Interim Results - 6 Months Ended 31 December 2012

Ludgate Environmental Fund Limited ("LEF" or the "Company")

Interim Results for the six months ended 31 December 2012

CHAIRMAN'S STATEMENT

I am pleased to report to shareholders on the performance of Ludgate Environmental Fund Limited in the six months to 31st December 2012.

Finance

As at 31st December the net asset value of the Company was £46,498,889 (2011: £45,268,844), equivalent to 82.7 (2011: 80.5) pence per share, increasing from £45,570,496 and 81.0 pence respectively on 30th June 2012 and after the payment of an ordinary dividend of £1,068,936 or 1.9 pence per share. The Company enjoyed net income in the period of £1,997,329 (2011: loss of £5,839,380) and held cash of £9,219,691. The Company subscribed for £4,933,799 of new investments in existing assets (Terra Nova, ECO Plastics, Ignis and Tamar), with a further £723,275 earmarked to be invested into ECO Plastics during Q1 2013. This is consistent with our policy of investing only where the expected gain to shareholders over the remaining life of the Company is greater than returning capital. While ensuring that the Company has sufficient capital to maintain operations we shall return capital to shareholders by dividend and the purchase of our own shares.

Strategy

After an extended period of consultation we were pleased that shareholders strongly endorsed the Company's investment policy and strategy at the annual general meeting in December, essentially to manage for value over the remaining life of the Company. The terms of the advisory agreement with Ludgate Investments Limited were amended to ensure that they were economically encouraged to manage and recommend the sale of assets in this period at premiums to NAV. The rigorous fair value accounting of our assets, the active participation of our nominated directors in the underlying companies, and the broad sectoral experience, contact and goodwill created by the Company and its advisers, give the board confidence in achieving this. The continuing performance of the assets, the investment adviser and nominated directors are monitored and assessed by the board at least once a month.

Portfolio

Within the portfolio Lumicity, Tamar, Ignis Biomass, STX, NERR and RAP have all performed at or ahead of our expectations at the period end. ECO Plastics has been slower to deliver commercial returns than foreseen though operations are now well established. Terra Nova is fulfilling its technical expectations but has been significantly constrained by working capital requirements and the absence of expansion capital; in December shareholders agreed to subscribe for an additional investment round. Micropelt has similarly won fine technical recognition in mission critical applications but has not yet achieved adequate sales and also requires short term working capital support. All these positions are being actively managed.

Outlook

European strategic markets continue to be subdued both in numbers of completed transactions and their protracted execution; the public markets are closed to assets in our portfolio by their small size and stage of economic development. However corporate and institutional interest in sustainable and efficient energy technologies, as well as production, with associated durable cashflow, is established. For this reason we expect that our investee companies will find possible strategic acquirors already active in their particular sector. We look to the active involvement of our nominated directors and the investment adviser to discover and develop these relationships to maximise value in selling portfolio companies.

I wish to thank my fellow board members for their professional curiosity, considerable engagement and formal commitment to the Company, its advisers and shareholders over the last six months.

For further information contact:

Ludgate Environmental Fund Limited +44 (0) 1534 609034

John Shakeshaft, Chairman

Ludgate Investments Limited +44 (0) 20 7621 5770

Bill Weil, Chief Investment Officer

PricewaterhouseCoopers LLP (Nomad) +44 (0) 20 7212 1798

Chris Clarke

Panmure Gordon (Broker) +44 (0) 20 7866 2713

Paul Fincham

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD 1ST JULY 2012 TO 31ST DECEMBER 2012

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 Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST.

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 2012, 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 2012, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The extra column of comparatives for the half-year ended 31st December 2011 in the statement of financial position is an AIM requirement, and notes to these accounts are not required. The more significant policies are set out below:-

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

IFRS 9, "Financial Instruments"

IFRS 9 addresses the recognition, classification and measurement of financial assets and financial liabilities. It is the IASB's intention that IFRS 9 will replace IAS 39 in its entirety. The IASB has adopted a phased approach to completion of the overall standard. When the first phase was published in November 2009, IFRS 9 addressed only the classification and measurement of financial assets. In October 2010, requirements for the classification and measurement of financial liabilities were published. The phases covering impairment methodology and hedge accounting are scheduled for completion prior to the mandatory effective date.

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 changes in an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

IFRS 9 is effective for accounting periods commencing on or after 1st January 2015, but early adoption is permitted at any time prior to this date. The Directors have not yet assessed the full potential impact of IFRS 9, but intend to do so once the standard is complete. The Company intends to adopt IFRS 9 no later than the mandatory effective date.

IFRS 10, "Consolidated Financial Statements"

IFRS 10 was issued in May 2011 and is mandatory for accounting periods commencing from 1st January 2013, but early adoption is permitted at any time prior to this date. IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company.

FRS 10 "Consolidated Financial Statements" (amendments)

IFRS 10 was amended on 31st October 2012 to introduce an exception from the requirement to prepare consolidated financial statements for "Investment Entities".

The amendment to IFRS 10 defines an Investment Entity is an entity that: "(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and (c) measures and evaluates the performance of substantially all of its investments on a fair value basis."

The amendment also provides examples of typical characteristics of an Investment Entity. The characteristics are: holding more than one investment; having more than one investor; having investors that are not related parties of the entity; and having ownership interests in the form of equity or similar interests. However, the absence of one or more of these characteristics will not prevent an entity from qualifying as an Investment Entity.

An entity will not be disqualified from being an Investment Entity where it carries out any of the following activities: provision of investment-related services to third parties and to its investors, even when substantial; or, providing management services and financial support to its investees, but only when these do not represent separate substantial business activity and are carried out with the objective of maximising the investment return from its investees.

An Investment Entity is required to account for its subsidiaries at fair value through profit or loss in accordance with IFRS 9, 'Financial instruments' (or IAS 39, 'Financial instruments: recognition and measurement', where applicable). The only exception is for subsidiaries that provide services to an Investment Entity that are related to its investment activities, which should be consolidated.

The exception from the consolidation requirements of IFRS 10 only applies to a parent of an Investment Entity if such parent is itself an Investment Entity. If the parent is not itself an Investment Entity, then such parent is required to consolidate all of the entities that it controls, including the Investment Entity's investees.

The revised standard is effective for accounting periods commencing on or after 1st January 2014, but early adoption is permitted at any time prior to this date.

At the same time as the amendment to IFRS 10 was issued, the IASB issued corresponding amendments to IFRS 12 "Disclosures of Interests in Other Entities" and IAS 27 "Separate Financial Statements", which must be adopted concurrently with the amendment to IFRS 10, if applicable.

IFRS 12, "Disclosure of Interest in Other Entities"

IFRS 12 was issued in May 2011 and is mandatory for accounting periods commencing from 1st January 2013, but early adoption is permitted at any time prior to this date. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

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.

IFRS 13 is effective for accounting periods commencing on or after 1st January 2013, but early adoption is permitted at any time prior to this date.

The Directors have made an assessment of the potential impact of early adoption of all of the standards listed above, except for IFRS 9, as stated 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. 

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 as modified by the revaluation of financial assets and liabilities held at fair value through profit or loss. 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 note 2 (o) '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.

Loans 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 period. (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 period/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/year 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. The convertible unsecured loan stock is valued at cost.

- Hydrodec Group plc loan notes are valued at par.

- STX Services B.V. shares have been valued based on a multiple of profit after tax for the year plus the free cash on the balance sheet available for dividend.

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

- Terra Nova SAS shares are valued on a discounted cash flow basis.

- ECO Plastics Limited holding is valued based on a multiple of sales in line with market multiples less net debt excluding the convertible unsecured loan stock. This metric has been discounted to reflect the company's non-listed status. The resulting value has then been passed through the company's cash waterfall, with the CULS treated as if converted.

- Lumicity Limited shares are valued based on the current value of its near-term pipeline plus its cash and debtors. The loan notes are valued at par.

- Tamar Energy Limited shares are valued at cost.

- Ignis Biomas Limited shares, loan notes and convertible unsecured loan stock are valued at cost.

- Micropelt GmbH convertible unsecured loan stock is valued at cost less approximately 50%. Full provision has been made against the accrued interest.

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 has the power to exercise control over the investments, except for Ignis Biomas Limited, 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 with the exception of Ignis Biomass Limited and its wholly owned subsidiary Ignis Wick Limited:

- 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.

Ignis Biomas Limited and Ignis Wick Limited were not consolidated in these financial statements as the Directors considered that these subsidiary companies are immaterial to the Group as a whole. Therefore in the opinion of the Directors, the Company has no material subsidiaries and consequently there is no requirement to present consolidated financial statements.

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 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 period ended 31st December 2012 and year ended 30th June 2012.

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.

On 21st December 2012, the Company entered into a new Investment Advisory Agreement with the Adviser in which the performance fee basis of calculation was reset from an effective date of 30th June 2012. In the addition to the above conditions, there is also certain additional criteria which needs to be met by the Adviser before any accrued performance fees are payable. Also, as a result of entering into this new agreement, the balance of the performance fee retention was released in favour of the Company.

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.

* Ocean Capital Investment BV is a company in which G. Voskamp and J. Voskamp, both directors of Ludgate Investments Limited, each have a 50% shareholding.

** Ocean Capital Holding II BV is a company in which G. Voskamp and J. Voskamp, both directors of Ludgate Investments Limited, each have 20% and 80% shareholdings, respectively.

5. DIVIDENDS

The Company paid an interim dividend of 1.9 pence per share at a total cost of £1,068,936 on 10th August 2012 (for the six months ended 31st December 2011: an interim dividend of 1.75 pence per share was paid at a total cost of £984,546). No special dividend of was paid during the period (for the six months ended 31st December 2011: a special dividend of 12 pence per share was paid 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:

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 2012 and 30th June 2012.

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 2012 and year ended 30th June 2012 by class of financial assets were as follows: