LEAF.L Regulatory News (LEAF)

Results for the period ended 30 June 2013

The board of Leaf Clean Energy Company ("Leaf") are pleased to announce the Leaf Group's results for the period ended 30 June 2013.

Highlights of the period are:

· NAV per share for the Leaf Group was 142.66 cents or 93.80 pence at US$1.5210 to the GBP1 (30 June 2012: 141.52 cents).

· US$6.0 million gain on revaluation in the carrying value of the portfolio companies.

· On 20 July 2012 Leaf made a US$5 million investment in preferred stock of Lehigh Technologies, Inc.

· Leaf made an additional US$16.4 million of direct equity and debt investments into existing portfolio businesses.

For further information, please contact: 

Bran Keogh +1-202-289-7881

Leaf Clean Energy Company

Ivonne Cantu +44 (0) 207 397 8900 

Cenkos Securities plc 

Chairman's statement

Leaf Clean Energy Company ("Leaf") and its subsidiary (together, the "Leaf Group") successfully navigated the turbulence and uncertainties in the market during the reporting period of July 2012 through June 2013. The board and management focused on enhancing the value of our portfolio of companies and assisting investees in reaching critical business milestones. The high quality calibre and efforts of the Leaf management team have helped significantly to strengthen these companies. With the market recovering, we believe that our portfolio is strongly positioned for eventual realisation at optimal valuations once the acquisition and IPO markets further improve.

Current market conditions

The 2012 downturn in global investment in clean energy continued into early 2013, and public markets in the sector remain depressed compared with earlier years. However, there are signs of returning investor confidence.

Investment picked up significantly in the 2nd quarter of 2013, and the WilderHill New Energy Global Innovation Index outperformed the S&P 500 during the year ending 30 June 2013. After a very quiet year in 2012 for public equity issuances, there has been a marked increase in offerings in the clean energy sector during 2013, including by Tesla and Solar City.

The United States, where most of Leaf's portfolio is concentrated, has led the sector's recent recovery, with investment up 155% in April-June 2013, compared with the first three months of the year. Since the president's re-election, the political climate has also become more encouraging. Both the extension of the wind production tax credit, and the White House's stated intent to use executive action to regulate greenhouse gas emissions and promote clean energy, bode well for our sector. 

Portfolio performance

Despite the global market's continuing fragility, Leaf's U.S.-focused portfolio continues to perform well, with investee companies successfully pursuing commercial opportunities and partnerships. 

Leaf's efforts to respond to strategic high-quality investment opportunities resulted in one new investment during the reporting period. On 20 July 2012, we made a US$5 million investment in preferred stock of Lehigh Technologies, Inc. ("Lehigh"), a promising international green materials company.

Other highlights during July 2012-June 2013 included the following:

Energía Escalona, a hydroelectricity development company in Mexico City, expanded its flagship project and launched a strategic partnership with a leading Mexican engineering and building company that spans project construction, project funding contributions and development of Mexico's small hydro sector.

Johnstown Regional Energy, LLC (JRE), a large landfill gas reclamation company, received notice from the California Energy Commission that power produced by JRE's customers using its "green" gas satisfies the state's renewable protocol standard. This is a major boost for JRE's prospects as it is now eligible to receive much higher pricing than it could expect to receive in the brown gas markets.

MaxWest Environmental Systems, Inc., the market leader in wastewater biogasification systems, reached mechanical completion and successful start-up of its second-generation gasification technology, resulting in significant market interest.

SkyFuel, Inc., the utility scale solar thermal power solution company, has completed equipment delivery, on time and on budget, to two new projects, after successfully completing the first concentrating solar power (CSP) project in Canada.

Lehigh Technologies, Inc., the green materials company and newest Leaf investment, expanded its global presence in the tire, industrial rubber, and plastics industries by establishing marketing and distribution channel partnerships in Europe and South America.

Invenergy Wind LLC, a large scale renewable generation company, closed a US$500 million investment by Caisse de dépôt et placement du Québec (CDPQ) in a large portfolio of Invenergy-owned wind farms in the United States and Canada.

Vital Renewable Energy Company (VREC), a developer of ethanol facilities in Brazil, completed a sugar factory at its BomSucesso mill, providing the flexibility for both ethanol and sugar production.

Market outlook

It is only a matter of time until the global clean energy market strongly rebounds. The fundamental drivers behind the scaling of renewable energy and clean energy technologies have not changed, and arguably grow more pressing by the day. These include the need to address climate change, and to achieve greater energy independence in developed countries and universal energy access in the developing world. Meeting global energy needs while reducing greenhouse gas emissions is only possible by scaling clean energy sources.

In addition, the increasing cost of fossil fuels, and the need to replace aging coal generation capacity, both lay the groundwork for an expanding market share for clean energy generation. In the United States, for example, analysts project that 20% of U.S. coal-based power plants are likely to be retired by 2015, with some market participants suggesting that even higher numbers are possible. Natural gas, including shale, is unlikely to fill all that demand. The new EPA regulations on new and existing coal plants, due to be phased in during 2013-2015, if stringent, could also boost the renewables market.

