Preliminary Results

RNS Number : 1511J

PV Crystalox Solar PLC

25 March 2010

 

25 March 2010

PV Crystalox Solar PLC

Preliminary Results

For the Year ended 31 December 2009

 

PV Crystalox Solar PLC and its subsidiaries (the "Group"), one of the world's leading providers of photovoltaic ('PV') silicon wafers, today announces preliminary results for the year ended 31 December 2009.

 

Performance overview

Maarten Henderson, Chairman, commented

"I am pleased to report that the Group has delivered a resilient operational performance in 2009 despite the challenging market environment, where oversupply in all parts of the value chain has led to strong downwards pressure on prices. Our strong customer relationships and our focus on operating costs and efficiencies have enabled us to maintain profitability and positive cash flows albeit at a much reduced level from the exceptionally good results in 2008."

 

 

Iain Dorrity, Chief Executive Officer, commented

"In spite of a difficult market environment the Group has remained profitable and has generated a positive operational cash flow and maintained its strong balance sheet. Accordingly, the Group has a good financial platform for the future."

 

"Even in the slowest industry growth scenario, Solarbuzz expects the global market to be 2.5 times its current size in 2014 (approximately 16GW). We remain positive about our medium to long term prospects and believe that the flexibility provided by our internal silicon production positions the PV Crystalox Solar Group well for future growth and enables us to strengthen our position as one of the PV industry's leading multi-crystalline wafer producers. Furthermore, the Group's strong cash position, our long standing customer relationships, established reputation for wafer quality and competitive manufacturing cost provide us with a significant advantage in the current environmentand ensure that we are well positioned for growth in the developing global PV markets."

 

Enquiries:

 

PV Crystalox Solar PLC	+44 (0) 1235 437188
Iain Dorrity, Chief Executive Officer Peter Finnegan, Chief Financial Officer Matthew Wethey, Group Secretary
Financial Dynamics	+44 (0) 20 7831 3113
Juliet Clarke / James Melville-Ross / Haya Herbert-Burns

 

 

Preliminary Results For the year ended 31 December 2009

 

Notes to Editors

 

PV Crystalox Solar, initially established in 1982, is a highly specialised supplier to the world's leading solar cell manufacturers, producing multicrystalline silicon wafers for use in solar electricity generation systems. The Group was one of the first to develop multicrystalline silicon technology on an industrial scale, setting the industry standard for ingot production.

The Group operates its own polysilicon plant in Bitterfeld, Germany which commenced production in July 2009 and expects to achieve optimum output levels in 2011. The Group manufactures silicon ingots in Oxfordshire, United Kingdom, and carries out wafer production for European customers at its facilities in Erfurt, Germany. Wafers for customers in Asia are produced in Japan.

 

PV Crystalox Solar was admitted to the main market of the London Stock Exchange on 11 June 2007. The Group's production output of silicon wafers during 2009 was sufficient for the production of solar modules (for solar electricity generation systems) with total peak output of 239MW.

 

 

Chairman's statement

 

 

I am pleased to report that the Group has delivered a resilient operational performance in 2009 despite the challenging market environment, where oversupply in all parts of the value chain has led to strong downwards pressure on prices. Our strong customer relationships and our focus on operating costs and efficiencies have enabled us to maintain profitability and positive cash flows albeit at a much reduced level from the exceptionally good results in 2008.

Total wafer shipment volume was 4% higher than in 2008 at 239MW. Nonetheless the significant reduction in pricing for wafers especially in the second half of the year meant that Group revenues were 13.4% lower at €237.3 million. During the year we continued to reduce unit operating costs in ingot and wafer production. We have gradually developed the polysilicon production process and ramped up volumes at Bitterfeld during the year, incurring higher expenditure as a result in the short term. Our EBIT performance, excluding currency losses, was €50.0 million representing an EBIT margin of 21.1%. Earnings before taxes which included a currency loss of €8.3 million were €42.5 million compared to €147.2 million in 2008. Our net cash from operating activities remained positive at €3.5 million despite income taxes paid of €40.4 million mainly in respect of 2008 profits.

The Board is mindful of the importance of dividends for shareholders, and has balanced this importance against the background of the results for 2009, the challenging market conditions facing the Group going forward as well as the necessity to conserve cash to pursue our strategy of solid controlled growth in the medium and longer term. As a result the Board has recommended a final dividend of €0.02 per share to be payable on 9 June 2010 to shareholders on the register on 14 May 2010. This is a reduction from the final dividend of €0.04 per share paid last year.

The Board will monitor the market conditions and will seek to reinstate its progressive dividend policy at the appropriate time.

We recognise that the quality of our employees is one of the Group's key strengths and on behalf of the Board I would like to record our thanks to all of them for their outstanding commitment and contribution over the past year. In particular, I would like to congratulate the team at Bitterfeld in Germany for their excellent work in the construction, commissioning and commencement of production at the Group's polysilicon manufacturing facility.

We are continuing to develop and strengthen our organisation and have employed a number of new personnel in key positions throughout the Group.

At the 2009 AGM I announced that the Group intended to recruit an additional non-executive director and in November 2009 we announced that Michael Parker would be appointed from 1 January 2010. I am delighted to welcome Mike to the Group. Mike is currently the Senior Independent Director at Invensys plc. He was previously President and Chief Executive Officer of the Dow Chemical Company and latterly Chief Executive at British Nuclear Fuels plc. Given his extensive experience both as a Chief Executive and as a Non-Executive Director, I am confident he will make a significant contribution to the Board and the Group.

The continuing market uncertainty causes me to reiterate my comments made last year that we remain cautious about the outlook for 2010. However, our strong customer orientation, our dedicated attention to cost reduction, achieving full production capacity at Bitterfeld and our positive cash position means the Group is able to face the future with confidence.

 

Maarten Henderson Chairman24 March 2010

 

 

Business review continued

 

Introduction

The PV industry is emerging from a challenging market environment in 2009, when module prices fell by more than 40 percent as overcapacity, coupled with upheaval in financial markets and reduced economic demand slowed growth for renewable energy. The industry oversupply was largely the result of the collapse of the market in Spain in late 2008 which had represented 40% of demand in that year as a result of a generous feed-in tariff (FIT), with installations of 2.5GW in 2008. This led the Spanish Government to curb demand in September 2008 by reducing FITs and also to implement an annual installation cap of 500MW.

The market grew substantially in the second half of 2009 driven primarily by strong demand in Germany fuelled by low module prices and attractive investment returns for the consumer; installations of 2.35GW were recorded by the Federal Network Agency in the year up until November. The surge in demand was dramatic, with installations of 1.8GW carried out in the five months since June in comparison with 0.55GW in the first half of the year. Total installed capacity is expected to be around 3GW up from 1.6GW in 2008.

The reintroduction of investment grants, coupled with the introduction of a FIT, has significantly stimulated PV installations in Japan. Demand had stagnated in Japan in recent years following the withdrawal of subsidies but in 2009 installations almost doubled with domestic shipments reaching 484MW according to the Japanese Photovoltaic Energy Association.

Overall global PV installations reached a record high of 6.43GW in 2009 according to a report from Solarbuzz, the US based PV consultancy. This represents 6% growth over the previous year and is in sharp contrast to the 110% market growth experienced in that year.

 

 

Financial Review

PV Crystalox plc
Group Consolidated Income Statement
2009		2008			Change
€'000		€'000
Revenues - Silicon Products	237,320		274,095		-13.4%
EBIT excluding currency gains	50,037		106,466		-53.0%
Currency (loss)/gains *	(8,297)		36,315		-122.8%
EBIT	41,740		142,781		-70.8%
Net interest income	776		4,442		-82.5%
Earnings before taxation	42,516		147,223		-71.1%
Taxation	(12,957)		(44,029)		-70.6%
Earnings	29,559		103,194		-71.4%
Diluted Earnings Per Share (euro cents)	7.2		25.1		-71.3%
Dividends (euro cents)	4.0		6.0		-33.3%
Free cash flow **	3,322		22,860		-85.5%
Net cash ***	70,150		81,117		-13.5%

* Further information on the currency loss/gain can be found in note 30

** 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

*** Net cash is cash and cash equivalents less loans payable

 

The Group has delivered a creditable full year performance in a difficult market environment. Revenue was €237.3m (2008: €274.1m) with total wafer shipments up 4% to 239MW (2008: 230MW). The weak Japanese yen had a negative impact on Group sales turnover in the period of approximately 3% (see note 30).

In 2009 the Group generated underlying earnings before interest and taxation (EBIT excluding currency losses/gains) of €50.0 million (2008: €106.5 million). Actual EBIT (including currency losses/gains) was €41.7 million (2008: €142.8 million). The reduction in underlying profitability was driven primarily by severe pricing pressure resulting in lower market prices. However, our volume production increased in the second half of year following higher demand from customers.

Net interest income of €0.8 million (2008: €4.4 million) was significantly lower than last year due to lower global interest rates. The Group maintained its strong cash position at year end with net cash of €70.2 million (2008: €81.1 million). The main impact on the net cash position was relatively high tax payments settled this financial year which related to the high level of profitability in 2008.

Earnings after tax was €29.6 million (2008: €103.2 million) and earnings per share were €0.072 (2008: €0.252).

These financial results generated net operating cash flows of €3.5 million (2008: €107.8 million) and free cash flow of €3.3 million (2008: €22.9 million). The net operating cash flow was impacted by the absorption of €2.8 million into working capital (2008: €4.2 million) which was due to the net effect of the restatement of grants receivable, an increase in inventories and by more efficient use of the debtor book. Grants receivable were reallocated from trade payables and advance payments to proceeds from investment grants and subsidies shown under investing activities.

Capital expenditure of €20.8 million was offset by grants received of €22.0 giving a positive cash flow of €1.2 million compared to 2008 when the net cash outflow was €79.8 million. As part of its hedging strategy the Group took out new Japanese yen loans of €15.1 million. In February 2010 Japanese yen loans were increased further by approximately €16 million. Dividends totaling €24.6 million were paid in the year (2008: €18.4 million).

In spite of a difficult market environment the Group has remained profitable and has generated a positive operational cash flow and maintained its strong balance sheet. Accordingly, the Group has a good financial platform for the future.

Market overview

Group wafer shipments totalled 239MW in 2009, an increase of 4% on the 230MW shipped the previous year and broadly in line with global market growth.

Japan and Germany continue to represent the Group's major customer base with 76.9% (2008: 84%) of our revenues obtained in these two countries, where we have long established relationships with major solar cell producers. China, now the world's largest PV manufacturing location, is accounting for an increasing proportion of our revenues and represented 9% in 2009 (2008: 6%). China, Japan and Germany are currently the three leading global PV manufacturing centres, where many of the world's major solar cell producers serving the global market are located.

In terms of outlook, the PV market is expected to grow strongly in the first half of 2010 as demand in Germany is stimulated by expectations that an additional cut in FIT, originally proposed for April, will not be made before July. The German government has indicated that FITs for roof top installations, which account for 80% of the market, will be reduced by 16% at that time and this is expected to put further pressure on pricing in the second half of the year. Overall installations in Germany are expected to exceed 3GW in 2010.

PV installations in Japan, which was the world's fourth largest market in 2009, are expected to double in 2010 and reach 1GW. We believe the Group is favourably positioned to benefit from this growth because of our strong relationships with local Japanese cell manufacturers and because the Japanese market has so far been less impacted by Chinese competition due to consumer preference for domestic products.

In addition to growth in Japan, growing demand in Italy and the USA is also expected to help reduce the effects of any drop-off in demand from Germany in the second half of the year. Furthermore, the UK market is expected to develop following the introduction of an attractive FIT in April which will provide attractive returns for consumers. The impact in 2010 is likely to be limited given the existing scale of the market, but some forecasts indicate that UK installations could reach 250MW in 2011. As other markets develop and grow, the industry's dependence on a few large markets will decrease and this diversification is expected to bring about a more stable demand environment.

 

Strategic developments

PV Crystalox Solar remains committed to systematically enhancing its position in the PV industry as an independent producer of multicrystalline silicon wafers. By focusing on the wafer and not competing with our customers in cell production, we are able to develop strong relationships with solar cell producers. It is our intention to be one of the PV industry's cost leaders and to supply quality wafers at competitive prices whilst retaining attractive margins.

 

As outlined at the interim results, our strategy seeks to combine cost leadership with production flexibility. This involves four key areas of focus which we believe will strengthen our position as a leading pure play solar wafer manufacturer:

 

- Operate new Bitterfeld polysilicon facility at full capacity

- Enhance relationships with existing customers and retain flexibility of wafer production

- Focus on further development of the leading crystalline silicon processing technology

- Continued focus on operating cost reduction

 

Success with Bitterfeld

Production at our new solar-grade silicon production facility started in July 2009 and a total of 153MT were produced in 2009 while processes were being optimized. The plant is running satisfactorily with design parameters being met for safety, energy consumption, throughput and quality. Output for the first two months in 2010 averaged 65MT per month which is planned to more than double per month by the end of 2010. For 2011 we remain on track to achieve full capacity of 1800 MT.

Internal purity targets were reached quickly and subsequent qualification tests carried out with our customers who evaluated wafers produced using our solar grade polysilicon showed that the material gave results which were identical to those from externally purchased high purity polysilicon. Consequently we were able to incorporate the material into our standard ingot production at an early stage.

 

Flexibility in production

Our strategy of cost leadership and flexibility is underpinned by carrying out wafering at our own facility in Germany and also at subcontractors in Japan. Operating in these two locations enables us to be close to our end customers and respond rapidly to their delivery requirements and also to benchmark production yields and costs. In addition, these operations help offset the impact the influence of euro/yen exchange rate variations.

During the year we completed the next phase of the expansion of our ingot production facility at Milton Park in the UK. This was originally designed to bring our capacity up to 350MW from 290MW; but improvements in yield and productivity across our manufacturing chain have now brought the overall capacity to 400MW. These ingot production systems, which are designed and constructed in-house at a significantly lower cost than sourcing equivalent equipment from external companies, remain one of the Group's core strengths and we continue to benefit both from the lower capital cost and our extensive operational performance.

In anticipation of continued market growth, we have taken the decision to expand our production capacity to 470MW and have leased a 46,000 sq ft building adjacent to our main UK Oxfordshire facility. Following some internal rearrangement of our existing block production we will have sufficient space ultimately to accommodate an additional 200MW of ingot production capacity.

 

Increased efficiency

Effective silicon utilisation remains a key focus for the Group and is an important element of our internal cost reduction programmes. Whereas customers in Europe have gradually shifted back to 200µm wafers because of the improved wafer availability, our customers in Japan and China continue to process180µm wafers. 78% of our total wafer shipments in 2009 were supplied at 180µm thickness in comparison with 65% in the previous year.

Kerf losses in wafering have been progressively reduced through the year with the adoption of 120/130µm wire in production both internally and at our subcontractors in Japan. Furthermore the use of wire sawing technology, which was first introduced at our internal ingot cutting operations in UK, has been extended to our subcontractor in Japan during 2009. All our ingot production is thus now cut using wire saws and silicon losses during ingot cutting reduced by up to 90% in comparison with the band saws used previously.

Focus on costs and flexibility

Industry overcapacity led to strong downward pricing pressure in all parts of the value chain with momentum increasing during the second half of the year. In view of the challenging market situation and in order to support our customers, we agreed temporary price flexibility despite the existence of long term supply agreements. Despite falling sales prices during 2009 our ability to cut costs further in ingot and wafer production meant we were able to achieve profitability.

 

 

Outlook

 

According to analysts' estimates, the market for installed systems in 2010 is expected to be in the region of 8GW to 12GW, up from over 6GW in 2009, with Germany expected to remain the single largest market at over 3GW. The oversupply of wafers in the market, the uncertainty over the impact of the German Government's proposed reduction in feed in tariffs and the recent results of other companies in the industry have all created a lack of clarity about the short term profitability for the industry. We are, however, experiencing strong demand in the first half of the year and expect shipment volumes to be in the range 145-155MW with average prices down 15-20% on H2 last year. There is little visibility for the second half of the year but as a result of the Group's proven ability to adjust its cost base and its silicon supply, the Board is confident that the Group can successfully operate in the current highly competitive market and deal with the associated pricing pressure.

Even in the slowest industry growth scenario, Solarbuzz expects the global market to be 2.5 times its current size in 2014 (approximately 16GW). We remain positive about our medium to long term prospects and believe that the flexibility provided by our internal silicon production positions the PV Crystalox Solar Group well for future growth and enables us to strengthen our position as one of the PV industry's leading multi-crystalline wafer producers. Furthermore, the Group's strong cash position, our long standing customer relationships, established reputation for wafer quality and competitive manufacturing cost provide us with a significant advantage in the current environment and ensure that we are well positioned for growth in the developing global PV markets.

 

Dr Iain Dorrity Chief Executive Officer24 March 2010

 

Consolidated statement of comprehensive income

for the year ended 31 December 2009

		2009	2008
	Note	€'000	€'000
Revenues	[8]	237,320	274,095
Other income	[2]	3,034	1,475
Cost of material and services
Cost of material	[3]	(141,508)	(135,700)
Cost of services	[3]	(13,742)	(7,497)
Personnel expenses
Wages and salaries	[4]	(12,304)	(10,769)
Social security costs	[4]	(1,711)	(1,438)
Pension costs	[4]	(451)	(470)
Employee share schemes	[4]	(984)	(1,134)
Depreciation on property, plant and equipment and intangible assets		(9,796)	(3,962)
Other expenses	[5]	(9,821)	(8,134)
Currency gains and losses	[30]	(8,297)	36,315
EARNINGS BEFORE INTEREST AND TAXES (EBIT)		41,740	142,781
Interest income	[6]	1,449	5,130
Interest expense	[6]	(673)	(688)
EARNINGS BEFORE TAXES (EBT)		42,516	147,223
Income taxes	[7]	(12,957)	(44,029)
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT		29,559	103,194
Other comprehensive income
Exchange differences on translating foreign operations		9,473	(32,550)
TOTAL COMPREHENSIVE INCOME Attributable to equity holders of the parent		39,032	70,644
EARNINGS PER SHARE ON CONTINUING ACTIVITIES
Basic in Euro cents	[9]	7.2	25.2
Diluted in Euro cents	[9]	7.2	25.1

 

 

 

All of the activities of the Group are classed as continuing.

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

 

 

Consolidated balance sheet

as at 31 December 2009

		2009	2008	2007
	Note	€'000	€'000	€'000
Cash and cash equivalents	10	100,404	96,820	147,892
Accounts receivable	11	56,393	76,294	61,748
Inventories	12	34,103	24,017	20,653
Prepaid expenses and other assets	13	21,273	35,873	13,564
Current tax assets	14	3,945	1,346	18
TOTAL CURRENT ASSETS		216,118	234,350	243,875
Intangible assets	15	788	635	378
Property, plant and equipment	16	122,232	110,930	35,115
Other long-term assets	17	19,752	22,979	4,597
Deferred tax asset	18	8,763	5,022	2,329
TOTAL NON‑CURRENT ASSETS		151,535	139,566	42,419
TOTAL ASSETS		367,653	373,916	286,294
Loans payable short‑term	19	30,254	15,703	39,619
Accounts payable	20	15,047	29,753	21,747
Deferred revenue	26	7,889	2,692	-
Accrued expenses	21	3,929	8,630	3,236
Provisions	22	414	449	396
Deferred grants and subsidies	23	2,695	2,052	860
Income tax payable	24	5,207	26,271	10,855
Other current liabilities	25	1,590	772	931
TOTAL CURRENT LIABILITIES		67,025	86,322	77,644
Loans payable long‑term	19	-	-	7
Deferred revenue	26	14,142	19,016	10,000
Accrued expenses	21	58	166	128
Pension benefit obligation	27	191	335	476
Deferred grants and subsidies	23	24,964	22,199	5,196
Deferred tax liability	18	310	374	280
Other long‑term liabilities		803	851	1,088
TOTAL NON‑CURRENT LIABILITIES		40,468	42,941	17,175
TOTAL LIABILITIES		107,493	129,263	94,819
Share capital	28	12,332	12,332	12,332
Share premium		75,607	75,607	75,607
Investment in own shares		(5,642)	(5,642)	(5,642)
Share-based payment reserve		2,021	968	-
Reverse acquisition reserve		(3,601)	(3,601)	(3,601)
Retained earnings		214,301	209,320	124,559
Currency translation adjustment		(34,858)	(44,331)	(11,780)
TOTAL SHAREHOLDERS' EQUITY		260,160	244,653	191,475
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		367,653	373,916	286,294

The accompanying notes form an integral part of these statements.

 

Approved and authorised for issue by the Board of directors and signed on its behalf by:

 

 

DR PETER FINNEGAN

24 March 2010

Company number 06019466

 

 

Consolidated statement of changes in equity

for the year ended 31 December 2009

 

			Investment	Share
			in own	based	Reverse		Currency
	Share	Share	shares	payment	acquisition	Retained	translation	Total
	capital	premium	(EBT)	reserve	reserve	profit	adjustment	equity
	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000
AS OF 1 JANUARY 2007	7,500	-	-	-	-	77,588	(975)	84,113
Share issue	4,832	75,607	-	-	-	-	-	80,439
Investment in own shares	-	-	(5,642)	-	-	-	-	(5,642)
Reverse acquisition reserve	-	-	-	-	(3,601)	-	-	(3,601)
TRANSACTIONS WITH OWNERS	12,332	75,607	(5,642)	-	(3,601)	77,588	(975)	155,309
Profit for the period	-	-	-	-	-	46,971	-	46,971
Currency translation adjustment	-	-	-	-	-	-	(10,805)	(10,805)
TOTAL COMPREHENSIVE INCOME	-	-	-	-	-	46,971	(10,805)	36,166
AS AT 31 DECEMBER 2007	12,332	75,607	(5,642)	-	(3,601)	124,559	(11,780)	191,475
AS OF 1 JANUARY 2008	12,332	75,607	(5,642)	-	(3,601)	124,559	(11,780)	191,475
Dividends paid in period	-	-	-	-	-	(18,433)	-	(18,433)
Share based payment charge	-	-	-	968	-	-	-	968
TRANSACTIONS WITH OWNERS	12,332	75,607	(5,642)	968	(3,601)	106,126	(11,780)	174,010
Profit for the period	-	-	-	-	-	103,194	-	103,194
Currency translation adjustment	-	-	-	-	-	-	(32,551)	(32,551)
TOTAL COMPREHENSIVE INCOME	-	-	-	-	-	103,194	(32,551)	70,643
AS AT 31 DECEMBER 2008	12,332	75,607	(5,642)	968	(3,601)	209,320	(44,331)	244,653
AS OF 1 JANUARY 2009	12,332	75,607	(5,642)	968	(3,601)	209,320	(44,331)	244,653
Dividends paid in period	-	-	-	-	-	(24,578)	-	(24,578)
Share based payment charge	-	-	-	1,053	-	-	-	1,053
TRANSACTIONS WITH OWNERS	12,332	75,607	(5,642)	2,021	(3,601)	184,742	(44,331)	221,128
Profit for the period	-	-	-	-	-	29,559	-	29,559
Currency translation adjustment	-	-	-	-	-	-	9,473	9,473
TOTAL COMPREHENSIVE INCOME	-	-	-	-	-	29,559	9,473	39,032
AS AT 31 DECEMBER 2009	12,332	75,607	(5,642)	2,021	(3,601)	214,301	(34,858)	260,160

 

Further information on equity is presented in note 28.

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

 

 

Consolidated cash flow statement

for the year ended 31 December 2009

 

	2009	2008	2007
	€'000	€'000	€'000
EARNINGS BEFORE TAXES	42,516	147,223	70,764
ADJUSTMENTS FOR
Interest	(776)	(4,442)	(3,265)
Depreciation and amortisation	9,796	3,962	4,670
Change in pension accruals	(144)	(141)	(155)
Change in other accruals	(4,844)	5,484	281
(Profit)/Loss from the disposal of property, plant and equipment	(17)	26	15
Unrealised losses/(gain) in foreign currency exchange	868	(8,298)	81
Deferred income	(2,089)	(818)	(975)
	45,310	142,996	71,416
CHANGES IN WORKING CAPITAL
Increase in inventories	(10,086)	(3,364)	(6,820)
Decrease in accounts receivables	18,146	684	10,457
(Decrease) / Increase in accounts payables and advance payments	(14,066)	16,388	15,800
Decrease / (Increase) in other assets	1,333	(21,901)	(8,742)
Increase in other liabilities	1,824	573	859
	42,461	135,376	82,970
Income taxes paid	(40,389)	(32,678)	(21,375)
Interest received	1,449	5,130	4,626
NET CASH FROM OPERATING ACTIVITIES	3,521	107,828	66,221
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment	24	11	36
Proceeds from investment grants and subsidies	21,992	222	478
Payments to acquire property, plant and equipment	(20,766)	(80,071)	(26,070)
CASH FROM / (USED) IN INVESTING ACTIVITES	1,250	(79,838)	(25,556)
CASH FLOW FROM FINANCING ACTIVITIES
Receipt / (Repayment)of bank and other borrowings	15,120	(27,530)	(11,764)
Repayment Microventure	-	-	(1,620)
Dividends paid	(24,578)	(18,433)	-
Proceeds from IPO	-	-	76,838
Interest paid	(673)	(688)	(1,361)
Investment in own shares	-	-	(5,642)
NET CASH FLOWS FROM FINANCING ACTIVITIES	(10,131)	(46,651)	56,451
Net change in cash and cash equivalents available	(5,360)	(18,661)	97,116
Effects of foreign exchange rate changes on cash and cash equivalents	8,944	(32,411)	(10,751)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	96,820	147,892	61,527
CASH AND EQUIVALENTS AT END OF PERIOD	100,404	96,820	147,892

 

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

 

 

 

Notes to the consolidated financial statements continued

for the year ended 31 December 2009

 

1. Group accounting policies

Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The financial information has also been prepared under the historical cost convention except that it has been modified to include certain financial assets and liabilities (including derivatives) at their fair value through the profit and loss.

PV Crystalox Solar PLC is incorporated and domiciled in the UK.

The financial statements for the year ended 31 December 2009 were approved by the Board of directors on 24 March 2010.

Functional and presentational currency

The financial information has been presented in Euros, which is the presentational currency. The Euro has been selected as the Group's presentational currency as this is the currency used in its significant contracts. The functional currency of the parent company is Sterling.

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 and the establishing of provisions for litigation, pensions and other benefits, taxes, inventory valuations and guarantees. 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 periods. The critical accounting policies that we disclose, will not necessarily result in material changes to our financial statements in any given period 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

Property, plant and equipment are amortised 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 assets, other than inventories and deferred tax assets, are subject to regular impairment testing and are reviewed annually and upon indication of impairment. A full impairment review has been carried out on all the assets of PV Crystalox Solar Silicon GmbH and no adjustment was necessary (see next section).

 

Although we believe that our estimates of the relevant expected useful lives, our assumptions concerning the business environment and developments in our industryand 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.

Seventy of the Group's ingot production systems in use, with a historical cost of €13 million, are fully depreciated.

Use of estimates - Bitterfeld plant

Discounted cash flows were prepared to assess whether there was a requirement for impairment of the carrying value of the Bitterfeld plant at the year ended 31 December 2009.

 

The work carried out showed that the discounted cash flows generated are in excess of the investment cost of the plant therefore no impairment is required.

 

A number of assumptions were made in the preparation of the discounted cash flows. The primary input factors comprise sales price, production cost, expected life of the plant and the discount factor.

 

Nature of key input assumptions

The sales price has been established as the average rate the group can achieve for long term feedstock supply based upon current feedstock contracts. The sales price is agreed as part of supply agreement up to 2014. The longer term price will therefore depend on the continued prices the group can secure for feedstock.

 

The long term production cost worked into the model is based upon normalised production costs per management expectation. The uncertainties over the production cost will be resolved as the plant reaches full capacity and costs stabilise. Since the year end the actual production cost per kg is approximately 20% lower than originally budgeted.

 

The expected life of the plant is based upon management's expectations and industry averages. Any uncertainty over the life of the plant will be resolved over time.

 

The discount factor is dependent on a number of inputs. These inputs include the market risk premium, the risk free rate and the long term beta value for the group. These inputs are obtained by management from acknowledged market and industry specialists. The inherent nature of these inputs is that they are estimations and hence there is always a level of uncertainty surrounding the values.

 

Changes in inputs from the prior year

The sales price remains unchanged as it is supported by a long term sales contract.

 

The production cost has decreased as a direct result of increased efficiencies at the plant, with unit cost of production 20% ahead of budget in early 2010.

 

Sensitivity analysis

The sensitivity of the key assumptions detailed above have been considered.

 

A 1% change in either sales price or production costs would change the net present value of the discounted cash flows by approximately €2.5m.

 

Either a 0.1% change in the discount factor, or, if the expected life of the plant were changed by one year, would change the net present value of the discounted cash flows by approximately €1.0m.

 

The sensitivities discussed above do not result in a negative net present value.

 

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.

Use of estimates - pension costs

The defined benefit plans are partly unfunded and partly funded through pension insurance contracts. Statistical and actuarial methods are used to anticipate future events in calculating the expenses and liabilities related to the plans. These calculations include assumptions about the discount rate, expected return on plan assets and rate of future pension increases. Statistical information such as withdrawal and mortality rates is also used in estimating the expenses and liabilities under the plans. Because of changing market and economic conditions, the expenses and liabilities actually arising from these plans in the future may differ materially from the estimates made on the basis of these actuarial assumptions.

Use of estimates - provisions

Provisions includes solely amounts recognised for warranties. The cost is estimated based on management's past experience.

Use of estimates - share based payments

The fair value of shares and share options granted was calculated using a standard methodology, called the Black-Scholes Model, which requires the input of highly subjective assumptions, including volatility of share price.

Details of the inputs and how they were derived are included at note 28.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2009. 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. Unrealised gains and losses on intra group transactions are eliminated fully on consolidation.

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. Minority 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 minority interest has been reclassified as liabilities.

On acquisition of a subsidiary, all of the subsidiary's separable, 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 intragroup transactions, balances, income and expenses are eliminated upon consolidation.

On 5 January 2007, PV Crystalox Solar PLC became the legal parent company of PV Crystalox Solar AG (and its subsidiary companies) in a share for share transaction. The former PV Crystalox Solar AG shareholders became the shareholders of PV Crystalox Solar PLC. Following the transaction the Group's continuing operations and executive management were those of PV Crystalox Solar AG. Accordingly, the substance of the combination was that PV Crystalox Solar AG acquired PV Crystalox Solar PLC in a reverse acquisition.

Going concern

The directors are confident, having reviewed management accounts, forecasts and customer contracts and after making appropriate enquiries at the time of approving the financial statements, that the Company and the Group have adequate resources to continue in operation for the foreseeable future, and accordingly, that it is appropriate to adopt the going concern basis in the preparation of the accounts.

 

Effects of new accounting pronouncements

Accounting standards in effect or applied for the first time in 2009

·; IFRS 8 (Operating Segments) is mandatory for annual periods beginning on or after 1 January 2009 and supersedes the current standard, IAS 14 (Segment Reporting). IFRS 8 was adopted by the Group early in 2007.

·; The adoption of IAS 1 (Revised 2007) Presentation of Financial Statements does not affect the financial position or profits of the Group, but gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged, however some items that were recognised directly in equity are now recognised in other comprehensive income, namely the exchange differences arising on the translation of foreign operations. IAS 1 (Revised 2007) affects the presentation of owner changes in equity and the income statement which is now incorporated in the Consolidated statement of comprehensive income. The Statement of changes in equity has been adapted to disclose the owner changes in equity. The income statement has been expanded to show the comprehensive income for the year.

 

In issue, but not yet effective

The following interpretations are in issue, but not yet effective. The Group does not believe that any will have a material impact on the Group's financial positions, results of operations or cash flows.

·; IAS 27 (Consolidated and Separate Financial Statements) has been revised to extend the application of IAS 39 (Financial Instruments: Recognition and Measurement) to investments in subsidiaries which are classified as held for sale in the parent's separate financial statements. The revised standard has to be applied to accounting periods beginning on or after 1 July 2009.

·; IFRIC 17 (Distribution of Non‑cash Assets to Owners (effective 1 July 2009)). This Interpretation provides guidance on the treatment of distributions of assets other than cash to its shareholders as dividends.

·; IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011).

 

·; Group Cash-settled Share-based Payment Transactions - Amendment to IFRS 2 (effective 1 January 2010).

 

 

·; Improvements to IFRSs 2009 (various effective dates, earliest of which is 1 July 2009, but mostly 2010)

 

·; IFRIC 18 Transfers of Assets from Customers (effective prospectively for transfers on or after 1 July 2009).

 

 

·; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010).

·; Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14 (effective 1 January 2011)

 

·; Amendment to IAS 32 Classification of Rights Issues (effective 1 February 2010).

 

 

Capital structure

 

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Cash and cash equivalents (see note10)	100,404	96,820	147,892
Loans payable (see note 19)	(30,254)	(15,703)	(39,626)
Equity (see consolidated statement of changes in equity)	260,160	244,653	191,475
	330,310	325,770	299,741

 

We define capital as equity plus cash less debt (as above) and our financial strategy in the medium term is to manage a level of debt that balances the risks of the business with optimising the return on equity by the use of gearing. The Group is currently cash positive following our IPO in June 2007, although these funds will be mainly utilised for capital investment and in the expansion of our existing business. The only significant borrowings in the Group are in Japan and we take advantage of the relatively low Japanese Yen interest rate to finance our business in Japan. These borrowings have attached covenants and are secured against our Japanese Yen receivables book. The terms of the covenants have been and will continue to be adhered to.

The Japanese receivables book and our ongoing sales in Japanese Yen will continue to generate a strong forward cash inflow and accordingly we are not carrying exchange rate risk in respect of these borrowings.

The weighted average rate of interest in 2009 was 1.0% (2008: 1.1%), our gearing ratio was 12% (2008: 6%) and Debt to capital ratio was 9% (2008: 5%).

Intangible assets

Intangible assets are capitalised at cost and amortised over their useful life. Amortisation of intangible assets is recorded under 'Depreciation on fixed and intangible assetsn' in the Profit or loss.

Acquired computer software licenses are capitalised at the costs that were necessary to purchase the licenses and make the software usable.

The capitalised costs are written down using the straight‑line method over the expected economic life of the patents (five years) or software (three to five years).

Internally generated intangible assets - research and development expenditure

Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised in the Profit or loss as an expense when incurred.

Internal development expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 (Intangible Assets). Technical and other uncertainties generally have the effect that such criteria are not met. However, expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products or processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of services and materials, direct labour and an appropriate proportion of overheads. Otherwise, development expenditure is recognised in the Profit or loss as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.

Intangible assets relating to products in development (both internally and externally acquired) are subject to impairment testing upon indication of impairment. Any impairment losses are written off immediately to the Profit or loss.

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefit of the specific asset to which it relates. All other expenditure is expensed as it occurs.

Only patents have been capitalised as development costs to date, as the future utilisation of other developments is not sufficiently determinable or certain.

Property, plant and equipment

Property, plant and equipment are stated at acquisition or construction cost, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction. The cost of own work capitalised is comprised of direct costs of material and manufacturing and directly attributable costs of manufacturing overheads. All allowable costs up until the point at which the asset is physically able to operate as intended by management are capitalised. The capitalised costs are written down using the straight‑line method.

The Group's policy is to write off the difference between the cost of property, plant and equipment and its residual value systematically over its estimated useful life. Reviews of the estimated remaining lives and residual values of individual productive assets are made annually, taking commercial and technological obsolescence as well as normal wear and tear into account.

The total useful lives range from approximately 25 to 33 years for buildings, five to ten years for plant and equipment, up to 15 years for fixtures and fittings and three to four years for motor vehicles. No depreciation is provided on freehold land. Property, plant and equipment is reviewed for impairment at each balance sheet date or upon existence of indications that the carrying value may not be recoverable.

The gain or loss arising on disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the Profit or loss.

Impairment

The carrying amount of the Group's assets, other than inventories and deferred tax assets, are subject to impairment testing upon indication of impairment.

If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs of disposal, and value in use based on an internal discounted cash flow evaluation.

Leased assets

Rentals under operating leases are charged to the Profit or loss on a straight‑line basis over the lease term. Lease incentives are spread over the total period of the lease.

The obligations from lease contracts are disclosed among financial obligations. For the reporting period, no assets were recorded under finance leases.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial instruments are recorded initially at fair value net of transaction costs if changes in value are not charged directly to the Profit or loss. Subsequent measurement depends on the designation of the instrument, as follows:

Amortised cost

·; fixed deposits, generally funds held with banks and short‑term borrowings and overdrafts are classified as receivables and loans and held at amortised cost;

·; long‑term loans are held at amortised cost; and

·; accounts payables are not interest bearing and are recognised initially at fair value and thereafter at amortised cost under the effective interest method.

Held for trading

·; derivatives, if any, comprising interest rate swaps and foreign exchange contracts, are classified as held for trading. They are included at fair value, upon the valuation of the local bank.

Loans and receivables

·; non‑interest bearing accounts receivables are initially recorded at fair value and subsequently valued at amortised cost, less provisions for impairment. Any change in their value through impairment or reversal of impairment is recognised in the Profit or loss; and

·; cash and cash equivalents comprise cash balances and call deposits with maturities of less than three months together with other short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Interest and other income resulting from financial assets are recognised in the Profit or loss when receivable, regardless of how the related carrying amount of the financial assets is measured.

Inventories

Inventories are stated at the lower of cost or net realisable value.

Acquisition costs for raw materials are usually determined by the weighted average method. For finished goods and work in progress, cost of production includes directly attributable costs for material and manufacturing and an attributable proportion of manufacturing overhead expenses (including depreciation) based on normal levels of activity. Selling expenses and other overhead expenses are excluded. Interest expenses are expensed as incurred and therefore not included. Net realisable value is determined as estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Income taxes

Current tax is the tax currently payable based on taxable profit for the year, including any under or over provisions from prior years.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Profit or loss, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

Public grants and subsidies

As the German operations are located in a region designated for economic development, the Group receives both investment subsidies and investment grants. Government grants and subsidies relating to capital expenditure are credited to the 'Deferred income' account and are released to the Profit or loss by equal annual installments over the expected useful lives of the relevant assets under 'Other income'.

Government grants of a revenue nature, mainly for research and development purposes, are credited to the Profit or loss in the same period as the related expenditure. All required conditions of these grants have been and will continue to be met.

Provisions

Provisions are formed where a third party obligation exists, which will lead to a probable future outflow of resources and where this outflow can be reliably estimated. Provisions are measured at the best estimate of the expenditure required to settle the obligation.

Accruals

Accruals are recognised when an obligation to meet an outflow of economic benefit in future arises at the balance sheet date.

 

Accruals are initially recognised at fair value and subsequently at amortised cost using the effective interest method.

 

Contingent liabilities

Provisions are made for legal disputes where there is an obligation at the balance sheet date, an adverse outcome is probable and associated costs can be estimated reliably. Where no obligation is present at the balance sheet date no provision is made, although the contingent liability will be disclosed in a note.

Revenue recognition

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer. Ownership is considered to have transferred once the silicon products have been received by the customer unless shipping terms dictate any different. Revenues exclude intragroup sales and value added taxes and represent net invoice value less estimated rebates, returns and settlement discounts. The net invoice value is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied.

The Group has outsourced some elements of production to external companies. In cases in which the Group retains power of disposal over the product or product element, a sale is only recognised under IFRS when the final product is sold. The final product is deemed to have been sold when the risks and rewards of ownership have been transferred to a third party.

Foreign currency translation

The consolidated financial statements are prepared in Euros, which is the presentational currency of the Group. Assets and liabilities of foreign operations are translated to Euros at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into Euros at the average foreign exchange rates of the year that the transactions occurred in.

Transactions of the included entities in foreign currencies are translated into the functional currency of the respective entity at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Euros at the foreign exchange rate ruling at that date. Foreign exchange rate differences arising on transactions are recognised in the Profit or loss. 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 Euros at foreign exchange rates ruling at the date the fair value was determined.

Exchange gains and losses on short‑term foreign currency borrowings and deposits are shown as such and taken to EBIT. In the consolidated financial statements exchange rate differences arising on consolidation of the net investments in subsidiaries together with those on relevant foreign currency loans are taken directly to the 'Currency translation adjustment' in equity.

The financial information has been presented in Euros, which is the presentational currency. The Euro has been selected as the Group's presentational currency as this is the currency used in its significant contracts. The functional currency of the parent company is Sterling.

Interest income and expenses

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested and dividend income and gains.

Interest income is recognised in the Profit or loss as it accrues, using the effective interest method.

The interest expense component of finance lease payments is recognised in the profit or loss using the effective interest rate method.

Employee benefits

The Group operates a number of pension schemes. The schemes are generally funded through payments to insurance companies. The Group has both defined benefit and defined contribution plans.

Defined benefit pension plan

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds at the balance sheet date with a ten year maturity, adjusted for additional term to maturity of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited directly to the profit or loss in the period in which they arise.

Past service costs are recognised immediately in profit or loss, unless the changes to the pension plan are conditional to the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight‑line basis over the vesting period.

Defined contribution plan

For defined contribution plans, the Group pays contributions to pension insurance plans on a contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

Employee benefit trust accounting policy

All assets and liabilities of the EBT have been consolidated in these financial statements as the Group has de facto control over the trust's net assets as the parent of its sponsoring company.

Deferred revenue

As is common practice with the sector, the Group, where appropriate, both seeks to receive deposits from customers in advance of shipment and makes deposits in advance of supplies.

These deposits are held on the balance sheet and matched against revenue/cost as appropriate.

Deposits received from customers are not discounted, as the effect is not considered to be material.

See also note 26.

Other long term assets

As is common practice with the sector, the Group is required to make deposits in advance for the supply of silicon tetrachloride and polysilicon feedstock.

Deposits received from customers are not discounted, as the effect is not considered to be material.

Share‑based payments

The Group has applied the requirements of IFRS 2 (Share‑based payments). The Group issues equity‑settled share‑based payments to certain employees. These are measured at their fair value at the date of the grant and are expensed over the vesting period, based, where necessary, on the Group's estimate of the number of shares that will eventually vest, and adjusted for any market based conditions. Grants of shares made during 2008 and 2007 are not subject to performance criteria and were valued at the date of the grant at market value. During 2009 the Group granted share options to employees. The share options granted are subject to performance criteria required for the option to vest and are considered in the method of measuring fair value. Fair value is measured using the Black‑Scholes Option Pricing Model.

Charges made to the Profit or loss in respect of share‑based payments are credited to the share-based payment reserve.

Shareholders' equity

Shareholders' equity is comprised of the following balances:

Share capital is comprised of 416,725,335 ordinary shares of 2 pence each, see note 28.

Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of share issue.

Investment in own shares is the Group's shares held by the Employee Benefit Trust (EBT) that are held in Trust for the benefit of employees.

Share-based payment reserve is the amount charged to the profit or loss account in respect of shares already granted or options outstanding relative to the vesting date or option exercise date.

Reverse acquisition reserve is the difference between the value of the assets acquired and the consideration paid by way of a share for share exchange on 5 January 2007.

Retained earnings is the cumulative profit retained by the Group.

Currency translation adjustment represents the differences arising from the currency translation of the net assets in subsidiaries.

2. Other income

	2009	2008
	€'000	€'000
Recognition of accrued grants and subsidies for investments	2,089	818
Research and development grants	256	111
Release of accruals	113	186
Other income	576	360
	3,034	1,475

The Group has received public subsidies for certain assets that will be recognised over the useful life of the subsidised assets. The Group has received grants for research and development activities.

 

3. Cost of material and services

The cost of materials is attributable to the consumption of silicon, ingots, wafers, chemicals and other consumables as well as the purchase of merchandise. Purchased services are allocated to cost of services.

	2009	2008
	€'000	€'000
Cost of raw materials, supplies and purchased merchandise	155,618	139,725
Change in finished goods and work in progress	(12,514)	(384)
Own work capitalised	(1,596)	(3,641)
Cost of materials	141,508	135,700

 

	2009	2008
	€'000	€'000
Cost of purchased services	13,742	7,497
Cost of services	13,742	7,497

 

Own work capitalised relates to the construction of production equipment including in particular crystallisation systems.

The cost of materials and services ratio (cost of materials and services including changes in inventories and own work capitalised as a percentage of the aggregate operating performance) is 65% (2008: 52%).

 

4. Personnel expenses

	2009	2008
	€'000	€'000
Wages and salaries	12,304	10,769
Social security	1,711	1,438
Pension costs (see below)	451	470
Employee Share Schemes	984	1,134
	15,450	13,811

 

Pension costs

	2009	2008
	€'000	€'000
Appropriation to pension accruals for defined benefit schemes	100	93
Early retirement settlements and pay	(2)	9
Contributions to defined contribution pension plans	353	368
	451	470

 

Employees

The Group employed an average of 333 employees during the year ended 31 December 2009 (2008: 257).

	2009	2008
	Number	Number
Germany	224	159
United Kingdom	102	92
Japan	7	6
	333	257

 

	2009	2008
	Number	Number
Production	236	168
Administration	97	89
	333	257

 

The remuneration of the Board of directors, including appropriations to pension accruals, is shown in the Directors' remuneration report on pages 31 to 37.

 

5. Other expenses

	2009	2008
	€'000	€'000
Property rental and rates	2,191	2,012
Repairs and maintenance	199	1,203
Contribution to supply costs	-	673
Selling expenses	283	151
Technical consulting, research and development	2,444	429
Outside professional services	1,692	1,432
Insurance premiums	758	469
Travel and advertising expenses	610	392
Staff related costs	571	441
Other	1,073	932
	9,821	8,134

The land and buildings used by the Group, with the exception of land with an area of approximately 31,000m2 in the Chemical Park at Bitterfeld, are rented. The contracts have durations of up to ten years. In some cases there are options to extend the rental period.

Selling expenses mainly include delivery costs and warranty provisions.

Technical consulting and research and development costs relate to the expenditure in connection with silicon wafers and ingots.

In addition to those disclosed above, the Group undertakes considerable research and development in the field of continuous production process optimisation and improvement and adaptation of products to market requirements. These costs are an integral part of a highly technical production process.

The directors have estimated on the basis of directly attributable costs and a general proportion of production costs that the cost of research and development is approximately €8,423,000 for the year ended 31 December 2009 (2008: €6,150,000).

Included within other expenses are the following amounts which were paid to the Group's auditor:

	2009	2008
	€'000	€'000
Fees payable to the Company's auditor for the audit of the Group's financial statements	71	79
Plc audit costs	14	16
Other services pursuant to legislation	34	18
The audit of the Company's subsidiaries pursuant to legislation	213	177
Tax services	23	5
	355	295

 

6. Interest income and expenses

Interest income and expense is derived/incurred on financial assets/liabilities and recognised under the effective interest method.

7. Income taxes

Tax expenses can be broken down as follows:

	2009	2008
	€'000	€'000
Income taxes in the United Kingdom	10,858	34,696
Income taxes in Germany	3,670	6,864
Income taxes in Japan	2,192	5,207
INCOME TAXES TOTAL	16,720	46,767
Deferred taxes in the United Kingdom	1,528	(801)
Deferred taxes in Germany	(4,624)	(1,045)
Deferred taxes in Japan	(667)	(892)
DEFERRED TAXES TOTAL	(3,763)	(2,738)
TOTAL TAXES	12,957	44,029

 

Income taxes include taxes on income paid or due in the individual countries as well as deferred taxes. Deferred taxes are calculated on the basis of temporary differences between the carrying amounts of assets and liabilities in the IFRS financial statements and those carried in the tax accounts, affected by consolidation transactions and realisable tax loss carry forwards.

 

The total tax rate for the German companies is 29.825% in Erfurt and 28.425% in Bitterfeld. The total tax rate of Crystalox Limited in the UK was 28%, and the total tax rate in Japan was 42.05%. These rates are always based on the legal regulations applicable or adopted at the balance sheet date.

The following table shows the tax reconciliation account of the tax expense expected in the respective financial year and the actual tax expense reported.

	2009	2008
	€'000	€'000
PROFIT BEFORE TAX	42,516	147,223
Expected income tax expense at effective tax rate 26.7% (30.6%)	11,362	45,003
Taxation for inter‑company dividends	447	447
Tax reduction due to non‑taxable income	(164)	(145)
Tax for profit in stock eliminations	1,192	(2,014)
Deferred tax movement on share-based payments	(25)	(129)
Movement in prior year deferred balances	224	287
Tax on non‑deductible expenses	228	233
Tax rate adjustment	-	605
Adjustments to tax charge in respect of prior periods	(240)	(330)
Other tax effects	(67)	72
TOTAL TAX EXPENSE	12,957	44,029

 

8. Segment reporting

 

The segments are defined by the financial information reported internally to the Chief Operating Decision Maker.

Trading and Equipment revenue represented

 

SEGMENT INFORMATION 2009

		The			The	The
		rest of		United	rest of	rest of
	Japan	Asia	Germany	Kingdom	Europe	World	Group
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
Revenues
by entity's country of domicile	133,759	-	82,219	21,342	-	-	237,320
by country from which derived	133,726	35,184	48,737	7	19,527	139	237,320
Non Current Assets*
by entity's country of domicile	626	-	118,342	23,804	-	-	142,772
*Excludes: financial instruments, deferred tax assets and post-employment benefit assets. Two customers accounted for more than 10% of Group revenue each and sales to these customers are as follows (figures in €'000):   1. Sales 83,334 (Japan 83,334) 2. Sales 49,786 (Japan 49,786).

 

SEGMENT INFORMATION 2008

		The			The	The
		rest of		United	rest of	rest of
	Japan	Asia	Germany	Kingdom	Europe	World	Group
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
Revenues
by entity's country of domicile	154,673	-	85,600	33,822	-	-	274,095
by country from which derived	154,607	30,913	75,554	22	5,920	7,079	274,095
Non Current Assets*
by entity's country of domicile	584	-	109,160	24,801	-	-	134,545
*Excludes: financial instruments, deferred tax assets and post-employment benefit assets.

Three customers accounted for more than 10% of Group revenue each and sales to these customers are as follows (figures in €'000):

 

1. Sales 100,977 (Japan 100,977)

2. Sales 53,202 (Japan 53,202)

3. Sales 34,127 (Germany 34,127).

 

SEGMENT INFORMATION 2007

		The			The	The
		rest of		United	rest of	rest of
	Japan	Asia	Germany	Kingdom	Europe	World	Group
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
Revenues
by entity's country of domicile	163,520	-	76,628	23,296	-	-	263,444
by country from which derived	163,520	40,093	51,397	10	4,287	4,137	263,444
Non Current Assets*
by entity's country of domicile	281	-	36,212	3,597	-	-	40,090
*Excludes: financial instruments, deferred tax assets and post-employment benefit assets.

Three customers accounted for more than 10% of Group revenue each and sales to these customers are as follows (figures in €'000):

1. Sales 127,018 (Japan 127,018)

2. Sales 28,850 (Japan 28,850)

3. Sales 27,614 (Germany 27,164).

 

9. Earnings per share

Earnings per share are calculated by dividing the net profit for the year (as per the Profit or loss) by the weighted average number of shares outstanding during the financial year.

	2009	2008
Basic shares (average)	409,637,335	409,637,335
Basic earnings per share (Euro cents)	7.2	25.2
Diluted shares (average)	411,695,335	411,711,184
Diluted earnings per share (Euro cents)	7.2	25.1

 

Basic shares and diluted shares for this calculation can be reconciled to the number of issued shares, as per note 28, as follows:

	2009	2008
SHARES IN ISSUE (AS PER NOTE 28)	416,725,335	416,725,335
EBT shares held	(7,088,000)	(7,088,000)
WEIGHTED AVERAGE NUMBER OF SHARES FOR BASIC EPS CALCULATION	409,637,335	409,637,335
2,025,000 EBT shares, granted but not vested	2,025,000	2,025,000
33,000 EBT shares, granted but not exercised (held for 310 days in 2008)	33,000	28,027
200,000 EBT shares under option, granted but not exercised (held for 38 days in 2008)	-	20,822
WEIGHTED AVERAGE NUMBER OF SHARES FOR FULLY DILUTED EPS CALCULATION	411,695,335	411,711,184

 

10. Cash and cash equivalents

All short‑term deposits are interest bearing at the various rates applicable in the business locations of the Group.

 

11. Accounts receivable

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Japan	46,604	70,684	51,065
Germany	9,293	5,574	6,291
United kingdom	496	36	4,392
	56,393	76,294	61,748

All receivables have short-term maturity. No significant bad debt allowances were necessary during the reporting period.

Some of the unimpaired trade receivables are past due at the reporting date. The age of financial assets past due but not impaired is as follows:

	2009	2008	2007
	€'000	€'000	€'000
Not more than three months	112	1,303	3,391

These amounts represent the Group's maximum credit risk at the year end, however all these amounts had been settled by the end of February 2010.

 

12. Inventories

Inventories include finished goods and work in progress (ingots and blocks), as well as production supplies. The change in inventories is included in the Profit or loss in the line 'cost of materials and services'.

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Finished products	13,351	6,408	2,618
Work in progress	11,800	6,229	9,635
Raw materials	8,952	11,380	8,400
	34,103	24,017	20,653

Polysilicon produced from the Group's chemical plant in Bitterfeld is valued at the average Group polysilicon cost. No other write downs were necessary on Group inventories in the period under review.

13. Prepaid expenses and other assets

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Subsidies and grants due relating to Bitterfeld	4,618	21,388	2,601
Other subsidies due	891	616	613
VAT	4,647	5,215	3,418
Prepaid expenses	10,313	8,022	6,341
Other current assets	804	632	591
	21,273	35,873	13,564

 

14. Current tax assets

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Recoverable capital gains tax	3,072	1,346	18
Prepaid income tax	873	-	-
	3,945	1,346	18

Recoverable capital gains tax relates to tax paid on internal dividend payments. Repayment is expected in 2010.

 

Prepaid income tax relates to an overpayment of income tax. Repayment is expected in 2010.

 

15. Intangible assets

 

	Patents and licenses	Software under development
			Total
	€'000	€'000	€'000
COST
At 1 January 2009	871	127	998
Additions	302	80	382
Reclassification	203	(203)	-
Net effect of foreign currency movements	(1)	-	(1)
AT 31 DECEMBER 2009	1,375	4	1,379
DEPRECIATION
At 1 January 2009	363	-	363
Charge for the year	228	-	228
AT 31 DECEMBER 2009	591	-	591
NET BOOK VALUE
AT 31 DECEMBER 2009	784	4	788
At 31 December 2008	508	127	635

 

 

	Patents and licenses	Software under development
			Total
	€'000	€'000	€'000
COST
At 1 January 2008	426	157	583
Additions	290	127	417
Reclassification	157	(157)	-
Disposals	(1)	-	(1)
Net effect of foreign currency movements	(1)	-	(1)
AT 31 DECEMBER 2008	871	127	998
DEPRECIATION
At 1 January 2008	205	-	205
Charge for the year	159	-	159
On disposals	(1)	-	(1)
AT 31 DECEMBER 2008	363	-	363
NET BOOK VALUE
AT 31 DECEMBER 2008	508	127	635
At 31 December 2007	221	157	378
	Patents and licenses	Software under development
			Total
	€'000	€'000	€'000
COST
At 1 January 2007	304	7	311
Additions	121	157	278
Reclassification	7	(7)	-
Disposals	(6)	-	(6)
AT 31 DECEMBER 2007	426	157	583
DEPRECIATION
At 1 January 2007	135	-	135
Charge for the year	76	-	76
On disposals	(6)	-	(6)
AT 31 DECEMBER 2007	205	-	205
NET BOOK VALUE
AT 31 DECEMBER 2007	221	157	378
At 31 December 2006	169	7	176

 

16. Property, plant and equipment

 

	Freehold		Other
	land and	Plant and	furniture and	Assets under
	buildings	machinery	Equipment	construction		Total
	€'000	€'000	€'000	€'000		€'000
COST
At 1 January 2009	12,239	37,289	3,936	85,333		138,797
Additions	-	18,868	807	710		20,385
Reclassification	229	85,083	164	(85,476)		-
Disposals	-	(428)	(174)	(7)		(609)
Net effect of foreign currency movements	22	1,496	19	263		1,800
AT 31 DECEMBER 2009	12,490	142,308	4,752	823		160,373
DEPRECIATION
At 1 January 2009	144	26,151	1,572	-		27,867
Charge for the year	387	8,665	516	-		9,568
On disposals	-	(434)	(159)	-		(593)
Net effect of foreign currency movements	9	1,277	13	-		1,299
AT 31 DECEMBER 2009	540	35,659	1,942	-		38,141
NET BOOK VALUE
AT 31 DECEMBER 2009	11,950	106,649	2.810	823		122,232
At 31 December 2008	12,095	11,138	2,364	85,333		110,930
Asset under construction relate to future plant and machinery. Capital commitments at 31 December 2009 relating to this amounted to €1.10 million.
	Freehold		Other
	land and	Plant and	furniture and	Assets under
	buildings	machinery	equipment	construction	Total
	€'000	€'000	€'000	€'000	€'000
COST
At 1 January 2008	763	38,360	2,425	22,765	64,313
Additions	5,709	4,106	1,700	68,753	80,268
Reclassification	5,850	290	-	(6,140)	-
Disposals	-	(8)	(71)	(45)	(124)
Net effect of foreign currency movements	(83)	(5,459)	(118)	-	(5,660)
AT 31 DECEMBER 2008	12,239	37,289	3,936	85,333	138,797
DEPRECIATION
At 1 January 2008	128	27,717	1,353	-	29,198
Charge for the year	49	3,394	360	-	3,803
On disposals	-	(8)	(80)	-	(88)
Net effect of foreign currency movements	(33)	(4,952)	(61)	-	(5,046)
AT 31 DECEMBER 2008	144	26,151	1,572	-	27,867
NET BOOK VALUE
AT 31 DECEMBER 2008	12,095	11,138	2,364	85,333	110,930
At 31 December 2007	635	10,643	1,072	22,765	35,115

Asset under construction related to the polysilicon facility in Bitterfeld. Capital commitments at 31 December 2008 relating to this amounted to €9.47 million.

	Freehold		Other
	land and	Plant and	furniture and	Assets under
	buildings	machinery	equipment	construction	Total
	€'000	€'000	€'000	€'000	€'000
COST
At 1 January 2007	372	35,884	2,087	2,140	40,483
Additions	423	3,228	526	21,827	26,004
Reclassification	-	1,198	-	(1,198)	-
Disposals	-	(1)	(155)	-	(156)
Net effect of foreign currency movements	(32)	(1,949)	(33)	(4)	(2,018)
AT 31 DECEMBER 2007	763	38,360	2,425	22,765	64,313
DEPRECIATION
At 1 January 2007	130	25,229	1,157	-	26,516
Charge for the year	10	4,250	333	-	4,593
On disposals	-	-	(109)	-	(109)
Net effect of foreign currency movements	(12)	(1,762)	(28)	-	(1,802)
AT 31 DECEMBER 2007	128	27,717	1,353	-	29,198
NET BOOK VALUE
AT 31 DECEMBER 2007	635	10,643	1,072	22,765	35,115
At 31 December 2006	242	10,655	930	2,140	13,967

 

Asset under construction related to the polysilicon facility in Bitterfeld. Capital commitments at 31 December 2007 relating to this amounted to €30.65 million

17. Other long‑term assets

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Other assets	282	326	246
Prepaid expenses	17	307	351
Silicon tetrachloride (for Bitterfeld)	3,248	3,593	4,000
Polysilicon feedstock deposits	16,205	18,753	-
	19,752	22,979	4,597

 

18. Deferred taxes

 

Deferred taxes are calculated at the local rates in accordance with IAS 12 (Income Taxes).

Deferred tax assets and liabilities are attributable to the following accounting and valuation differences of the book value of assets and liabilities between the IFRS balance sheet and the tax balance sheet and tax losses carried forward.

	2009	2008	2007
	€'000	€'000	€'000
Elimination of inter‑company gains	2,159	3,351	1,337
Tax loss carried forward	5,790	592	-
Property, plant and equipment	-	453	632
Enterprise tax	186	411	166
Pension plans	67	69	75
Share-based reserve	144	105	-
Inventory	401	-	-
Other	16	41	119
DEFERRED TAX ASSET	8,763	5,022	2,329
General allowance on accounts receivables	(221)	(303)	(233)
Property, plant and equipment	(86)	(71)	(47)
Other	(3)	-	-
DEFERRED TAX LIABILITY	(310)	(374)	(280)
TOTAL DEFERRED TAXES	8,453	4,648	2,049

 

There are no deductible temporary differences, unused tax losses or unused tax credits for which deferred tax has not been recognised.

Deferred tax assets arising as a result of losses are recognised as they are expected to be realised in the foreseeable future.

19. Loans payable

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Syndicated loans	30,254	15,696	39,537
Other loans	-	7	89
	30,254	15,703	39,626
Current portion	30,254	15,703	39,619
Non‑current portion	-	-	7
	30,254	15,703	39,626

 

	2009	2008	2007
Underwriter	€'000	€'000	€'000	Maturity	Interest rate
Sumitomo Mitsui Banking Corporation	22,691	11,772	-	07/10	0.87-1.14%
Mizuho Bank	7,563	3,924	-	11/10	0.71-0.97%
The Bank of Tokyo Mitsubishi UFJ	-	-	8,742	Variable	1.48-1.50%
Other syndicated loans	-	-	30,191	Variable	1.48-1.50%
The Bank of Mitsubishi Tokyo UFJ	-	-	605	Variable	1.96%
Other loans	-	7	88	09/08	4.84%
	30,254	15,703	39,626

The 'Other syndicated loans' had been issued by a syndicate including the following banks: Yokohama bank, Shizuoka bank, Syokoukumiaityuou bank, Hiroshima bank, Ooita bank, Kouginri su, Sinwa bank, Toukyoutomin bank, Tougin ri su, Yamanasityuou bank, Risona bank, Gihu bank, Daiyamondori su, Keiyou bank, Tyukyou bank, Jyuuroku bank, Kouti bank, Daisan bank and Musashino bank.

Security for the loans, all in Japan, is provided by the Japanese accounts receivable, details of which can be found in Note11.

20. Accounts payable

 

Accounts payable are obligations arising from normal business transactions.

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Japan	8,404	14,474	11,647
United Kingdom	1,921	3,369	3,774
Germany	4,722	11,910	6,326
	15,047	29,753	21,747

The book value of these payables are materially the same as the fair value.

21. Accruals

The accruals of the Group are as follows:

	2009	2008	2007
	€'000	€'000	€'000
Rents and ancillary rent costs	127	127	592
Cost of material	-	3,826	-
Services invoiced post year end	1,875	2,940	1,281
Bonuses	1,124	840	524
Other payroll accruals	364	390	260
Year end costs	246	333	265
Supervisory Board remuneration	-	-	38
Other	193	174	276
CURRENT ACCRUALS	3,929	8,630	3,236
Rents and ancillary rent costs	-	117	-
Stamp duties	-	-	100
Other	58	49	28
NON‑CURRENT ACCRUALS	58	166	128
TOTAL ACCRUALS	3,987	8,796	3,364

The Cost of material accrual related to an agreement with a key customer to supply higher than normal value wafers from higher than normal cost polysilicon, supplied by the same customer. The accrual relates to a timing difference between material received and supply invoiced.

22. Provisions

Movement in warranty provisions is shown below:

	2009	2008	2007
	€'000	€'000	€'000
Provision brought forward	449	396	370
Addition	-	73	33
Utilised	(35)	(20)	(7)
PROVISION CARRIED FORWARD	414	449	396

Warranty provisions unwind over a twelve month period from the date of sale, per the terms of the warranty agreement with customers.

 

23. Deferred grants and subsidies

The grants from governmental institutions are bound to specific terms and conditions. The Group is obliged to observe retention periods of five years for the respective assets in case of investment subsidies as well as of five years for assets under investment grants, and to retain a certain number of jobs created in conjunction with the underlying assets. In cases of violations of the terms, the grants received must be repaid. In the past, the grants received were subject to periodic audits, which were concluded without significant findings or adjustments.

The deferred subsidies in the period under review consist of the following:

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Investment subsidies	13,684	12,649	2,246
Investment grants	13,970	11,596	3,809
Other grants and subsidies	5	6	1
	27,659	24,251	6,056
Current portion	2,695	2,052	860
Non‑current portion	24,964	22,199	5,196
	27,659	24,251	6,056

 

24. Income tax payable

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
United Kingdom	2,984	18,070	8,516
Germany	458	3,712	532
Japan	1,765	4,489	1,807
	5,207	26,271	10,855

Income tax liabilities comprise both corporation and other non VAT tax liabilities, calculated or estimated by the Group companies as well as corresponding taxes payable abroad due to local tax laws, including probable amounts arising on completed or current tax audits.

25. Other current liabilities

 

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
VAT liability	1,095	-	85
Payroll liabilities	191	339	344
Other liabilities	304	433	502
	1,590	772	931

 

26. Deferred revenue.

As is the industry norm, where possible and suitable the Group enters into long-term contracts with its customers and may request payment deposits from them ahead of the supply of goods. At 31 December 2009, such deposits amounted to €22.031m from four customers. (2008: €21.708m from three customers; 2007: €10.000m from one customer).

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
Short‑term element	7,889	2,692	-
Long‑term element	14,142	19,016	10,000
	22,031	21,708	10,000

 

27. Pension benefit obligation

The obligation relates to fixed post retirement payments for two employees and includes benefits for surviving spouses granted in 2005. The plan will be fully funded upon retirement of the employees by insurance contracts held and paid in by the Group. In case of insolvency the benefits have been ceded to the employees directly. Therefore the fair value of the insurance contracts has been treated as a plan asset.

The liability recognised in the Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds at the balance sheet date with a ten year maturity, adjusted for additional term to maturity of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited directly to the Profit or loss in the period in which they arise.

Past service costs are recognised immediately in income, unless the changes to the pension plan are conditional to the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight‑line basis over the vesting period.

The Group contributions are paid directly to the asset holding insurance company, thereby guaranteeing the value of the scheme which is deemed wholly funded.

	As at 31 December
	2009	2008	2007
	€'000	€'000	€'000
PENSION BENEFITS
Present value of defined benefit obligations	(1,469)	(1,354)	(1,241)
Fair value of plan assets	1,278	1,019	765
TOTAL EMPLOYEE BENEFITS	(191)	(335)	(476)
MOVEMENTS IN THE BALANCE SHEET
Present value of defined benefit obligations 1 January	(1,354)	(1,241)	(1,145)
Expense recognised	(116)	(116)	(118)
Interest cost	(68)	(62)	(50)
Actuarial gains	69	65	72
Present value of defined benefit obligations 31 December	(1,469)	(1,354)	(1,241)
Fair value of plan assets 1 January	1,019	765	512
Contribution (company only)	256	256	256
Expected return of plan assets	52	40	32
Actuarial losses	(49)	(42)	(35)
Fair value of plan assets 31 December	1,278	1,019	765
AMOUNTS RECOGNISED IN THE INCOME STATEMENT
Interest cost	(68)	(62)	(50)
Expected return of plan assets	52	40	32
Current service cost	(116)	(116)	(118)
Actuarial gains	20	24	36
	(112)	(114)	(100)

The principal actuarial assumptions used were as follows:

Discount rate	4.75%	5.00%	5.00%
Expected return of plan assets	4.50%	4.50%	4.50%
Future salary increases	-	-	-
Future pension increases	0.90%	1.50%	2.00%

The expected service expenses for 2010 are €121,785, the contributions to plan assets are estimated at €255,717.

 

28. Equity

	2009	2008	2007
	€'000	€'000	€'000
AUTHORISED SHARE CAPITAL
600,000,000 ordinary shares of 2 pence each	17,756	17,756	17,756
ALLOTTED, CALLED UP AND FULLY PAID
416,725,335 ordinary shares of 2 pence each	12,332	12,332	12,332

 

Summary of rights of share capital

The ordinary shares are entitled to receipt of dividends. On winding up, their rights are restricted to a repayment of the amount paid up and to share in any surplus assets arising. The ordinary shares have full voting rights.

29. Share-based payment plans

The Group established the PV Crystalox Solar PLC Employee Benefit Trust (EBT) on 18 January 2007, which has acquired, and may in the future acquire, the Company's ordinary shares for the benefit of the Group's employees.

After the year end the Group was advised that the Trustee of the EBT had completed the purchase of 5,000,000 of the Company's ordinary shares of 2 pence (see note 35 for further details) giving a total holding of 12,087,000 ordinary shares.

The Group currently has two share option schemes in operation which are satisfied by grants from the EBT.

PV Crystalox Solar plc Long‑Term Incentive Plan (LTIP)

This is a long-term incentive scheme under which awards are made to employees consisting of the right to acquire ordinary shares for a nominal price subject to the achievement of specified performance conditions at the end of the vesting period which is not less than three years from the date of grant. Under the LTIP it is possible for awards to be granted which are designated as a Performance Share Award, a Market Value Option or a Nil Cost Option. To date Performance Share Awards and Market Value Options have been granted.

Performance Share Award (PSA)

A PSA is a conditional award of a specified number of ordinary shares which may be acquired for nil consideration. The PSA granted to date have all been initial awards where there is no specified performance condition. The vesting period of each award is three years from the date of grant and the award must be exercised no later than 42 months following the date of grant.

On 17 December 2007 awards over 2,175,000 ordinary shares of 2 pence were granted to key employees. On 26 February 2008 awards were granted to employees of 500 shares each over a total of 33,000 ordinary shares of 2 pence. In 2008 two employees that had been granted an aggregate amount of 150,000 shares of 2 pence each on 17 December 2007 left the Group and in accordance with the rules of the LTIP these grants were cancelled and the shares remain available within the EBT.

Market Value Option (MVO)

A MVO is an option with an exercise price per share equal to the market value of a share on the date of grant. The vesting period of each award is three years from the date of grant and the award must be exercised no later than ten years following the date of grant.

On 24 November 2008 a MVO over 200,000 ordinary shares of 2 pence each was granted to a senior employee and this option is exercisable from 24 November 2011 at £1.00 per share subject to an agreed performance criteria.

29. Share-based payment plans continued

In the year under review the following awards were made:

·; On 26 March 2009 a MVO over 200,000 ordinary shares of 2 pence each was granted to a senior employee and this option is exercisable from 26 March 2012 at 76 pence per share subject to an agreed performance criteria and

·; On 25 September 2009 MVO awards over 1,200,000 ordinary shares of 2 pence each were granted to key senior employee and these options are exercisable from 25 September 2012 at 76.9 pence per share subject to agreed performance criteria.

PV Crystalox Solar plc Share Incentive Plan (SIP)

The SIP is an employee share scheme approved by HM Revenue and Customs in accordance with the provisions of Schedule 8 to the Finance Act 2000. On 26 February 2008 awards were granted to UK employees of 500 shares each over a total of 37,000 ordinary shares of 2 pence. These 37,000 ordinary shares of 2 pence each were transferred from the EBT into the SIP.

The number of share options and weighted average exercise price (WAEP) for each of the schemes is set out as follows:

			MVO WAEP
	PSA*	MVO	price	SIP*
	Number	Number	Pence	Number
Option outstanding at 1 January 2009	2,058,000	200,000	100	37,000
Options granted during the year	-	1,400,000	76.8	-
Options forfeited during the year	(50,000)	-	-	-
Options exercised during the year	-	-	-	-
Options outstanding at 31 December 2009	2,008,000	1,600,000	79.7	37,000
Exercisable at 31 December 2009	-	-	-	-
Option outstanding at 1 January 2008	2,175,000	-	-	-
Options granted during the year	33,000	200,000	100	37,000
Options forfeited during the year	(150,000)	-	-	-
Options exercised during the year	-	-	-	-
Options outstanding at 31 December 2008	2,058,000	200,000	100	37,000
Exercisable at 31 December 2008	-	-	-	-
Option outstanding at 1 January 2007	-	-	-	-
Options granted during the year	2,175,000	-	-	-
Options forfeited during the year	-	-	-	-
Options exercised during the year	-	-	-	-
Options outstanding at 31 December 2007	2,175,000	-	-	-
Exercisable at 31 December 2007	-	-	-	-

* The weighted average exercise price for the PSA and SIP options is nil.

At 31 December 2009 PSA options are exercisable, between 36 months and 42 months after the date of grant, up to August 2011. MVO options are exercisable between three years and ten years after the date of grant, up to September 2019. SIP options are exercisable between three and five years after date of grant, up to February 2013.

The remaining weighted average remaining contractual life of options outstanding at 31 December 2009 is 1.46 years for PSA (2008: 2.46 years, 2007: 3.46), 9.58 years for MVO (2008: 9.99 years, 2007: n/a) and 3.16 years for SIP (2008: 4.16 years, 2007: n/a).

The fair value for the options granted during the year was determined using the Black-Scholes model with the following input assumptions at their grant date:

 

	2009	2008
	MVO	MVO
Weighted average grant price (pence)	79.7	100
Expected volatility	30%	30%
Average expected term to exercise (months)	36	36
Risk-fee rate	5.0%	5.0%

 

In determining the risk-free rate, the Group uses the yield on long-term UK Government bonds rounded to he nearest full number. Currently the yield on UK Government bonds is 4.67% and the Group has used 5.0%.

 

The expected volatility rate has been estimated by reference to the Bloomberg calculated 12 month volatility for the Electronic and Electrical Equipment Index.

 

30. Risk management

The main risks arising from the Group's financial instruments are credit risks, interest rate risks, procurement risks and exchange rate fluctuation risks. The Board reviews and determines policies for managing each of these risks and are, as such, summarised below. These policies have been consistently applied throughout the period.

Credit risk

The main credit risk arises from accounts receivable. All trade receivables are of a short-term nature, with maximum payment terms of 150 days. In order to manage credit risk, local management defines limits for customers based on a combination of payment history and customer reputation. Credit limits are reviewed by local management on a regular basis. As a supplier to some of the leading manufacturers of solar cells, the Group has a limited number of customers. In 2009 35.1% of the sales are related to the largest customer (2008: 36.8%). The number of customers accounting for approximately 95% of the annual revenue decreased from 10 in 2008 to 8 in 2009. Where appropriate, the Group requests payment or part payment in advance of shipment, which generally covers the cost of the goods. Different forms of retention of title are used for security depending on local restrictions prevalent on the respective markets. The maximum credit risk to the Group is the total of accounts receivable, details of which can be seen in note 11.

Exchange rate fluctuation risks

A large portion of sales revenue is invoiced in foreign currencies, potentially exposing the Group to exchange rate risks. In the financial year 2009, about €133.7 million (2008: €154.6 million) of the Group's sales was generated in Japanese Yen. Expenses of €89 million (2008: €92.9 million) invoiced in Japanese Yen were allocated to cost of materials.

Significant cash funds are denominated in currencies other than the presentational currency of the Group. Excess cash funds not needed for local sourcing are exposed to exchange rate and associated interest fluctuation risks, particularly so in the UK. The exchange rate risk is based on assets held in currencies other than Euros.

The Group sells its products in a number of currencies (mainly Japanese Yen and Euros and to a lesser extent US Dollars) and also purchases in a number of currencies (mainly Japanese Yen, Euros, Sterling and US Dollars).

The following exchange rates were used to translate individual companies' financial information into the Group's presentational currency:

	Average	Yr end
	rate	rate
Euro : Japanese Yen	130.404	132.213
£ : Euro	1.123	1.111

 

Hedging strategy

The Group is largely naturally hedged at an operating level because it buys a significant proportion of its raw materials in Japanese Yen and Euros, operates its wafering factory within the Euro zone and pays for the sub contracting of wafer production in Japan in Japanese Yen. However, the ingot manufacturing operation is within the UK and therefore a part of Group costs are in Sterling. In addition, the Group has a large debtor book in Japan denominated in Japanese Yen and this is subjected to exchange rate fluctuation of that currency. The Group has increased its Japanese Yen borrowings to hedge against downwards movement in the Japanese Yen/Euro exchange rate. This process continues to be under review.

After careful consideration and due to the satisfactory natural operating hedging position coupled with its policy of matching borrowings in Japanese Yen with Japanese Yen assets, the directors have adopted a long-term policy of setting off any downside risks of currency fluctuation against the associated upside risks.

During 2009 the Japanese Yen/Euro exchange rate decreased 3.8% (2008: increased 22.97%). The impact of this increase on the Profit or loss was to decrease sales revenues by approximately 2% (2008: increase 16%) and to decrease operating profit (EBIT) by approximately 1% (2008: increase 6%).

For each 1% movement in the Japanese Yen/Euro exchange rate profits would increase/decrease by approximately €408k (2008: €620k). The effect of the movement in the Japanese Yen/Euro exchange rate on assets held in Japanese Yen has been considered, although Group management has increased borrowings in Japanese Yen so that these largely offset asset balances held in that currency. Therefore, based on Japanese Yen asset balances on 31 December 2009, each 1% movement in the Japanese Yen/Euro exchange rate would have a negligible affect on the currency translation adjustment.

During 2009 the net loss on foreign currency adjustments was a loss of €8.3 million (2008: gain of €36.3 million). This loss was largely related to differences between the rate at which sales were booked and the rate on the date that the related currency was received. The remainder of the currency loss related to the conversion of currency balances in respect of Group loans, currency debtor/creditor balances and currency advance payments to feedstock suppliers. These can be broken down into the following broad categories:

	2009 €'million	2008 €'million
Revaluation of cash balances	(2.7)	16.9
Revaluation of Group loans Revaluation of Group raw material deposits	(1.3) (1.9)	11.3 -
Debtor/creditor revaluation	(2.8)	0.4
Revaluation of customer/suppliers deposits	0.4	7.7
Total currency (loss) / gain	(8.3)	36.3

 

In line with the Group's natural hedging, upon translation of net assets in the consolidation, there was a positive impact in 2009 of €9.5 million recording as a currency translation adjustment.

Interest rate risk

The Group is exposed to interest rate fluctuation risks, since the Group's loan agreements largely are subject to variable interest rates. In the past, in Japan, swaps have been used to a small extent to hedge against these risks, although these have now been eliminated. All variable interest rate loans are of a short-term nature with a maturity of less than twelve months. A longer term credit line expired in September 2009. The vast majority of borrowings €30.3 million (almost 100%) at the end of 2009 are in Japanese Yen (2008: 99.96%). Accordingly, there is a downside risk that Japanese Yen interest rates may increase substantially from the current relatively low levels. However, the Group has a regular strong Japanese Yen income sufficient to repay the loans (if Group management wished to do so) within a twelve month time scale.

On 31 December 2009 the Group had borrowings in Japanese Yen of €30.3 million (2008: €15.7 million) at an average interest rate of approximately 0.964% (2008: 1.135%). For each 1% rise in the Japanese Yen interest rates Group interest costs would increase by approximately €303k (2008: €157,000) and for each 1% fall in the Japanese Yen interest rates interest costs would fall by approximately €303k (2008: €157,000). Accordingly, Group profits and equity would fall or rise (after corporation tax in Japan) by approximately €151k (2008: €80,000).

Further sensitivity analysisof the accruals and loans outstanding at the year-end has not been disclosed as these are virtually all current and paid in line with standard payment terms.

The Group's borrowings in Japanese Yen are also current and have no set repayment plan being secured on the Japanese receivables book. The interest on this loan is paid monthly in arrears.

Financial assets and liabilities

 

	Book	Held for	Loan and	Amortised	Non‑
	value	trading	receivables	cost	financial	Total
	€'000	€'000	€'000	€'000	€'000	€'000
2007
Cash and cash equivalents	147,892	-	147,892	-	-	147,892
Accounts receivable	61,748	-	61,748	-	-	61,748
Prepaid expenses and other assets	24,458	-	3,805	-	20,653	24,458
Derivative	107	107	-	-	-	107
Other non-financial assets	52,089	-	-	-	52,089	52,089
TOTAL	286,294	107	213,445	-	72,742	286,294
Liabilities:
Loans payable short-term	(39,619)	-	-	(39,619)	-	(39,619)
Accounts payable trade	(21,747)	-	-	(21,747)	-	(21,747)
Accrued expenses	(3,364)	-	-	(3,364)	-	(3,364)
Provisions	(396)	-	-	-	(396)	(396)
Other current liabilities	(931)	-	-	(846)	(85)	(931)
Loans payable long-term	(7)	-	-	(7)	-	(7)
Other long-term liabilities	(1,088)	-	-	(1,088)	-	(1,088)
Other non‑financial liabilities	(27,667)	-	-	-	(27,667)	(27,667)
TOTAL	(94,819)	-	-	(66,671)	(28,148)	(94,819)

 

Financial assets and liabilities

 

	Book value €'000	Held for trading €'000	Loan and receivables €'000	Amortised cost €'000	Non‑ financial €'000	Total €'000
2008   Assets:
Cash and cash equivalents	96,820	-	96,820	-	-	96,820
Accounts receivable	76,294	-	76,294	-	-	76,294
Prepaid expenses and other assets	35,873	-	22,636	-	13,237	35,873
Other non-financial assets	164,929	-	-	-	164,929	164,929
TOTAL	373,916	-	195,750	-	178,166	373,916
Liabilities:
Loans payable short-term	(15,703)	-	-	(15,703)	-	(15,703)
Accounts payable trade	(29,753)	-	-	(29,753)	-	(29,753)
Accrued expenses	(8,796)	-	-	(8,796)	-	(8,796)
Provisions	(449)	-	-	-	(449)	(449)
Other current liabilities	(772)	-	-	(772)	-	(772)
Other long-term liabilities	(851)	-	-	(851)	-	(851)
Other non‑financial liabilities	(72,939)	-	-	-	(72,939)	(72,939)
TOTAL	(129,263)	-	-	(55,875)	(73,388)	(129,263)

 

Financial assets and liabilities

 

	Book	Held for	Loan and	Amortised	Non‑
	value	trading	receivables	cost	financial	Total
	€'000	€'000	€'000	€'000	€'000	€'000
2009
Assets:
	100,404	-	100,404	-	-	100,404
Cash and cash equivalents
Accounts receivable	56,393	-	56,393	-	-	56,393
Prepaid expenses and other assets	21,273	-	10,960	-	10,313	21,273
Other non-financial assets	189,583	-	-	-	189,583	189,583
TOTAL	367,653	-	167,757	-	199,896	367,653
Liabilities:
Loans payable short-term	(30,254)	-	-	(30,254)	-	(30,254)
Accounts payable trade	(15,047)	-	-	(15,047)	-	(15,047)
Accrued expenses	(3,987)	-	-	(3,987)	-	(3,987)
Provisions	(414)				(414)	(414)
Other current liabilities	(1,590)	-	-	(1,590)	-	(1,590)
Other long-term liabilities	(803)	-	-	(803)	-	(803)
Other non‑financial liabilities	(55,398)	-	-	-	(55,398)	(55,398)
TOTAL	(107,493)	-	-	(51,681)	(55,812)	(107,493)

 

31. Calculation of fair value

There are no publicly traded financial instruments (e.g. publicly traded derivatives and securities held for trading and available for sale securities) nor such other financial instruments that are traded in the standard way held by the Group.

32. Contingent liabilities

The Group did not assume any contingent liabilities for third parties. No material litigation or risks from violation of third parties' rights or laws that could materialise in 2010 or beyond are pending at the current time.

33. Other financial obligations

Lease agreements (operating leases)

The leases primarily relate to rented buildings and have terms of no more than ten years. Financial obligations resulting from operating leases become due as follows:

	As at 31 December
	2009	2008
	€'000	€'000
Less than one year	1,409	1,317
Two to five years	3,718	4,142
Longer than five years	386	796
	5,513	6,255

 

Equipment purchase commitments

Orders to the amount of €1.1 million had been made on 31 December 2009 (2008:€9.47m).

34. Related party disclosures

The Group defines related parties as the senior executives of the Group and also companies that these persons could have a material influence on as related parties. During the reporting period, none of the shareholders had control over or a material influence in the parent group. All future transactions with such related parties will be conducted under normal market conditions.

The remuneration of the directors, who are the key management personnel of the Group, is set out in the audited part of the Directors' Remuneration Report on pages 31 to 37.

35. Post balance sheet events

After the year end the Group was advised that the Trustee of the EBT had completed the purchase of the Company's ordinary shares of 2 pence each: on 15 January 2010 that 4,300,000 had been purchased at an average price of 67.2256 pence per share and; on 19 January 2010 that 700,000 shares had been purchased at an average price of 63.5453 pence. These purchases were made to provide the EBT with greater capacity to meet potential future conditional obligations in respect of the Group's share based payment plans.

There are no other significant post balance sheet events.

36. Preliminary announcement

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.

The consolidated statement of comprehensive income, consolidated balance sheet at 31 December 2009, consolidated statement of changes in equity, consolidated cashflow statement and associated notes have been extracted from the Group's 2009 statutory financial statements upon which the auditor's opinion is unqualified and which do not include any statements under sections 498(2) or 498(3) of the Companies Act 2006.

Those financial statements have not yet been delivered to the registrar of companies.

The results for the financial period ended 31 December 2009 are available on the Company's website at www.pvcrystalox.com. Report and accounts for the financial period ended 31 December 2009 will be sent to shareholders with details of the annual general meeting.