Trading Emissions PLC Regulatory News (TRE)

Trading Emissions PLC

Results for the six month period ended 31 December 2017

Trading Emissions PLC ("TEP" or "the Company") today announces its results for the six month period ended 31 December 2017.

Enquiries:

Liberum +44 (0)20 3100 2222

Steve Pearce / Henry Freeman/ Gillian Martin

FIM Capital Limited + 44 (0) 1624 681250

Philip Scales

Chairman's Statement

Dear Shareholder

I am pleased to report on behalf of the Board that good progress has been made in bringing the Investing Policy and operations of Trading Emissions PLC ("TEP" or the "Company") towards a conclusion. The Company's net asset value increased to £11.9 million (4.75p per Share) at 31 December 2017 from £10.0 million (4.02p per Share) at the 30 June 2017 financial year end.

Investments

Since the Company's financial year end, we have succeeded in realising most of the value from the Company's remaining investments, namely its private equity interests in TEP (Solar Holdings) Limited ("TEP Solar") and TEP (Renewables Holding) Limited ("TEP Renewables").

TEP Solar

At the beginning of the current financial year, TEP Solar held three operating subsidiaries in Italy.

As previously reported, during the six month period ended 31 December 2017, we completed the sale of two of those subsidiaries, generating net proceeds of €3.0 million. In total, TEP sold four Italian operating subsidiaries to the same buyer for aggregate net proceeds of €12.6 million (including dividends). Of this amount, €3.0 million was placed in escrow, of which €1.0 million was released to TEP Solar in December 2017. Conditional on no claims being received from the buyer, the remaining €2.0 million will be released to the Company in December 2018.

Following the financial period end, the Company agreed the sale of its remaining Italian solar subsidiary, which, upon closing, is expected to generate net proceeds of €8.6 million. Closing is expected to take place in early April 2018. The sales agreement includes terms and conditions customary for a transaction of this type, including warranties and an indemnity in favour of the buyer in respect of potential claims of up to a maximum value of, in aggregate, €1.0 million, which will expire on 30 June 2018.

The Company's investment in TEP Solar was valued at 31 December 2017 based on the expected net disposal proceeds and the cash it held, net of its liabilities.

In early 2018, the Irish Revenue accepted TEP Solar's submission and payment regarding the previously unrecorded VAT liability dating back to 2011.

TEP Renewables

The buyer of TEP Renewables' equity interest in EWG Slupsk continues to face an unfriendly investment and operating environment for wind projects in Poland. The latest pronouncements from the Polish Government are designed to promote power generation from sources other than wind and it remains highly uncertain as to whether the EWG Slupsk project will proceed. A significant portion of TEP Renewables' sales consideration is deferred and contingent on the project being built.

In early 2018, the Irish Revenue accepted TEP Renewables' submission and payment regarding previously unrecorded VAT liability dating back to 2011. This now permits the Board to further rationalise costs. The remaining potential receivable from the sale of EWG Slupsk will be assigned to TEP in order to allow the commencement of the voluntary liquidation of TEP Renewables.

Cash

At 31 December 2017, TEP directly held cash of £1.4 million (equivalent to 0.54p per Share). At the time of writing, TEP holds £1.2 million (equivalent to 0.49p per Share). Immediately following the closing of the sale of the remaining Italian solar subsidiary, we expect TEP Solar to remit to TEP a minimum of €10.0 million (equivalent to approximately £8.7 million or 3.5 pence per Share).

Future of the Company

Following the sale of the remaining Italian solar subsidiary, the Board intends to convene as soon as practicable an Extraordinary General Meeting of Shareholders to approve the cancellation of the Company's admission to trading on AIM and a cash distribution to Shareholders. The delisting of the Company's Shares will allow a further reduction in operating costs, thereby making more cash available for distribution to Shareholders. An announcement providing further details to Shareholders will be made in due course.

Martin M. Adams

Chairman

26 March 2018

Condensed Statement of Comprehensive Income

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

Condensed Statement of Financial Position

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

The Condensed Interim Financial Statements were approved and authorised for issue by the Board of Directors on 26 March 2018 and signed on its behalf by:

Neil Duggan Philip Scales

Director Director

Condensed Statement of Changes in Equity

For the year ended 30 June 2017 (audited)

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

Condensed Statement of Cash Flows

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

Notes to the Condensed Interim Financial Statements

for the six months ended 31 December 2017

1 Operations

Trading Emissions Plc ("the Company") invests in environmental and emissions assets, companies providing products and services related to the reduction of greenhouse gas emissions and associated financial products.

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

2 Basis of Preparation

The Condensed Interim Financial Statements ("the Financial Statements") have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include information required for a complete set of financial statements prepared in accordance with IFRSs as adopted by the EU. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the financial position and performance since the last annual financial statements as at and for the year ended 30 June 2017.

The principal accounting policies applied in the preparation of the Financial Statements are unchanged from those disclosed in the annual audited financial statements for the year ended 30 June 2017. These policies have been consistently applied to each of the periods presented. The audited financial statements for the year ended 30 June 2017 are available at www.tradingemissionsplc.com.

The Financial Statements for the six months ended 31 December 2017 should be read in conjunction with the annual financial statements for the year ended 30 June 2017.

3 Use of judgements and estimates

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

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

The significant judgements made by the Board in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited financial statements as at and for the year ended 30 June 2017.

3.1 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

The Directors are of the opinion that the Company is engaged in a single segment of business being investment in private equity in one geographical area, being Europe.

4 Fair value of financial instruments

4.1 Valuation models

The Company holds no Level 1 or Level 2 financial instruments. The financial instruments included within Level 3 are the Private Equity investments. These "TEP Investment Companies" are all companies in which the Company holds an ownership interest greater than 20%.

There were no transfers of financial assets between Levels during the six months ended 31 December 2017 (for the six months ended 31 December 2016: no transfers; for the year ended 30 June 2017: no transfers).

4.2 Significant unobservable inputs used in measuring fair value

The table below sets outs the information about significant unobservable inputs used in measuring financial instruments. All financial instruments are categorised as Level 3 in the fair value hierarchy. The fair value measurements below are recurring.

Significant unobservable inputs include:

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

· Agreed transaction terms, including binding agreements with third parties for the purchase of Private Equity that were in place at the date of signing the financial statements for each respective period.

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

4.3 Level 3 fair values

Level 3 reconciliation:

The table below presents the changes in Level 3during each financial period/year.

4.4 Sensitivity of fair value measurement to changes in unobservable inputs

Although the Board believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3, changing one or more of the assumptions used to reasonably possible alternative assumptions would have the following effects on net assets.

· If the risk-adjustment factor applied to agreed transaction terms would increase, this would have an unfavourable impact on the value of Private Equity. The Board has determined that it would be reasonably possible for the risk-adjustment factor applied to binding agreements under each valuation model were to be increased or decreased by an arbitrary 25 per cent, the effects are shown in the table below.

4.5 Financial instruments not measured at fair value

Financial assets not measured at fair value include cash and cash equivalents and trade and other receivables. These are short-term financial assets whose carrying amounts approximate fair value, because of their short-term nature and the high credit quality of counterparties.

5 Realised gain on disposal of financial assets at fair value through profit or loss

Receipt of Trading Emissions Limited ("TEL") liquidation proceeds

On the 21 July 2017 the Company, received £2,000 from the liquidation of TEL. TEL was dissolved during the financial period, with no realised gain or loss materialising.

TEP (Solar Holdings) Limited ("TEP Solar")

On 21 July 2017 TEP Solar executed a Sales and Purchase Agreement with a member of the Sonnedix Group ("Sonnedix") in respect of the sale of its entire interest in RGP Puglia 1 S.r.l ("RGP") and Florasolar S.r.l.("Florasolar"), which were ultimately wholly owned by the Company.

Although no new escrow arrangement was created, certain claims following the sale may be made against the sums that were placed in escrow pursuant to the sale of TEP Solar's entire interest in Etuno S.r.l. ("Etuno") and Solar Energy Italia 6 S.r.l. ("SEI 6"). To date, there have been no claims against the amounts held in escrow.

On 8 August 2017 the sale of TEP Solar's entire interest in RGP and Florasolar completed and an aggregate net proceeds, after allowing for outstanding transaction costs (including those paid directly by the Company), of €3,035,000 were received.

On 14 December 2017, €1,000,000 of the €3,000,000 held in escrow was released to TEP Solar. The remaining €2,000,000 will be released on 14 December 2018, subject to no claims having been received pursuant to indemnities provided by TEP Solar customary for these type of transactions.

The receipt of sale proceeds by TEP Solar and the funds held in escrow has been accounted for through the valuation of Surya PLC ("Surya") and its subsidiaries. 

6 Directors' fees

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

* Isle of Man resident

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

The Company operates a Directors' Incentive Plan ("DIP") which entitles Participating Directors to 2% of distributions made to Shareholders. Participation in the DIP is granted at the discretion of the Nomination and Remuneration Committee at the time each distribution is made. The table overleaf shows the DIP payments paid and accrued:

The DIP amounts retained will be paid to the Participating Directors at a later date. Other than as detailed above, none of the Directors is entitled to any cash or non-cash benefits in kind, pensions, bonus or share scheme arrangements.

7 Other net operating expenses

* The credit of legal and professional fees in the current period is the result of expenses accrued at the prior financial year end, but not incurred.

8 Trade and other payables

9 NAV per Share and earnings per Share

9.1 Net Asset Value ("NAV") per Share 

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

9.2 Earnings/(loss) per Share

(a) Basic

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

(b) Diluted

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

10 Share capital

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

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

11 Distributions paid and declared

On 29 August 2017, the Company declared a distribution to Shareholders of 1.0 pence per Share, equivalent to £2,498,000 in total. The distribution was paid on 20 September 2017 and financed from the distributable reserves account.

On 20 December 2016, the Company declared a distribution to Shareholders of £6,245,000. The distribution was paid on 13 January 2017 and financed from the distributable reserves account.

12 Related party transactions

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

12.1 Directors

Directors' fees, the DIP and other transactions with the Directors during the financial period are explained in note 6, Directors' fees.

Philip Scales was a Director throughout the financial period. Mr Scales is a Director of FIM and has a beneficial ownership interest in FIM. During the financial period, FIM received fees of £90,000 (six months ended 31 December 2016: £106,000; year ended 30 June 2017: £204,000). FIM also received reimbursements for out of pocket expenses.

12.2 TEP Investment Companies

TEP (Renewables Holding) Limited ("TEP Renewables")

The Company entered into a Fees and Expenses Agreement with TEP Renewables on 6 December 2010. Under the terms of the agreement, the Company will reimburse TEP Renewables for any 'agreed company expenses'. During the period fees and expenses reimbursed by the Company to TEP Renewables was €nil (31 December 2016: €26,000; 30 June 2017: €43,000).

On 6 December 2010, the Company also entered into a Total Return Swap Agreement ("TRS") with TEP Renewables. The TRS is for a period of 20 years with a termination date of 6 December 2030 or such earlier date as may be specified by written notice by TEP Renewables to the Company. Under the terms of the TRS, TEP Renewables will make investments in target companies and investment gains and losses are recharged through the TRS to the Company. On termination of the TRS, TEP Renewables must pay any cash or investments held that were originally funded through the TRS to the Company. As at 31 December 2017 the balance on the TRS was €326,000 (31 December 2016: €326,000; 30 June 2017: €114,000).

Surya

During the financial period, Surya made a net payment to the Company of £2,863,000; this was accounted for as a reduction in Surya's share premium. This payment was funded from the sale by its subsidiary, TEP Solar, of RGP and Florasolar, as detailed in note 5, Realised gain/(loss) on disposal of financial assets at fair value through profit or loss.

Receipt of TEL liquidation proceeds

On the 21 July 2017 the Company received £2,000 in respect of the liquidation of TEL. TEL was dissolved during the financial period.

Other TEP Investment Companies

During the period Trading Emissions (Isle of Man) Limited, TEP (Carbon Holdings) Limited and TEP (Hydro Holdings) Limited were dissolved.

13 Subsequent Events 

Sale of Solar Energy Italia 1 S.r.l. ("SEI 1")

On 13 February 2018, TEP Solar entered into a Quota Purchase Agreement ("QPA") with NextPower II Italia S.r.l ("NextPower") in respect of the sale of its entire interest in SEI 1, comprising an operating ground-mounted solar photovoltaic plan located in Ragusa, Sicily.

Under the terms of the QPA, closing and receipt of the sales proceeds is subject to fulfilment of various conditions precedent usual for this type of transaction.

On 15 February 2018, the specific circumstances under which the gross sales proceeds could increase by an additional €750,000 were met.

The estimated net proceeds from the sale of SEI1 after allowing for transaction and other costs (including fees directly linked to the proceeds received), are approximately €8,600,000.

The QPA includes terms and conditions customary for a transaction of this type, including warranties and an indemnity in favour of NextPower.