Trading Emissions PLC Regulatory News (TRE)

Trading Emissions PLC

Results for the year ended 30 June 2011

Trading Emissions PLC ("TEP" or "the Company"), a closed end investment company that specialises in renewable energy projects and emissions instruments such as carbon credits, today announces its results for the twelve months ended 30 June 2011.

Financial Highlights

·; Valuation: Group Net Asset Value ("NAV") of 121.08 pence per share as at 30 June 2011 (2010: 137.69 pence per share as at 30 June 2010).

·; Revaluing the carbon portfolio on 28 October 2011 reduces the NAV by approximately 29.72 pence per share (unaudited) due to a reduction in carbon prices since the period end. 

·; Loss per share of 9.49 pence for year ended 30 June 2011 (11.19p loss per share for year ended 30 June 2010).

·; Private equity portfolio ("PE Portfolio"): £93.0m or 37.23 pence per share as at 30 June 2011 (45.23 pence per share as a 30 June 2010).

·; Carbon portfolio: £122.0m or 48.84 pence per share at 30 June 2011 (58.41 pence per share as at 30 June 2010).

·; Cash: Group Net Cash of £95.2m or 38.11 pence per share at 30 June 2011 (£111.4m or 43.29 pence per share as at 30 June 2010).

·; Dividend: The Company made an interim dividend payment of 6 pence per share on 21 April 2011. The Company will not make a final dividend. The Company has, to date, distributed a total of £78.5m to shareholders as dividends and through share buy backs.

Operational Highlights

·; A revised Investment Policy was ratified at an Extraordinary General Meeting on 13 September 2010, alongside a restructuring of the Company's arrangements with its Investment Adviser.

·; On 30 November 2010 the Company received an unsolicited approach for its PE portfolio; the Board then initiated a formal sale process, which resulted in the receipt of several indicative offers for the portfolio. The Board considered these offers in the context of maximising returns to shareholders and announced in June 2011 that it would pursue an individual asset realisation strategy.

·; The Company re-iterates its objective to return capital to shareholders through a controlled realisation programme. The Company is aggressively pursuing this strategy through the sale of individual assets targeted to strategic buyers. Financial advisers have been appointed where appropriate.

·; Risk adjusted portfolio: The Company's total risk adjusted portfolio stands at --34.8m CERs as at 30 June 2011, of which 30.2m is for delivery pre-2012. On 30 June 2011 10.2m CERs had been delivered, (updated to a total of 12.4m as at 28 October 2011).

·; Portfolio progress through CDM registration: 98% of the pre-2012 portfolio has been successfully registered (approx 29.4m risk adjusted CERs), with a further 2% in validation or registration (as at 28 October 2011).

Post balance sheet events

·; The Company has in the past two months undertaken the realisation of delivered carbon stocks resulting in the disposal of over 1.9m CERs with net proceeds of approximately €16.0m, and has sold forward approximately 1.3m CERs and 1m EUAs for delivery before the end of 2011, with projected proceeds of approximately €29.8m.

·; On 10 October 2011, the Company announced its intention to address the issue of distributable reserves, in order to facilitate the return of cash to shareholders in a cost effective, flexible and timely manner going forward. Shareholder approval will be sought at the forthcoming annual general meeting to reregister the Company as a company registered under the Isle of Man Companies Act 2006 and to amend the Company's articles to, inter alia, enable the Company to return cash to Shareholders by a series of one or more B share schemes pursuant to which shareholders will be able to choose whether to receive returns of cash as income or capital.

·; The Company also announced on 10 October 2011 that, following consultation with certain shareholders, Neil Eckert, Malcolm Gillies, Nigel Wood and Bertrand Rassool will resign at the Company's AGM in December and resolutions will be put forward for the appointment of Christopher Agar, Martin Adams, Francis Hackett and Norman Crighton ("Proposed Directors") at the same meeting to continue to oversee an orderly realisation of the Company's assets in line with the Company's revised investment policy. The appointment of the Proposed Directors will be subject to their appointment not resulting in a majority of the Board being resident in the United Kingdom as at the end of the AGM. Further information on the Proposed Directors will be provided in due course. 

For further information:

Chairman's Report

Results for the year ended 30 June 2011

The Company was incorporated in the Isle of Man in March 2005 as a public limited company, and in April 2005 its ordinary shares were admitted to trading on AIM. The Company was formed with the principal objective of making capital profits from a portfolio of emission reduction credits and related assets such as renewable energy facilities and companies whose value is enhanced by way of emission reduction markets and associated regulations. The Company's assets comprise a trading portfolio (principally made up of carbon credits), a private equity portfolio of investments in unquoted companies and operational assets, and cash reserves.

RETURN OF CAPITAL TO SHAREHOLDERS

The most important point to discuss in this statement is the Board's objective to return capital to shareholders. In my 2010 year-end report, I emphasised the Board's intention to pursue a process to return capital to shareholders through a controlled realisation programme. During the year, we pursued several opportunities to achieve this objective on a portfolio basis (both with respect to the carbon and private equity portfolios) and were disappointed that in all cases we were unable to successfully complete these attempts on acceptable terms.

The Company is aggressively pursuing its realisation strategy through sales of individual assets to targeted strategic buyers. Financial advisers have been appointed where appropriate and we believe this process will maximise the sale value achievable and is in the best interests of shareholders. I will go into detail on the status of this process later on in the report.

Since initiating dividend payments in 2009 the Company has paid dividends, including an interim dividend of 6.0 pence per share paid this year on 21 April 2011 that exceeded the 5.50 pence per share total annual dividend paid for the year 2010. The Company has, to date, distributed a total of £78.5m to shareholders as dividends and through share buy backs.

However, due to a material decrease in prevailing carbon prices and, in turn, the value of the Company's portfolio of carbon related securities, the Company may have insufficient distributable reserves available for the payment of future dividends.

As announced on 10 October 2011, to address the issue of distributable reserves and to allow the return of cash to shareholders to be effected in a cost effective, flexible and timely manner going forward, approval will be sought from the shareholders of the Company at the forthcoming annual general meeting to reregister the Company as a company incorporated under the Isle of Man Companies Act 2006 and to amend the Company's articles to, inter alia, enable the Company to return cash to Shareholders by a series of one or more B share schemes pursuant to which shareholders will be able to choose whether to receive returns of cash as income or capital.

Accordingly, the Directors have not declared a dividend at this time. The Company however reaffirms its commitment to return realised proceeds from the sale of its assets subject to, in the opinion of Directors, the Company maintaining sufficient working capital to effect an orderly realisation of its assets. The first return of cash to shareholders will be announced as soon as the Directors determine that there is sufficient surplus available cash to enable such a return.

PORTFOLIO REALISATION PROCESS

It is important to set out the chronology of events that have been relevant to the Board's approach to the realisation of its assets in line with its revised investment policy.

Following discussions with certain of its shareholders, the Directors proposed a revised investment policy which was approved by its shareholders at an EGM on 13 September 2010. The revised investment policy stated that:

·; the Company intends to optimise the cash value of the Company's assets through controlled realisation;

·; the Company's portfolio of climate related securities will be realised tactically and before 31 December 2012;

·; the Company's unquoted private equity portfolio will be managed to optimise its cash value in the near to medium term.

On 30 November 2010, the Company announced it had received an unsolicited offer for its private equity portfolio. Given the restated investment policy, the Company announced that it intended to consider the proposal and that, in order to create a competitive environment, it would also initiate a formal sales process for the private equity portfolio to be managed by Liberum Capital.

On 11 January 2011, the Board issued an update on this process, confirming that the Company had received several expressions of interest and would be engaging with interested parties with a view to exchanging information and soliciting indicative offers for the private equity portfolio. The Board also announced that the Company had received expressions of interest in its carbon portfolio. This announcement was followed up by a further update on 21 March 2011, that indicated that a number of indicative bids had been received for the private equity assets, and the Board had invited prospective purchasers who submitted the most compelling indicative cash offers to conduct a detailed due diligence ahead of submitting final bids.

However, the Board announced on 15 June 2011 that indicative offers had been received for the private equity portfolio and that, having considered these in the context of maximising returns to shareholders, the Board would pursue an individual asset realisation strategy with regard to the private equity portfolio. Information memoranda have been issued or prepared for the majority of the private equity portfolio and financial advisers have been appointed where appropriate to assist in the sale of these assets. The individual asset sales process is underway, and is described in more detail below.

UPDATE ON THE SALE OF THE CARBON PORTFOLIO

At the same time, the Company also announced it had received a number of bids for the carbon portfolio and that the process had entered its final stages. The Board demonstrated its high level of confidence that this transaction would complete, announcing the intention to return 50 pence per share to shareholders (made up of projected proceeds of a sale of the carbon portfolio together with other liquid assets).

However, following this announcement, prevailing prices of carbon related securities experienced a material reduction in value, with EUAs and CERs falling 21% and 19% respectively by 27 July 2011, reaching their lowest levels since February 2009, thus causing the Board to conclude that it would not be consistent with the Company's re-stated investment policy of a tactical and controlled realisation, to sell the Company's carbon portfolio at a time of such extreme market volatility.

Since this time, the Company has undertaken the realisation of delivered carbon stocks resulting in the disposal of approximately 1.9m CERs with net proceeds of approximately €16.0m. In addition, the Company has sold forward approximately 0.5m CERs for November 2011 delivery for aggregate proceeds of approximately €3.8m; 0.15m CERs for December 2011 delivery for aggregate proceeds of approximately €1.0m; 0.6m CERs for December 2012 delivery for aggregate proceeds of approximately €13.2m; and 1.0m EUAs for December 2011 delivery for aggregate proceeds of approximately €11.9m. The above contracts are covered by physical stock, but despite this, the exchange market requires that counterparties provide cash collateral against forward contracts up until delivery. Accordingly, cash proceeds must be retained to ensure the Company can meet its working capital requirements. Beyond these obligations, this working capital will be used to fund projected future CER purchase commitments going forward.

FINANCIAL RESULTS AT 30 JUNE 2011

I now continue with a summary of the Company's financial results as at 30 June 2011.

The Group's Net Asset Value (NAV) at 30 June 2011 was 121.08 pence per share. This is down from 137.69 pence per share on 30 June 2010. The change can be ascribed predominantly to revisions of risk adjustment factors on the Company's CER portfolio, combined with a fall in carbon prices, and finally the downward adjustments in the carrying values of certain companies in the private equity portfolio. The final dividend of 3.85 pence per share and the share buy back (which had the impact of 2.60 pence per share) would also have reduced overall NAV. 

The CER valuation for year end was completed based on a price of €11.05 for spot delivery of CERs on 30 June 2011, compared with a 30 June 2010 market price of €13.01 per CER for spot delivery. Figures are set out below in Tables 1 and 2.

Table 1: Risk adjusted CER portfolio for valuation - 30 June 2011 ('000)

\* Taking into account CER and EUA stock, commercialisation and hedging

Table 2: Valuation reference prices - 30 June 2011

*Based on OTC reference price (note that we have used exchange pricing for 2013 CERs)

**Based on reference prices for Assigned Amount Units (AAUs)

The Group's assets can be broken down into three classes: the carbon portfolio (including inventory, forward purchase contracts and loan receivables, and the value of commercialisation and trading positions), the Company's private equity investments, and the Group's net cash position. At year end, and based on prevailing market prices, the Group's carbon portfolio accounted for 48.84 pence per share of the total NAV, or £122.0m as a portion of the Group's net asset value, down from £150.4m (58.41 pence per share) in 2010.

The Group's private equity investments accounted for 37.23 pence per share on 30 June 2011, or £93.0m, of the Group's net asset value. This is compared with the 30 June 2010 value of £116.4m or 45.23 pence per share.

The Group's cash position was equivalent to 38.11 pence per share, or £95.2m, down from 43.29 pence per share, or £111.4m in 2010. Of this cash balance £35.6m (2010: £34.1m) is restricted.

The combination of the carbon portfolio, investments and cash, then deducting the Group's net liabilities of 3.10 pence per share, result in the reported NAV of 121.08 pence per share.

