Interim Report and Accounts - 31 December 2011

01st February 2012

Ludgate Environmental Fund Limited ("LEF" or "the Fund") announces interim results to 31 December 2011

LUDGATE ENVIRONMENTAL FUND LIMITED

UNAUDITED INTERIM REPORT AND FINANCIAL STATEMENTS

FOR THE PERIOD FROM 1ST JULY 2011 TO 31ST DECEMBER 2011

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 2011, 2010 and 2009 and the retention of realised capital gains within the portfolio for further investment. Shares will be purchased only when the Company is outside a close period and will only be purchased at prices such as to enhance value for the Company.

CHAIRMAN'S STATEMENT

I am pleased to report to shareholders on the performance of Ludgate Environmental Fund in the half year to 31st December 2011.

The net asset value decreased from £58,843,944 to £45,268,844. Dividends of 1.75p and 12p per share were paid to shareholders totalling £7,735,720 in August and October in line with the Company's policy of paying a progressive ordinary dividend and returning capital when this fulfils the stated investment targets for the entire portfolio.

Considering the history and remaining life of the Company, the board undertook a strategic review of all its investments, the sector focus, economic prospects as well as the expected and achieved performance of the investment adviser during the period. We consulted broadly with shareholders and professional advisers. Our recommendations were put to the AGM in November and the company's established and proven investment and distribution policy received significant endorsement.

The Company invested in ECO Plastics (£5,000,059), a PET recycling and recovery facility early in the half year; preliminary indications are their operational performance will meet expectations within our investment cycle. Similarly we exchanged our interests in the waste recycling company New Earth Solutions for shares in the holding company and are progressively realising the investment at a positive return. Our £1,298,000 investment in the solar energy developer Lumicity had to be written down to £702,500 along with the reduction in loan receivables; the unexpected severity and early timing of the regulatory reduction in feed in tariffs severely affected its business model and economic viability.

Within the existing portfolio STX continued to perform strongly, beyond budget and to expand its range of broker contracts. The board is mindful of the inherent risks in an unregulated brokerage business and continues to hold the asset at a conservative valuation. RAP has increased sales and its business continues to develop, expanding the number of customers for a greater range of packaging products; the combination of longer contract runs and the introduction of an additional machine should increase capacity fulfilment and improve margins significantly. If so, the model will be replicated and developed on other, identified sites. Terra Nova has won significant commercial contracts proving its technology, the potential value of its product and the expected returns from our investment. The difficulties of raising sufficient bank finance of adequate tenor, the slight slippage in roll out schedules and continuing capital requirements have caused us to lower the carrying value of the asset. To some extent this reflects the strictures of the accounting treatment under IFRS and our prudence in reporting net asset values at fair value rather than the modelled returns actually expected.

The Company continues to hold material levels of cash in a diversified number of accounts at different banks. In line with the investment policy and our target returns endorsed by shareholders and considering the remaining life of the company we expect that this will be fully invested in appropriate securities or our own shares within the authority given to us during the current period.

The Company is compliant with all the principles of the AIC Corporate Guide for Investment Companies and the relevant provisions of the UK Corporate Governance Code, 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 Jersey Financial Services Commission ("JFSC") has been monitored by State Street (Jersey) Limited 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 for the Board at the half year in addition to the full year audit.

I would again like to thank my fellow board members for their robust and authoritative commitments to the company. Their involvement, advice and responsibility in considering the performance of the adviser, the valuation of assets, the prospects for the company and cleantech sector and the expectations of shareholders has been inestimable and to the benefit of all.

The performance of the Adviser, as measured by the rate of discovery, the active management of assets, timeliness of reporting and quality of communication, tested in the strategic review, has improved. There is material competition for assets in the European clean tech markets leading to over pricing and disappointment; the enduring contraction of banks' balance sheets severely reduces the opportunities for limited recourse project finance and equally impedes the development of new technologies. The adviser has led us successfully to an asset diversified specialism in the clean technologies of waste; their professional performance under a new team is commendable.

Our completed strategic review, investments made in the period and anticipated realisations and possible distributions continue to underscore the opportunities for investment in the European cleantech sector.

REPORT OF THE DIRECTORS

The Directors present their report and the unaudited financial statements for the period 1st July 2011 to 31st December 2011.

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 waste management and recycling, renewable energy, energy efficiency and water.

RESULTS AND DIVIDENDS

The net decrease in net assets attributable to shareholders from operations before dividends for the period amounted to £5,839,380 (for the six months ended 31st December 2010: net increase of £1,064,395).

The Directors recommended and the Company paid an interim dividend of 1.75 pence per share in issue as at 29th July 2011 (at a total cost of £984,546) (for the six months ended 31st December 2010: 1.65 pence per share in issue as at 30th June 2010) and on 27th October 2011 a special dividend of 12 pence per share (at a total cost of £6,751,174).

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.

DIRECTORS

The Directors who held office during the period and subsequently (except where stated) were:-

J. Shakeshaft (Chairman)

S. Hansen

M. Christensen

D. Adamson

D. Pirouet

SECRETARY

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

INDEPENDENT AUDITORS

The Company's auditors, BDO Alto Limited, were succeeded by BDO Limited on 1st January 2012. These interim financial statements were read by BDO Limited for omissions and errors but no review of the numbers was performed.

NOMINATED ADVISER

The Company's Nominated Adviser is PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH who has expressed its willingness to continue in office.

REGISTRAR

Computershare Investor Services (Channel Islands) Limited, Queensway House, Hilgrove Street, St Helier, JE1 1ES.

BROKER

Matrix Corporate Capital LLP, One Vine Street, London, WIJ 0AH.

BANKERS

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

LEGAL ADVISERS

Norton Rose, 3 More London Riverside, London, SE1 2AQ.

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

INVESTMENT ADVISER

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

REGISTERED OFFICE

22 Grenville Street

St. Helier

Jersey

JE4 8PX

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

The Directors are required to prepare financial statements for each financial year under the Companies (Jersey) Law 1991. As permitted by that law, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board. The financial statements are required to give a true and fair view of the state of affairs of the Company and the profit or loss of the Company for that period.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.

However, directors are also required to:

* properly select and apply accounting policies;

* present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

* provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

* make an assessment of the company's ability to continue as a going concern.

The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain its transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply 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 confirm they have complied with the above requirements throughout the period and subsequently.

BY ORDER OF THE BOARD

Tracy Barnes

Authorised Signatory

State Street Secretaries (Jersey) Limited  

Secretary

Date: 31st January 2012

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD 1ST JULY 2011 TO 31ST DECEMBER 2011

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 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

The unaudited interim financial information included in the half-year report for the six months ended 31st December 2011, has been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting". It does not include all of the information required for full annual financial statements. The half-year report should be read in conjunction with the annual report and audited financial statements for the year ended 30th June 2011, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The extra column of comparatives for the half-year ended 31st December 2010 in the statement of financial position is an AIM requirement, and notes to these accounts are not required.

New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") adopted during the current period

The Directors have assessed the impact, or potential impact, of all New Accounting Requirements. In the opinion of the Directors, there are no mandatory New Accounting Requirements applicable in the current period that had any material effect on the reported performance, financial position, or disclosures of the Company. Consequently, no mandatory New Accounting Requirements are listed. The Company has not adopted any New Accounting Requirements that are not mandatory.

Non-mandatory New Accounting Requirements not yet adopted

The following applicable New Accounting Requirements have been issued. However, these New Accounting Requirements are not yet mandatory and have not yet been adopted by the Company. All other non-mandatory New Accounting Requirements are either not yet permitted to be adopted, or would have no material effect on the reported performance, financial position, or disclosures of the Company and consequently have neither been adopted, nor listed.

IAS 1, "Presentation of Financial Statements" (amendments)

The main change resulting from these amendments that is relevant to the Company is a requirement for entities to group items presented in other comprehensive income ("OCI") on the basis of whether they may potentially be reclassified to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI.

The revised standard is effective for accounting periods commencing on or after 1st July 2012, but early adoption is permitted at any time prior to this date.

Non-mandatory New Accounting Requirements not yet adopted -

IFRS 9, "Financial Instruments" (Replacement of IAS 39, "Financial Instruments: Recognition and Measurement")

IFRS 9 was issued in November 2009 and October 2010 and addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: (i) those measured at fair value; and, (ii) those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the statement of comprehensive income, unless this creates an accounting mismatch. The standard also results in one impairment method replacing the numerous impairment methods in IAS 39 that arise from the different classification categories.

The standard is mandatory for accounting periods commencing on or after 1st January 2015, but early adoption is permitted at any time prior to this date.

IFRS 10, "Consolidated Financial Statements"

IFRS 10 is effective for annual periods beginning on or after 1st January 2013 and builds on existing principles by identifying the concept of controls as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The new standard is not expected to have any impact on the Company's financial position or performance.

IFRS 12, "Disclosure of interest in other entities"

IFRS 12 is effective for annual periods beginning on or after 1st January 2013 and includes the disclosure requirements for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The new standard is not expected to have any impact on the Fund's financial position or performance.

IFRS 13 "Fair Value Measurement"

IFRS 13 was issued in May 2011 and aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. The standard is mandatory for accounting periods commencing on or after 1st January 2013, but early adoption is permitted at any time prior to this date. IFRS 13 also requires certain additional disclosures for financial instruments categorised within Level 3 of the fair value hierarchy.

Non-mandatory New Accounting Requirements not yet adopted

IFRS 13 "Fair Value Measurement"

The Directors have made an assessment of the potential impact of early adoption of all of the standards listed above. In the Directors' opinion, early adoption of any of these standards would have no material effect on the reported performance, financial position, or disclosures of the Company.

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.

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 they entitled 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 taken to statement of changes in net assets attributable to equity shareholders.

l) Taxation

Profits arising in the Company are subject to Jersey Income Tax, currently at the rate of 0%.

The Company is registered under the Reporting Fund regime Regulation 51 of The Offshore Fund (Tax) Regulations 2009 in the United Kingdom 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" Guidelines) 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 period end. Unquoted equities and unquoted securities are valued using a variety of methods as follows:

- Rapid Action Packaging Limited Ordinary Shares have been valued based on a multiple of sales in line with market multiples. This metric has been discounted to reflect the Company's non-listed status.

- 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.

- New Earth Recycling and Renewables (Infrastructure) Plc are valued at the recent published monthly valuation published by the fund administrator.

- Terra Nova SAS shares are valued on a market based multiple of Earnings before Interest, Tax and Depreciation in line with market multiples less net debt. This metric has been discounted to reflect the company's non-listed status.

- ECO Plastics Limited shares are valued based on a multiple of sales in line with market multiples less net debt. This metric has been discounted to reflect the company's non-listed status.

- Lumicity Limited shares valuation is based on its estimated net realisable value.

Investments are made in companies that may be subject to a high degree of operating and financial risk. The values assigned to investments are based upon available information and do not necessarily represent amounts that might ultimately be realised. Because of the inherent uncertainty of valuations, estimated carrying values may differ significantly from the values that would have been realised had a ready market for the investments existed, and these differences could be material.

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:

- does not hold a controlling stake;

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

- does not have the power to remove the majority of the members of the Board of Directors; and

- does 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

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:

a) 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

b) 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 31st December 2011 and 30th June 2011.

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 Advisory Agreement.

4. DIRECTORS' REMUNERATION AND INTERESTS

The details of the Directors' remuneration is as follows:

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.

Principals of Ludgate Investments Limited include Directors and senior management.

5. DIVIDENDS

The Directors recommended and the Company paid an interim dividend of 1.75 pence per share in issue as at 29th July 2011 (at a total cost of £984,546) (for the six months ended 31st December 2010: 1.65 pence per share in issue as at 30th June 2010) and on 27th October 2011 a special dividend of 12 pence per share (at a total cost of £6,751,174).

6. EARNINGS PER SHARE

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

Outstanding Warrants are anti-dilutive for both periods 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.

Further details of the investments held can be found in note 21 to these financial statements.

IFRS 7 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 comprise 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 31st December 2011 and 30th June 2011.

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 period ended 31st December 2011 and year ended 30th June 2011 by class of financial assets were as follows: