15.04.13

PV Crystalox Solar plc: Preliminary Results for 2012

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For the year ended 31 December 2012 PV Crystalox Solar PLC (the "Group"), a leading supplier of photovoltaic ('PV') silicon wafers, announces preliminary results for the year ended 31 December 2012.

Market overview

·      2012 global PV module installations of 32GW up from 28GW in 2011

·      Wafer pricing has fallen by 75% since April 2011

 

Operational activity

·      Cash conservation strategy continued throughout 2012

·      Restructuring announced late 2012 in response to adverse market conditions.

·      Decision taken to:

o  discontinue polysilicon facility at Bitterfield, Germany

o  reduce production at UK ingot and German wafer operations

·      Cash settlements from customers of €90.6m

·      Board decided to return cash to shareholders:

o  recommending shareholder approval for a cash return to be made in June 2013

 

Overview of results

·      Wafer shipments 108MW (2011: 384MW)

·      Net Cash increased to €89.4m at the year end (2011: €22.6m)

 

John Sleeman, Chairman, commented:

"PV Crystalox has navigated another extraordinarily challenging year in 2012, with global over capacity continuing, putting pricing under extreme pressure. Following a strategic review of the business, we are in the process of carrying out a radical restructuring to align our operations with current market demand.  While modest market growth is expected in 2013, the pricing environment remains very difficult."

Iain Dorrity, Chief Executive Officer commented:

"The Group continues to believe in the positive long-term outlook for the photovoltaic industry. The Board believes that the adjustment of operations to align with anticipated sustainable short term demand will enable generation of positive cash flows during 2013 and leave the Group well positioned should the market begin to recover."
 

Overview:

Chairman's introduction

PV Crystalox Solar PLC has navigated another extraordinarily challenging year for the PV industry.  Global overcapacity principally in China maintained intense pressure on pricing which continued to fall through the year across the whole PV value chain.  Against this background, the Group has continued to work to protect shareholder value.

Following the conclusion of a strategic review in the latter part of 2012, the Board decided to carry out a radical restructuring in response to the adverse market conditions.  The Group is adjusting its operations to align production with anticipated sustainable short term market demand so that the ongoing business will be broadly cash neutral in 2013.  As part of this programme, the Group announced on 13 December 2012 the decision to discontinue its polysilicon production facility in Bitterfeld, Germany; and substantially reduce its production output at its UK ingot and German wafer operations. Regrettably these actions are leading to significant job losses both in the UK and in Germany.

The Group has been operating in cash conservation mode since November 2011; consequently shipment volumes of 108MW and revenues of €46.3 million in 2012 were substantially lower than the 384MW and €210.4 million achieved in 2011.  EBIT loss for the year was €110.1 million.  Despite the benefit of a €90.6 million cash settlement received for the cancellation of a supply contract the Group suffered non cash losses from inventory write downs and onerous contract charges, totalling €83.5, million and impairment to fixed assets of €82.5m. Net cash at the end of the year was €89.4 million as against €22.6 million at the beginning of the year.

I took over as chairman in May 2012 following Maarten Henderson's decision to stand down at last year's Annual General Meeting.  On behalf of the Board, I thank Maarten for his guidance and leadership as chairman since our IPO in 2007.

Hubert Aulich, Director of German Operations has informed the Board that he will retire from the Group on 31 May 2013 and accordingly will not seek re-election at this year's Annual General Meeting.  Hubert has served the Board with distinction and I thank him for his very significant contribution to the development of the Group over the last 11 years.

In line with the recommendations of the UK Corporate Governance Code June 2010 concerning the annual re-election of directors, I confirm that all other directors are standing for re-election at this year's Annual General Meeting.

Given our strong net cash position and the challenging market expectations going forward, the Board has decided to return cash to shareholders.  This will be implemented through an issue of B and C shares providing the shareholders with the option to take payments as either income or capital.  This cash return will be accompanied by a share consolidation to maintain broad comparability of the share price and return per share of the ordinary shares before and after the creation of the B and C shares.  The Board will be recommending that shareholders approve the necessary measures at a General Meeting to be held in Q2 2012 to achieve a cash return in June 2013.

The Board continues to believe that our cash conservation strategy is a necessary response to current market conditions, enabling us to protect shareholder value whilst preserving the Group's core production capabilities. The Board remains committed to the solar industry and believes that the medium term outlook for solar installations remains positive.


Business review:

Operational review

Summary

Trading conditions during 2012 were extremely challenging due to the chronic overcapacity in the PV industry.  The oversupply, which primarily originates from over-investment in China which took place during 2010-2011, maintained the intense pressure on prices that has developed across the value chain during the last 18 months.  Spot wafer prices started to fall in April 2011 and continued to decrease throughout 2012.  Recent weeks have seen some stabilisation albeit at a level which is 75% below that seen in April 2011, and significantly below industry production costs.

Our wafer shipment volumes of 108 MW in 2012 were significantly below the 384MW achieved in 2011 as production output was lowered as part of the Group's cash conservation strategy adopted at the end of 2011, in response to the difficult market conditions. At that time, production was suspended at our polysilicon facility in Bitterfeld and wafer production levels were significantly reduced.

During 2007-2008, Group companies entered into a number of long term agreements with customers to supply wafers at prices which are considerably above today's market levels.  Our focus during 2012 has been to secure sales to these long-term contract customers where it was possible to negotiate prices at a premium to spot prices.  However the intensively competitive market environment has also placed our customers under severe financial pressure with several exiting the industry during 2012 either voluntarily or due to insolvency.  In one case the Group was successful in negotiating compensation of approximately €91 million for the termination of a long term wafer supply contract.   We have been unable to reach a satisfactory agreement with two long term contract customers who have been amongst the industry leaders in recent years and we are seeking resolution under the jurisdiction of the International Court of Arbitration.  While successful judgments in the Group's favour are anticipated, the levels of compensation are not expected to be as significant.  Furthermore there is increasing uncertainty as to whether either of these companies will have the financial resources to fully settle these claims.

Despite the very significant customer settlement the Group has incurred substantial losses as a result of inventory write-downs and impairment of assets necessitated by the weak market environment.

Market

Global PV installations in 2012 showed sequential growth and reached 32GW up from 28GW in 2011 according to market research firm IHS.  However falling prices led to an 18% decline in industry revenues.  Germany regained its position as the number one market with 7.5GW of installations which was broadly similar to that achieved in 2011.  Overall Europe remained the dominant market but its share at 52% is declining as demand in Asia particularly from China and Japan increased.

Installations in China were boosted particularly in the second half of the year and more than doubled to reach over 4GW in 2012 as the government provided further support to its PV industry by raising the 2020 PV installation target from 20GW to 50GW. Japan has been suffering with power shortages since the Fukushima disaster and the Ministry of Economy, Trade, and Industry (METI) announced a much-anticipated PV feed-in-tariff program in June 2012 valid for 20 years which has stimulated installations to 2.5GW.  Overall the Japanese government has set a goal of achieving 28GW of cumulative PV installations by 2020.

The dramatic decline in PV industry pricing has led to claims of unfair trade practices and the initiation of anti-dumping investigations in the USA, China and Europe.

In November 2012 the U.S. International Trade Commission (USITC) unanimouslyfinalised its initial finding that Chinese photovoltaic imports materially injured the U.S. industry. It found that Chinese producers/exporters have sold solar cells in the United States at dumping margins ranging from 18-250% and that they have received countervailing subsidies.


Business review:

Operational review

In July 2012 the Chinese Ministry of Commerce (MOFCOM) began investigating claims of polysilicon dumping by US and South Korean companies and its scope was later extended to include European producers.  A preliminary decision was expected in February 2013 but has now been postponed to a later date.

In early September 2012 the European Commission launched investigations into possible dumping of wafers, cells and modules by Chinese producers into the EU market and claims that Chinese imports also benefit from unfair government subsidies.   Exports of PV products from China to the EU totalled €21 billion in 2011, making the case the largest unfair-trade probe ever started by the EU.  The investigations are expected to take 15 months to complete although provisional duties may be imposed in May/June 2013 if there is sufficient evidence to support the complaints.

Operational Review of 2012

On account of the depressed market prices and our cash conservation strategy, wafer production output was reduced significantly during 2012 and we operated at around 14% of our maximum 750MW capacity.  Although our long term wafer supply contracts provided some protection from the worst of the market pressures, the fall in average sales prices (ASPs) and less than optimum production volumes adversely impacted our margins.

Polysilicon production remained suspended throughout the year at the Group's Bitterfeld facility as our reduced polysilicon requirements were more than satisfied by external suppliers and market pricing which continued to fall throughout the year, remained below our cash costs.

In common with most, if not all, PV companies, the Group has long term contractual commitments for the purchase of polysilicon at prices which are incompatible with current market prices for wafers.   We were successful in negotiating significantly reduced pricing for deliveries in 2012. As a consequence of the reduced wafer production levels the Group has traded excess polysilicon during the first half of the year in order to avoid excess inventory levels.

The Board completed a strategic review of the business in the latter part of 2012 which took account of the adverse market conditions and the Group's strong net cash balance. As a result the Group will carry out a radical programme of restructuring while retaining its core production capabilities and also return excess cash to shareholders.  

As part of this programme the Group has permanently closed its polysilicon production facility in Bitterfeld, Germany.  In addition, production output will be reduced at its UK ingot and German wafer operations. Regrettably these actions will lead to very significant job losses both in the UK and in Germany.

Cash conservation focus in 2013

The Group will continue with its cash conservation strategy while current market conditions persist.  The Group has adjusted its operations to align with anticipated sustainable short term market demand so that the ongoing business will be broadly cash neutral in 2013.  Wafer production volumes have been halved from 2012 levels, and we continue our focus on cost control and inventory management including trading of excess polysilicon where necessary.

The Group has long term contractual commitments for purchase of polysilicon but was successful during 2012 in reaching agreement with its suppliers to adjust volumes and prices.  A positive outcome to negotiations has also been concluded for Q1 2013. Price reductions have also been negotiated with other key suppliers including wafering subcontractors which, in combination with the weaker Japanese Yen, will enable further reduction in direct wafer production costs in 2013.

Outlook

Modest market growth is expected in 2013 with industry analysts IHS forecasting installations of 35GW up 9% on 2012.  The dominance of Europe is expected to continue to decline as governments reduce incentives.  Strong growth in both China, which is expected to overtake Germany as the largest market, and also in Japan, will ensure that Asia will become the most important region in the year ahead.

The Group continues to believe in the positive long-term outlook for the photovoltaic industry, but is mindful of the intensely competitive environment which is likely to persist in the short term and which has already led to many companies leaving the industry, either voluntarily or through insolvency.  The Board believes that the adjustment of operations to align with anticipated sustainable short term demand will enable generation of positive cash flows during 2013 and leave the Group well positioned should the market begin to recover.

The market is expected to remain extremely challenging with continued pressure on pricing, although the first two months of 2013 have seen some modest improvement from the lows experienced in late 2012.  The European Commission has indicated that it will announce its findings into claims of dumping of Chinese PV products in June 2013 and any decision to impose antidumping duties would be expected to provide some further support to pricing and boost demand for the Group's wafers.


Business review:

Financial review

"The Board believes that its ongoing cash conservation strategy will enable the Group to sustain adequate cash resources for the foreseeable future."

 

Summary of Financial Review

Cash settlements totalling €90.6 million received in connection with termination/variation of long-term customer contracts.
In 2012 Group revenue decreased by 78.0% to €46.3 million mainly due to restricting sales to contracted customers rather than selling at below cash cost.
Earnings after tax were a loss of €121.4 million producing earnings per share at a loss of €0.30.
Net cash inflows of €67.1 million were generated from operating activities.
The Group's net cash position at year end was €89.4 million.
The base plans indicate that the Group will be able to operate within its net cash reserves for the foreseeable future.
The main part of the loss in the year related to non-cash write-downs.
An impairment charge has been recognised to reduce the carrying values of plant by €82.5 million.
The Group wrote down its inventories by €41.5 million.
An additional onerous contract charge of €42.0 million was recorded.

In 2012 Group revenue decreased by 78.0% to €46.3 million (2011: €210.4 million). This fall was due to the Group's cash conservation strategy whereby wafer sales were in the main limited to contracted customers where a price could be obtained that was higher than the cash cost of production.  Wafer shipments in the year were 108MW (2011: 384MW).

During the year the Group incurred an EBIT loss of €110.1 million (2011: loss of €67.5 million) driven primarily by non-cash write-downs.  Firstly, the Group's production capital equipment was written down by €82.5 million.  Secondly, the Group wrote-down its inventories by €41.5 million and thirdly, the onerous contract provision in respect of long-term polysilicon supply agreements was increased by €42.0 million.  Finally, there was a loss of €9 million in respect of the discontinued polysilicon operation and €22 million in respect of the fall in wafer volume and average selling prices. On the positive side there were cash settlements in respect of the cancellation of customer contracts of €90.6 million. In summary; the Group generated €67.1 million additional net cash from operating activities in the year despite reporting an EBIT loss of €110.1 million.

Net interest expenses were €0.7 million (2011: income €0.5 million). The main reason that there is net interest expenses is the inclusion of a charge of €1.3 million in respect of unwinding the discount rate used in the calculation of the Group's onerous contract provision.  The Group's net cash position at year end was €89.4 million (2011: €22.6 million). An income tax charge of €10.6 million (2011: credit of €6.2 million) is mainly due to the expected income tax credit of €29.1 million at the effective tax rate of 26.3% being more than offset by the writing-off of previously recognised tax losses and unrelieved 2012 tax losses of €40.4 million.

The loss attributed to the equity owners in the year was €122.7 million (2011: €55.7 million), which equates to a loss per share of €0.299 (2011: loss €0.150).

The Group generated net cash inflows from operating activities of €67.1 million (2011: €1.6 million) and free cash inflow of €65.0 million (2011: outflow of €20.0 million). Free cash flow is defined using the cash flow statement as net cash from operating activities plus cash from/(used in) investing activities less interest received. The net operating cash flow was decreased by the absorption of €7.3 million into working capital (2011: €8.6 million). Lower sales in the year had released €21.9 million cash from debtors although this had been more than offset by an increase in inventories of €33.2 million partially offset by the non-cash write-downs of closing inventories.

There was no new capital expenditure authorised during the year due to the Group's cash conservation strategy although capital projects started in prior years have been completed.  Consequently capital expenditure in the year was significantly lower at €1.3 million (2011: €21.9 million).   No material investment grants were received in the year.  Investment grants received in prior years were all in respect of the German operations as capital expenditure in the United Kingdom does not qualify for such grants.

A large proportion of the loans in the Group's Japanese subsidiary were repaid in the year.  The loans had been taken out in Japanese Yen and had been utilised as a hedge against movements in the Japanese Yen and its effect on assets held in that currency (mainly debtors).  As the Japanese debtor book was significantly lower, the loans as a form of natural hedge were no longer required to the same degree.  In addition the loans had been secured against the Japanese Yen debtor book.  Accordingly, €42.9 million of these Yen loans were repaid in the year (2011: €0.3 million).

No dividends were paid in the year (2011: €8.1 million).

The Group's directors have put in place a cash conservation strategy to enable the Group to manage its operations whilst market conditions remain difficult. The following passage sets out the rationale behind this strategy and why the Board believes it will enable the Group to sustain adequate cash resources for the foreseeable future.

Going concern

A description of the market conditions including the continued decline in spot prices of wafers during 2012 and the Group's actions to conserve cash are included in the Operational Review.