The Group's general valuation methodology remains as for previous reporting periods, based on the net present value (discounted at 10%) of the risk adjusted contracted portfolio valued at market prices on 30 June 2011, as per Tables 1 and 2 above. In the current year, the Board has taken the view that as a robust market now exists for December 2013 CER futures, this price should be factored into the Group's valuations. Post 2013 CERs are valued at €7.00, which is the same price as Post 2012 CERs were valued at in prior reporting periods. The Board believes that this reference price of €7.00, obtained from a combination of quotes from brokers and public statements from buyers, is a fair reflection of the level at which a transaction could be completed in the market today, for delivery of a generic CER in 2014. The Group views post 2012 HFCs as being of a lower quality, due to the credits no longer being eligible for compliance in the EU Emissions Trading Scheme. The Group still believes that these credits have some value, for use by governments as Kyoto compliant credits, and therefore values them at a €4.67 spread below other CERs in 2013 and a €3.50 spread below other CERs for post 2013, reflecting market prices for Assigned Amount Units (AAUs).

The valuation also takes into account the Group's weighted average CER acquisition price of €6.71 per CER, and the portion of the portfolio that has been hedged through futures contracts, or already realised through commercialisation.

It is the Board's view that the Group's risk adjusted carbon portfolio is conservatively stated. Each project is assigned a unique risk adjustment factor determined through the combination of three risk parameters: progress through the CDM registration process; stage of financing, construction or operation; and, technology (expected CER delivery performance once operational). These figures are determined with reference to data from existing projects and from third parties.

To illustrate the impact of the Company's risk adjustment in aggregate, the Company has contracted a gross volume of 39.4 million Pre-2012 CERs and 16.5 million Post-2012 CERs. A weighted average risk adjustment factor of 76% is applied to the Pre-2012 portfolio. A weighted average factor of 60% is applied to the combined Pre-2012 and Post-2012 portfolio. These figures can be explained by the less advanced status of projects that contribute to the Post-2012 portfolio, and whose projected CER volumes are therefore stated more conservatively.

Since year end, the impact of the fall in carbon price discussed above, has significantly reduced the value of the Company's CER inventory and forward book. The carbon portfolio's contribution to the NAV on 30 June 2011 was £122.0m, or 48.84 pence per share. Valuing the year end portfolio with reference to carbon prices on 28 October 2011, yields a projected carbon NAV of £47.8m or 19.12 pence per share.

For those private equity investments that are not consolidated the Company's valuation is based on an estimate of "Fair Value" or cost, minus impairment where appropriate.

During the year the Company has recognised impairment charges of £20.8m on its consolidated private equity portfolio as a result of a number of accounting transactions and events.

PRIVATE EQUITY ASSET SALE PROCESS

For each private equity asset the Board has reviewed and where appropriate, appointed an appropriate financial advisor to undertake the sale of the individual assets. Information memoranda have been prepared for the majority of the private equity portfolio. A summary of the status of each asset is set out below:

§ In April this year, the Company signed a share purchase agreement for the sale of its minority shareholding in Jantus S.L. (held through Carbon Capital Markets, as a result of an asset swap in April 2009) to CPFL Energia S.A. through its subsidiary CPFL Comercialização Brasil S.A. (a Brazilian electricity distribution, generation and commercialisation company). Jantus S.L is the owner of SIIF Energies do Brasil Ltda which owns and operates four wind farms in the state of Ceara with a total installed capacity of 210MW. The final closing price will be adjusted based on net indebtedness and working capital of Jantus at the closing. It is expected that closing conditions will have been met and consideration paid by December 2011. Closing is subject to certain conditions in the SPA and the approval by various regulatory authorities.

§ The Company's largest portfolio asset, Bionasa Combustivel, has progressed significantly since my interim statement. The Bionasa biodiesel plant in Brazil is now fully constructed, permitted and operational having held its inauguration earlier this year in May. The plant has also begun successfully to commercialise biodiesel fuel through the Brazilian auction programme and consecutively increased production over the last two quarters. Given the plant's improved technical and commercial situation and a general improvement in market conditions in Brazil, the Company believes that the optimum time to realize this asset is fast approaching. To that end, we await a final decision from the arbitration panel permitting the Company to assume control of Bionasa. Our team is moving the process along as rapidly as possible and currently expect a final decision in the new year. In preparation, the Company has met and evaluated several sell side financial advisers, and also identified management changes to be put in place once the controlling investment has been confirmed. We look forward to confirmation of conversion of our stake into a controlling interest and to move ahead with our plans for Bionasa.

§ Asia Biogas Singapore PTE Limited ("ABS") appointed Brighton Capital and ReEx Capital Asia as joint financial advisers in August. The advisers have a mandate to sell the entire share capital of ABS and also sell TEP's rights to CERs associated with ABS. A condition of the sale will be repayment of the debt currently outstanding between TEP and ABS. Following its restructuring ABS is now implementing a new business plan, with seven projects currently under late-stage development and seeking finance. In addition it is disposing of certain under-performing and non-key assets. Sales of these assets are expected to generate cash for the business from November 2011.

§ The Company has received several indicative offers for EWG Slupsk Sp Z.o.o, and is currently reviewing which is the most advantageous for the business. Further details will be disclosed in due course.

§ The Company does not intend to appoint an adviser for the sale of Environmental Credit Corp ("ECC"). ECC has completed an information memorandum which has been circulated to a number of interested potential acquirers and aims to have completed a sale process by Q1 2012.

§ The Company has appointed G.C. Andersen Partners LLC to advise on the sale of Electricidad Andina S.A. ("Andina"), the Company's run-of-river hydro project development business in Peru. Indicative offers have been received and several parties are undertaking detailed due diligence.

§ The Company has initiated discussions regarding the sale of its shareholding in EcoTraders. Ideal candidates include local consulting companies, international utilities and consulting companies with a presence in Israel.

§ Surya Plc, through TEP (Solar Holdings) Limited owns and operates photovoltaic plants in excess of 22MW capacity at the date of this report and is progressing with the completion of the remaining photovoltaic projects in its pipeline. TEP (Solar Holdings) is in advanced negotiations for the financing (in the form of Project Finance and leasing) of its photovoltaic projects up to approximately 19MW capacity. The Company continues to consider its options regarding this investment.

§ In addition to the investments stated above, the Company is considering its options available regarding Element Markets and Chapel Street.

The Board is confident that this orderly sale process is likely to realise the maximum value for shareholders.

Given the Company's revised investment policy to optimize the realized value of the business in the short to medium term, the Board has taken the decision not to fund Sun Biofuels ("SBF") any further as value creation in this business was a long term project. As a consequence, the SBF Board examined a number of alternative funding solutions. However none of these solutions were able to be put in place before the cash requirements of the business became critical. As a consequence of this, the Board of SBF decided to put SBF into administration on 10 August 2011.

CONCLUSIONS

To conclude, the Company has at various times during the year received offers from well known organisations and has entered into detailed due diligence and contract negotiations. However, this has been against the backdrop of extreme volatility and uncertainty in the financial markets and in carbon markets in particular. This confluence of events has meant that we have seen the CER price collapse from €11.05 on 30 June 2011 to €7.00 on 28 October 2011 making it a difficult environment in which to close any material sales on satisfactory terms. In effect, the Company has endured the perfect storm during a time that has been exceptionally difficult both in terms of European financial markets, still the only territory with a mandatory cap and trade system, and also a time where momentum has stalled in wider global environmental markets and in relation to the establishment of a framework for a post Kyoto world.

Following discussions with certain leading shareholders, four members of the Board, including myself, will be standing down at the AGM in December 2011. Resolutions will be put forward at the same meeting for the appointment of Christopher Agar, Martin Adams, Francis Hackett and Norman Crighton to continue to oversee the orderly realisation of the Company's assets in line with the Company's revised investment policy. The Board perceives the sale process to be well underway and wishes the incoming directors every success.

Neil Eckert

Chairman

31 October 2011

Investment Adviser's Report

Result for the year ended 30 June 2011

This report updates investors on the Company's activities for the period from 1 July 2010 to 30 June 2011 (the "Reporting Period"), including material post-balance sheet events up to the date of publication. The report is presented in two parts, reflecting the format of the Company's asset segmentation which follows in the accounts. First, the risk adjusted carbon credit portfolio is presented, including an update of the CDM status of major projects in the portfolio and transactions that were undertaken to create this CER portfolio; followed by an update on the Company's portfolio of energy and climate related private equity investments.

Following the Company's announcement in August 2010, the Investment Adviser has ceased origination of new equity investment and carbon credit opportunities on the Company's behalf (except for approved, funded investment activity within portfolio companies in relation to funds already reserved at that time and follow-on investments in existing portfolio companies). Activities have shifted in focus towards optimisation and realisation of the Company's private equity and carbon portfolios.

In the period up to 30 June 2010, the Company:

·; originated and executed transactions for the acquisition and aggregation of a diversified portfolio of carbon credits, predominantly Certified Emission Reductions ("CERs") from Clean Development Mechanism ("CDM") projects; and

·; made equity investments in a portfolio of projects and businesses which, directly or indirectly, have given shareholders diversified exposure either to global climate change policy or the price of carbon credits.

The Company continues to manage its cash position with the aim to ensure that it has sufficient funds to make payment against ongoing CER purchase obligations. In general it intends to maintain its long CER position without liquidating existing CER assets. However it should be recognised that as its carbon portfolio matures, payments will have to be made to obtain CERs. This will necessitate close monitoring and management of the Company's cashflow position, and existing CER assets will be sold as appropriate. The Company also maintains the capacity to provide anticipated follow-on capital to its private equity portfolio.

PART 1: CER PORTFOLIO

The Company's rights to CERs have been acquired principally through Emission Reduction Purchase Agreements ("ERPAs") whereby the Company enters into a contract with a project developer owner for the spot or forward purchase of primary CERs, with payment on delivery.

The Company has also provided debt finance to companies developing or operating CDM projects. These loans are repayable in CERs directly from the relevant projects and secured with project or company assets, or parent company guarantees.

The Company has also received and projects that it will receive further CERs as a consequence and related to a number of its equity investments, described in more detail in part two of this report.

The portfolio volumes set out below include CERs received or to be delivered as a result of these three types of transaction.

This report includes statements that are forward-looking statements, including tables that include projections or statements that use terms such as "projects", "expects", "will" or "should". In each case, these statements and tables reflect the current expectations of the Company and/or the Investment Adviser based on risk-adjusted calculations, but actual deliveries of CERs and/or other emission reduction credits may differ materially from those predicted by the projections or other forward-looking statements in this report.

Risk Adjusted CER Portfolio

The Company's risk adjusted portfolio was previously reported in two categories - "Category B" (Heads of terms - in exclusive negotiations) and "Category C" (contracted). The Company is no longer originating new CER opportunities, and therefore only contracted projects are now reported. Figures are presented both as at period end on 30 June 2011 (Tables 1 and 2 below), and as at the date of this report (Table 3 below).

The portfolio is quoted in aggregate for two periods; firstly, CERs projected to be generated prior to the end of 2012 and issued before March 2013 ("Pre-2012"); and secondly, CERs generated after 2012 ("Post-2012").

The 30 June 2011 period end positions are summarised below in Table 1, rounded to the nearest 1,000 CERs:

The Company had a Pre-2012 risk adjusted contracted CER portfolio of approximately 30.2 million, of which approximately 10.2 million had been delivered on or before 30 June 2011. In addition the Company projects that it will receive approximately an additional 4.7 million CERs Post-2012 (risk adjusted).

Table 2 (below) compares the portfolio at 30 June 2011 with the portfolio as reported for 30 June 2010:

The Company's Pre-2012 risk adjusted portfolio decreased by approximately 2.4 million during the Reporting Period. The decrease is due to the continued reduction of China's grid emissions, the availability of monitored data in South-East Asia, as well as the downward adjustment of the risk-adjustment approach for a number of technologies.

During the Reporting Period, 14 projects in China and four projects in the Philippineswere successfully registered by the UNFCCC. One further large hydro project and a Mexican anaerobic digestion project were registered after 30 June 2011. The rate of CER issuance during the Reporting Period remained relatively low. We anticipate that a reasonable rate of issuance will continue following signs of projects' improved rates of progress through the verification process and improved CER issuance processing times at the UNFCCC Secretariat.

Table 3 (below) summarises the Company's risk adjusted CER portfolio on 28 October 2011:

The delivered portfolio has been boosted by the issuance of approximately 2.2 million CERs since the end of the Reporting Period.

