Half-year Report

Trading Emissions PLC

Results for the six month period ended 31 December 2016

Trading Emissions PLC ("TEP" or "the Company"), a closed ended investment company that specialises in renewable energy projects and emissions instruments, today announces its results for the six month period ended 31 December 2016.

Enquiries:

Liberum +44 (0)20 3100 2222

Steve Pearce / Henry Freeman

FIM Capital Limited + 44 (0) 1624 681250

Philip Scales

Chairman's Statement

Dear Shareholder

We continue to focus on the remaining investments held by Trading Emissions PLC ("TEP" or the "Company"), namely TEP Solar and TEP Renewables.

During the six month period ended 31 December 2016, we sold two of the Company's five Italian solar operating subsidiaries held through TEP Solar for net proceeds of €9.6 million (including dividends), of which €3.0 million is held in escrow. Conditional on no claims being received from the buyer, Sonnedix, we expect €1.0 million to be released to TEP Solar in December 2017 and €2.0 million in December 2018. Our efforts continue to try to resolve the various operating issues at TEP Solar's three remaining Italian solar operating subsidiaries.

As a result of Poland's Renewable Energy Law enacted in July 2016, coal will continue to underpin the supply of energy in Poland. Nevertheless, under the new law, at least one auction of renewable energy sources should take place annually, with supply contracts being awarded to winning bids for up to a maximum of 15 years. The first auction under the new law took place in December 2016, where selected renewable technologies were permitted to bid in one of four different technology baskets. Only projects with planned capacity of up to 1 MW could participate in the first auction. The Polish Government does not appear to assign a high priority to wind projects given the structure of the auction baskets and the recent amendments to the taxation and permitting regulations (such as minimum distance requirements). The terms of the 2017 renewable energy auction(s) have not yet been determined. Winergy, which acquired TEP Renewables' Polish wind farm interests in 2014, intends to bid at the 2017 auction(s). In order to support Winergy to bid competitively under the 2017 auction process(es), we are discussing further amendments to the structure of TEP's receivable. Included in the recent legislative muddle affecting wind power projects is the threat that all of our current building permits will expire if not utilised by May 2019. If this threat materialises, the only part of our project that is likely to be constructed is that which is supported by bids won by Winergy at the 2017 renewable energy auction(s).

The fair value at 31 December 2016 of TEP's holdings in TEP Solar and TEP Renewables was £7.9 million (3.1 pence per Share). This accounted for 85% of the £9.3 million (3.7 pence per Share) of the Company's net asset value at that date. Of the cash of £8.1 million (3.2 per Share) held on 31 December 2016, £6.25 million (2.5 pence per Share) was distributed to Shareholders in January 2017. Most of the cash was generated from the sale of the two Italian solar subsidiaries.

As the timing and quantum of realisation proceeds from TEP's remaining investments remains uncertain, the Board has analysed in detail the effects of a number of potential changes that could be made to simplify TEP's structure and thereby reduce operating costs. Before taking any significant decisions, the Board intends to discuss the relative merits with Shareholders.

 Martin M. Adams

Chairman

24 March 2017

Condensed Statement of Comprehensive Income

The notes are an integral part of the Condensed Interim Financial Statements.

Condensed Statement of Financial Position

The notes are an integral part of the Condensed Interim Financial Statements.

The Condensed Interim Financial Statements were approved and authorised for issue by the Board of Directors on 24 March 2017 and signed on its behalf by:

Neil Duggan Philip Scales

Director Director

Condensed Statement of Changes in Equity

The notes are an integral part of the Condensed Interim Financial Statements.

Condensed Statement of Cash Flows

The notes are an integral part of the Condensed Interim Financial Statements.

Notes to the Condensed Interim Financial Statements

for the 6 months ended 31 December 2016

1 Operations

Trading Emissions PLC ("the Company") invests in environmental and emissions assets, companies providing products and services related to the reduction of greenhouse gas emissions and associated financial products. The Investing Policy of the Company was amended on 13 September 2010 to carry out an orderly realisation of the portfolio of Carbon and Private Equity assets, distribute the net proceeds to Shareholders and then undertake a voluntary winding-up of the Company. No new Private Equity investments will be made except where the Board of Directors of the Company ("the Board") considers it necessary to provide follow-on capital to protect an existing investment.

The Company is a closed-ended investment company domiciled in the Isle of Man. The address of its registered office is IOMA House, Hope Street, Douglas, Isle of Man. It was incorporated on 15 March 2005 in the Isle of Man as a public limited company and is quoted on the Alternative Investment Market ("AIM") operated and regulated by the London Stock Exchange. In December 2011, the Company was re-registered under the Isle of Man Companies Act 2006.

2 Basis of Preparation

The Condensed Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include information required for a complete set of financial statements prepared in accordance with IFRSs as adopted by the EU. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the financial position and performance since the last annual financial statements as at and for the year ended 30 June 2016.

The principal accounting policies applied in the preparation of the Condensed Interim Financial Statements are unchanged from those disclosed in the annual audited financial statements for the year ended 30 June 2016. These policies have been consistently applied to each of the periods presented. The audited financial statements for the year ended 30 June 2016 are available at www.tradingemissionsplc.com.

The Condensed Interim Financial Statements for the six months ended 31 December 2016 should be read in conjunction with the annual financial statements for the year ended 30 June 2016.

3 Critical accounting estimates and judgements

In preparing the Condensed Interim Financial Statements, the Board has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Changes in estimates are recognised through profit or loss.

a) Judgements

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the Condensed Interim Financial Statements is included in the following notes:

· Note 4, Segmental information- determination of the Company's operating segments; and

· Note 6, Fair value of financial instruments - determination of significant unobservable inputs into valuation models of Level 3 financial instruments.

b) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the financial period are included in note 6, Fair value of financial instruments and relate to the determination of fair value of financial instruments with significant unobservable inputs.

4 Segmental information 

The Board has determined the operating segments based on the reports and financial information provided to it by the administrator, FIM Capital Limited ("FIM"). These reports are used by the Board to make strategic decisions. The Board manages the assets across three segments, being Carbon, Private Equity and Corporate. While Carbon is no longer considered a significant segment it has been included for comparative purposes. The reportable segments are made up as follows:

Carbon

The Carbon segment comprises Carbon investments, carbon related trade and other payables at the reporting date of £nil (as at 31 December 2015: £155,000; as at 30 June 2016: £nil), and provision for litigation costs at the reporting date of £nil (as at 31 December 2015: £400,000; as at 30 June 2016: £nil).

Private Equity

The Private Equity segment consists of financial assets at fair value through profit or loss ("FVTPL") - Private Equity at the reporting date of £7,909,000 (as at 31 December 2015: £16,089,000; as at 30 June 2016: £12,997,000). See note 5, Financial risk management for the definition of Private Equity investments and note 7, Realised gain/(loss) on disposal of financial assets at fair value through profit or loss - Private Equity.

Corporate

The Corporate segment comprises all assets and liabilities not otherwise attributable to the Carbon or Private Equity segments and includes cash at the reporting date of £8,060,000 (as at 31 December 2015: £13,205,000; as at 30 June 2016: £3,426,000).

5 Financial risk management

The Company has exposure to the following risks from financial instruments:

· Credit risk;

· Liquidity risk;

· Market risk; and

· Operational risk.

Financial instruments held by the Company include Carbon and Private Equity investments. Both Carbon and Private Equity investments include TEP Investment Companies. Definitions of TEP Investment Companies, Carbon and Private Equity investments are given below.

1. TEP Investment Companies

"TEP Investment Companies" comprise all companies in which TEP holds an ownership interest greater than 20%.

2. Carbon

The Carbon investments "Carbon" which comprise CERs, ERPAs and TEP Investment Companies, which trade in CERs and hold ERPAs, are as shown below:

3. Private Equity

"Private Equity" comprises all TEP Investment Companies, with the exception of those which trade in CERs and hold ERPAs.

6 Fair value of financial instruments

6.1 Valuation models

The fair values of financial assets and financial liabilities that are traded in active markets are based on prices obtained directly from an exchange on which the instruments are traded or obtained from a broker that provides an unadjusted quoted price from an active market for an identical instrument. For all other financial instruments, the Company determines fair values using other valuation techniques.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments.

Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less active, or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.

Level 3: Inputs are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have an effect on the instrument's valuation. This category includes instruments that are valued based on quoted market prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

A market is regarded as active if quoted prices are readily and regularly available from an exchange. The quoted market price used for assets held is the last traded price at the date of valuation.

6.2 Fair value hierarchy - Financial instruments measured at fair value

The financial instruments included within Level 1 are CERs with a fair value at the reporting date of £nil (as at 31 December 2015: £nil; as at 30 June 2016: £nil).

The Company holds no Level 2 financial instruments.

The financial instruments included within Level 3 are Carbon and Private Equity investments.

There were no transfers of financial assets or liabilities between levels during the six months ended 31 December 2016 (for the six months ended 31 December 2015: no transfers; for the year ended 30 June 2016: no transfers).

The table overleaf analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position. All fair value measurements below are recurring.

6.3 Significant unobservable inputs used in measuring fair value

The table below sets outs the information about significant unobservable inputs used at 31 December 2016 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

Fair value of financial assets at FVTPL - Private Equity:

Significant unobservable inputs are developed as follows:

Risk-adjusted discount rates represent the rates used to discount forecast cash flows and estimated recovery values for investments to their present values as part of the calculation of fair value for the investment. The Board uses its judgement to determine a rate that reflects the illiquidity, currency risk and credit risk of counterparties for each specific instrument.

Actual transaction terms include binding agreements from third parties for the purchase of Private Equity.

Proposed transaction terms include non-binding offers received from third parties for the purchase of Carbon investments and/or Private Equity, which form the basis of current negotiations.

Expected offer terms are based on the terms of executed sales.

Forecast cash flows: cash flows are forecast by the Company and management of TEP Investment Companies by considering possible operational scenarios and transaction terms, the amount to be paid or received under each scenario and the probability of each scenario.

Estimated recovery value: estimated recovery value is the amount estimated by the Board to be realised on an investment in a disposal or liquidation scenario.

Level 3 reconciliation:

The table below presents the changes in Level 3 financial instruments for the six month periods ended 31 December 2016, 31 December 2015 and for the year ended 30 June 2016. There have been no transfers between Levels during any of the periods.

Financial assets at FVTPL

7 Realised gain/(loss) on disposal of financial assets at fair value through profit or loss - Private Equity

TEP (Solar Holdings) Limited

On 1 September 2016 TEP (Solar Holdings) Limited ("TEP Solar") executed a Sales and Purchase Agreement ("SPA") with a member of the Sonnedix group ("Sonnedix") in respect of the sale of its entire interest in two Italian subsidiaries, Etuno Srl ("Etuno") and Solar Energy Italia 6 Srl ("SEI 6"), which were ultimately wholly owned by the Company.

Prior to the completion date of the sale TEP Solar received a net distribution of cash from SEI 6 of €984,000. It was agreed in advance with Sonnedix that this distribution would form part of the sales proceeds in accordance with the terms of the SPA.

On 14 December 2016 the sale completed and an aggregate net proceeds from the sale of the two Italian subsidiaries, after allowing for outstanding transaction costs (including those paid directly by the Company), of €8,613,000 were received. Of the payment by Sonnedix €3,000,000 was deposited in escrow, to be released to TEP Solar as to €1,000,000 on 14 December 2017 and the remaining €2,000,000 on 14 December 2018, subject to no claims having been received pursuant to indemnities provided by TEP Solar customary for this type of transaction.

Carbon Capital Markets Limited

During the six month period ended 31 December 2016 the liquidation of Carbon Capital Markets Limited was completed. Final liquidation proceeds of £69,000 were received by the Company compared to the valuation of £60,000 giving a realised gain on disposal of £9,000 (six months ended 31 December 2015: £nil; year ended 30 June 2016: £nil).

8 Directors' fees

The Company paid the following fees to Directors during the financial period:

* Isle of Man resident

The annual Directors' fees are currently £60,000 for the Chairman and £40,000 for the other non-executive Directors other than for Philip Scales who receives an annual fee of £5,000. The Directors are also reimbursed for travel and out of pocket expenses incurred.

The Company operates a Directors' Incentive Plan ("DIP") which entitles Participating Directors to 2% of distributions made to Shareholders. During the financial period no DIP payments were made (31 December 2015: £nil; 30 June 2016: £187,000) and £94,000 was accrued and paid to Directors in January 2017 for the distribution of £6,245,000 paid on 13 January 2017 (31 December 2015: £nil; 30 June 2016: £nil). As a result, a further £31,000 was accrued in the DIP escrow account (31 December 2015: £nil; 30 June 2016: £63,000). As at 31 December 2016 £196,000 was held in the DIP escrow account (31 December 2015: £102,000; 30 June 2016: £165,000). Amounts held in the DIP escrow account are in line with the terms of the DIP and will be paid to the Participating Directors at a later date.

Other than as detailed above, none of the Directors is entitled to any cash or non-cash benefits in kind, pensions, bonus or share scheme arrangements.

 9 Other net operating expenses

* See note 8, Directors' fees.

10 Trade and other payables

11 NAV per Share and earnings/(loss) per Share

11.1 NAV per Share 

The NAV per Share is calculated by dividing the net assets attributable to the Shareholders by the number of Shares in issue at the reporting dates.

11.2 (Loss)/earnings per Share

(a) Basic

The basic (loss)/earnings per Share is calculated by dividing the (loss)/earnings attributable to the Shareholders by the weighted average number of Shares in issue during the financial period/year.

(b) Diluted

Diluted earnings per Share is calculated by adjusting the weighted average number of Shares outstanding to assume conversion of all dilutive potential Shares. As at all the reporting dates the Company had no dilutive potential Shares.

12 Share capital

The total number of authorised and issued Shares at the reporting dates together with their rights are explained below.

All issued Shares of 249,800,202 are fully paid, and each Share carries the right to one vote. Shareholders are entitled to receive notice of, and vote at general meetings of the Company.

13 Distributions paid and declared

On 20 December 2016 the Company declared a distribution to Shareholders of £6,245,000. The distribution was paid on 13 January 2017 and financed from the distributable reserves account. No distributions were declared or paid during the period ended 31 December 2015. During the year ended 30 June 2016 the Company declared and paid a distribution to Shareholders of £12,490,000. The distribution was financed from the share premium account.

14 Related party transactions

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions. The Directors, including certain Directors of TEP Investment Companies who meet the definition of "key management personnel" in IAS 24 are considered to be related parties.

14.1 Directors

Directors' fees, the DIP and other transactions with the Directors during the financial period are explained in note 8, Directors' fees.

Philip Scales was a Director throughout the financial period. Mr Scales is a Director of FIM and has a beneficial ownership interest in FIM. During the financial period FIM received fees of £106,000 (six months ended 31 December 2015: £106,000; year ended 30 June 2016: £227,000). FIM also received reimbursements for out of pocket expenses.

14.2 TEP Investment Companies

Trading Emissions Limited

On 15 July 2016 Trading Emissions Limited ("TEL") was placed into liquidation. During the year ended 30 June 2016 an agreement was entered into between the Company and TEL whereby the Company would cover any of TEL's future costs, which are expected to be incurred solely in relation to TEL's liquidation. Costs covered by the Company under this agreement during the financial period amounted to £1,000 (31 December 2015: £nil; year ended 30 June 2016: £6,000).

TEP (Renewables Holding) Limited

The Company entered into a Fees and Expenses Agreement with TEP Renewables on 6 December 2010. Under the terms of the agreement the Company will reimburse TEP Renewables for any 'agreed company expenses'. During the period fees and expenses reimbursed by the Company to TEP Renewables amounted to €26,000 (31 December 2015: €5,000; 30 June 2016: €61,000).

On 6 December 2010 the Company also entered into a Total Return Swap Agreement ("TRS") with TEP Renewables. The TRS is for a period of 20 years with a termination date of 6 December 2030 or such earlier date as may be specified by written notice by TEP Renewables to the Company. Under the terms of the TRS, TEP Renewables will make investments in target companies and investment gains and losses are recharged through the TRS loan to TEP. On termination of the TRS any amounts in the cash account from the TRS or investments made must be paid to the Company by TEP Renewables. As at 31 December 2016 the balance on the TRS stands at €326,000 (31 December 2015: €19,633,000; 30 June 2016: €326,000).

Billiter Participações Ltda

During the period the Company advanced £6,000 (31 December 2015: £81,000; 30 June 2016: £132,000) to Billiter Participações Ltda to cover its on-going operating expenses. Billiter Participações Ltda was sold during the financial period.

15 Contingent liabilities

The Company is party to several fixed priced ERPAs, which the Company considers to have lapsed, terminated, or the projects are unviable or non-operational. No provision has been made for potential liabilities arising from these contracts because the Board has assessed the likelihood of any liabilities as being remote.

16 Subsequent Events 

On 20 December 2016 the Company declared a distribution to Shareholders of £6,245,000. The distribution was paid on 13 January 2017, see note 13, Distributions paid and declared.