As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The assumptions around contracted sales volumes and prices and contracted purchase volumes and prices are based on management's expectations and are consistent with the Group's experience in the first part of 2013.

The Group has three remaining long-term wafer supply contracts and accordingly these should give the Group the ability to sell wafers at prices that are above current market spot prices during 2013 despite the difficult market environment.   Wafer sales to customers without long-term contracts are assumed in the longer term plans at values close to spot prices.

On the other hand, the Group has long-term contracts with two external suppliers for the purchase of polysilicon, our main raw material, for unexpired periods of between two and three years and for volumes in excess of current reduced production requirements. The Group's management has been successful in reaching accommodation with these suppliers to secure periodic contract amendments and adjust prices and volumes. As a result, these amendments have brought the terms more in line with current market pricing. To manage inventory levels the Group will sell excess polysilicon and has been successful in this respect during 2012 and the first quarter of 2013.

The nature of the Group's operation means that it can vary production levels to match market requirements. As part of the cash conservation measures and the associated planning assumptions, production output has been reduced to match expected demand. In line with the Group's strategy of retaining flexibility in production levels, production can be brought back on stream when market conditions allow.  Following the fall in employment costs in 2012 resulting from the reduction in contract labour in Germany and redundancies in the United Kingdom, further cost savings will be obtained in 2013 as a result of the announced Group restructuring. The Group expects to reduce other costs through negotiation with suppliers and by achieving greater efficiencies within the Group's operations.

As a result of these actions and based on the above assumptions the base plans indicate that the Group will be able to operate within its net cash reserves for the foreseeable future.

On 31 December 2012 there was a net cash balance of €89.4 million, comprising cash or cash equivalents of €94.7 million less short-term loans of €5.3 million. The current borrowings are in Japanese Yen and are subject to certain covenants on the Japanese subsidiary company (including interest cover, profitability, and receivables cover). The Group's current plans are based on its net cash balance and are not dependent upon these short-term borrowings.

Therefore, whilst any consideration of future matters involves making a judgement at a particular point in time about future events that are inherently uncertain, the Directors, after careful consideration and after making appropriate enquiries, are of the opinion that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Thus the Group continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Impairment

The Board has assessed the carrying values of the Group's property, plant and equipment for impairment as at 31 December 2012. As a result of this assessment, an impairment charge has been recognised to reduce the carrying values of plant by €82.5 million (2011: €27.9 million). The impairment charge has been recognised in the Income Statement. As an impairment of fixed assets it had no impact on the Group's cash flow.

The Group has impaired the majority of its production capital assets.  The main impairment relates to the polysilicon plant at Bitterfeld, which on the grounds that its production has been discontinued, was impaired to its realisable value, accordingly the recoverable value of Bitterfeld plant is estimated to amount to €8.0 million.  This has been derived from a detailed professional valuation of the individual assets.

The impairment charges in respect of plant and equipment has been made to write-down the value of such plant and equipment to realisable value.  These write-downs have been accounted for in individual group companies.  Accordingly, any further potential write-downs are restricted to the remaining modest values and will thus be immaterial.

Other financial write-downs in the year

In addition to the above mentioned impairment of €82.5 million (2011: €27.9 million), the Group wrote down its inventories by €41.5 million (2011: €22.9 million) and made onerous contract charge and provisions of €42.0 million (€20.9 million). The inventory write-down was made to adjust inventory carrying values to realisable value. The onerous contract provision was made in respect of contracts with external suppliers of raw materials. These contracts run for the unexpired period of between two and three years. The provision relates to future losses that are likely to be made if the Group processes or sells the material committed to under the contracts, although adjustments have been made to purchase prices according to the directors' estimates of how contract prices are likely to be renegotiated.
 

PV Crystalox Solar PLC is incorporated and domiciled in the United Kingdom.

The Company is listed on the London Stock Exchange.

Functional and presentational currency

Items included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The functional currency of the parent company is Sterling. The financial information has been presented in Euros, which is the Group's presentational currency. The Euro has been selected as the Group's presentational currency as this is the currency used in its significant contracts. The financial statements are presented in round thousands.

Foreign currency translation

Transactions in foreign currencies are translated into the functional currency of the respective entity at the foreign exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated to the functional currency at foreign exchange rates ruling at the date the fair value was determined. Exchange gains and losses on monetary items are charged to EBIT.


The assets and liabilities of foreign operations are translated to Euros at foreign exchange rates ruling at the balance sheet date. The income and expenses of foreign operations are translated into Euros at the average foreign exchange rates of the year that the transactions occurred in. In the Consolidated Financial Statements exchange rate differences arising on consolidation of the net investments in subsidiaries are recognised in other comprehensive income under "Currency translation adjustment".

 

Use of estimates and judgements - overview

The preparation of financial statements in conformity with adopted IFRS requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income, expenses and contingent liabilities. Estimates and assumptions mainly relate to the useful life of non?current assets, the discounted cash flows used in impairment testing, the establishing of provisions for onerous contracts, taxes, share-based payment and inventory valuations. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. Actual values may vary from the estimates. The estimates and the assumptions are under continuous review with particular attention paid to the life of material plant.

 

Critical accounting and valuation policies and methods are those that are both most important to the depiction of the Group's financial position, results of operations and cash flows and that require the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent years. The critical accounting policies that the Group discloses will not necessarily result in material changes to our financial statements in any given year but rather contain a potential for material change. The main accounting and valuation policies used by the Group are outlined in the following notes. While not all of the significant accounting policies require subjective or complex judgements, the Group considers that the following accounting policies should be considered critical accounting policies.

 

Use of estimates - property, plant and equipment impairment

Property, plant and equipment are depreciated over their estimated useful lives. The estimated useful lives are based on estimates of the period during which the assets will generate revenue. The carrying amount of the Group's non-financial assets, other than inventories and deferred tax assets, are subject to regular impairment testing and are reviewed annually and upon indication of impairment. Having considered the impairment indicators relating to the assets of PV Crystalox Solar Silicon GmbH, a detailed review has been performed.

Following the announcement on 13 December 2012 that the Group will discontinue its polysilicon production facility, the plant has therefore been written down to scrap value.

 

Having considered the current and, lack of certainty of, future profitability of other Group companies, the majority of all other property, plant and equipment has also been written down to scrap value.

 

Although we believe that our estimates of the relevant expected useful lives, our assumptions concerning the business environment and developments in our industry and our estimations of the discounted future cash flows are appropriate, changes in assumptions or circumstances could require changes in the analysis. This could lead to additional impairment charges or allowances in the future or to valuation write backs should the expected trends reverse.

Use of estimates - deferred taxes

To compute provisions for taxes, estimates have to be applied. These estimates involve assessing the probability that deferred tax assets resulting from deductible temporary differences and tax losses can be utilised to offset taxable income in the future.

Due to the lack of certainty around future profits, the majority of deferred tax assets have been expensed in the year's income statement.

Deferred tax assets at 31 December 2012 totalled €0.2m (2011: €19.3m) (see note 18).

Use of estimates - provisions - onerous contract provisions

In keeping with normal practice in the industry at the time, the Group entered into long-term supply contracts for its raw material, polysilicon, with two major suppliers. Given the significant unexpected decline in market prices for polysilicon and silicon wafers, the resultant cost of polysilicon under these contracts means the Group is expecting losses on these contracts.

Consequently the financial statements include a provision of €52.0m (2011: €17.9m) for the discounted total of currently anticipated losses under these contracts.

Any further renegotiation of these contracts or improvement in market pricing would reduce this provided for loss.

Use of estimates - inventory valuation

Given the significant unexpected decline in market prices for polysilicon and silicon wafers, the carrying amount of inventory has been reduced to net realisable value.

Net realisable value has been determined as estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Any improvement in anticipated selling prices would reduce the level of writedown necessary and would be taken as profit in 2013.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2012. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

The results of any subsidiary sold or acquired are included in the Consolidated Statement of Comprehensive Income up to, or from, the date control passes.

Consolidation is conducted by eliminating the investment in the subsidiary with the parent's share of the net equity of the subsidiary.

The Group owns 100% of the voting rights in PV Crystalox Solar Kabushiki Kaisha. Non-controlling interests in equity of €43,400 are related to non?redeemable preferred stock, subject to a guaranteed annual dividend payment of €2,000. As the fair value of the resulting dividend liabilities reduces the equity portion to marginal amounts, all non-controlling interests have been reclassified as liabilities.

On acquisition of a subsidiary, all of the subsidiary's separately identifiable assets and liabilities existing at the date of acquisition are recorded at their fair value reflecting their condition at that date. Goodwill arises where the fair value of the consideration given for a business exceeds the fair value of such net assets. So far no acquisitions

have taken place since inception of the Group.

Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. All intra-group transactions, balances, income and expenses are eliminated upon consolidation.

Going concern

A description of the market conditions including the continued decline in spot prices of wafers during 2012 and the Group's actions to conserve cash are included in the Operational Review.

As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The assumptions around contracted sales volumes and prices and contracted purchase volumes and prices are based on management's expectations and are consistent with the Group's experience in the first part of 2013.

The Group has three remaining long-term wafer supply contracts and accordingly these should give the ability to sell wafers at prices that are above current market spot prices during 2013 despite the difficult market environment.   Wafer sales to customers without long-term contracts are assumed in the longer term plans at values close to spot prices.

On the other hand, the Group has long-term contracts with two external suppliers for purchase of polysilicon, our main raw material, for unexpired periods of between two and three years and for volumes in excess of current reduced production requirements. The Group's management has been successful in reaching accommodation with these suppliers to secure periodic contract amendments and adjust  prices and volumes. As a result, these amendments have brought the terms more in line with current market pricing. To manage inventory levels the Group will sell excess polysilicon and has been successful in this respect during 2012 and the first quarter of 2013.

The nature of the Group's operation means that it can vary production levels to match market requirements. As part of the cash conservation measures and the associated planning assumptions, production output has been reduced to match expected demand. In line with the Group's strategy of retaining flexibility in production levels, production can be brought back on stream when market conditions allow.

Following the fall in employment costs in 2012 resulting from the reduction in contract labour in Germany and redundancies in the United Kingdom, further cost savings will be obtained in 2013 as a result of the announced Group restructuring. The Group expects to reduce other costs through negotiation with suppliers and by achieving greater efficiencies within the Group's operations.

As a result of these modelling assumptions the base plans indicate that the Group will be able to operate within its net cash reserves for the foreseeable future.

On 31 December 2012 there was a net cash balance of €89.4 million, comprising cash or cash equivalents of €94.7 million and short?term loans of €5.3 million. The borrowings are in Japanese Yen and security/comfort is given to the lender by the Japanese accounts receivable. The Group's plans are based upon remaining within its net cash balance and are not dependent upon these short-term borrowings.

Therefore, whilst any consideration of future matters involves making a judgement at a particular point in time about future events that are inherently uncertain, the Directors, after careful consideration and after making appropriate enquiries, are of the opinion that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Thus the Group continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Enquiries:

PV Crystalox Solar PLC    
+44 (0) 1235 437188
Iain Dorrity, Chief Executive Officer
Peter Finnegan, Chief Financial Officer
Matthew Wethey, Group Secretary
    
FTI

Sophie McMillan / Tracey Bowditch
+44 (0) 20 7831 3113


About PV Crystalox

PV Crystalox Solar is a leading supplier to the world's major photovoltaic companies, producing multicrystalline silicon wafers for use in solar electricity generation systems.

Our customers, the world's leading solar cell producers, process these wafers into solar modules to harness the clean, silent and renewable power from the sun. We are playing a central role in making solar power cost competitive with conventional hydrocarbon power generation and, as such, continue to seek to drive down the cost of production whilst increasing solar cell efficiency.
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