Overall, as of the date of this report, the Company's total risk adjusted portfolio stands at 34.3 million CERs, with 29.7 million CERs Pre-2012 (of which 12.4 million CERs have been delivered) and 4.6 million CERs Post-2012 (Table 3).

Lastly, the portfolio has continued to progress through the CDM process, with a total of 98% (up from 88% at 2010 year end) of the Pre-2012 CER portfolio registered, and the remaining 2% (compared with 12% at 2010 year end) in validation or registration, further improving the risk profile of the Company's portfolio.

CDM Project Registration and Issuance

Following internal procedural changes at the UNFCCC and the request from Conference of the Parties serving as the Meeting of the Parties ("COP/MOP") in Cancun in December 2010 to shorten the timing of the registration and issuance process, the Company has experienced some improvement in the reaction time and predictability of the Executive Board's decision making. Eighteen projects were successfully registered during the Reporting Period. The registered projects are based in China and the Philippines and the technologies include hydropower, waste heat recovery and biogas.

The Company received approximately 1.1 million CERs from non-industrial gas and approximately 1.7 million CERs from HFC projects during the Reporting Period.

Out of the approximately 2.2 million CERs issued to the Company after the Reporting Period and prior to 28 October 2011, approximately 0.4 million CERs came from industrial gas projects.

Per Table 5, 17 new projects have been registered since 30 June 2010; these projects account for more than 3.7 million of the Company's risk adjusted Pre-2012 CERs.

Table 5: Projects registered since 30 June 2010:

CDM Project Portfolio under ERPA (China)

• Natural Gas Projects

The Company has contracts with four registered natural gas power generation CDM projects in its China portfolio. These projects have suffered due to constraints on the supply of natural gas in China; however these constraints have lessened in the last year and the projects are now approaching sixty per cent of original projected performance per the Project Design Document. This trend in increased performance is expected to continue going forward.

Although levels of power generation are improving at the projects, China's grid emissions are reducing which impacts the CERs generated by these projects. For example, in the previous year grid emissions in the Eastern China Power Grid and Central China Power Grid fell by between 1.7% and 9.6% respectively reducing the emissions factor for the grid, and the resulting CER count for projects in these locations.

The Company has a contract with a further small-scale natural gas project (Hongyi) involving a fuel switch from coal to gas at an industrial facility. This project is currently under review by the UNFCCC.

• Hydro Power

The Company has contracts to purchase Pre-2012 CERs from thirteen large scale hydro projects at various stages of the CDM cycle.

During the Reporting Period, five large-scale hydro projects were successfully registered, which together are projected to generate almost 3 million Pre-2012 CERs. This brings the Company's portfolio of registered large scale hydro projects to ten large hydro projects projected to generate over 4.7 million Pre-2012 CERs.

In addition to the above, the Company has contracts to purchase CERs from a further two large-scale hydro projects which are awaiting registration at the UNFCCC.

The Company's portfolio also includes six registered small scale hydro projects, which are projected to deliver approximately 500,000 Pre-2012 CERs.

One large-scale hydro project, Youfanggou, which was rejected by the EB during the Reporting Period, is undergoing revalidation and is expected to be resubmitted to the UNFCCC before the end of 2011.

All of the Company's large-scale hydro projects have been audited against principles set out by the World Commission on Dams which involves a review on the development effectiveness of large dams and assesses alternatives, and sets internationally-acceptable criteria and guidelines for planning, design, construction, operation, monitoring, and decommissioning of projects. This ensures that CERs generated by these projects will be eligible for compliance use in the EU Emissions Trading Scheme.

·; Coal Mine Methane

The Company has contracts with a portfolio of four coal mine methane ("CMM") projects. The first registered project, Fengrun, has received issuance of over 70,000 CERs to date. The second monitoring period is currently under verification for over 280,000 CERs. The Fengrun project is projected to continue to outperform expected CER generation. A second project, Qinxin, was registered in October 2010 and is projected to generate over 150,000 Pre-2012 CERs with the first verification scheduled for later in 2011. The other two CMM projects are still under validation.

·; Wind Power

The portfolio includes contracts with four registered Chinese wind projects which continue to perform in line with projections. Three of the projects are located in China's Ningxia region, while one is located in China's north-eastern Jilin Province. Three of the wind projects have now delivered CERs with the most recently registered, Ningxia Helanshan phase V project, expected to start verification before the end of 2011.

·; Biomass and Waste Water Utilisation

The Company has contracts with three biomass projects: a 25MW biomass project (Nongan) which is projected to generate almost 120,000 Pre-2012 CERs; the Jiutai project which has been submitted to the UNFCCC but has experienced a delay to its anticipated commissioning until late 2012 and the Luyi project which is registered and operating, but whose issuance has been delayed as a result of changes made during project implementation. The changes have been approved by the UNFCCC and the issuance request has been submitted. The Luyi project is projected to generate over 900,000 risk-adjusted Pre-2012 CERs.

The Company has agreements with two small-scale Chinese wastewater projects, the Anning project which was registered in November 2010 and the Mashan project which is pending registration.

·; Landfill Gas

The Company has a contract to acquire CERs from two registered landfill gas projects in China. The projects were built by a European developer as part of a joint venture with a Chinese counterparty. The Company projects that it will receive over 150,000 risk adjusted Pre-2012 CERs from these projects.

A third project at Qiaoyi is undergoing validation and registration is expected in 2011.

·; Waste Energy Recovery from Industrial Processes

The Company's waste energy recovery portfolio includes agreements with four registered projects including two in the cement sector (Qingsong and Wannianqing), one in the coke sector (Huanda) and one in the chemicals sector (Zhangjiagang).

The Zhangjiagang project continues to perform in line with projections and has delivered approximately 388,000 CERs to date, with a further 394,000 Pre-2012 CERs projected. The Huanda coke Waste Heat Recovery project's CER generation continues to be adversely affected by the Chinese government's constraints on coke production in an attempt to curb oversupply problems experienced in this industry in the past. Monitoring for the Qingsong and Wannianqing projects is on-going.

·; Umbrella Carbon Facility

The Company has agreements with two HFC-23 destruction projects through the World Bank Umbrella Carbon Facility ("UCF") for a total of approximately 11.4 million CERs, whose delivery takes place quarterly. The Company has received approximately 6.7 million CERs to date. The projects' issuance stalled during 2010 as a result of the HFC-23 methodology revision. Even though issuance has now been reinstated, there has been a lag-time to catch up with prior volumes. However receipt of all outstanding volumes is anticipated.

The Company's outstanding bank guarantee in favour of the World Bank currently stands at EUR 30.2 million.

CDM Project Portfolio under ERPA (Rest of the World)

·; Hadera Paper fuel switch project - Israel

The Company signed an ERPA with a small-scale heavy fuel oil (HFO) to natural gas (NG) fuel switch project at the Hadera Paper manufacturing site. Approximately 62,000 CERs have been issued to date. The third verification for approximately 30,000 CERs is currently ongoing.

·; Amman East - Jordan

The Company signed an ERPA in November 2008 for the acquisition of CERs generated from the Amman East 380MW greenfield CCGT project. The validation site visit took place in November 2009 and a draft validation report was prepared by SGS in December 2009. On SGS's recommendation, two Requests for Clarification (RfCs) regarding the eligibility of the selected additionality approach under the applied methodology were submitted to the CDM Methodology Panel ("Meth Panel") in December 2010. In March 2011, the Meth Panel issued a negative decision on the RfCs which meant that the additionality approach needed to be changed in order to fulfill the requirements of the methodology. As a consequence, new supporting data and information was needed in order to be able to re-draft the PDD. This information was not forthcoming and so SGS (the Designated Operational Entity ("DOE") for the project) and the Company agreed that the project could not be validated and registered. The Company therefore terminated the ERPA in August 2011.

·; Durban- eThekwini Landfill - South Africa

The Company signed an ERPA with eThekwini Municipality (the owner of the project) in November 2008. One of the conditions precedent in the ERPA had not been satisfied, and the Company therefore terminated the ERPA in September 2011.

·; Santa Rita - Peru

As a result of its investment in Electricidad Andina S.A. (see section on Private Equity Portfolio), the Company has signed an ERPA for the purchase of Post-2012 CERs from the Santa Rita hydro project in Peru. The project is a 255MW run-of-river hydro project, which is in the development stage. The DOE, AENOR, expects to finalise CDM validation shortly. AENOR is also finishing validation of the project's compliance with the environmental, social and sustainability criteria of the World Commission on Dams in order that any CERs generated should be eligible for compliance in the EU Emissions Trading Scheme.

·; Asia Biogas Singapore - South East Asia

As a result of its investment in Asia Biogas Singapore Pte Limited (see section on Private Equity Portfolio), the Company projects that it will receive a total of 1.3 million risk adjusted Pre-2012 CERs from Asia Biogas' projects located in South East Asia.

·; Swine Wastewater Treatment Turnkey projects - Philippines

The Company has signed a secondary ERPA with nine registered small-scale anaerobic digestion swine wastewater treatment projects. These projects were built by Asia Biogas (see section on Private Equity Portfolio) on a turnkey basis and are owned and operated by local farm owners.

CDM Project Portfolio from Carbon Loans

·; Alto Tietê Biogás - Brazil

The Company agreed to provide a loan facility to the Alto Tietê Biogás ("ATB") landfill gas capture and flaring project located in Itaquaquecetuba, State of São Paulo, Brazil in March 2011. The project is registered with the UNFCCC and began operation in September 2008.

The loan facility provided ATB with a combination of cash and CERs. The entire cash facility has been drawn down in five tranches. The CER facility of 40,662 CERs allowed ATB to comply with its immediate obligations under two ERPAs signed in the past to raise working capital. The CER facility has been drawn down in full. The loan should be repaid in CERs from the project's first and second issuances, both of which have been requested and are undergoing completeness checks at the UNFCCC.

·; Dairy farm finance facility - Mexico

The Company signed an agreement in April 2009 with Environmental Credit Corp ("ECC", see section on Private Equity Portfolio) making available a carbon loan facility to finance the construction of biodigesters at a number of dairy farms in Mexico. A total of $875,000 has been drawn down. A bundle of biodigesters had been financed and they are now operational. The projects are projected to yield the Company a gross volume of approximately 200,000 CERs by 2016 through carbon loan and interest repayments and under an ERPA.

The project bundle was registered in October 2011 and the monitoring plans for the projects have been implemented.

Following the end of the Reporting Period, the Company executed an Assignment and Assumption Agreement which passes rights and title for all five of the projects to the Company, in exchange for forgiveness of ECC's CER backed loan obligations of $875,000. The Company will now be the beneficiary of CERs generated by the projects, and is considering options for their sale.

·; Escalona - Mexico

In 2007 the Company provided a $500,000 loan for working capital purposes to a 9.3MW run-of-river hydro project in Mexico under development with a local project development business called Energia Escalona. The loan is due to be repaid in CERs generated by the project before 2012.

The project has suffered delays to its development programme. Given these delays, the Company considers it unlikely that the project would be operational substantially prior to 2012. The Company expects loan repayment to be made either in cash or in CERs.

CER Commercialisation and Trading

As of the date of this report, the Company has built a risk adjusted portfolio of approximately 29.7 million CERs for delivery Pre-2012, of which 12.4 million have been delivered. In all reports we differentiate between commercialisation activities (secondary trading activities which result in the net sale of CERs, and with the effect of reducing the size of the unsold portfolio, effectively hedging the Company's forward position) and trading activities (activities which do not alter the Company's overall CER position but generate cash or favourably adjust the composition of the portfolio).

The Company's average CER purchase price is €6.72 for delivered and future risk adjusted CERs. Commercialisation activity to date has been completed largely through physical delivery against exchange traded fund positions.

As at 28 October 2011, the Company has inventory of approximately 1.8 million CERs and 1.5 million EUAs (received as a result of swaps through which the Company delivered a quantity of CERs and received EUAs).

As at 30 June 2011, the Company had inventory of approximately 2.8 million CERs and 1.5 million EUAs, which were valued at £46.7 million at that date. The Company received issuance of 2.2 million CERs after the reporting year end and prior to 28 October 2011. The corresponding value on the date of reporting is an inventory valued at £25.2 million.

Credit standing and availability of free cash remain significant determinants of a market participant's ability to participate efficiently in the secondary CER and EUA markets. The Company has been selective in dealing with counterparties. The Company has sold CERs to European Governments and traded through the European Climate Exchange. Commercialisation and Trading activities for the period are summarised below.

·; European Climate Exchange

The Company has delivered CERs against its 2009, 2010 and 2011 futures positions. Since year end the Company has undertaken the realisation of delivered carbon stocks resulting in the disposal of approximately 1.9 million CERs with net proceeds of approximately €16.0m. In addition, the Company has sold forward approximately 0.5m CERs for November 2011 delivery for aggregate proceeds of approximately €3.8m; 0.15m CERs for December 2011 delivery for aggregate proceeds of approximately €1.0m; 0.6m CERs for December 2012 delivery for aggregate proceeds of approximately €13.2m; and 1.0m EUAs for December 2011 delivery for aggregate proceeds of €11.9m.

·; UK Government Carbon Offset Fund II (GCOF II)

In January 2010, the Company was one of ten successful suppliers to be selected through a competitive tender process to sign a Framework Agreement with the UK Government for the supply of high quality (Gold Standard or equivalent) CERs to offset departmental air travel. Government demand is projected to be greater than had been required for GCOF I, for which the Company had been the sole supplier of 305,000 CERs. So far, the Company has not sold CERs under this contract.

·; Backwardation Arbitrage

The Company has continued to take advantage of arbitrage opportunities presented as a result of the "backwardation" trend whereby CERs for spot and short term delivery trade at a higher price than future delivery. In December 2010, the market backwardation remained exaggerated, in part as a result of the shortage of spot CERs following the suspension of issuance from HFC-23 destruction projects by the EB. The Company not only delivered against all its December 2010 exchange short contract future positions, but additionally arbitraged the backwardation through sale of spot CERs and December 2010 contracts, while purchasing December 2011 and 2012 contracts.

At this time the Company also entered into several transactions to swap premium CERs from renewable energy projects for HFC plus a premium, in order to deliver "generic" CERs to the extent possible for exchange settled contracts.

PART 2: PRIVATE EQUITY PORTFOLIO

The Company has made a series of equity investments in projects that will generate CERs, and in companies or facilities that will by their nature be exposed to climate change policy or carbon price, in a diverse range of markets. Whilst the Investment Adviser has largely ceased origination of new equity investment and carbon credit opportunities on the Company's behalf, approved and funded investment activity within portfolio companies remains ongoing (mainly in the Solar sector).

This section of the report sets out activities during the Reporting Period and progress for each of these investments. Following on from a number of announcements made by the Company in the Reporting Period, the private equity portfolio is currently subject to an individual asset realisation strategy over the short to medium term.

Surya PLC - TEP (Solar Holdings) Limited - Europe

Surya PLC ("Surya") is a 100% subsidiary of the Company. As at 30 June 2011, the Company had invested approximately €36 million in Surya via equity, while an additional €12 million was provided by EEA Group Limited (parent company of the Investment Advisor) by way of a secured, repayable on-demand facility. EEA Group Limited has since requested repayment of this €12 million to be before 30 November 2011.

Since the end of the Reporting Period, the Company has invested an additional €17.7 million in Surya via debt instruments, as part of the total amount committed by the Board for follow-on investments in private equity assets. The results of Surya and its subsidiaries are consolidated in the financial statements.

Surya, through TEP (Solar Holdings) Ltd. ("TS"), invests in companies which own and operate solar photovoltaic ("PV") projects located primarily in Italy. The Company believes that incentivised Feed-in Tariffs ("FiT") enshrined in government legislation in Italy have made the sector an attractive investment opportunity. In June 2010, the Company made an initial commitment of €36 million to be deployed in investments in the solar projects. The Company's strategy, executed through Surya, has been to build critical mass in solar PV assets to leverage economies of scale and to create an operational platform dedicated to the operation and management of the PV assets.

During the Reporting Period TS acquired two projects in Italy with a total installed capacity of 10.4MW:

·; Solar Energy Italia 1 S.r.l., owning a single site solar PV plant of 8.4MW capacity in Sicily (Italy), was acquired by TS in September 2010. The plant was constructed and connected to the grid by the end of December 2010. It is currently in commercial operation and generating proceeds from the sale of electricity as well as from Italy's 2010 FiT. The performance of the project over the first six months of operation has been in line with expectation. Solar Energy Italia 1 S.r.l. signed a project finance facility agreement of up to €34.0 million with Centrobanca and Deutsche Bank in November 2010.

·; ETuno S.r.l., which owns two PV plants of approximately 1 MW capacity each in Abruzzo (Italy), was acquired by TS in December 2010. The plants are fully constructed, connected to the grid, and in commercial operation. Both plants are receiving Italy's 2010 FiT payments and proceeds from the sale of electricity. ETuno S.r.l. signed a leasing financing with Leasint (part of the Intesa SanPaolo Group) in June 2011.

Since the end of the Reporting Period, TS has concluded the acquisition of the following two additional solar PV plants in Italy, increasing the total installed capacity to 22.3MW:

·; Solar Energy Italia 6 S.r.l., which owns one single site PV plant of 9.2 MW in Sicily, was acquired in July 2011 by TS. The plant was constructed, commissioned and connected to the grid by April 2011. The plant is currently generating proceeds from the sale of electricity as well as from Italy's April 2011 FiT.

·; RGP Puglia 1 S.r.l., which owns three PV plants for a total of 2.7MW in Apulia (Italy), was acquired in September 2011 by TS. The plants were constructed in 2010 and connected to the grid in April 2011. They are currently in commercial operation and generating proceeds from the sale of electricity as well as from Italy's 2010 FiT.

During the Reporting Period TS also entered into legally binding agreements for the acquisition of further two projects located in Sicily, with an aggregate capacity of approximately 7 MW, which were constructed and connected to the grid by the end of August 2011. The acquisitions are subject to the satisfaction of certain conditions precedent and it is anticipated that completion will take place over the next few months.

Element Markets, LLC - U.S.A.

During the reporting period the Company increased its holding in Element Markets, LLC ("Element Markets") from 21.7% to 51.2%. The change in ownership resulted in Element Markets being fully consolidated in the results of the Company from 22 June 2011; previously the investment had been carried as part of the Financial Assets at fair value through the profit and loss line on the statement of financial position.

This increase in ownership was completed in two stages; firstly a $10m convertible promissory note granted to Element Markets by the Company in June 2009 including accrued interest was converted on 1 January 2011. In addition the Company had granted a loan to LLP Enterprises, the previous majority shareholder in Element Markets. LLP Enterprises defaulted on the repayment of the principal but repaid all interest outstanding in October 2010. In June 2011 the Company received additional membership units in Element Markets from LLP Enterprises as full satisfaction of the loan. Details of the acquisition are outlined in note 16 to the financial information contained in the release. In total TEP has invested $48 million in Element Markets at the reporting date. TEP has a liquidation preference whereby the first $40 million of any sale or liquidation proceeds would be due to TEP while any residual would be split amongst the owners on a percentage ownership basis. As part of the step acquisition, the company was required to recognise an impairment of its previously held interest to the amount of £7.3m.

Founded in 2005 with an initial focus on air emissions (ERC), greenhouse gas (GHG) credit and Renewable Energy Certificate (REC) marketing, Element Markets developed a unique insight into U.S. environmental compliance markets that can be directly applied to the U.S. biogas market. Today Element Markets is the leading producer and marketer of biogas and environmental commodities in the U.S. Its in-depth experience across the entire spectrum of environmental commodities coupled with its biogas assets and deep industry relationships, allow Element Markets to provide its clients with creative environmental compliance solutions and products.

Element Markets has a contracted biogas supply of over 2,500,000 MMBtu/year and has off-take agreements for over 3,000,000 MMBtu/year. Element Markets owns and operates the Huckabay Ridge Renewable Natural Gas Facility in Stephenville, Texas, the largest anaerobic digestion project producing pipeline-quality biogas in the U.S., and is currently developing and constructing several landfill gas-based biogas projects. In addition to its proprietary development efforts, Element Markets also provides biogas marketing services to third-party projects representing an estimated 15% of total U.S. pipeline-quality biogas.

Element Markets is among the most active participants in the regional U.S. emission reduction credit (ERC) markets and has a substantial presence in both the voluntary carbon (GHG) and renewable energy credit (REC) markets. Element Markets is well positioned through its asset management agreements and its propriety trading activities to enter the carbon cap and trade program in California (AB32) and to expand further into the federal criteria pollutants markets under the Cross State Air Pollution Rule (CSAPR) as these markets open in 2012 and 2013, respectively.

Bionasa Combustivel Natural S.A. - Brazil

The Company owns 25% of the equity capital on an unconverted basis and has invested approximately R$125 million in the project to date. Bionasa is accounted for as an investment and forms part of the financial assets at fair value through profit or loss on the statement of financial position as at the reporting date.

Bionasa is a special purpose Brazilian company established in 2007 for the development of a 200,000tpa (approx. 55 million gallons per annum) greenfield multi-feedstock biodiesel production plant in Poranguatu in the State of Goias. The plant is located at kilometre 65 of the principal north-south highway route of central Brazil (BR 153 - Trans-Brazilian Highway) and adjacent to developing rail links. The Bionasa plant has now completed construction and is an operational facility with formal inauguration having occurred in May 2011. Bionasa has obtained all necessary operational and commercialization licenses from the National Petroleum Agency of Brazil ("ANP"). In order to obtain the licensing, the Bionasa plant was required to produce qualifying volumes of biodiesel, which it has done successfully. The plant is currently physically and legally ready to produce and market biodiesel commercially.

Additionally, the plant has qualified for bidding in the quarterly Brazilian biodiesel auction programme organised by ANP and Bionasa transacted in the 22nd auction in May 2011. At auction Bionasa sold its first commercial biodiesel batch and successfully delivered 3,000m3 for total proceeds of R$7.2m. Subsequently, the plant has ramped up production for the 23rd auction covering the final quarter of this year in which Bionasa transacted for the delivery of 23,900m3 for total proceeds of R$53.9m. Each of the auctions in which Bionasa participated had total transacted biodiesel volumes of 700,000m3.

The purpose of the plant is to take advantage of the Brazilian market for biodiesel driven in part by the establishment of mandatory targets for the proportion of biodiesel blended in petroleum-derived diesel. Brazil will end the year as the largest biodiesel market in the world with approximately 2.8 billion litres of biodiesel produced and consumed in Brazil (17% increase on 2010). Moreover, Brazil is viewed as having availability and quality of agricultural land that can be used to grow a diversity of oilseed crops suitable for biodiesel production at competitive production costs. The location of the Bionasa plant allows it to source both oilseed feedstock and tallow (animal fats) from the ranching industry. The Bionasa site was initially designed to also have additional expansion potential.

The Bionasa plant was built under an EPC contract with, a large Brazilian industrial manufacturing company. The civil works associated with the plant were the responsibility of Bionasa. The multi-feedstock technology was provided by Desmet Ballestra. The Desmet Ballestra technology was selected for its ability to allow the use of different feedstock in varying compositions. In the first years of operation, the management of Bionasa intends to use a mix of tallow and crude vegetable oils for the biodiesel production and has begun biodiesel production from tallow feedstock.

Bionasa also wholly owns a small subsidiary business - Bionasa Florestal Agricola S.A. - which is involved in the development of jatropha plantations to provide non-edible feedstock for Bionasa.

Under the terms of the investment, the Company is entitled to a cumulative priority minimum dividend of 15% on its R$125 million convertible preferred equity. On 31 July 2010, TEP became entitled under the terms of the convertible preferred instrument to convert the preferred shares into 99.4% of Bionasa's ordinary share capital as a result of Bionasa's non-payment of dividends. The Company gave notice of its exercise of the right to convert on 9 August 2010. The validity of this conversion is currently the subject of arbitration between the Company and other Bionasa shareholders. The Company expects a final decision on the arbitration process during the first half of 2012.

The Company continues to carry the investment in Bionasa at R$125 million and does not consider it to be impaired.

Asia Biogas Singapore Pte Limited ("ABS") - South East Asia

ABS is an 81% subsidiary of TEP. ABS was formed in September 2010 to facilitate a reorganisation of the interest of the Company and Silk Roads Limited (a holding company for the Asia Biogas founders). As part of this reorganisation, TEP recognised an impairment of £5.3m and provided a US$5 million convertible loan to the ABS Group, this loan was in addition to the £16.1m historically invested by TEP in its Asian operations that now form part of ABS.

