Preliminary Results

PV Crystalox Solar PLC

Preliminary Results

For the year ended 31 December 2012

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

Market overview

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

·; Wafer pricing has fallen by 75% since April 2011

Operational activity

·; Cash conservation strategy continued throughout 2012

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

·; Decision taken to:

o discontinue polysilicon facility at Bitterfield, Germany

o reduce production at UK ingot and German wafer operations

·; Cash settlements from customers of €90.6m

·; Board decided to return cash to shareholders:

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

Overview of results

·; Wafer shipments 108MW (2011: 384MW)

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

John Sleeman, Chairman, commented:

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

Iain Dorrity, Chief Executive Officer commented:

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

Enquiries:

About PV Crystalox

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

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

Overview:

Chairman's introduction

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

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

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

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

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

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

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

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

John Sleeman

Chairman

20 March 2013

Business review:

Operational review

Summary

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

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

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

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

Market

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

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

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

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

Business review:

Operational review 

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

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

Operational Review of 2012

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

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

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

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

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

Cash conservation focus in 2013

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

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

Outlook

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

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

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

Business review:

Financial review

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

Summary of Financial Review

Cash settlements totalling €90.6 million received in connection with termination/variation of long-term customer contracts.

In 2012 Group revenue decreased by 78.0% to €46.3 million mainly due to restricting sales to contracted customers rather than selling at below cash cost.

Earnings after tax were a loss of €121.4 million producing earnings per share at a loss of €0.30.

Net cash inflows of €67.1 million were generated from operating activities.

The Group's net cash position at year end was €89.4 million.

The base plans indicate that the Group will be able to operate within its net cash reserves for the foreseeable future.

The main part of the loss in the year related to non-cash write-downs.

An impairment charge has been recognised to reduce the carrying values of plant by €82.5 million.

The Group wrote down its inventories by €41.5 million.

An additional onerous contract charge of €42.0 million was recorded.

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

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

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

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

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

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

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

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

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

Going concern

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

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

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

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

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

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

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

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

Impairment

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

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

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

Other financial write-downs in the year

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

Dr Peter Finnegan

Chief Financial Officer

20 March 2013

Consolidated financial statements:

Consolidated statement of comprehensive income

For the year ended 31 December 2012

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

Consolidated financial statements:

Consolidated balance sheet

For the year ended 31 December 2012

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 Company number

Chief Financial Officer 06019466

20 March 2013

Consolidated financial statements:

Consolidated statement of changes in equity

For the year ended 31 December 2012

Consolidated financial statements:

Consolidated cash flow statement

for the year ended 31 December 2012

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

Consolidated financial statements:

Notes to the consolidated financial statements

For the year ended 31 December 2012

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, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. 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 profit and loss.

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

The Company is listed on the London Stock Exchange.

The financial statements for the year ended 31 December 2012 were approved by the Board of Directors on 20 March 2013.

Functional and presentational currency

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

Foreign currency translation

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

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

Use of estimates and judgements - overview

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

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

Use of estimates - property, plant and equipment impairment

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

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

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

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

Use of estimates - deferred taxes

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

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

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

Use of estimates - provisions - onerous contract provisions

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

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

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

Use of estimates - inventory valuation

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

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

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

Basis of consolidation

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

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

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

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

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

have taken place since inception of the Group.

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

Going concern

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

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

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

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

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

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

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

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

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

Effects of new accounting pronouncements

Accounting standards in effect or applied for the first time in 2012

·; Amendment to IFRS 7, Financial instruments: Transfers of financial assets (effective 1 July 2011)

The above has not made a material difference to the financial statements.

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.

·; Amendment to IAS 1, 'Financial statement presentation', regarding other comprehensive income (effective 1 July 2012)

·; Amendment to IAS 12,'Income taxes' on deferred tax (effective 1 January 2013)

·; Amendment to IAS 19, 'Employee benefits' (effective 1 January 2013)

·; Amendment to IFRS 1, 'First time adoption', on government loans (effective 1 January 2013)

·; Amendment to IFRS 1 on hyperinflation and fixed dates (effective 1 January 2013)

·; Amendment to IFRS 7, 'Financial instruments: Disclosures', on asset and liability offsetting (effective 1 January 2013)

·; Annual improvements 2011 (effective 1 January 2013)

·; IFRIC 20, 'Stripping costs in the production phase of a surface mine' (effective 1 January 2013)

·; IFRS 13, 'Fair value measurement' (effective 1 January 2013)

·; IFRS 10, 'Consolidated financial statements' (effective 1 January 2014)

·; IFRS 11, 'Joint arrangements' (effective 1 January 2014)

·; IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2014)

·; Amendment to IAS 32, 'Financial instruments: Presentation', on asset and liability offsetting (effective 1 January 2014)

·; IAS 27 (revised 2011), 'Separate financial statements' (1 January 2014)

·; IAS 28 (revised 2011), 'Associates and joint ventures' (effective 1 January 2014)

·; IFRS 9, 'Financial instruments' (effective 1 January 2015)

Intangible assets

Intangible assets are stated at cost net of accumulated amortisation. The Group's policy is to write off the difference between the cost of intangible assets systematically over their estimated useful life. Amortisation of intangible assets is recorded under 'Depreciation and impairment of property plant and equipment and amortisation of intangible assets' in the Consolidated Statement of Comprehensive Income.

Acquired computer software licences and patents are capitalised on the basis of the costs incurred to purchase and bring into use the software.

The capitalised costs are written down using the straight‑line method over the expected economic life of the patents and licenses (five years) or the software under development (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 Consolidated Statement of Comprehensive Income.

Internal development expenditure is charged to the Consolidated Statement of Comprehensive Income in the year in which it is incurred unless it meets the recognition criteria of IAS38 '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 Consolidated Statement of Comprehensive Income as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.

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 is stated at acquisition or construction cost, net of depreciation and 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 machinery and up to 15 years for other furniture and equipment. No depreciation is provided on freehold land. Property, plant and equipment are reviewed for impairment at each balance sheet date or upon indication 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 Consolidated Statement of Comprehensive Income.

Impairment

The carrying amount of the Group's non-financial assets, other than inventories and deferred tax assets, is 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. The asset is subsequently reviewed for possible reversal of the impairment at each reporting date.

The total amount of such impairments, included in the Statement of Comprehensive Income for this year is an impairment charge of €82.6 million (2011: €27.9m).

Leased assets

Leases are categorised as per the requirements of IAS17. Where risks and rewards are transferred to the lessee, the lease is classified as a finance lease. All other leases are classed as operating leases.

Rentals under operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term. Lease incentives are spread over the total period of the lease.

The obligations from operating lease contracts are disclosed among financial obligations.

For the reporting year, 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 Consolidated Statement of Comprehensive Income. Subsequent measurement depends on the designation of the instrument, as follows:

Amortised cost

·; short-term borrowing, overdrafts, and long‑term loans are held at amortised cost; and

·; accounts payable which are not interest bearing 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 receivable 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 profit or loss net of any advance payment held by the group where a right of offset exists; 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 profit or loss on the accruals basis, using the effective interest method.

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 is expensed as incurred and therefore not included. Net realisable value is determined as estimated selling price for silicon wafers or polysilicon less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Contingent liabilities

Provisions are made for contingent liabilities 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, where material, the contingent liability will be disclosed in a note.

Current and deferred 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 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. 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 Consolidated Statement of Comprehensive Income, 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 received both investment subsidies and investment grants. Government grants and subsidies relating to capital expenditure were credited to the "Deferred grants and subsidies" account and released to the Consolidated Statement of Comprehensive Income by equal annual instalments over the expected useful lives of the relevant assets under 'Other income'.

Government grants of a revenue nature, mainly for research and development purposes, were credited to the Consolidated Statement of Comprehensive Income in the same year as the related expenditure.

In relation to the impairment of the Bitterfeld plant and wafering facility in Erfurt, grants and subsidies have been released in the same ratio. Furthermore, based on the assumption that the agreed number of employees will not be employed by the end of 2013, management expect that a significant portion of the received grants and subsidies will require to be paid back, the cost of so doing has been accrued. Only a part of the repayable grants and subsidies have been released already in previous years. This portion has to be derecognised and is presented in note 5.

All required conditions of these grants have been met and it is the Group's intention they 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, discounted to present value. The resulting charge upon the discounting being unwound is recorded as a finance cost.

Accruals

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

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

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 products have been received by the customer unless shipping terms dictate any different. Revenues exclude intra-group 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.

Finance income and costs

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 Consolidated statement of Comprehensive Income as it accrues, using the effective interest method.

Exceptional items

Exceptional items are those items that in the Directors' view are required to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance.

Due to the current volatility in the PV industry and any (previously) unusual charges being in keeping with those of other similar companies, the Directors' believe that separate disclosure would not therefore be beneficial.

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 Consolidated Statement of Comprehensive Income 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 incurred.

Employee benefit trust

All assets and liabilities of the Employee Benefit Trust ("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 and other long‑term assets

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

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.

Share‑based payments

The Group has applied the requirements of IFRS2 (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 using an appropriate option pricing model and are expensed over the vesting year, based on the Group's estimate of the number of shares that will eventually vest. 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. During 2011 awards were granted under the Performance Share Plan 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.

Charges made to the Consolidated Statement of Comprehensive Income 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 EBT that are held in Trust for the benefit of employees;

·; share‑based payment reserve is the amount charged to the Consolidated Statement of Comprehensive Income 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; and

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

2. Other income

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.

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

4. Personnel expenses

Included within pension costs are €179k (2011 €nil) relating to actuarial losses on defined benefit pension obligations.

Employees

The Group employed a monthly average of 311 employees during the year ended 31 December 2012 (2011: 385).

The Group employed 299 employees at 31 December 2012 (31 December 2011: 361).

The remuneration of the Board of Directors, including appropriations to pension accruals, is shown in the Directors' Remuneration Report.

5. Other expenses

Included within external professional services, within other expenses, are the following amounts which were paid to the Group's auditors:

Other assurance services relate to the provision of comfort letters regarding the Group's creditors.

6. Finance income and costs

Finance income and costs are derived/incurred on financial assets/liabilities and recognised under the effective interest method.

The resulting charge upon unwinding the discount charge on provisions is recorded as a finance cost.

7. Income taxes

The total tax rate for the German companies is 31.575 % (2011: 30.5%) in Erfurt and 29.125% (2011: 28.4%) in Bitterfeld. The effective total tax rate in the United Kingdom was 24.5% (2011: 26.5%) and the total tax rate in Japan was 39.91 % (2011: 42.1%). These rates are based on the legal regulations applicable or adopted at the balance sheet date.

The standard rate of corporation tax in the United Kingdom changed from 26% to 24% with effect from 1 April 2012. Accordingly, profits in the United Kingdom were taxed at an effective rate of 24.5%. Legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013 was included in the Finance Act 2012, substantively enacted on 3 July 2012, and consequently deferred tax balances have been remeasured. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. These further rate reductions had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. The impact of these further changes is not expected to be material.

The German rate is increasing for Erfurt, to 32.275% in 2013. The Bitterfeld and Japanese rates will be unchanged.

The tax on the Group's losses before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the losses of the consolidated entities as follows:

8. Segment reporting

The chief operating decision-maker, who is responsible for allocating resources and assessing performance, has been identified as the executive board. The group is organised around the production and supply of one product, multicrystalline silicon wafers. Accordingly, the board reviews the performance of the group as a whole and there is only one operating segment. Disclosure of reportable segments under IFRS8 is therefore not made.

Geographical information 2012

* 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. 17,049 (Japan); and

2. 13,178 (China).

Geographical information 2011

* 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. 64,962 (China);and

2. 43,305 (Japan).

9. Loss per share

Net loss per share is computed by dividing the net loss for the year attributable to ordinary shareholders by the weighted average number of Ordinary shares outstanding during the year.

Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of Ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options.

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

For the year ended 31 December 2012, there were no differences in the weighted-average number of Ordinary shares used for basic and diluted net loss per Ordinary Share as the effect of all potentially dilutive Ordinary Shares outstanding was anti-dilutive. As at 31 December 2012, there were 3,482,022 share options outstanding that could potentially have a dilutive impact in the future but were anti-dilutive in 2012.

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. Trade accounts receivable

All receivables have short‑term maturity. During the year, receivables of €771,648 (2011: NIL) were written off.

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:

These amounts represent the Group's maximum exposure to credit risk at the year end. No doubtful debt allowance is deemed necessary.

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 Consolidated Statement of Comprehensive Income in the line 'Cost of materials'.

Inventory writedowns of €41.5m in 2012 are included in cost of materials (2011: €22.9m).

13. Prepaid expenses and other assets

Prepaid expenses primarily comprise polysilicon feedstock deposits.

14. Current tax assets

Income tax recoverable relates to tax paid on prior year profits that is expected to be recovered against current year losses.

15. Intangible assets

16. Property, plant and equipment

Assets under construction relate to future plant and machinery. Capital commitments at 31 December 2012 relating to this amounted to €0.1m (2011 €1.5m)

Assets under construction related to future plant and machinery. Capital commitments at 31 December 2011 relating to this amounted to €1.5 million.

Impairment

On 31 December 2012 the Group had invested approximately €100 million in its polysilicon plant at Bitterfeld and had received grants in respect of this investment of €23 million. Over investment (mainly in China) in the photovoltaic industry has led to huge overcapacity. This overcapacity has caused large falls in the pricing across the PV value-chain in all areas including polysilicon. Taking into account the current pricing of Tier 1 polysilicon and the inability of the Bitterfeld plant to compete at anything close to these prices, executive management has made the decision to discontinue the plant. Therefore, an impairment test on the investment at Bitterfeld has been carried out. The recoverable value of the Bitterfeld plant on a discontinued basis has been derived from an estimate of the scrap/resale value of the constituent parts of the plant. Accordingly, the remaining value of the plant has been written-off in the year and the investment in the Bitterfeld is now fully impaired.

17. Other long‑term assets

18. Deferred taxes

Deferred taxes are calculated at the local rates in accordance with IAS12 'Income Taxes'.

Analysis of deferred tax assets and liabilities:

Deferred tax assets arising as a result of losses are recognised where, based on the Group's budget, they are expected to be realised in the foreseeable future.

As at 31 December 2012 there were unrecognised potential deferred tax assets in respect of losses of €50.6 m (2011: €11.4m).

The gross movement on the deferred income tax account is as follows:

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

No provision has been made for taxation that would arise in the event of foreign subsidiaries distributing their reserves as management are able to control the timing of such distributions. The aggregate unrecognised deferred tax liability in respect of such unremitted earnings is €943,156 (2011: €2,565,495). 

19. Loans payable

All current loans are in Japanese Yen.

Security for the loan with Barclays Bank was provided by Sterling cash cover. This facility is no longer required and was not renewed.

The loans from Mizuho Bank and Bank of Tokyo Mitsubishi UFJ are no longer required and were not renewed.

Security/comfort for the SMBC loans is provided by the Japanese accounts receivable, details of which can be found in note 11. This facilitiy has been reduced upon renewal in line with the lower receivables.

20. Trade accounts payable

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

21. Accrued expenses

22. Provisions

Movement in provisions is shown below:

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

Restructuring cost provision is for the costs of the announced Group restructure.

The onerous contract provision is an allowance for the loss arising on the difference between raw material costs under these contracts and the anticipated selling price of the Group's end product. This is discussed further in note 1. This provision will unwind over the length of the contracts, between one and three years.

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 the 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 breach 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 planned reduction in headcount for 2013 has triggered repayment of certain grants, which are now presented as accruals (see note 21).

The deferred grants and subsidies in the year under review consist of the following:

24. Current tax liabilities

Current 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

26. Deferred revenue

Where appropriate 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 2012, such deposits amounted to €3.3 million from one customer (2011: €18.1 million from three customers).

27. Pension surplus/benefit

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 scheme is not significant to the Group.

28. Share capital

At 31 December 2012, 10,834,000 shares were held by the EBT (2011: 10,834,000). The market value of these shares was €1,524k (2011: €566k).

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 to their 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 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.

The Group currently has three share incentive plans in operation which are satisfied by grants from the EBT.

PV Crystalox Solar PLC Performance Share Plan (PSP)

This plan was approved by shareholders at the 2011 AGM under which awards are made to employees, including executive directors, consisting of a conditional right to receive shares in the Company. The awards will normally vest after the end of a three year performance period, to the extent that performance conditions are met.

No awards were made during 2012.

On 26 May 2011 awards over up to 3,038,454 ordinary shares were granted to key senior employees including the three executive directors. These awards are subject to achieving growth in both total shareholder return and earnings per share in the performance period ending on 31 December 2013.

PV Crystalox Solar PLC Executive Directors Deferred Share Plan

At the AGM on 28 May 2009 a bonus plan (with deferred share element) for executive directors was approved by the Company's shareholders in the context of bringing the arrangements more in line with market practice and aligning executive directors' pay more closely with the interests of the Company's shareholders. Half of each bonus was to be payable in cash and the other half deferred and payable in shares under the Executive Directors' Deferred Share Plan which vests three years after the award date. Awards of deferred shares under the Executive Directors' Deferred Share Plan are to be satisfied on vesting by the transfer of shares from the existing PV Crystalox Solar PLC Employee Benefit Trust.

No awards were made during 2012. On 24 March 2011 awards over 358,423 shares were made to Executive Directors.

 PV Crystalox Solar PLC Long-Term Incentive Plan

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 PSAs 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.

On 26 February 2008 awards were granted to employees of 500 shares each over a total of 33,000 ordinary shares of 2 pence each. During 2010 awards over 3,000 shares were forfeited by employees leaving the Group and awards over 1,500 shares were exercised by Group employees retiring. During 2011 awards over 1,000 shares were forfeited by employees leaving the Group and on 26 February 2011 the options over the remaining 27,500 shares were exercised.

Market Value Option (MVO)

An 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 an 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. This option is now exercisable at any time until 23 November 2018.

On 26 March 2009 an 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 employees 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. During 2012 awards over 1,000 shares were forfeited by employees leaving the Group. During 2011 awards of 3,500 shares were forfeited by employees leaving the Group and awards over 8,500 shares vested due to employees leaving the Group as good leavers due to redundancy or retirement.

The Group recognised total expenses before tax of €319,000 (2011: €238,000) related to equity-settled share-based payment transactions during the year.

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