited (786698)				4,000,000	8.70%
Quintain Estates and Development PLC				4,000,000	8.70%
Flintshire County Council				3,732,615	8.12%
Chase Nominees Limited				2,959,939	6.44%
HSBC Global Custody Nominee (UK) Limited (771096)				2,639,757	5.74%
BNY (OCS) Nominees Limited				2,178,397	4.74%
Ocean Capital Holdings II B.V.				1,839,797	4.00%
HSBC Global Custody Nominee (UK) Limited (771576)				1,792,878	3.90%
22. INVESTMENTS
	2010 Cost £	2010 Fair Value £	2009 Cost £	2009 Fair Value £
Quoted equity securities:
Hydrodec Group Plc Ordinary Shares	3,498,417	1,108,842	3,498,417	2,202,438
Renewable Energy Generation Ordinary Shares	720,241	474,300	460,241	169,850
Phoslock Water Solutions Limited Ordinary Shares	396,518	471,179	243,853	327,205
Hightex Group Plc Ordinary Shares	730,000	775,000	-	-
Azure Dynamics plc Ordinary Shares	-	-	167,081	210,691
Total quoted equities:	5,345,176	2,829,321	4,369,592	2,910,184
Unquoted equities:
STX Services B.V. Ordinary Shares	692,162	1,563,194	692,162,	3,034,658
Rapid Action Packaging Limited Ordinary Shares	1,500,000	1,500,000	1,500,000	1,500,000
Emergya Wind Technologies B.V. Preferences Shares	4,471,385	378,425	4,038,415	1,760,039
Apri Capital Preferences Shares (Class E and F)	6,461,995	6,471,173	4,344,983	4,576,238
New Earth Solutions Ordinary Shares	2,959,968	3,444,280	-	-
Terra Nova SAS Preference Shares	2,688,582	2,730,653	-	-
Total unquoted equities:	18,774,092	16,087,725	10,575,560	10,870,935
Unquoted securities:
Hydrodec Group plc Convertibles Bonds	3,000,000	3,302,820	3,000,000	4,365,060
Rapid Action Packaging Limited 8% Convertible Loan Notes	2,500,000	2,500,000	2,500,000	2,500,000
New Earth Solutions 8% Convertible Loan Notes	2,000,000	2,000,000	-	-
	7,500,000	7,802,820	5,500,000	6,865,060
Total investments	31,619,268	26,719,866	20,445,152	20,646,179

 

 KEY PARTIES

 

NOMINATED ADVISER

 

PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH.

 

REGISTRAR

Computershare Investor Services (Channel Islands) Limited,

Queensway House

Hilgrove Street, St. Helier, JE4 9XY.

BROKER

From 29th July 2009, the broker has been Matrix Corporate Capital LLP One Vine Street, London, WIJ 0AH.

Up to 29th July 2009 the broker was Fairfax I.S. PLC,

46 Berkeley Square, Mayfair,London, WIJ 5AT.

BANKERS

Royal Bank of Scotland International, 71 Bath Street, St. Helier, Jersey, JE4 8PQ.

LAWYERS

Norton Rose,

3 More London Riverside,

London, SE1 2AQ.

Carey Olsen,

47Esplanade,St. Helier, Jersey, JE1 0BD.

FUND MANAGER

Ludgate Fund Manager (Environmental) (Jersey) Limited (resigned 2nd August 2010),

 22 Grenville Street,

St. Helier,

 Jersey,

JE4 8PX.

INVESTMENT ADVISER

Ludgate Investments Limited, 80 Cannon Street, London, EC4N 6HL

 

ADMINISTRATOR

 

State Street (Jersey) Limited (formerly Mourant & Co. Limited),

22 Grenville Street,

St. Helier,

Jersey,

JE4 8PX.

 

INDEPENDENT AUDITOR

BDO Alto Limited,

Windward House,

La Route de la Liberation,

St Helier,

Jersey,

JE1 1BG.