ABS and its subsidiaries (the "ABS Group") is one of Southeast Asia's largest biogas systems design, engineering, construction and operating groups. It has won a number of awards, most recently in August 2011 when it was awarded for the second time Company of the Year (Bioenergy) by Frost and Sullivan. ABS Group employs more than 250 staff across its operations in Thailand, the Philippines, Vietnam, Indonesia and Malaysia.

The USD$5 million loan granted as part of the restructuring has enabled the ABS Group to strengthen its management team, bringing in a highly experienced CFO, a Chief Technical Officer, and Chief Scientist to improve oversight of the implementation and operation of biogas and biomass projects. The restructuring has led to a business with a more tax efficient structure and a revitalised management team with strong experience in the sector and region.

With restructuring largely complete ABS management is focussed on executing the pipeline developed over the past 12 to 18 months. The pipeline has set the basis for a five year business plan of the ABS Group. The plan is ambitious and achievable only with significant capital investment. The plan has identified a number of projects across the five markets in which the ABS Group operates: Thailand, Philippines, Vietnam, Indonesia and Malaysia. In total it targets 64 projects over a five year time line with more than half of the projects already identified and discussions with host facilities underway.

ABS Group was reorganised with a view for an exit by the end of 2012. The Board has decided to accelerate the sales process and local advisors have been granted a sales mandate to dispose of the ABS Group. An information memorandum is expected to be released to interested parties in November with a view to completing a sale early in 2012.

With the exception of outstanding loans from TEP of approximately US$5.5 million, the ABS Group is debt free.

Thailand

The ABS Group has six wholly owned operating projects in Thailand and minority interests across another five. The largest of these projects is Korat Waste to Energy, which is operating successfully and has generated operating cash flow of US$2.2m in the Reporting Period. Since 2008 the project's performance had dropped due to an infestation of a regional mealy bug which has reduced throughput of cassava root at the host facility. This infestation has been brought under control and results during this financial year are significantly improved. In the first quarter of the financial year ending June 2012 management report the project's EBITDA is already in excess of USD800k. Under the terms of the Build Operate and Transfer agreement, ABS Group has a right to extend the concession period of the project due to the under-delivery of waste water over the previous two years and management are currently in discussions with the host regarding this matter. Over 320,000 CERs from the project have been verified for the period of June 2007 to July 2009 but issuance has been delayed. ABS Management and the Investment Adviser are working with the verifier and anticipate being able to resolve the issues in the coming months. A further 239,000 CERs are anticipated to be verified shortly after.

At the end of June 2011, two of the ABS Group's projects in Thailand, owned by subsidiary Swine Waste to Energy Co Ltd ("SWTE") at the farms of the Eastern Laboratories group were seized by the host. ABS Group took a robust stance on these projects and has secured and enforced a court injunction in its favour to regain control of the assets. Further actions will follow with the ABS Group seeking full damages, including loss of profits, under the agreements it has in place with the host. The ABS Group has fully written down its investment in SWTE, although ABS management anticipate an amicable resolution to the current dispute resulting in significant increases in profitability. The projects are currently generating positive cashflow. In the event an amicable solution is not found then ABS Group intends to proceed to arbitration seeking a full recovery of losses.

At Kalasin Waste to Energy ("KalWTE"), the host facility was designed to enable it to increase its throughput capacity. However, due to the mealy bug infestation and therefore elevated cassava root prices the planned expansion did not occur and therefore this project has under-delivered effluent. ABS management is still confident that the project's performance will improve over time and it is currently making a positive cashflow contribution to the group. To be prudent however, management has written down its investment in KalWTE to reflect the historic underperformance of the project. The project has also suffered from a long delay in the issuance of the host nation letter of approval required for the CDM registration of the project. This issue has now been resolved and validation is close to completion.

Initially focussed on treating wastewater from the cassava industry, the Thai business has been examining new market opportunities. One of these is taking wet cake from the cassava industry and digesting it to produce energy. The ABS Group is commissioning, on behalf of its client, the first biogas project which utilises cassava wet cake as a feedstock. . Although the project is not owned by the ABS Group, it is being designed and engineered by ABS and if proven successful, there are a number of parties interested in replicating this project across Thailand and ABS Group stands to benefit greatly from this new substrate. In addition, ABS management believe they are close to closing on their first two palm oil mill effluent biogas projects. These projects come packaged together along with a biomass gasification project taking empty fruit bunch solid biomass as a feedstock. ABS Management are very excited by the prospect of gasification technology in South East Asia and are working with a number of suppliers of mature technology out of India.

The Philippines

In the Philippines, operating projects are largely located on pig farms and owned by the ABS Group subsidiary Hacienda Bioenergy Inc (HBC). A large number of these projects have proven problematic with a number of issues having a detrimental impact on operations. The ABS Group recruited a new country manager to take over operations in the Philippines and tasked him with implementing a turnaround plan for the HBC portfolio. This plan is currently being implemented with operating projects expected to be halved in number. Poor performing projects are being sold back to hosts. The first two farm sales have been agreed and are expected to be completed in November. A number of the HBC projects have been registered with the CDM and any sale of projects to farmers will be subject to TEP's rights to the CERs to be generated by these projects being protected. On a risk adjusted basis, approximately 180,000 CERs are projected to be generated per annum by the HBC projects. Due to the poor performance of HBC the Group's development company in Philippines has been unable to continue in business.

ABS Group have established a new business in the Philippines' which is focused on larger agro-industrial waste water streams projects and solid biomass projects. In the case of the latter, the ABS Group has been developing a 6MW biomass project in Philippines. This project will benefit from the Philippines feed-in-tariff regime, final details of which are expected in November 2011. A number of EPC contractors have been invited to submit bids in the last week of October 2011. Local banks have been approached and have been highly supportive, indicating an interest in providing non-recourse debt on a 70:30 debt to equity ratio. Management are targeting full development of a bankable project by December 2011.

Vietnam

Operations in Vietnam are currently cashflow neutral, with the ABS group earning revenue from design and engineering work being carried out on a project treating effluent from an ethanol facility. ABS Management are developing a number of biomass gasification projects as well as biogas projects, to be implemented in the country. 

Malaysia

The ABS Group's first two projects in Malaysia are currently under development, with BOT agreements close to being finalised and financing discussions well advanced. It is expected construction will commence in Q4 2011. The two projects are located at palm oil mills of Sime Darby, one of the largest palm oil plantation companies in Malaysia. Both projects are biogas projects, looking to utilise POME to generate biogas. A further two new projects are expected to reach financial close in 2012 and thirteen more have been identified for the subsequent four years.

Indonesia

The ABS group has negotiated a joint development agreement with GE and local IPP developer, Navigat. Under the Joint Development Agreement the three parties are collaborating on developing biogas projects at palm oil mills in Indonesia. The parties expect to develop at least 12 projects over the course of the next five years. Furthermore the ABS group expects to develop separately a number of biomass gasification projects during this time.

Sun Biofuels ("SBF") - Mozambique and Tanzania

Given the Company's revised investment policy to optimize the realized value of the business in the short to medium term, the Board has taken the decision not to fund Sun Biofuels any further as value creation in this business was a long term project.

As a consequence, the SBF Board examined a number of alternative funding solutions. However none of these solutions were able to be put in place before the cash requirements of the business became critical.

As a consequence of this, the Board of SBF decided to put SBF into administration on 10 August 2011. ReSolve Group was appointed administrator of Sun Biofuels Ltd, Sun Biofuels Africa Ltd and Sun Biofuels Mozambique UK Ltd, and has been working to realise as much value as possible back for creditors. TEP is the largest creditor of SBF.

On appointment, ReSolve immediately froze the UK bank accounts, which amounted to approximately $800k. Staff were sent home, except the financial controller, who was paid to remain in situ and assist with a variety of tasks associated with helping maximise realisations in the administration

Pressure was applied by SBF to pay wages due and severance packages to staff in Africa. If this severance pay was not paid, there was a possibility that the land would be rendered unusable by staff, and there were also fears for the safety of supervising personnel on site.

Considering all of these factors, the administrator proceeded to pay the due balances of c. $500k. An impairment charge of £6.8m has been recognised at 30 June 2011 and the value of SBF in the financial statements of the Company is at its recoverable amount, being approximately £300k.

Environmental Credit Corp. ("ECC") - U.S.A.

TEP owns 77.32% of the equity capital of Environmental Credit Corp. ("ECC") and to date has invested approximately USD$14.9m million in ECC via ordinary equity, preferred shares and debt instruments. The results of ECC are consolidated in the financial statements.

Founded in 2004 and located in State College, Pennsylvania, ECC is a leading developer of carbon offset projects in the United States. Carbon offset credits resulting from ECC's projects can be used to satisfy both voluntary and compliance needs of a variety of buyers throughout the US and certain other international markets. ECC registers its offset credits primarily through the Climate Action Reserve.

ECC's recent focus has been the creation of carbon offset credits which comply with the California Air Resource Board's ("ARB") requirements for compliance offsets under its upcoming cap and trade program. ECC has developed substantial expertise and experience in agricultural methane and ozone depleting substance destruction projects, projects accepted by the ARB for compliance needs, creating one of the largest portfolios of California-eligible projects.

ECC owns or is a project partner to 58 offset projects primarily in the United States, as well as in Brazil and India. ECC offers its clients a broad suite of carbon offset services, including feasibility and eligibility analysis; project design and development; data collection and management; monitoring and verification support; registry and transaction services; and credit monetization. ECC earns revenues primarily through the share of carbon assets it receives from the successful provision of these services and through consulting services it offers clients.

Electricidad Andina S.A. - Peru

Through its participation in the Santa Rita Limited Partnership, the Company owns 97.3% of Electricidad Andina S.A., a company incorporated in Peru, with the rights to a 255MW run-of-river hydro project in northern Peru. As of the Reporting Date the Company had invested approximately $23 million, which included a bond of $12.75 million issued by HSBC Peru which supported Andina's unsuccessful bid in a power purchase agreement tender process held in March 2011. This $12.75 million (which was included in restricted cash at 30 June 2011) was returned to the Company on 4 July 2011, thus the net investment to date is approximately $10.25 million.

The project is amongst the few advanced large hydro development prospects in Peru. It has an approved environmental impact assessment, transmission concession and statement of lack of archaeological remains, and further benefits from 46 years of consistent hydrology data, no population displacement and strong local support for the project. Electricidad Andina is now progressing with the final construction permits and transmission line easements.

As of the Reporting Date the Company had submitted a bond of $12.75 million which supported Electricidad Andina's unsuccessful bid in a power purchase agreement tender process held in March 2011. This $12.75 million was returned to the Company on 4 July 2011. Electricidad Andina needs to secure a long term contract to sell power in order to move forward with project finance for construction. The company's failure to secure this has slowed down progress to financial close and also led to the cancellation of the project's generation concession in July 2011. Electricidad Andina expects to re-file in due course.

The Designated Operational Entity, AENOR, expects to finalise CDM validation shortly. AENOR is also finishing validation of the project's compliance with the environmental, social and sustainability criteria of the World Commission on Dams (WCD) in order that any CERs produced should be eligible for compliance in the EU Emissions Trading Scheme.

EWG Słupsk Sp. z o. o. - Poland

The Company owns 60% of the equity interest in EWG Slupsk Sp. Z.o.o ("EWGS"). To date approximately £8.5 million  has been invested in the subsidiary via equity and debt instruments. The results of EWG Slupsk are consolidated in the financial statements and the assets of this subsidiary are classified as "disposal group held for sale" on the statement of financial position at the Reporting Date.

EWGS consists of a 320 MW wind farm which is under development near the north coast of Poland. EWGS, when completed, will be one of the largest wind projects in Poland. Permits and licenses are progressing and a grid connection agreement (GCA) has been signed. Land rights have been acquired under leases. Environmental decisions are almost all obtained, with the remaining decisions expected during Q4 2011. The first 65MW is currently being approved for building permits, which will then allow construction to commence. The first of the construction permits, relating to electrical distribution lines, has been issued. Tender design and documents are complete and currently with Contractors as part of a competitive tendering process.

EWGS benefits from a favourable Polish renewable energy incentive regime which has a Green Certificate support mechanism and an obligation to offtake electricity generated from renewable energy sources. "Green power" also enjoys priority of dispatch.

EWGS has entered into a management agreement with EWG Elektrownie Wiatrowe Sp. z.o.o - SpK ("EWG"), the other shareholder in EWGS, in terms of which EWG is responsible for land selection and acquisition, and for arranging the execution of design works related to the wind farms, the transformer stations and the electrical connections. Moreover, EWG is the main counterparty to local authorities in relation to the permitting procedure aimed at obtaining legally valid permissions to build. EWG is also responsible for overseeing the procedure to define the grid interconnection conditions and to obtain the environmental impact assessment.

The project consists of eight wind farm clusters located in the districts of Potegowo, Damnica, Slupsk and Malechowo, within the Pomorskie and Zachodniopomorskie Province of Poland.

Additional wind measurements at 100m height are currently being obtained from four IEC compliant meteorological wind masts and an independent energy yield study has been prepared by an international consultant to support project finance.

Carbon Capital Markets Limited ("CCM") - U.K

Following a shift amongst EU Emissions Trading Scheme (ETS) SME market participants towards exchange trading in preference to over-the-counter transactions, CCM pulled out of the EU ETS market making business for SMEs, as did other businesses in the sector. CCM's cost base has been adjusted accordingly.

CCM's free cash is positive and the company continues to perform the role of investment manager to the Carbon Assets Fund.

Jantus S.L. - Brazil

Jantus S.L. of which the Company owns 1.54% (on a fully diluted basis) is the holding company of SIIF Energies Do Brasil ("SIIF"). The Company acquired its shares in Jantus as a result of an asset swap agreement with Carbon Capital Markets completed in April 2010. The Company carries this asset on its books at £1.8m. SIIF is one of the largest players in the Brazilian wind power sector with 207 MW of installed capacity distributed among four wind farms located in the state of Ceará, one of Brazil's most attractive wind regions. The projects benefit from 20 year power purchase agreements with Electrobras through the PROINFA programme. In addition to the four operating wind farms, SIIF has a portfolio of projects in the development phase.

In April 2011, CPLF Energia S.A. announced the purchase of Jantus. The process is subject to the completion of Jantus' corporate reorganisation and the approval of the necessary regulatory authorities. Completion is expected to take place by December 2011. An update on sale completion and proceeds will be reported in due course.

EcoTraders Limited - Israel ("ET")

ET is 29% owned by the Company. The Company has invested approximately £1.1 million in ET to date. ET is considered an investment and accounted for in the financial assets at fair value through profit or loss on the statement of financial position.

ET is an Israeli carbon consultancy business established in 2003. It is based in Tel Aviv and has specialised in consultancy services related to the development of CDM projects under the UNFCCC Kyoto Protocol. The services provided by ET comprise (i) the identification of greenhouse gas emission reduction projects that can be eligible under the CDM; (ii) the preparation of the project documentation needed for the registration of a project as a CDM project, mainly the Project Design Document ("PDD"); (iii) management of the validation and registration process of the projects; (iv) assistance with the monitoring of the CDM project activity post registration; (v) management of the periodic verification and issuance process of the CERs; (vi) commercialisation of the CERs; and related advisory services.

ET has developed a portfolio of 17 potential CDM projects in Israel. 11 projects of the portfolio have been registered so far, 6 of which are already generating CERs and 4 of these 6 projects are already issuing CERs. The remaining projects are at various stages of PDD development and validation. The technologies covered comprise landfill gas, fuel switch, magnesium production (SF6), energy efficiency and renewable energy, mainly solar and wind. ET's revenues primarily comprise success fees determined as a certain percentage of the revenues from the sale of the CERs or as a percentage of the issued CERs. Due to substantial delays in the UNFCCC validation, registration, verification and issuance processes, cash flows from success fees have been delayed and ET has grown more slowly than expected. At present, ET is still loss making (loss of c. €109k in 2010) and the Group has recognised impairments such that the fair value at year end is approximately £200k. In order to improve the cash situation and to develop additional sources of steadier future cash flows, ET has started to expand into new business areas, mainly consultancy services, such as carbon footprinting, and emissions inventories.

Conclusion

In line with the Company's revised investment policy the Investment Adviser is focusing its activities towards optimisation and realisation of the Company's private equity and carbon portfolios. The Investment Advisor is actively involved in the process of marketing certain assets for sale whilst, in the meantime, working with the portfolios to aim to generate maximum value for the Company.

EEA Fund Management Limited

Investment Adviser

31 October 2011

 Consolidated Statement of Comprehensive Income

Year ended Year ended

30 June 2011 30 June 2010

6 Revenue 31,148 31,924

Other income 480 1,948

Net change in inventory at fair value less costs to sell (12,785) (18,274)

Net change in fair value of financial assets and

financial liabilities at fair value through profit or loss (22,397) (23,306)

Employee benefits expense (3,382) (3,726)

7 Impairment and other charges (20,851) (2,803)

Depreciation and amortisation (3,745) (1,760)

4 Investment advisory fees (6,017) (5,792)

4 Performance fees 23,715 -

4 Administration and custodian fees (419) (312)

Net foreign exchange gains 406 896

9 Finance income 1,908 3,450

Other comprehensive loss

Loss for the year attributable to:

Equity holders of the Company (23,986) (28,757)

Total comprehensive loss for the year attributable to:

Equity holders of the Company (20,905) (21,449)

Loss per share attributable to the equity holders of the

Company during the year:

(expressed in pence per share)

Consolidated Statement of Financial Position

Year ended Year ended

30 June 2011 30 June 2010

Assets

Non-current assets

Intangible assets 9,215 7,531

10 Property, plant and equipment 58,133 18,726

Financial assets at fair value through profit or loss 90,309 142,501

Loans and receivables 520 1,089

Trade and other receivables - 7

Restricted cash 280 -

Current assets

Financial assets at fair value through profit or loss 43,229 49,404

Loans and receivables 1,678 12,047

Trade and other receivables 11,511 11,464

Inventory at fair value less costs to sell 52,282 44,077

Cash and cash equivalents 66,193 91,988

Liabilities

Current liabilities

Trade and other payables (10,088) (13,890)

Cash margin payable to broker (9,039) (14,618)

12 Borrowings (15,042) -

Financial liabilities at fair value through profit or loss (5,029) (6,191)

Provision for liabilities and charges (379) -

Non current liabilities

Trade and other payables (3,690) (19,863)

12 Borrowings (30,408) -

Financial liabilities at fair value through profit or loss (877) (2,181)

Financed by:

Capital and reserves

14 Share capital 2,498 2,574

Share premium 301,086 301,086

Capital redemption reserve 395 319

Retained earnings (18,078) 37,000

Total shareholders' equity 302,460 354,457

Consolidated Statement of Changes in Equity

Attributable to equity holders of the Company

Capital Non-

Share Share redemption Retained Translation controlling Total

capital premium reserve earnings reserve Total interest equity

Balance at 1 July 2009 2,551 297,061 319 77,728 6,170 383,829 454 384,283

Loss for the year - - - (28,757) - (28,757) (466) (29,223)

Other comprehensive income

Total comprehensive loss - - - (28,757) 7,308 (21,449) (641) (22,090)

Dividends paid (note 15) - - - (11,971) - (11,971) (193) (12,164)

Balance at 30 June 2010 2,574 301,086 319 37,000 13,478 354,457 (380) 354,077

Loss for the year - - - (23,986) - (23,986) (2,303) (26,289)

Other comprehensive loss

Total comprehensive loss - - - (23,986) 3,081 (20,905) (2,572) (23,477)

Dividends paid (note 15) - - - (24,605) - (24,605) (165) (24,770)

Equity interest in subsidiary entity

issued to non-controlling interest

(note 16) - - - - - - 684 684

Consolidated Cash Flow Statement

Year ended Year ended

30 June 2011 30 June 2010

Cash flows from operating activities

Loss for the year (26,289) (29,223)

Adjustment for:

- finance income (1,908) (3,450)

- income tax credit (594) (653)

- depreciation and amortisation 3,745 1,760

- net foreign exchange gains (406) (872)

- impairment charges 20,851 2,803

- performance fee release (23,715) -

- profit on disposal of investment in quoted securities (58) (652)

- provisions 379 -

- finance costs 1,238 917

Changes in working capital:

Net decrease in financial assets at fair value through profit or loss 38,035 30,705

Net change in inventory at fair value less costs to sell (2,896) 2,275

Net change in financial liabilities at fair value through profit or loss (2,466) (8,802)

Decrease in trade and other payables (13,167) (10,743)

Cash used in operations (6,268) (19,028)

Tax paid (757) -

Cash flows from investing activities

Decrease in restricted cash 1,643 18,448

Proceeds on disposal of quoted securities 533 1,890

Acquisition of subsidiaries, net of cash acquired 14,704 -

Purchase of intangible assets - (3,994)

Loans granted to third parties (464) (12,062)

Purchase of property, plant and equipment (24,950) (6,093)

Financing activities

Purchase of own shares (6,487) -

Dividends paid to company shareholders (24,605) (11,971)

Dividends paid to non controlling interests (165) (193)

Net decrease in cash and cash equivalents (22,328) (29,873)

Cash and cash equivalents at beginning of the year 91,988 125,605

*Includes £2,394,000 cash in disposal group classified as held for sale

Notes

1 Operations

Trading Emissions PLC ('the Company') and its subsidiaries (together 'the Group') invest in environmental and emissions assets, companies providing products and services related to reduction of green house gas (GHG) emissions and associated financial products. The Company is currently pursuing a realisation strategy which aims to optimise the cash value of the Company's assets through a controlled realisation process.

The Company is a closed-ended investment company domiciled in the Isle of Man and the address of its registered office is 3rd Floor, Exchange House, 54-62 Athol Street, Douglas, Isle of Man.The Company was incorporated on 15 March 2005 in the Isle of Man as a public limited company and is quoted on the Alternative Investment Market (AIM) operated and regulated by the London Stock Exchange. The financial information in this statement does not represent the statutory accounts of the Group.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of the consolidated financial information are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

2.1 Basis of preparation

The financial information contained in this preliminary announcement which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes has been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) and inventory, at fair value through profit or loss using the accounting policies set out in the Company's 2010 Annual Report, unless otherwise stated.

This announcement does not itself contain sufficient information to comply with International Financial Reporting Standards ("IFRSs"). The 2011 Annual Report, including financial information in compliance with IFRSs, will be posted to shareholders in November 2011.

The accounting policies adopted are consistent with those of the annual Financial Statements for the year ended 30 June 2010, as described in those annual Financial Statements. New accounting policies have been described below.

Property, plant and equipment

Assets acquired under a finance lease or sold in a sale and lease back transaction are capitalised and depreciated in accordance with the Company's policy on property, plant and equipment unless the lease term is shorter. The associated obligations are recorded under financial liabilities. Any gain arising on the inception of the finance lease is deferred on the statement of financial position and released to the statement of comprehensive income over the life of the lease. Repayments made under finance leases are split between capital repayments and interest expense over the life of the lease term.

  Intangible assets

Project developments

This heading includes project development rights that are internally generated or acquired either separately or as part of an asset acquisition or business combination when they are identifiable and can be reliably measured. Project development rights are considered to be identifiable if they arise from contractual or other rights or if they are separate (i.e. they can be disposed of either individually or together with other assets).

Internally generated project development rights represent costs that are directly associated with the development of projects which will ultimately produce CCs and qualify for capitalisation and are recognised as intangible assets. It must be probable that the related costs will generate future economic benefits and that the amounts capitalised are clearly identifiable and allocable to specific projects. Costs include but are not limited to the payment of feasibility and environmental studies and engineering costs.

Project development rights have a finite useful life. They are amortised over the shorter of their contractual or useful economic lives on a straight line basis. Project development rights are amortised over a five - twenty year period depending on the life of the underlying project.

Disposal group held for sale

Disposal groups are classified as held for sale when the carrying amount of such assets will be recovered principally through a sale transaction rather than through continuing use. Disposal groups that are classified as held for sale are available for immediate sale in their present condition, and a sale is highly probable. The sale of disposal groups is considered highly likely by the Group when the Directors are committed to the plan, there is an active programme to locate a buyer and when the sale is expected to be completed within one year from classification. Disposal groups that are held for sale are carried at the lower of cost and fair value less cost to sell.

Contingent assets and liabilities

Contingent assets and liabilities are possible rights and obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not fully within the control of the Group.

3 Net foreign exchange gains

Net foreign exchange gains have arisen on the translation of EUR and USD denominated cash deposits and certain EUR and USD denominated loans to British pounds, the Company's functional and presentation currency.

4 Investment adviser, administration and custodian fees

Investment adviser fees

On 25 August 2010, the Company entered into a deed of variation with EEA to vary the terms in the Investment Advisory Agreement. The deed of variation was subsequently approved in the extraordinary general meeting held on 13 September 2010 and was effective from 1 July 2010. The new investment advisory agreement terms are summarized below:-

·; EEA foregoes payment of the remainder of the amended 2008 performance fee earned in 2008 which amounted to approximately £23.7 million on a discounted basis at 30 June 2010. This amount is now released and recorded as a credit to performance fees in the statement of comprehensive income for the twelve months to 30 June 2011.

·; The previous investment advisory fee of 1.5% of the gross asset value of the Group's investment portfolio payable quarterly in arrears was replaced, with effect from 1 July 2010, by a fixed fee of £6 million per annum payable quarterly in arrears (which may be subject to increase as set out in the agreement). Investment advisory fees for the twelve months to 30 June 2011 were £6 million.

·; For the period up to 31 December 2012, EEA is entitled to a performance fee of up to £10 million in aggregate which will become payable to EEA based on (subject to exceptions) realised and received returns to the Company's shareholders during the calculation period of between 150 and 230 pence per Ordinary Share to be calculated on a linear basis. Interim instalments of the new performance fee may be paid to the Investment Adviser as at 31 December 2011 where the actual returns to shareholders at such dates satisfy the relevant performance criteria.

·; The payment of the performance and investment advisory fees may be accelerated, inter alia, in the event of a takeover or an insolvency event or an early termination of the Investment Advisory Agreement. 

The new Investment Advisory Agreement will terminate on 31 December 2012.

No performance fees under the terms of the new investment advisory agreement have been triggered or paid as at 30 June 2011.

Administration fees

Chamberlain Fund Services Limited ('Chamberlain') receives an administration fee payable quarterly in arrears at a rate of 0.10% per annum of the Company's net asset value subject to a minimum of £30,000 per annum or pro-rata for any period less than one year.

Chamberlain has entered into a sub administration agreement with the Company and IOMA Fund and Investment Management Limited ('IOMAFIM'), a related party, whereby Chamberlain has delegated certain administration functions to IOMAFIM. IOMAFIM is remunerated for these services by Chamberlain out of the administration fee which Chamberlain receives from the Company.

The administration agreement is terminable inter alia by either of the parties giving not less than six months notice.

Administration fees for the year ended 30 June 2011 were £414,000 (2010: £298,000) of which £116,000 was accrued at 30 June 2011 (2010: £86,000). Administration fees have increased in the period due to the payment of an additional administration fee of £60,000 paid as a result of additional transactions occurring in the period.

4 Investment adviser, administration and custodian fees (continued)

Custodian fees

The Company has engaged the services of Cenkos Channel Islands Limited ("the Custodian") for the provision of custodian services.

5 Directors' fees

The Company's Directors received the following fees:

Neil David Eckert 40 40

Malcolm John Gillies 35 35

Bertrand Rassool 30 30

Philip Peter Scales * 5 5

Nigel Harley Wood * 35 35

* Isle of Man resident directors

In addition to their directors' fees, the amounts above include annual fees of £5,000 each payable to Messrs Wood, Vanderpump and Gillies as members of the audit committee. In 2010 the Board approved a one off payment of £10,000 to Mr Wood and £50,000 to Mr Gillies in addition to the amounts disclosed above, for additional work carried out during the proposed merger with Leaf Clean Energy Company. None of the Directors are entitled to any cash or non-cash benefits in kind, pensions, bonus or share scheme arrangements.

6 Revenue

Sale of CCs 24,254 29,301

7 Impairment and other charges

Impairment of intangible assets 762 -

Fair value adjustment arising on business combination (note 16) 7,318 -

(i) Zybranka

As a result of restructuring of the Company's subsidiary holding Carbon Capital Market ("CCM"), CCM's investment in Zybranka was written down by £878,000 in 2010. This investment is included within the Company's investment portfolio segment. Recoverable amounts are based on discounted cash flows.

(ii) Sun Biofuels Ltd

Given the Company's revised investment policy to optimize the realised value of the business in the short to medium term, the Board has taken the decision not to fund Sun Biofuels Limited ("SBF") any further as value creation in this business was a long term project. As a result of this, impairment charges against the carrying value SBF's property, plant and equipment as well as its loans and receivables balances of £5,757,000 and £1,015,000 respectively have been recognised in the Group's statement of comprehensive income in 2011. This investment is included within the Company's investment portfolio segment. Recoverable amounts are based on the Administrators' report.

(iii) Asia Biogas Singapore Pte Limited ("ABS") - South East Asia

ABS Group was reorganised during the year with a view for an exit by the end of 2012. As a result of this restructuring the Company performed a fair value exercise which identified that certain subsidiaries were impaired. The Group has recognised impairment charges of £1.6m, £2.3m, £0.7m, and £0.5m with respect to property, plant and equipment for Hacienda Bio-Energy, Swine Waste to Energy, Kalasin Waste to Energy and Magellenes Bio-Energy respectively. In addition trade and other receivables amounting to £635,000 within ABS were also identified as impaired. These investments are included within the Company's investment portfolio segment. Recoverable amounts are based on discounted cash flows.

(iv) Electricidad Andina SA

During the year Electricidad Andina participated unsuccessfully in a tender to sell power under a long term contract. A long term contract is required in order to move forward with project finance for construction. As a result of the cancellation of the concession an impairment charge against the carrying value of Electricidad Andina's property, plant and equipment of £342,000 has been recognised in the Group's statement of comprehensive income in 2011. This investment is included within the Company's investment portfolio segment. Recoverable amounts are based on discounted cash flows.

8 Other expenses

Administration expenses - subsidiaries 1,982 2,925

Professional fees 4,438 1,838

Project registration costs 974 1,638

Other expenses 4,974 2,633

Directors' fees and insurance 246 234

Pledge guarantee costs 61 71

Travel 485 379

Bank interests and charges 49 152

Membership fees 20 65

Commission payable and Bid bonds 86 313

Merger related expenses* - 689

Auditor's remuneration:

Audit of the Group's annual financial statements - current year 250 175

Audit of the Group's annual financial statements - prior year 75 40

Other services:

Fees payable for the company's subsidiaries pursuant to legislation 16 28

Other services provided pursuant to such legislation 35 24

Services relating to taxation

- Compliance services 7 -

- Advisory services 8 -

*Merger related expenses include non-audit services of £300,000 provided by PricewaterhouseCoopers LLP in connection with the unsuccessful merger between the Company and Leaf Clean Energy Company.

9 Finance income - net

10 Property, plant and equipment

Project Furniture

under Motor and Plant construction vehicles equipment Total

At 30 June 2009

Cost 7,763 7,320 729 1,097 16,909

Accumulated depreciation (1,628) - (357) (51) (2,036)

Year ended 30 June 2010

Opening net book value 6,135 7,320 372 1,046 14,873

Exchange differences 636 438 (8) (353) 713

Additions 2,912 2,590 305 990 6,797

Disposals - - - (1) (1)

Transfer of assets 3,040 (3,040) - - -

Depreciation (1,438) - (194) (99) (1,731)

At 30 June 2010

Cost 14,351 7,308 1,026 1,733 24,418

Year ended 30 June 2011

Opening net book value 9,360 7,308 475 1,583 18,726 

Exchange differences (108) 279 (8) 28 191

Additions 23,172 1,183 88 302 24,745

Acquisitions 27,270 826 91 3,171 31,358

Transfer of assets 251 (8) - (243) -

Transferred to disposal group

 classified as held for sale - (2,143) - - (2,143)

Depreciation charge (3,020) (15) (184) (404) (3,623)

At 30 June 2011

Cost 58,899 6,131 271 6,194 71,495

At 30 June 2011, net property, plant and equipment held under finance lease amounted to £7,934,000 (2010: £ nil). Net property plant and equipment of £41,285,000 (2010: £ nil) are pledged as security for financial liabilities.

11 Disposal group classified as held for sale

The Group currently has a disposal group that is being classified as held for sale, being a 60% holding in EWG Slupsk S.p. Z.o.o. An active programme to dispose of this asset was underway as at 30 June 2011.

EWG Slupsk is the project special purpose vehicle for a 320MW wind farm under development in Poland. The Group is engaged in a process whereby it is in discussions to dispose of its 60% stake in EWG Slupsk. EWG Slupsk has been fully consolidated by the Group since its acquisition in April 2010. The carrying value of EWG at 30 June 2011 is £8,468,000.

EWG Slupsk is held at the following per the consolidated statement of financial position:

12 Borrowings

Borrowings are represented by an external debt facility in place with Solar Energy Italia 1 S.r.l. ("SEI") and a facility in place between Surya Plc and EEA Group Limited. The SEI facility is a EUR 36,800,000 facility, of which EUR 32,600,000 is a Senior Term Loan Facility, EUR 2,200,000 for a True Up Facility and EUR 2,000,000 for a VAT Facility while the EEA Group facility is for EUR 12,000,000.

For the SEI Senior Term loan facility and the True Up Facility the termination date is 2028 and the interest rate is six month EURIBOR plus a margin of 2.5%. For the VAT Facility the termination date is 2014 and the interest rate is six month EURIBOR plus a margin of 2%.

Security has been established from this facility over the shares of SEI, property rights of land, and a pledge over other future receivables.

As at 30 June 2011 SEI had drawn down EUR 31,250,000 under this facility.

SEI has entered into two interest rate SWAP agreements. The SWAP agreements cover 80% of the value of the facility. Under the SWAP agreements SEI will pay a fixed coupon of 3.38% per annum on the drawn down balance. As at 30 June 2011 the fair value of the swap contacts were £393,000 which are recorded as a financial liability at fair value on the statement of financial position.

The EEA Group Facility was fully drawn down by Surya Plc at 30 June 2011. The facility is payable on demand and the interest rate is 3.81% per annum. EEA Group Limited is a related party to the Group acting as the investment adviser. Security has been established in the form of a fixed charge over the proceeds due to Surya plc from its subsidiary TEP (Solar Holdings) Limited under a Total Return SWAP between the two parties and a floating charge over the assets of Surya Plc.

2011 2010

Non-current

Current

13 Net asset value per share and loss per share

The net asset value per share is calculated by dividing the net assets attributable to the Ordinary shareholders of the Company by the number of Ordinary shares in issue at 30 June 2011 and 2010.

13.1 Net asset value per share

Net assets attributable to Ordinary shareholders (£'000) 302,460 354,457

13.2 Loss per share

(a) Basic

The basic loss per Ordinary share is calculated by dividing the loss attributable to the Ordinary shareholders by the weighted average number of Ordinary shares in issue during the year.

Ordinary shares

Loss attributable to equity holders of

Ordinary shares (£'000) (23,986) (28,757)

(b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company had 6,940,629 dilutive potential ordinary shares as at 30 June 2010 in relation to the settlement of its 2008 performance fee liability. The dilutive potential ordinary shares have not been included in the calculation because their effect would be anti-dilutive and as a result there is no difference between the basic and the diluted loss per share for the periods presented.

On 25 August 2010 the Company entered a deed of variation with EEA under which EEA has forgone the payment of the remainder of the 2008 performance fee. Consequently the 6,940,629 dilutive potential shares outstanding at 30 June 2010 will not be issued.

14 Share capital

The total number of authorised and issued Ordinary shares of the Company at 30 June 2011 and 2010 together with their rights are explained below.

2011 2011 2010 2010

Authorised

Issued and fully paid

All issued shares are fully paid, and each share carries the right to one vote.

Ordinary

shares

At 1 July 2009 2,551

At 30 June 2010 2,574

All issued Ordinary shares are fully paid, and each Ordinary share carries the right to one vote.

On 3 September 2009 the Company issued 2,313,543 Ordinary shares to the Company's Investment Adviser.

In November 2010 the Company purchased and cancelled 7,631,771 of its Ordinary shares at an aggregate cost of £6,487,000.

15 Dividends paid

In December 2009 the Company paid a final dividend of 3 pence per share in respect of the year ended 30 June 2009 distributing £7,723,000 to shareholders.

In December 2010 the Company paid a final dividend of 3.85 pence per share in respect of the year ended 30 June 2010, distributing £9,617,000 to shareholders. Combined with the 2010 interim dividend of 1.65 pence per share, which distributed £4,248,000 to shareholders, this brought the total dividend for the year ended 30 June 2010 to 5.5 pence per share.

In March 2011 the Company paid an interim dividend of 6 pence in respect of the year ended 30 June 2011, distributing £14,988,000 to shareholders. The Board does not propose to pay a final dividend in respect of the year ending 30 June 2011.

16 Business combinations

Acquisitions in financial year 2011

The Group completed the acquisitions of Asia Biogas Company Limited on 15 September 2010, Solarinvest Ragusa 1 S.r.l on 17 September 2010, ETuno S.r.l on 6 December 2010 and Element Markets LLC on 22 June 2011.

Asia Biogas Company Limited

Asia Biogas Company Limited (incorporating Clean Energy Development Co. (Thailand) Limited, Kanchanaburi Waste to Energy Company Limited, Philippine Bio-Science Company Inc., PT Asia Biogas Indonesia, Asia Biogas Vietnam Company Limited and Chumpron Biogas Limited) is one of Southeast Asia's largest biogas systems design, engineering, construction and operating groups. Focusing primarily on renewable waste water to energy generation, Asia Biogas Company Limited and its subsidiaries design, build and operate power plants which convert agro-industrial waste water streams into methane for energy generation. These projects generate multiple benefits including:

·; Lowering the host facility's total energy costs;

·; Reducing the need for traditional fossil fuels;

·; Reducing the emissions of greenhouse gases into the environment; and

·; Improving the quality of agro-industrial waste water.

Asia Biogas Company Limited and its subsidiaries focus on biogas energy systems that generate methane which replaces liquid and solid fuels to generate heat, steam and electricity. The plants can take waste streams from a number of sources, many of which are abundant in Southeast Asia.

Previously the Group owned 47% of the equity of Asia Biogas Company Limited and its subsidiaries. The 47% holding was an associate undertaking and had previously been accounted for at fair value through profit or loss. This treatment is permitted by IAS 28, whereby investments held by mutual funds and similar entities are excluded from the scope of IAS 28 where those investments are designated, upon initial recognition, at fair value through profit or loss and accounted for in accordance with IAS 39, with changes in fair value recognised in the statement of comprehensive income in the period of the change. As part of a reorganisation of its Asian operations which saw the incorporation of a new holding company, Asia Biogas Singapore ("ABS"), the Group increased its share holding in Asia Biogas Company Limited and its subsidiaries to 81%, the consideration transferred was 19% of the Group's equity capital in ABS.

The purchase of Asia Biogas Company Limited represented a transaction where control was achieved in stages in accordance with IFRS 3 (2008) revised. The Group remeasured the fair value of its previously held interest as at the date of acquisition to £1.1m, which resulted in the recognition of a loss of £765,000 which is included within impairment and other charges in the statement of comprehensive income.

Solar Energy Italia 1 S.r.l

100% of the share capital for Solarinvest Ragusa 1 S.r.l ("SIR") was acquired on 17 September 2010. SIR was a holding company for a project company called Solar Energy Italia 1 S.r.l ("SEI"). SEI was in the process of constructing an 8.4MW solar photovoltaic ("PV") project in the Ragusa region of Sicily. At the date of acquisition the project was partially complete and as part of the transaction the Group entered into a turnkey.

Engineering, Procurement and Construction contract ("EPC") with Alpine Energie Österreich Gmbh to complete the construction of the project.

At the date of the acquisition the cash acquired exceeded the fair value of the consideration transferred by £6,389,000, this was offset by the net liability position that SIR was in as at 17 September 2010.

Since the date of acquisition a merger has occurred between SEI and SIR whereby SEI is the remaining entity.

ETuno S.r.l

On 6 December 2010 the Group purchased 100% of the share capital of ETuno S.r.l. ETuno S.r.l is a project company which had completed construction of two solar PV projects for 1MW each in the Abruzzo region of Italy.

On the date of acquisition the two projects were fully complete and connected to the Italian national grid and were generating electricity. ETuno S.r.l had made a request to the Gestore Servizi Energetici ("GSE") for the 2010 Feed-in-Tariff. The Group has since qualified for the 2010 tariff.

Element Markets LLC

Element Markets LLC ("Element Markets") is a vertically integrated biomethane (renewable natural gas) company with substantial environmental credit marketing expertise.

At 30 June 2010 the Group owned 21.7% of Element Markets and had an outstanding convertible promissory note of $10m with Element Markets as well as an $8m loan to Element Markets major shareholder LLP Enterprises secured against its shareholding in Element Markets.

On 1 January 2011 the promissory note and accrued interest of $437,000 were converted for equity in Element Markets LLC, increasing the Group's overall stake to 28.1%. The $8m loan issued to LLP Enterprises in October 2009 became payable in October 2010. At this date LLP Enterprises made repayment of all accrued interest but did not repay the principal. The Group began a process of negotiation with LLP Enterprises to satisfy the loan principal which resulted in the Group receiving 3,693,435 additional membership units in Element Markets giving the Group a 51.2% equity interest on 21 June 2011. This was full satisfaction of the $8m loan and $873,000 accrued interest that was due on the loan at 21 June 2011.

Previously the Group had a liquidation preference of $52m whereby the first $52m of any sales or liquidation proceeds would be attributable to the Company with the remainder being split among existing shareholders based on their percentage ownership. As part of the satisfaction of the $8m loan and $873,000 accrued interest the Company reduced this liquidation preference to $40m.

The purchase of Element Markets represented a transaction where control was achieved in stages in accordance with IFRS 3 (2008) revised. The Group remeasured the fair value of its previously held interest as at the date of acquisition (28.1%), which resulted in the recognition of a loss of £7,318,000 which is included within impairment and other charges in the statement of comprehensive income.

Contingent consideration

As part of the total purchase consideration for SIR deferred consideration up to an amount of €2.8 million was payable. The contingent consideration is contingent on two variable elements. The first element of €2m, (c. £1.8m) was contingent on the SEI project being connected to the grid by 31 December 2010 in time to receive the 2010 Feed-in-Tariff and was paid during the year. The second element of the contingent consideration was based on the performance of the solar plant over a five year period.

The second element is an earn-out based on the performance of the plant ranging from nil payable if the energy yield is below 1,676 kWh/kWp to €0.8m payable if the energy yield is equal to or greater than 1,715 kWh/kWp for a five year period.

At the date of acquisition management considered it 90% probable that SIR would receive the Feed-in-Tariff for 2010. In addition based on a third party engineering report the directors completed an assessment for the likely earn out, which resulted in an expected earn out at the date of acquisition of €0.7m. In accordance with IFRS the probable earn out has been discounted to present value using a discount rate of 14.1% giving a discounted value of €0.4m at the date of acquisition. The discount rate represents the weighted average cost of capital specific to the project at the date of acquisition. The discount will be unwound over the five year period. At each reporting date the directors will re assess the probability that the earn-out will be achieved and adjust the deferred consideration accordingly.

As at 31 December 2010 Solar Invest Italia had completed construction of the 8.4MW project and was successfully connected to the grid. The 2010 Feed-in-Tariff was subsequently awarded and as a result a premium of €2.4m was paid during the financial year. The additional €0.2m paid to what was booked as contingent consideration at the time of acquisition has been charged to the statement of comprehensive income for the year to 30 June 2011. The additional premium equal to 40% of the cost savings on the build-out of the project was paid to the Group. This amount of €0.2m was charged to the statement of comprehensive income for the year to 30 June 2011.

The net cash flow on acquisitions during the year was disclosed in the Group cash flow statement as follows:

17 Post balance sheet events

The Company is now aggressively pursuing its realisation strategy through sales of individual assets to targeted strategic buyers. As a result of this strategy there have been developments since year end which result in the following assets meeting the "held for sale" criteria set out in IFRS 5 after 30 June 2011. These assets have been disclosed below:

·; Asia Biogas Singapore Pte Limited ("ABS") - Asia and Middle East

ABS appointed joint financial advisers in August 2011. The advisers have a mandate to sell the entire share capital of ABS and also sell the Company's rights to CERs associated with ABS. A condition of the sale will be repayment of the debt currently outstanding between the Company and ABS.

·; Environmental Credit Corp. ("ECC") - North America

The Company does not intend to appoint an adviser for the sale of ECC. ECC has completed an information memorandum which has been circulated to a number of interested potential acquirers and aims to have completed a sale process by Q1 2012.

·; Electricidad Andina S.A. - Latin America

As of the Reporting Date the Company had submitted a bond of $12.75 million which supported Electricidad Andina's unsuccessful bid in a power purchase agreement tender process held in March 2011. This $12.75 million was returned to the Company on 4 July 2011. Electricidad Andina needs to secure a long term contract to sell power in order to move forward with project finance for construction. The company's failure to secure this has slowed down progress to financial close and also led to the cancellation of the project's generation concession in July 2011. Electricidad Andina expects to re-file in due course.

The Company has appointed a financial advisor to advise on the sale of Electricidad Andina S.A. ("Andina"), the Company's run-of-river hydro project development business in Peru. Indicative offers have been received and several parties are undertaking detailed due diligence, and completion is targeted for Q1 2012.

·; EcoTraders Limited - Asia and Middle East

The Company has initiated discussions regarding the sale of its shareholding in EcoTraders. Ideal candidates include local consulting companies, international utilities and consulting companies with a presence in Israel.

Sun Biofuels Administration

Given the Company's revised investment policy to optimize the realized value of the business in the short to medium term, the Board has taken the decision not to fund Sun Biofuels Limited ("SBF") any further as value creation in this business was a long term project.

As a consequence of this, the Board of SBF decided to put SBF into administration on 10 August 2011. TEP is the largest creditor of SBF.

The Board of SBF paid wages due and severance packages to staff in Africa of circa $400,000. This was considered to be an adjusting post balance sheet event. As a consequence it was decided to write down the assets in SBF at 30 June 2011(see note 7).

18 Post balance sheet events (continued)

Investment in Solar Energy Italia 6 S.r.l.

On 12 July 2011, TEP (Solar Holdings) Limited ("TEP Solar") completed the acquisition of a 9.2 megawatt ("MW") solar photovoltaic ("PV") plant in Ragusa, Sicily, Italy by acquiring 100% equity in Solar Energy Italia 6 S.r.l. The total consideration paid for this transaction was EUR 5,100,000. TEP Solar has a committed finance facility of EUR 41,000,000, of which EUR 34,930,000 has been drawn down. The ground-mounted 9.2 MW project is fully permitted under the Autorizzazione Unica regime.

Investment in Ravano Green Power S.r.l.

On 23 September 2011, TEP Solar completed the acquisition of a 2.7 MW PV plant in Pulia, Italy by acquiring 100% equity in Ravano Green Power S.r.l. total consideration paid for this transaction was €3,300,000. TEP Solar has committed a finance facility of EUR 12,500,000, which has been fully drawn down. The ground-mounted 2.7 MW project is fully permitted under the Autorizzazione Unica regime.

Santa Rita concession lapse

As of the Reporting Date the Company had submitted a bond of $12.75 million which supported Electricidad Andina's unsuccessful bid in a power purchase agreement tender process held in March 2011. This $12.75 million was returned to the Company on 4 July 2011. Electricidad Andina needs to secure a long term contract to sell power in order to move forward with project finance for construction. The company's failure to secure this has slowed down progress to financial close and also led to the cancellation of the project's generation concession in July 2011. Electricidad Andina expects to re-file in due course.

The Company has appointed G.C. Andersen Partners LLC to advise on the sale of Electricidad Andina S.A. ("Andina"), the Company's run-of-river hydro project development business in Peru. Indicative offers have been received and several parties are undertaking detailed due diligence.

Termination of ERPA for Durban- eThekwini Landfill

The Company signed an ERPA with eThekwini Municipality (the owner of the project) in November 2008. One of the conditions precedent in the ERPA had not been satisfied, and the Company therefore terminated the ERPA in September 2011. The contract had a negative value of £1,727,000 in the Company's ERPA portfolio at 30 June 2011 and therefore its termination, will have a favorable impact on the ERPA fair value valuation.