While the European market remains depressed, developing countries' share of global investment in clean energy rose to a remarkable 46% in 2012, up from 34% in 2011. China was the biggest factor, growing 22% to US$64.7 billion. South Africa has become the biggest clean energy investor in Africa, its investment soaring from a few hundred million dollars in 2011 to US$5.7 billion in 2012. This globalisation of renewable energy technologies, driven by the developing world's availability of solar, wind and geothermal power, is creating significant opportunities for our portfolio companies.

The Leaf Board is closely monitoring the fund's strategic performance in an effort to achieve the highest possible return for our investors. The progress achieved by the executive director, Leaf Management, and the management teams of our portfolio companies inspires confidence.

Net assets

These consolidated financial statements were approved by the Leaf Board of Directors on 26 September 2013. During the year ended 30 June 2013, the Leaf Group's net asset value (NAV) per share increased by 0.8% from 141.52 cents (90.23 pence) to 142.66 cents (93.80 pence). Of our US$183.7 million of net assets, US$21.0 million was held in cash and US$162.6 million is invested in portfolio companies. The board believes that the cash balances provide sufficient liquidity to meet the needs of the portfolio.

Peter Tom

Chairman

26 September 2013

Management report

Overview

The still-fragile clean energy sector is showing favourable signs of turning the corner after a lengthy downturn - at least in the United States. With the market declines of 2012 now starting to reverse (see Market Outlook, below), the Leaf board and management remain cautiously optimistic that clean energy markets are on a path to recovery.

Several indicators suggest a slow return of investor confidence. In particular, an extended rally in the WilderHill New Energy Global Innovation Index (NEX) that began in July 2012 enabled it to outperform the S&P 500 during the year ended 30 June 2013. This sustained rally has sparked a significant increase in public market equity raises in the sector, including successful offerings by Tesla and Solar City.

Given these market factors, we have continued to focus on providing appropriate operating and financial support to our investee companies. The goal is to ensure that their potential is optimised and that they are strongly positioned for eventual realisations as market conditions further improve. 

As one would expect between the end of a long market downturn and its recovery, Leaf continues to see high quality, promising transactions through its proprietary network, many of which have become available due to lack of capital flowing into the sector. As previously reported, Leaf made one new investment during the year ended 30 June 2013, in the preferred stock of Lehigh Technologies, Inc. (Lehigh) We also made additional investments in several current investee companies. In summary:

· On 20 July 2012 Leaf made a US$5 million investment in preferred stock of Lehigh;

· Leaf made an additional US$16.4 million of direct equity and debt investments in existing portfolio businesses;

· Leaf earned US$0.8 million of interest income from debt investments in the portfolio companies during the year; and

· Leaf received cash payments of accrued and current interest and repayments of principal on loans to its investee companies totalling US$0.5 million and US$3.6 million respectively.

Financial performance

The Leaf Group's total Net Asset Value (NAV) on 30 June 2013 was US$183.7 million, US$1.5 million higher than on 30 June 2012. This change resulted mainly from the US$1.5 million comprehensive gain for the year, which consisted primarily of a US$6.0 million gain on revaluation in the carrying value of the portfolio companies, and US$0.8 million of interest income on loans to portfolio companies, less US$5.2 million of administration expenses and US$0.1 million of taxation expense. At the end of the year, US$21.0 million of the Leaf Group's NAV was held in cash and US$162.6 million in investments. 

NAV per share for the Leaf Group was 142.66 cents or 93.80 pence at US$1.5210 to the GBP1. This was an increase of 0.8 per cent for the one year period from 30 June 2012. The increase was primarily due to the unrealised gain on investments (+3.7%) offset by administration expense (-2.8%).

Portfolio highlights

Key performance milestones passed by Leaf and its portfolio companies during the annual report period included the following:

· Energía Escalona (Escalona), the hydroelectric project development company based in Mexico City, established a strategic partnership with a leading Mexican engineering and construction firm. This relationship will include project construction, project funding contributions and future project developments in the Mexican small hydro sector. Furthermore, Escalona has secured the option to participate in a nearby project as part of the partnership, which further illustrates the favourable aspects of the relationship. Finally, the company completed engineering work to increase the size of its flagship development project to 14.5 megawatts, as it seeks to take advantage of Mexico's robust power markets.

· Johnstown Regional Energy, LLC (JRE), a large landfill gas reclamation company, received notice from the California Energy Commission ("CEC") that power produced by JRE's customers using its green gas satisfies California's renewable protocol standard ("RPS"). The California market provides an attractive price incentive for green gas and will partially offset the unfavourable impact on JRE of lower natural gas prices triggered by shale gas development. CEC certification is required in order for JRE's green gas to be eligible to receive the higher-than-market prices available in California.

· SkyFuel, Inc., the utility scale solar thermal power solution company, has completed the delivery of its equipment, on time and budget, to two new projects, and continues to show good progress in the commercialisation of its technology. For example, SkyFuel's completed contract to supply high performance parabolic trough solar collectors to the City of Medicine Hat in Alberta, Canada, will offset fuel consumption at the city's combined cycle gas power plant and avoid 600 metric tons equivalent of carbon dioxide emissions per year. In November 2012, SkyFuel received the second phase of a U.S. Department of Energy (DOE) contract to further develop its SkyTrough technology.

· MaxWest Environmental Systems, Inc. (MaxWest), the leader in wastewater biogasification systems, reached mechanical completion and successful start-up of its second-generation gasification technology. The company is experiencing significant market interest given its unique, on-site solution for wastewater residuals.

· Lehigh, the green materials company and newest investment in the Leaf portfolio, has expanded its global presence with partnerships in Europe and South America. These included a marketing partnership with HERA Holding, a Spanish waste-to-resource company with a large European presence, and a distribution channel partnership with Andes Chemical Corporation, a provider of specialty chemicals and logistics solutions. These collaborations will accelerate Lehigh's expansion into the tire, industrial rubber, and plastics industries in Europe, and Latin America, respectively, bolstering Lehigh's ability to meet growing global demand for its micronised rubber powder (MRP). In addition, the U.S. National Center for Asphalt Technology (NCAT) released a study highlighting Lehigh's MRP products as a sustainable material for highway construction.

· Invenergy Wind LLC (Invenergy), the large scale renewable generation company, closed a US$500 million investment by Caisse de dépôt et placement du Québec ("CDPQ") in a portfolio of approximately 1,500 megawatts generated by Invenergy-owned wind farms in the United States and Canada. The company also closed construction financing for new wind projects in Texas and New York.

· Vital Renewable Energy Company (VREC), a developer of sugar-cane-based ethanol facilities in Brazil, completed a sugar factory at its BomSucesso mill, giving the company the flexibility for both ethanol and sugar production. The company is also pursuing industrial and agricultural expansion plans to increase the facility's production capacity.

Market environment and outlook

Global

While 2012 witnessed a 12% drop in global investment in clean energy from its 2011 level, a decline that continued through early 2013, the market has recovered significantly in recent months, especially in the United States. Globally, the same factors that contributed to 2012's poor performance continued to influence global clean energy investment during the second half of Leaf's fiscal year ended 30 June 2013. 

As reported by Bloomberg New Energy Finance, these included:

- Lingering global macroeconomic problems stemming from the 2008 subprime mortgage crisis in the United States and the sovereign debt crisis in Europe and corresponding political developments.

- The recent, rapid proliferation of abundant and low-cost shale gas, leading to low U.S. power prices.

- Global over-capacity and fierce competition in the solar PV segment, particularly from Asian manufacturers, some of whom have been accused by U.S. and European players of pricing below cost.

- U.S. and European policy uncertainty and depressed pricing for quoted clean energy stocks.

However, there are marked regional differences. The European market appears to have worsened significantly, across each of the above points, due to continuing uncertainties. The U.S. market has improved somewhat, due primarily to the economic recovery and Congressional renewal of the wind power production tax credit (PTC) through 2013.

In the first calendar quarter of 2013 global clean energy investment fell to US$43.6 billion, a level not seen since the first quarter of 2009, as U.S. wind investment reacted to the delayed extension of the PTC, European investment to reduced subsidies and Chinese and Brazilian investment to scarce financing. However, investment recovered significantly in the second quarter to US$53.1 billion, for a total of US$96.7 billion in the first half of calendar 2013, a 17% drop as compared to the first half of the previous year.

The second quarter recovery was mostly due to 155% and 68% increases, respectively, in U.S. and Chinese investment in clean energy over the first quarter. The quarter would have been even better had not Europe's investments decreased by 44% (US$7.5 billion).

For the year ended 30 June 2013, global investment by venture capital ("VC") and private equity ("PE") firms in clean energy was US$6.1 billion, down 18% as compared to the previous year. However, investment picked up in the first half of calendar 2013, up 54% from the second half of 2012 and 9% from the first half of 2012.

While the above statistics clearly indicate a continuing fragile state for the global clean energy market, Leaf's board and management see clear signs that it is turning the corner, at least in the United States.

Prices of quoted renewable energy companies outperformed the broader public market in the year ended 30 June 2013, with the NEX index continuing to rally from its 25 July 2012 low, to finish the fiscal year with a 29.11% gain versus 17.63% for the S&P 500, and continuing to rally into Leaf's fiscal first quarter. 

This rally has sparked an increase in equity raises in the public markets, with US$3.8 billion of new public market investments in Q2 alone, a level not seen in two years. Notable Q2 offerings included a US$1.44 billion offering by Mighty River Power, US$660 million and US$360 million convertible and secondary offerings (respectively) by Tesla, and a $448 million secondary offering by Solar City, close on the heels of its successful Q4 IPO.

United States

As described above, global clean energy investment recovered in Q2 2013 from its precipitous Q1 drop, in large part due to growth in the U.S. sector.

Investors appear to be taking their cue from a political and economic climate that seems set to build on its recent progress on renewed clean energy investment. Congress renewed the wind production tax credit for one year, and President Obama has pledged to take unilateral action under existing laws to tackle climate change by regulating carbon emissions.

Central to the President's plan is to use the U.S. Environmental Protection Agency's (EPA) powers under the Clean Air Act to impose carbon emission limits on existing and new coal-power plants. Regulation of emissions from new plants is expected later this calendar year, while the thornier issue of regulating existing plants is targeted for a June 2014 proposal, with regulations to be rolled out in June 2015. The latter could significantly boost the U.S. renewables market, depending on how strict the new rules are.

Other steps planned by the Obama administration not requiring Congressional approval include: US$8 billion in U.S. Energy Department loan guarantees for advanced fossil energy projects; permitting for renewable energy projects on federal lands; and fuel economy standards for heavy-duty trucks beyond model year 2018, when existing standards expire.

In another positive development, this time at the state level, the cap-and-trade market for carbon dioxide launched in late 2012 by California is thriving. According to Clean Technica, the third auction of allowances sold out in May 2013 at US$14/ton, up from US$13.62/ton and US$10.09/ton respectively for the second and first auctions in February 2013 and November 2012.

Leaf outlook

While it is still too early to be confident of a robust clean energy market recovery, Leaf is cautiously optimistic that continued improvement may foster medium-term opportunities for realisations for some of its portfolio companies. In the meantime, Leaf has continued to focus in the short term on the management of its existing portfolio, having prudently maintained cash reserves to provide appropriate financing for its portfolio

Leaf's board and management continue to believe that the diversity and balance of the Leaf portfolio, together with Leaf's focus on adding value to existing investee companies, sets it up well to benefit as clean energy markets improve. Our goal remains positioning our investee companies for eventual realisation in order to provide a long-term return to Leaf's shareholders.

Portfolio overview

A. Active investments - growth companies

MaxWest Environmental Systems ("MaxWest") Waste-to-energy gasification

SkyFuel Inc. ("SkyFuel") Concentrated solar power

Lehigh Technologies, Inc. ("Lehigh") Green materials

B. Active investments - projects

Johnstown Regional Energy, LLC ("JRE") Landfill gas

Multitrade Rabun Gap ("Rabun Gap") Wood-fuelled biomass

Multitrade Telogia ("Telogia") Wood-fuelled biomass

Vital Renewable Energy Company ("VREC") Biofuels - ethanol

Energía Escalona ("Escalona") Hydro

C. Passive investments

Invenergy Wind LLC ("Invenergy") Wind power

26 September 2013

Report of the directors

The directors hereby submit their annual report of the audited consolidated financial statements of the Leaf Group for the financial year ended 30 June 2013.

The Company

Leaf was incorporated in the Cayman Islands and was established to invest in clean energy projects, predominantly in North America. Clean energy includes activities such as the production of alternative fuels, renewable power generation and the use of technologies to reduce the environmental impact of traditional energy. Leaf seeks to achieve long term capital appreciation primarily through making privately negotiated acquisitions of interest (principally equity but also equity-related and subordinated or mezzanine debt securities) in both projects and companies which own assets or which participate in the clean energy sector and through the generation and commercialisation of carbon credits derived from these projects.

Results and dividends

The results and financial position of the Leaf Group for the year ended 30 June 2013 are set out in the attached financial statements.

The directors do not intend to declare a dividend at this time (2012: US$nil).

Directors and directors' interests

The directors during the year and up to the date of this report were:

Details of interests

The interests of the directors in the share capital of Leaf as at 30 June 2013 are set out below:

Notified shareholdings

As at the date of this report, the following interests in the ordinary shares of Leaf of 3% and over of the issued share capital had been notified to Leaf:

Independent auditors

Our Auditors, KPMG, being eligible have expressed their willingness to continue in office.

Corporate governance

The directors have taken measures to ensure that the Leaf Group complies with the UK Corporate Governance Code to the extent they consider appropriate, taking into account the size of the Leaf Group and nature of its business. 

Board of directors

Leaf has an experienced board which is currently comprised of four directors, all of whom are non-executive directors except Bran Keogh who was appointed by the board to become an executive director in February 2010. Peter Tom is the non-executive chairman of the board.

In addition to service on the Leaf Board, Bran Keogh serves the board of Vital Renewable Energy Company, LLC and J. Curtis Moffatt serves the board of Johnstown Regional Energy, LLC. No additional compensation is paid to the directors for the services on the referenced portfolio companies' boards.

Audit committee

Leaf has established an audit committee, which is comprised of J. Curtis Moffatt (chairman of the committee), Peter Tom and Peter O'Keefe. The audit committee meets at least twice a year and considers the appointment and fee of the external auditors and also discusses the scope of the audit and its findings. This committee is also responsible for monitoring compliance with accounting and legal requirements and for reviewing the annual and interim financial statements of the Leaf Group prior to their submission for approval by the board. The audit committee also focuses on ensuring that an effective system of internal financial and non-financial controls is maintained. The audit committee has unrestricted access to the Leaf Group's external auditors.

Remuneration committee

Leaf has established a remuneration committee, which is comprised of Peter Tom and Bran Keogh. The remuneration committee meets at least once a year and reviews the level of directors' fees. The committee engaged Mercer Limited ("Mercer") in February 2011 to conduct an independent remuneration review.

The committee met on 3 March 2011 and recommended that the board adopt the recommendations from Mercer. The board voted at the board meeting on 3 March 2011 to adopt the Mercer recommendations effective 1 April 2011. As a result, effective 1 April 2011, the basic annual remuneration for the chairman and the executive director was maintained at US$200,000 and US$400,000 respectively. In addition, the executive director will be entitled to receive an annual bonus of US$350,000. The base fee for the remaining non-executive directors, was reduced from US$150,000 to US$60,000 and each of the remaining non-executive directors are also entitled to receive a US$2,500 fee for each board meeting attendance, a US$10,000 fee for audit committee membership and a US$1,500 per diem fee for each additional day spent by them performing Leaf duties, up to a US$150,000 cap on all fees.

Leaf does take all reasonable steps to ensure compliance by the directors, the directors' families and any employees with the provisions of the AIM Rules relating to dealings in securities of the Group and has adopted the Model Code under the FCA's Listing Rules for this purpose. 

Nomination committee

Leaf does not currently consider it necessary to establish a nomination committee. 

Internal control

There are inherent limitations in any system of internal control and such a system can provide only reasonable, but not absolute, assurances against material misstatement or loss. The Leaf Group does not have its own internal audit function but places reliance on compliance and other control functions of its service providers.

Where necessary the board obtains specialist advice from advisers. 

On behalf of the board

Peter Tom

Chairman26 September 2013

Statement of directors' responsibilities in respect of the annual report and the financial statements

The directors are responsible for preparing the directors' report and the consolidated financial statements in accordance with applicable law and regulations. In addition, the directors have elected to prepare the consolidated financial statements in accordance with International Financial Reporting Standards.

The consolidated financial statements are required to give a true and fair view of the state of affairs of the Leaf Group and the profit or loss of the Leaf Group for that year. 

In preparing these consolidated financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with International Financial Reporting Standards; and

· prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Leaf Group will continue in business.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Leaf Group's transactions and disclose with reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Leaf Group and to prevent and detect fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on Leaf's website. Legislation governing the preparation and dissemination of consolidated financial statements may differ from one jurisdiction to another.

Report of the independent auditors to the directors of Leaf Clean Energy Company

We have audited the accompanying consolidated financial statements of Leaf Clean Energy Company and its subsidiary which comprises the consolidated statement of financial position as of 30 June 2013, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of Leaf Clean Energy Company and its subsidiary as of 30 June 2013, and the results of their operations and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

KPMG

PO Box 493

Century Yard, Cricket Square

Grand Cayman KY1-1106

Cayman Islands

26 September 2013

Consolidated statement of comprehensive income for the year ended 30 June 2013

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of financial position as at 30 June 2013

The accompanying notes form an integral part of these consolidated financial statements.

The consolidated financial statements were approved by the board of directors on 26 September 2013 and signed on their behalf by:

Consolidated statement of changes in equity for the year ended 30 June 2013

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of cash flows for the year ended 30 June 2013

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of cash flows for the year ended 30 June 2013 (continued)

The accompanying notes form an integral part of these consolidated financial statements.

Notes to the consolidated financial statements for the year ended 30 June 2013

1. The Company

Leaf was incorporated and registered in the Cayman Islands on 14 May 2007. The fund was established to invest in clean energy projects, predominantly in North America. Clean energy includes activities such as the production of alternative fuels, renewable power generation and the use of technologies to reduce the environmental impact of traditional energy. Leaf seeks to achieve long term capital appreciation primarily through making privately negotiated acquisitions of interest (principally equity but also equity-related and subordinated or mezzanine debt securities) in both projects and companies which own assets or which participate in the clean energy sector and through the generation and commercialisation of carbon credits derived from these projects.

The Shares of Leaf were admitted to trading on the AIM market of the London Stock Exchange ("AIM") on 28 June 2007 when dealings also commenced.

Leaf's agents, the executive director and the management team (all employees of Leaf's subsidiary) perform all significant functions. Accordingly, Leaf itself has no employees.

The consolidated financial statements as at and for the year ended 30 June 2013 are for the Leaf Group. Refer to note 12.3.

2. Basis of preparation

2.1 Statement of compliance

The Leaf Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Leaf has many shareholders and invests in portfolio companies solely for return from capital appreciation, investment income, or both. Substantially all of the Leaf Group's investments are held on a fair value basis and accordingly the Leaf Group has early adopted the amendments to IFRS 10: Investment Entities. As a result, during the year ended 30 June 2013, the Leaf Group no longer presents standalone parent information.

Additional standards adopted include: IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 (revised) and IAS 28 (revised). The amendments to IFRS 10 require investment entities to measure controlled portfolio entities at fair value under IAS 39 instead of consolidating such subsidiaries. The comparative figures have been restated to comply with the new accounting policy. As a result of this change, the consolidated net asset value previously reported as at 30 June 2012 has been restated from US$174.0 million to US$182.2 million. The impact of the adoption of these accounting standards on the restated comparative figures are described in more detail in Note 18.

AIM rules require Leaf to prepare consolidated financial statements in accordance with IFRS as adopted by the EU. However, Leaf wished to early-adopt the amendments to IFRS 10 issued by the IASB in October 2012, requiring investment entities to measure controlled portfolio investees at fair value. These amendments have not yet been endorsed by the EU and therefore may not be early-adopted under the EU-IFRS framework. Leaf obtained a derogation from AIM permitting such early adoption. As a result, given that there are currently no other material differences between IFRS and IFRS as adopted by the EU that affect the Leaf Group, these consolidated financial statements are prepared in accordance with IFRS.

These consolidated financial statements were approved by the board of directors on 26 September 2013.

 2.2 Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the investments held at fair value through profit and loss that are measured at fair value in the consolidated statement of financial position.

2.3 Functional and presentation currency

The consolidated financial statements are presented in United States Dollars ("US$"), which is the Leaf Group's functional currency. All financial information presented in US$ has been rounded to the nearest thousand, except when otherwise indicated.

2.4 Use of estimates and judgements

The preparation of financial statements requires management to make 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 these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised and in any future years affected.

The most significant area requiring estimation and judgement by the Directors is the valuation of unquoted investments, see note 5 and 12.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.

3.1 Financial instruments

(i) Non-derivative financial assets

The Leaf Group classifies non-derivative financial assets into the following categories: investments at fair value through profit or loss and, loans and receivables.

The Leaf Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on trade date, which is the date that the Leaf Group becomes a party to the contractual provision of the instrument.

The Leaf Group derecognise a financial asset when the contractual rights to the cash flows from the instrument expire, or the rights to receive the contractual cash flows are transferred in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred assets that is created or retained by the Leaf Group is recognised as a separated asset or liability.

Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Leaf Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise and settle the liability simultaneously.

Investments held at fair value through profit or loss

The Leaf Group designates its investments, including equity, loans and similar instruments, as at fair value through profit or loss on initial recognition. Attributable transaction costs are recognised in the consolidated statement of comprehensive income as incurred. Gains and losses arising from changes in fair value of investments, including foreign exchange movements, are recognised in the consolidated statement of comprehensive income.

Unquoted investments are valued at fair value using recognised valuation methodologies, based on the International Private Equity and Venture Capital Guidelines, which reflect the amount for which an asset could be exchanged between knowledgeable, willing parties on an arm's length basis.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise cash and cash equivalents and trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents consists of cash balances and call deposits with maturities of three months or fewer from the acquisition date that are subject to an insignificant risk of changes in value, and are used by the Leaf Group in the management of its short-term commitments.

(ii) Non-derivative financial liabilities

The Leaf Group classifies non-derivative financial liabilities into the other financial liability category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised costs using the effective interest method.

The Leaf Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated as at fair value through profit or loss) are recognised initially on trade date, which is the date that the Leaf Group becomes a party to the contractual provision of the instrument.

The Leaf Group derecognises a financial liability when the contractual obligations are discharged, cancelled or expire.

Financial liabilities comprise trade and other payables.

Bank overdrafts that are repayable on demand and form an integral part of the Leaf Group's cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

3.2 Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity.

3.3 Revenue and expense recognition

Interest income is recognised on a time-proportionate basis using the effective interest rate method.

Dividends receivable on equity and non-equity shares, which carry significant equity rights, are recognised as revenue when the shareholders' right to receive payment has been established, normally ex-dividend date. When no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. 

Fixed returns on debt securities and loans are recognised on an effective interest rate basis, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

Expenses are accounted for on an accrual basis and are charged to consolidated statement of comprehensive income. This includes expenses directly related to making an investment which is held at fair value through profit or loss.

3.4 Foreign currency translation

Transactions in foreign currencies are translated to the functional currency of the Leaf Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the statement of comprehensive income.

3.5 Dividends payable

Dividends payable are recognised as a liability in the period in which they are declared and approved. 

3.6 Earnings per share

The Leaf Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the basic earnings attributable to ordinary shareholders of Leaf by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the basic earnings attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

3.7 Income tax expense

Cayman Islands taxation

Leaf received from the Governor-in-Cabinet of the Cayman Islands, an undertaking that, for a period of 20 years from 5 June 2007 no laws of the Cayman Islands imposing any tax on profits, income, gains or appreciation shall apply to Leaf and that no such tax or any tax in the nature of estate duty or inheritance tax shall be payable on the shares, debentures or other obligations of Leaf. Under the current Cayman Islands law, no tax will be charged on profits or gains of Leaf and dividends of Leaf would be payable to Shareholders resident in or outside the Cayman Islands without deduction of tax.

In June 2010, Leaf established a subsidiary, Leaf Clean Energy USA, LLC in Washington, DC which provides asset advisory, portfolio management and certain administrative services to Leaf and pays applicable taxes in the United States. 

3.8 Future changes in accounting policies

IASB (International Accounting Standards Board) and IFRIC (International Financial Reporting Interpretations Committee) have issued the following standards and interpretations with an effective date after the date of these financial statements:

The impact on the Leaf Group's financial statements is currently being considered by the Leaf Board.

4 Financial risk management

The Leaf Group's investments expose it to a variety of financial risks: market risk (including currency risk, market price risk and interest rate risk), credit risk and liquidity risk.

Market price risk

The portfolio companies in which Leaf invests operate in sectors that may be affected by the prevailing prices of electricity, oil, natural gas and other commodities. As energy and fuels derived from non-renewable sources become more expensive or scarce, renewable energy and alternative fuels become more valuable. Conversely, if non-renewable energy and fuels become more abundant or, for other reasons become less expensive, the value of renewable or alternative fuels may be negatively affected. As a result, the performance of the project companies is likely to be dependent upon prevailing prices for these commodities, which have been historically, and may continue to be, volatile and subject to wide variations for a variety of reasons beyond the control of the Leaf Group. These factors include the level of consumer product demand, weather conditions, governmental regulations in producing and consuming countries, the price and availability of alternative fuels, the supply of oil and natural gas, and overall geo-political and economic conditions. Therefore, volatility of commodity prices may adversely affect the value of the Leaf Group's investments.

Market price risk is managed by the Leaf Board.

All of the Leaf Group's investments comprise interests in companies which are not publicly traded or freely marketable. The Leaf Group may also be restricted from selling certain securities by contract or regulatory considerations. Such investments may therefore be difficult to value or realise. Any such realisation may involve significant time and expense.

The below table summarises the valuation methodologies and key assumptions in deriving the aggregate fair value of the investments of $162.6 million (2012 (As restated): $138.7 million):

If the value of the Leaf Group's investment portfolio increased/decreased by 5%, the net assets of the Leaf Group would increase/decrease by US$8.1 million (2012 (As restated): US$6.9 million)

Foreign exchange risk

The Leaf Group is exposed to foreign exchange risk with regard to transactions made in Sterling and balances held in Sterling.

An analysis of net assets by currency exposure as at 30 June 2013 is as follows:

An appreciation of the Sterling against the US Dollar of 5% would have decreased net assets by US$8,670 (2012 (As restated): US$9,722). A decrease of 5% would have an equal and opposite effect.

Interest rate risk

The Leaf Group is exposed to cash flow interest rate risk on cash balances which are all short term fixed deposits. The weighted average interest rates on short term fixed deposits as at 30 June 2013 were:

The table below summarises the Leaf Group's exposure to interest rate risks. It includes the financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities:

No fair value interest rate sensitivity analysis has been provided as no financial assets or liabilities are subject to fair value interest rate risk.

Credit risk

Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Leaf Group.

The carrying amounts of financial assets, excluding equity investments in portfolio companies, best represent the maximum credit risk exposure at the reporting date. This relates also to financial assets carried at amortised cost, as they have a short term maturity.

At the reporting date, the Leaf Group's financial assets exposed to credit risk amounted to the following:

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position. Management does not expect any counterparty to fail to meet its obligations. No impairment provisions have been made as at the year end and no debtors were past their due date.

Leaf's intermediary subsidiaries are equity investments of the Leaf Group which would not usually be subject to credit risk. However, the purpose of these subsidiaries is to hold the Leaf Group's underlying investments in the investee companies. Portions of the underlying investments are in the form of loans, convertible notes or other instruments that are subject to credit risk, and therefore the value attributable to such instruments is provided in the credit risk table above.

Cash balances are held with P-1* financial institutions.

*- A Moody's rating of Prime-1 (P-1) means that the issuer has a superior ability to repay short-term debt for the obligations.

Liquidity risk

Liquidity risk is the risk that the Leaf Group will not be able to meet its financial obligations as they fall due. The Leaf Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet their liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses. The Leaf Group's liquidity position is monitored by Leaf's board of directors.

Residual undiscounted contractual maturities of financial liabilities:

Fair values

All assets and liabilities at 30 June 2013 are considered to be stated at fair value.

5. Critical accounting estimates and assumptions

These disclosures supplement the commentary on financial risk management (see note 4).

Key sources of estimation uncertainty

Determining fair values

The determination of fair values for financial assets for which there is no observable market prices requires the use of valuation techniques as described in accounting policy 3.1. 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, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. See also "Valuation of financial instruments" below.

Critical judgements in applying the Leaf Group's accounting policies

Critical judgements made in applying the Leaf Group's accounting policies include:

Valuation of financial instruments

The Leaf Group's accounting policy on fair value measurements is discussed in accounting policy 3.1. The Leaf Group measures fair value using the following hierarchy that reflects the significance of inputs used in making the measurements:

· Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

· Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments: quoted market prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

· Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Leaf Group determines fair values using valuation techniques.

Leaf, through its wholly-owned subsidiaries, holds full or partial ownership interests in a number of unquoted clean energy companies. These investments are classified as level 3 in the fair value hierarchy. A reconciliation from the beginning balances to the ending balances is shown in note 12.

6. Net Asset Value per Share

The net asset value per share as at 30 June 2013 is 142.66 cents based on net assets of US$183.7 million and 128,745,726 ordinary shares in issue as at that date (2012 (As restated):141.52 cents based on net assets of US$ 182.2 million and 128,745,726 ordinary shares).

7. Restricted cash

Restricted cash balance consists primarily of restricted cash collateral accounts securing two letters of credit with HSBC USA totalling US$3.1 million in aggregate, which are in relation to one of the Leaf Group's investments. Both letters of credit are expected to be released on or before 30 November 2014, at which time the Leaf Group expects the restrictions on the corresponding cash collateral accounts to be released and the cash in the account to be made available to the Leaf Group again on an unrestricted basis.

8. Interest income on cash balances

9. Administration expenses

10. Directors' remuneration

Details of the directors' basic annual remuneration areas follows:

Directors' fees and expenses were:

In addition to the above basic annual remuneration, Mr. Moffatt and Mr. O'Keefe are also entitled to receive a US$2,500 fee for each board meeting attendance, a US$10,000 fee for audit committee membership and a US$1,500 fee per diem fee for each additional day spent by them performing Leaf duties, up to a US$150,000 cap on all fees. Each director is also entitled to receive reimbursement of any expenses in relation to his appointment. Total reimbursement fees paid to the directors for the year ended 30 June 2013 amounted to US$7,857 (2012: US$218,230) of which US$nil was outstanding at 30 June 2013 (30 June 2012: US$nil).

11. Basic earning/(loss) per share

Basic and Diluted

Basic and diluted earning/(loss) per share is calculated by dividing the earning/(loss) attributable to equity holders of Leaf by the weighted average number of ordinary shares in issue during the year:

There is no difference between the basic and diluted earnings/(loss) per share for the year.

12. Investments

Investments in underlying investee companies (held through various wholly owned intermediary subsidiaries) comprise ordinary stock, loans, convertible notes and preferred stock carrying a cumulative preferred dividend, preferential return of capital and capped rights to share in profits. The directors, with advice from the in-house management team, Leaf Clean Energy USA, LLC, have reviewed the carrying value of each investment and calculated the aggregate value of the Leaf Group's portfolio. Investments are measured at the directors' estimate of fair value at the reporting date, in accordance with IAS 39 'Financial Instruments: Recognition and measurement'.

12.1 Investments at fair value through profit or loss

Investments are stated at fair value through profit or loss on initial recognition. Loans are reviewed for impairment in conjunction with the related equity investment in the investee company. All investee companies are unquoted.

12.2 Portfolio valuation methodology

Unquoted investments are valued by applying an appropriate valuation technique, which makes maximum use of market-based information, is consistent with models generally used by market participants and is applied consistently from year to year, except where a change would result in a better estimation of fair value. Leaf primarily invests in unquoted direct investments. Unquoted direct investments have characteristics similar to private equity investments, in that the value is generally determined through the sale or flotation of the entire business, rather than the sale of an individual instrument. Valuations of such investments are based upon the "International Private Equity and Venture Capital Valuation Guidelines."

The in-house management team conducted a valuation analysis of the Leaf Group's investment portfolio based upon standard valuation approaches compatible with the "International Private Equity and Venture Capital Valuation Guidelines." Given the uncertainties inherent in estimating the fair value of unquoted direct investments, a degree of caution was applied by the in-house management team in exercising judgements and making the necessary estimates.

12.3 The subsidiaries

The consolidated financial statements comprise Leaf and the following consolidated subsidiary:

Leaf also has control over the following underlying investee companies but these companies have not been consolidated on the basis of the early adoption of the amendments to IFRS 10:

(1) Voting rights 81.9%

13. Trade and other receivables

Amounts due from group companies are unsecured, interest free and receivable on demand.

14. Cash and cash equivalents

The short-term deposits are subject to interest rates at 0.07% per annum and are fixed for periods ranging up to 1 month from the consolidated statement of financial position date.

15. Share capital

The authorised share capital of the Leaf Group is GBP25,000 divided into 250 million Ordinary Shares of GBP0.0001 each.

Under the terms of the placement on 22 June 2007, Leaf issued 200,000,000 shares of GBP0.0001 each par value at a price of GBP1 each. The difference between the issue price and the par value was transferred to share premium account, net of share issue expenses.

Share capital and premium received was translated to US Dollars at the exchange rate prevailing at the date of receipt of the proceeds.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of Leaf. All shares rank equally with regards to the Leaf Group's assets.

Capital management

The board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The board manages the Leaf Group's affairs to achieve shareholder returns through capital growth rather than income, and monitors the achievement of this through growth in net asset value per share. 

The Leaf Group's capital comprises share capital, share premium and reserves and is not subject to externally imposed capital requirements.

16. Trade and other payables

17. 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.

Leaf's directors are related parties and details of their fee arrangements are given in note 10 and their shareholdings are disclosed under report of the directors.

Leaf's wholly owned subsidiary, Leaf Clean Energy USA, LLC ("Leaf USA"), in Washington, DC provides asset advisory, portfolio management and certain administrative services to Leaf.

18. Prior year restatement

The Leaf Group has early adopted the amendments to IFRS 10: Investment Entities (issued October 2012) along with the consolidation suite of standards, namely: IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 (revised) and IAS 28 (revised). The amendments to IFRS 10 require investment entities to measure controlled portfolio entities at fair value under IAS 39 instead of consolidating such subsidiaries. The comparative figures have been restated to comply with the new accounting policy. The below statement shows the comparative analysis of prior year restatements.

Comparative statement of comprehensive income

Comparative statement of financial position

19. Capital commitments

As at 30 June 2013, there were no capital commitments in respect of investments.

20. Subsequent Events

There have been no subsequent events.